If you’ve followed the exciting life of Kickstarter projects like the Pebble E-Paper Smartwatch or the Coolest Cooler, you might think traditional financing is a thing of the past. After all, these projects both raised more than $10 million through Kickstarter’s crowdfunding model with the help of thousands of backers.
Wildly successful campaigns like these are the exception on Kickstarter, where most projects only just reach their modest monetary goal or get completely ignored and buried in the process. Rather than making venture capital irrelevant, this survival-of-the-fittest trend in the crowdfunding model has actually provided a way for venture capitalists to test the potential viability of a product before going all in.
Crowdfunding can be useful even when a company is particularly well-funded. Where else can you find an audience so excited to get the latest and best gadgets that they are happy to help fund your product’s development? Where else can you actually pitch your product idea to your intended audience rather than a CEO of a large corporation?
The symbiotic relationship is not just about safeguarding a venture capitalist’s wallet. It can also help investors find the right kinds of products to fund. According to CB Insights, about 10% of all crowdfunded projects that pass the $100,000 mark get formal venture capital funding after the campaign’s end. And as of mid-2014, more than $300 million has already been committed to these companies, with lots more projected by year’s end.
Products that cannot be explained through a 5 minute Kickstarter video will likely remain solely in the world of venture capitalist funding, at least for now. But for those products that can benefit from both venture capitalists and crowdfunding models, crowdfunding will continue to be a solid source of validation for investors looking to write a check.
