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How VC's, Angels and Kickstarter Can Get Along

When I was first introduced to Kickstarter (www.kickstarter.com),  I was thinking that this type of funding would preclude VC's and Angels from being involved because of the nature of capital being raised.  Kickstarter projects are donations and not investments in the company.  There are rewards for your donation, but they are usually very small in comparison to your donation.

The way I see Kickstarter is that it is a good system for building jobs.  Even if it is temporary employment for 3-12 months, it is indeed a good donation to make.  How often do you make a donation to food banks, shelters, etc. only to have that money be used for 1 meal or something that doesn't last?  But as an old Chinese proverb goes "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."

Kickstarter projects are usually funded by the donation of crowds, hence the term Crowdfunding.  You would think that this cuts out VC's and Angel investors as they can't really make an investment into the idea unless the parties pull their idea after an Angel or VC expresses interest. But the new JOBS act does change that a little starting in 2013 with the ability to "make and investment" instead of "make a donation".  There are plenty of hoops to jump through and it may not work as the projects on Kickstarter are usually composed of 1-5 team members.

I have recently gained a lot of respect for John Lilly the founder Mozilla and now partner at Greylock Partners http://www.greylock.com/teams/14-john-lilly as I tweeted him about his thoughts on the whole Kickstarter idea and how VCs (Venture Capitalists) and Angels were shut out of the system.  To use VC speak,  Kickstarter is an extremely "disruptive" technology, but not to the benefit of the venture community!  Or so I thought.  He replied back very shortly saying he actually personally contributed to some projects on Kickstarter.  This gave me an idea and I wanted to make sure I credited him for it.

Some VCs and Angels are all about control.  Some are partners and will work with entrepreneurs and not try and control them.  I've talked with a couple of startup CEO's who work with Greylock and said they are great partners.  I am not trying to endorse them specifically, but they seem to be one of the good ones.  The ones that are about control probably won't be able to reap any benefits of Crowdfunding.

Now Kickstarter came along and now the entrepreneurs are in control of their project and company and really don't have to give up control to the venture community.  You would think that this completely cuts out the venture community.  But it doesn't have to.  If Angels and/or VCs started a fund that donated to Kickstarter or other Crowdfunding communities they would be creating short therm jobs thereby simulating the economy. Not only that they would be betting on small businesses that might succeed and may need additional funding to scale their operation once successful!  I'm sure the entrepreneurs would be very grateful and work with the venture community when needed.

Now do I think any VC or Angel would do such a thing?  I think it depends on their mindset and investment strategy.  Some VCs and Angels invest in incubators and Kickstarter is an online incubator, but no equity is given.  Can the venture community bring themselves to change their business models?  That is yet to be seen, but this could be a very lucrative way for Angels and VCs to not only support small business ventures, but to also find new innovations that can build into much larger and scalable businesses.

I also wanted to give a quick plug for my project on Kickstarter (http://kck.st/IhTOfg).  Please take a look and make a donation if you can.  It will create 4-5 jobs for at least 6 months and when successful should be able to create 100's of jobs in the Social Media space.

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