Crowdfunding has been the route to a bewildering array of projects that might never have gotten funded otherwise. Not only does it allow for projects that venture capitalists generally avoid, like art projects, but it has brought funding to a number of projects in normally under-invested parts of the country.
A study by researchers at the UC Berkeley has found that Kickstarter and other funding platforms serve a much broader entrepreneurial demographic than traditional venture capital.
Because venture capital and crowdfunding do not completely overlap, the researchers identified 55,005 Kickstarter campaigns “in categories similar to the industries in which venture capitalists invested,” and another 17,493 venture investments “in activities similar to those of Kickstarter campaigns,” between 2009 and 2015. The Kickstarter campaigns generally dealt with smaller amounts of money, but they showed up in many more parts of the country. Venture capital was overwhelmingly focused on Silicon Valley and Boston, about 50 percent, while Kickstarter campaigns could be found throughout the country. This includes places like Los Angeles, Seattle, and Chicago, which don’t get as much venture capital attention as one might think.
Venture capitalists tend to focus their investments in projects by people with similar backgrounds, which can leave many parts of the country without access to much needed capital. While not all projects need the same kind, or levels, of funding, certain projects need large levels that can be hard to find otherwise, and those ideas can come from anywhere, not just Boston or Silicon Valley.
But there is also a growing trend of venture capital following Kickstarter, which is spreading funding out a little more broadly. This is because venture capitalists like to see success stories, giving them confidence to invest in a project. Having successfully run a Kickstarter campaign can do exactly that. Seeing that a company already raised money to fund one project or startup makes them seem like a safer bet, which can draw more investment.
“This effect has gotten consistently stronger over the last six years,” said study senior author Lee Fleming of UC Berkeley. “If this phenomenon continues, crowdfunding could begin to address regional inequality in entrepreneurial financing, through both direct crowdfunding investment and induced venture capital investment.”