Facebook’s acquisition of the Kickstarter-backed virtual reality company Oculus Rift was a high-profile rare instance of a crowdfunded company making a successful exit. But such stories are also rare.
So what should crowdfunding companies consider as they plan their next steps? At the Gigaom Structure Connect conference in San Francisco Tuesday, Rachel Chalmers, principal of early-stage VC firm Ignition Partners, and Kate Drane, Indiegogo’s design, technology and hardware lead, shared their best tips with Gigaom executive editor Tom Krazit.
1. Contributors are customers
Many of Oculus Rift’s Kickstarter backers “felt betrayed” by the Facebook acquisition, Chalmers said.
“You have to be clear with your contributors on what role they’re playing,” Drane said. “Communicate with them…be collaborative.” Indiegogo’s back-end software lets companies see which users drove the most referrals to their campaign. “Ask them how they would like to be rewarded,” Drane said.
The people who crowdfund your campaign “are customers,” Chalmers said. “[They’re] going to judge you on your integrity and your ability to deliver on the promises you’ve made. That’s a different social contract than an institutional investor brings in.”
2. Realize you probably won’t get rich
“When you look at the stats over the lifetime of most entrepreneurs, they end up making a pretty good middle-class living,” Chalmers said. “If people went into it with their eyes open and acknowledged that the Mark Zuckerbergs are very rare…I think they’d make much more human cost-benefit analyses about the kinds of decisions they make.”
3. It’s about social capital
“I have a real allergy to the popular press painting a Series A as an exit or as validation or as graduation from seed stage or angel stage,” Chalmers said. “The truth is, you raise a $5 million series A — the day before you had one problem, you needed funding. The day after, you have 5 million problems and suddenly a whole bunch of new bosses. Series A is the beginning of the journey…
“Exit is a term that means different things to everyone who uses it…People don’t actually exit. It’s very rare for people to leave the industry because the industry is awesome and super fun. The truth is you end up working for 20 years and meeting people over and over. The thing that I think people should be optimizing for is their reputation and their social capital, because that’s what lasts, even in the economic downturn.”
Photo by Jakub Mosur