Crowdfunding has been assumed to be a valuable channel for sourcing venture capital deals. Now, here is the proof.
CB Insights, in a pioneering study, found that hardware startups raising more than US$100,000 on Kickstarter or Indiegogo have gone on to collect US$312 million from VCs over the past four years, including from top U.S. venture capital firms such as Khosla Ventures, Sequoia Capital, Spark Capital and Greylock Partners.
Investment activity spiked last year when about two-thirds of the capital was deployed, but could be eclipsed this year. Venture capitalists have done 19 deals in the first seven months of 2014 involving a crowdfunded startup, compared to 23 for all of 2013.
The study is among the first to quantify the link between crowdfunding and early-stage ventures. It concludes that rather than a competitive threat, crowdfunding is a useful channel GPs have only begun to use to its potential.
However, the odds of raising capital are not high. Only 9.5 percent of the 443 hardware companies CB Insights examined found VC funding.
By far the largest deal done was Oculus’ US$91 million financing, but other companies – Misfit Wearables, Formlabs, SmartThings, Pebble, Ouya and Lifx – have come away with substantial capital.
Of note is that Kickstarter seems to be the platform of choice for hardware companies. Thirty-five of the 42 companies raising venture money in the CB Insights study ran crowdfunding campaigns on Kickstarter. Yet, the average round size for both sites is an identical US$8.7 million.
Subscribers of Venture Capital Journal can read past coverage about the crowdfunding trend, including these three articles from earlier this year:
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