Venture capital has long been seen as the go-to funding source for startup companies, fueling disruptive innovation with multi-million dollar investments in companies that have become household names. But now the disrupter is getting disrupted, with crowd-funding models like Kickstarter changing the landscape by allowing entrepreneurs to reach out directly to their audience for funding. To better understand this phenomenon, we sat down with Kevin Coe, an associate professor of Communication at the University of Utah for a Q&A on how Kickstarter is disrupting the startup landscape.
Q: Kickstarter and other crowd-funding sources are obviously very different from venture capital, which has been the traditional funding method for startups. How is Kickstarter different from VC?
A: The main difference between venture capital and Kickstarter is the breadth of the investor base. Whereas the venture capital model often relies on large contributions from a relatively small number of investors, Kickstarter inverts that dynamic by relying on small contributions from much larger number of investors.
Q: What benefits would lead an entrepreneur to choose crowd funding over traditional funding when starting a business?
A: Crowd funding has two key benefits. First, it does not have the entry barriers that traditional funding has. Whereas securing traditional bank funding or venture capital can often be very difficult, trying one’s hand a crowd funding requires little more than internet access and an idea. Second, the public nature of crowd funding builds part of the promotion of the product into its development. That helps crowd funded companies have a preliminary customer base right off the bat.
Q: Is crowd-funding sustainable?
A: It’s as sustainable as most other forms of funding. Like other forms, there is money to be had if the idea is a good one. Though the possibility of fatigue exists — meaning, people might get tired of funding products directly in this fashion — that strikes me as unlikely, given that we’re still quite early in this model and online engagement is only going to grow.
Q: What do you think is the “next big thing” when it comes to startup funding?
A: I’m hesitant to speculate, but time will tell!