Crowdfunding’s Place On The Capital Ladder
Often times crowdfunding in the United States is discussed as a dichotomy. On one hand you have the brand of crowdfunding that takes place now, the donation- and rewards-based models that fuel sites like Kickstarter, Indiegogo and countless others. On the other hand you have lending- and equity-based models, some of which are legal today and some that are still on the horizon.
I had a chance to sit down with the founders of crowdfunding platform ProHatch. It was the first time I had talked to them since discussing their unique approach to crowdfunding transparencya few months back. Among the topics discussed, ProHatch CEO Elizabeth Kulik raised a point about the interaction between the two styles of crowdfunding and how they will (and are in some cases) being combined to form a new, comprehensive “capital ladder” that helps take companies from ideation to market and beyond in new and exciting ways.
“Crowdfinance adds a powerful new rung to traditional debt and equity capital ladders,” Kulik said. “Deploying a reward campaign today will build enterprise value and reduce risk in preparation of further traditional or crowdfinanced equity & debt rounds, or going public with the JOBS Act IPO On Ramp.”
As a consumer good especially, the market validation (good or bad) that comes with a rewards-based crowdfunding campaign makes a lot of sense. Consider Ouya, a company that was validated by said market to the tune of almost $8.6 million and more than 60,000 preordered units. Not too bad. Fast forward 9 months and Kleiner Perkins has now led an additional $15 million round.
Another example is Pebble, who likely crowdfunded “years of burn” during their Kickstarter campaign as Kulik points out. It still stands as the most successful Kickstarter campaign ever at a total of over $10 million in funding.
Kulik proposed, for example, that Pebble may have positioned themselves perfectly for a round of debt as they should possess the firepower to pay the loan back. Again, they achieved huge market validation during their rewards-based campaign, built a customer base and curated a large funding community. It would later be announced that Charles River Ventures had led a $15 million equity round in Pebble.
The point is that while companies like Ouya and Pebble may be met with apprehension from VCs and angels early on, they come out of big rewards-based campaigns and are met with a much different reaction. They emerge with options. Rewards-based crowdfunding isn’t just for pre-sales and tchotchkes. For these two companies, crowdfunding put the proverbial ball squarely in their respective courts.
Kulik doesn’t think investment crowdfunding should be discussed on an island. She believes donation & reward crowdfunding models will play just as important a role in strategic capital formation, and that belief has shaped ProHatch’s direction going forward. They plan on offering all four types of crowdfunding eventually, believing companies will pick and choose the crowdfunding models that make sense for them while stacking funding rounds in a comprehensive capital strategy.
As traditional finance wises up to these increasingly popular forms of funding enterprises, projects and ideas, expect crowdfunding to legitimize itself in the larger funding narrative. For a select number of these companies, an early reward-based campaign may only be the beginning.
SOURCE: Crowdfund Insider