Crowd Funding is more than fundraising : Also A Method For Proving Marketability To Investors

posted Feb 21, 2013, 8:54 PM by David Khorram   [ updated Feb 21, 2013, 9:02 PM ]
Crowd Funding is more than fundraising  : Also A Method For Proving Marketability To Investors

As crowdfunding sites like Kickstarter continue to be a rising trend in content production, there's an important lesson that both successful and failed attempts can teach us all. That lesson is that the turnout for such a project tells the producer everything they need to know about the combination of the saleability of their project and their ability to properly market it. In fact, Mark Cuban recently came out in strong support of crowd funding, going so far as to suggest that every startup should be required to do a Kickstarter campaign.
"It's a way for you create demand and sell the product without giving up any equity. That is a compliment to what an investor might do. In terms of PE (price to equity), there are strategic investors and then there's just money. I'm not a big fan of money investors, which is what most angel investors turn out to be, because they just want their money back. I try to be very strategic, I try to add value, or I don't make the investment."
It's a great way to look at things, but I wonder if we can take it a step further. There is no reason that a Kickstarter project cannot also woo more traditional investors. This is all the more so if the Kickstarter campaign takes off like a rocket. Why wouldn't an investor want to back a project that has shown it is both in-demand and managed by competent business folks? Serving as one example of the ability to do this, not to mention the leverage such an approach provides content creators, is Chris Roberts, developer of the Star Citizen game, which was wildly popular on Kickstarter.
“We’re still doing an investment,” Roberts explained to RPS, “but I’m going to be a bit more picky in choosing it, and I’m getting to dictate the terms better. I’m saying, ‘You guys have to realize about making the game as good as possible. No forcing us to go public or to sell out.’”
Far from well-known conditions of corporate or investor interests forcing an early release of a game, or nixing important but difficult to create aspects of one (ahem, Mass Effect 3), this diversification of backing dollars protects the creator and his or her vision for their creation. There are still going to be stipulations under which an investor may hand over their cash, but the control over the creator is mitigated by the other sources of funds. 

Beyond that, Chris explains how crowd funding can be a great proving ground to current or new investors.
"It’s actually funny. Everyone I lined up is basically over the moon. Your big risk as an investor is, “I’m backing this thing. Does anyone really want it?” At this point there’s no question that people want it, and maybe a lot more than anyone was expecting."
What does this mean in practical terms? Well, far from the the caution some issue that crowd-funded projects will naturally be lower-budget cousins to their corporate largers, being able to attract money from multiple sources, including a wider internet public, could make for hugebudgets in games, films, and music. I would suggest the creators heed Mark Cuban's words: crowdfund, both for the money you can generate for your product, but also to prove to traditional investors that you're going to be successful.

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