Wharton Prof: Kickstarter Backers and VCs Look for Same Signals

Venture Capitalist

Crowdfunders are not an unsophisticated bunch. In fact, they tend to back new projects using the same criteria powerful, old-line venture capitalists use. A new study of Kickstarter campaigns concludes that both crowdfunding backers and VCs look for:

  1. A strong founding team with a track record of success
  2. Endorsements from credible third-parties
  3. Evidence that the team is prepared to capitalize on the opportunity it has found

Professor Ethan Mollick of Wharton, an emerging thought leader in the crowdfunding space, recently published a preliminary draft of “Swept Away by the Crowd? Crowdfunding, Venture Capital, and the Selection of Entrepreneurs“, a follow-up to his introductory study of the dynamics of Kickstarter success from a year ago. This year’s paper asks a number of questions to determine the differences between the Kickstarter funding process and that of VCs. In addition to the headline differences enumerated above, he also found that crowdfunding is less geographically and gender biased. This is great news for people based outside major centers of entrepreneurship (like me) and for female founders (not like me).

Regardless of the targeted source of funding, the take-aways for launching a new product business are the following:

  • In both written and video communications, explicitly tout any previous brand names, work experience, and/or other projects that speak to the team’s competence and ability to deliver. This may include previous employers, side projects, prior Kickstarter campaigns, alma maters, school projects, etc.
  • Build your “tribe” of followers early, before you need to tap into them. Professor Mollick has found a high correlation between a founder’s number of Facebook friends and the success of the project. Master marketer Seth Godin discusses this notion and other Kickstarter-related insights here.
  • Lay the groundwork by building awareness and support among influential third-parties who then vouch for the quality and legitimacy of the project. And be sure to make this support explicit in the pitch deck or on the crowdfunding campaign page.
  • Include a video and evidence of a prototype or other early version of the product. Such items show that you have done your homework and you are much more likely to be aware of the risks and challenges associated with delivering on your promises.

When paving the way for funding success, it’s about a lot more than just producing an innovative, differentiated product. It’s about putting your own best foot forward; building your tribe of followers (i.e., the early-adopter market); gaining the interest and trust of influencers; and doing your homework to show that you can deliver.

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