The simple answer is Yes, as a potential investor or venture capitalist, of course you can review projects listed on rewards-based crowdfunding platforms to determine whether you would want to invest in the actual business.
The project description coupled with some research on external forums would give a potential investor a fair idea of the appeal of the product, the pricing structure, and the economics of the project. The investor would not be able to access the actual financial accounts of the business, unless the project creator is an established business and have published accounts to the regional Companies House.
Additionally, the investor can easily contact the project creator and see if there is an investment opportunity available.
But, there are a number of reasons why this approach initially would not be successful, including:
- the rewards-based platform is not intended to be used to source capital or offering equity/stocks or bonds to investors;
- the project creator may be self-employed or a part-time content creator, and not an established business;
- if a project creator chooses to interact with the investor while the project is live, backers may become discouraged. This is due to the perceived betrayal of the project creator towards the backers;
- the project creator may not be seeking a capital source, but only launching a new product (hence the choice of crowdfunding platform);
- the project creator may not have the financial valuation experience necessary to determine the value of his company.
A good strategy may be a waiting game: wait for the crowdfunding campaign to finish to determine the market share and interest from backers.The project creator should also have the space and time available to deliver the rewards to the backers instead of focusing on the next fundraising campaign. This is critical because if the project creator doesn’t deliver, then the market share the company attracted and the value of the company drops.
An investor could start to build a relationship with the project creator, seeking to understand his funding goals and how many successful rounds of venture capital were secured. Any project creator would be interested in raising more funds and working together with venture capitalists but it is all about timing and managing the transaction and PR.
The issue of investors sourcing investments from companies that crowdfunded was highlighted in the Oculus Rift buy-out from Facebook. Oculus Rift raised 975% of its funding goal via its Kickstarter campaign, and two years from the campaign, was bought out by Facebook. Backers lashed out, claiming that “the money given by me and my fellow Kickstarter backers served as bait for venture capitalists“, namely that the Kickstarter campaign served as a valuation of Oculus Rift for venture capital. It also spurred additional comments that backers would have preferred the option of equity crowdfunding instead of rewards-based crowdfunding. This campaign worked very well for all parties concerned, and it achieved the ideal exit for entrepreneurs of an IT start-up, namely being bought by a large corporate. The very public backlash from backers needs to be carefully managed by Oculus Rift and Facebook going forward.
Ideally, it you are either an investor or a backer seeking equity or debt crowdfunding opportunities, using the appropriate online platforms is the first step. For example, Seedrs or Funding Circle in the UK lists many businesses seeking capital.
If you are tracking a product or idea via a rewards-based platform, first you need to understand the project creator’s goals for his product and company and second, you need to wait for the rewards-based crowdfunding campaign to end (namely when the reward is shipped) to give due consideration to the backers and ensure that the market share isn’t compromised.