There's something to be said about the guerrilla-style fundraising efforts taking place on crowdfunding sites for the startups that seek to later knock on the doors of venture capital firms for later-stage funding.
New research from a venture capitalist, along with another report released this week from New York-based CB Insights, show venture capital to crowdfunded hardware companies on pace for growth this year following 2013's record-setting levels. It's proof that sites such as Kickstarter and Indiegogo can actually serve as a complement to venture capital firms, CB Insights concluded.
"Many once thought that the crowdfunding model of financing would supplant VC financing for a number of less ostensibly scalable companies," CB Insights CEO and Co-Founder Anand Sanwal told CRN. "But as the data shows, VCs are seeing promise in a number of crowdfunded hardware projects that they believe can be successful companies on a venture level."
Crowdfunded startups receiving venture funding last year totaled 23 deals that amounted to $200 million. The bulk of that investment total went to Irvine, Calif.-based Oculus VR, which received a $75 million Series B infusion in December from Andreessen Horowitz, Spark Capital, Matrix Partners and Formation 8. Oculus, which got its start raising $2.4 million on Kickstarter, went on to be sold to Facebook in March for $2 billion.
Of course, not every Kickstarter project goes on to nab the kind of venture funding Oculus did, but the deal shows how crowdfunding sites can serve as a tool for venture capital firms.
"The rise of crowdfunding platforms is another hit to the idea of proprietary deal flow for VCs," Sanwal said. "What this means is that any VC can see, source deals and invest in successful crowdfunded projects. Oculus' $2 billion acquisition by Facebook helps prove that there are potential unicorn-sized exits to be found in hardware and those able to show initial traction on crowdfunding projects for VCs."
Companies able to successfully raise money on a Kickstarter or Indiegogo platform tend to look more attractive to venture capital firms, according to Matthew Witheiler, general partner at Flybridge Capital Partners.
"Startups who are able to validate customer interest in a meaningful way have a much easier time getting investors' attention," Witheiler told CRN.
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