Once dependent on venture capital and small business loans, entrepreneurs are increasingly turning to crowdfunding sites like Indiegogo and Kickstarter for some extra financing from the masses. Now more than $2 million is raised through crowdfunding each day, according to the Crowdfunding Centre.
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Some of these startup concepts are turning into formidable business plans, resulting in significant acquisitions, including Oculus Rift’s 3D glasses, which sold to Facebook (NASDAQ:FB) for $2 billion after appearing on Kickstarter. And now some venture capitalists are looking at crowdfunding sites for business ideas.
Slava Rubin, CEO of Indiegogo said VCs increasingly view crowdfunding as a way to assess investment risk. The entrepreneurs are able to demonstrate demand for their product, by “showing who would buy it, what price point they will buy at, what channels they would market it through.”
Rubin notes that a slew of projects that appeared on Indiegogo went on to receive venture funding. The Kinsa smart thermometer recently raised a $9.6 million Series A round from Kleiner Perkins and Misfit Wearables wound up raising an additional $40 million after using the crowdfunding site to gain traction for its fitness technology. Lift Labs was sold to Google (NASDAQ:GOOGL) after highlighting its smart utensils on Indiegogo.
But unlike venture capitalists, crowdfunders do not currently receive equity in their investments on Indiegogo or Kickstarter. A change in regulation stemming from the JOBS Act is expected to take effect soon, making it so ordinary investors can get a company stake.
“Equity crowdfunding could be really interesting,” Rubin said. “It will allow a whole new wave of funders to come in.”
Indiegogo was founded in 2008 and has raised $56.5 million from Kleiner Perkins, Insight Venture Partners, Khosla Ventures, Richard Branson and others. The site has hosted over 275,000 campaigns in 224 countries.