By Liz Kulik
A recently published study by Wharton professor Ethan Mollick makes two thought-provoking conclusions. Following a detailed study of 2,100 crowdfunding campaigns, Professor Mollick found that VC firms and crowdfunding backers evaluate entrepreneurial competence in much the same way, and crowdfunding democratizes the traditional geographic and gender bias associated with VC clusters.
The study’s findings are a major coup for the crowdfunding industry, which has steadfastly withstood criticism about the possibility of fraudulent campaigns and “unsophisticated” unaccredited investors. The additional confirmation of crowdfunding as a geographic and gender agnostic source of capital establishes the undeniable relevance of crowdfunding as a capitalization strategy with multiple benefits for startup, small and midsized businesses across the U.S.
With 2013 on track to be the breakout year for crowdfunding, many prominent projects have seen extraordinary campaigning results —the Veronica Mars movie, the Pebble Watch and others have fundraised millions beyond their original goals because they inspired the crowd with their proposal, products and plans. For other enterprises, crowdfunding was a first step in the capital ladder to traditional debt and equity. Ouya raised $8 million in a reward campaign that essentially sold the company’s beta to closing a $15 million round from Kleiner Perkins. Thousands of startup, small and midsized enterprises have raised the funds they need to fuel their businesses with a first campaign and created loyal funding communities of brand ambassadors who have contributed to their ongoing crowdfunding campaigns.
Consider the power in approaching equity or lending sources following a donation/reward campaign that proves concept, customers and revenue without sacrificing ownership. By starting today with a rewards campaign, entrepreneurs can create a loyal funding community whose continuing participation will compress any next crowdfunding or traditional capital round for months or years.
But crowdfunding is not for the faint of heart. If you build it, they will not (necessarily) come–it takes work to prepare your business, design a campaign, build an early community of backers and advocates, promote social engagement, fulfill rewards and use funding as promised. Crowdfunding today with an exciting rewards campaign is an innovative means of acquiring capital, expertise, customers and brand ambassadors to fuel enterprise growth and value for future debt or equity.
In my next post, I’ll share useful tips on how to make the best decisions for creating a crowdfunding strategy.
Liz Kulik is founder and CEO of ProHatch, a crowdfunding platform for business, philanthropy and personal projects.