Most entrepreneurs go to Kickstarter Inc. seeking money to turn an idea into a viable product. Already flush with cash, Alex Gizis looked to the crowd-funding site in search of enthusiastic testers.
Gizis’ technology startup, Connectify Inc., raised capital in 2011 from a strategic investor to develop technology that improves wireless-Web connections. Gizis then needed to figure out whether anyone would buy a product that he had based on the breakthrough. That’s where crowd funding came in.
“We said, ‘If we can get $50,000 based on videos and nobody even trying the software, we’ll know there is a market of untapped demand,’ ” Gizis said.
Kickstarter and peers such as Indiegogo Inc. are breaking new ground. For a half decade, these crowd-funding sites have helped aspiring filmmakers, comic-book creators and Web entrepreneurs in need of a few thousand bucks get an inaugural product rolling. Now, cash-rich, venture-backed startups are using the sites to find users and reviewers of their technology – instead of having to tap the networks of their friends, cousins and friends’ cousins.
It’s a twist on what has become an increasingly popular way to raise money for new ideas. Some 4.7 million people have pledged more than $760 million to 47,000 Kickstarter projects in the past four years, according to its website. The giving has gathered steam in the past year as crowd funding becomes more mainstream and well-known.
Indiegogo, which was started in 2008 to fund independent films, now distributes millions of dollars a week around the world. Through crowd-funding sites, users pledge small amounts to a project, and get an early version of the product -- in contrast to venture capitalists, who typically dole out much-larger sums to grab ownership stakes and often board seats.
The model benefits venture investors too, letting them deploy smaller amounts to fund company operations with the crowd paying for product development and initial manufacturing. That means less wasted money on failed iterations, said Scott Jacobson, a managing director at Seattle-based Madrona Venture Group.