Monday, October 19, 2015

Should Venture Capitalists Be Skimming Crowdfunders?

My co-blogger Haskell Murray had an interesting post on Friday about the use of crowdfunding as a strategy to attract venture capital. He points out that many companies that had successful crowdfunding campaigns on Kickstarter or Indiegogo subsequently raised venture capital. He argues that a successful crowdfunding campaign might be a signal to venture capitalists.

If you haven’t read Haskell’s post yet, it’s well worth reading. I want to take the discussion in a slightly different direction.

I don’t think venture capitalists should be waiting to see if a company has a successful crowdfunding campaign. I think they should use crowdfunding listings as leads and try to preemptively capture those companies before they complete their crowdfunding campaigns—convince the good companies to forego crowdfunding and go the venture capital route instead.

If I were a wealthy venture capitalist, I would have someone skimming through all of the crowdfunding sites, including the equity crowdfunding sites, looking for potential investments. The venture capital business is extremely competitive. Getting to the good companies before they have a successful raise is one way to one-up the competition. Once a company has shown crowdfunding success, others will want a piece.

Many of the companies doing crowdfunding will not interest venture capitalists. But it only takes a few hidden gems to make the weeding process worthwhile. And most of the weeding out could be done quite easily by inexpensive, low-level staff. Even I could spot most of the obvious losers.

I have suggested this strategy at a couple of conferences where venture capitalists were present. It will be interesting to see if any of them try it. (For some reason, professional venture capitalists don't seem all that interested in my investment advice.)

As for me, I’ll file this in my “What I would do if I had a ton of money” folder. (It’s a very full folder.)

C. Steven Bradford, Crowdfunding, Financial Markets, Private Equity | Permalink


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