ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MELISSA BLOCK, HOST:
I'm Melissa Block. Time for All Tech Considered.
And we start today with the evolution of crowdfunding. Kickstarter is the website where average folks pledge investment in scrappy, little startups, 10 or $20 at a time. But these days it's also attracting the attention of big-money venture capitalists looking for the next billion dollar company.
Here's Aarti Shahani.
AARTI SHAHANI, BYLINE: Most of the projects on Kickstarter are quirky, small, artisanal, like the glow in the dark dog collar. But in one small corner of the online bazaar, the projects are about the numbers.
(SOUNDBITE OF A KICKSTARTER VIDEO)
SHAHANI: The company LIFX made a Kickstarter video to sell light bulbs that will blink when you get a text. Founder Phil Bosua says it's nice to create nice things. But...
PHIL BOSUA: When you know that there're customers there, it certainly helps.
SHAHANI: FormLabs hopped online to sell a 3D printer and prove that designers, as a class, want one.
(SOUNDBITE OF A KICKSTARTER VIDEO)
SHAHANI: FormLabs marketing director Sam Jacoby says online sales are a way to show you've got customers.
: Who's going to buy your product? How are you going to make money? Who's interested? When you start your company with something like Kickstarter, that question is put on its head.
SHAHANI: And the real money rolls in. after raising over a million dollars online, LIFX made a killing with professional investors.
BOSUA: Two point one million dollars, just after Kickstarter. And then about eight to nine months later, we raised another $2.5 million.
SHAHANI: Not bad but FormLabs did even better.
: Close to $20 million, in series a financing.
SHAHANI: As Kickstarter grows up, its language is changing from backers and creators to customers and startups, pre-orders and mass adoption.
BRAD FELD: You subscribe to the campaign. Generally most of them will reach out right away, especially when they realize that I'm an investor.
SHAHANI: Venture capitalist Brad Feld is with the Foundry Group, and he reads off a long list of Kickstarters that he's supported.
FELD: Twine, Ninja Blocks, Pebble, NeuroDreamer...
SHAHANI: Feld and other venture capitalists visit the site weekly. They're looking for hardware, the physical stuff that can cost a lot of money to build. When they see that something is selling, they put in, say, a hundred bucks, like dangling a little bait.
And so begins the much longer process of closed-door negotiations that could lead to them taking an ownership stake in the startup. This created a bit of uproar recently. A hardware project called Oculus VR was an online hit. Venture capitalists swooped in, then the company got bought for $2 billion by Facebook. So while crowdfunding backers got some 3D game goggles that are a bit obsolete, venture capitalists like Nabeel Hyatt, with Spark Capital, cashed in.
NABEEL HYATT: We made a very healthy return that we really don't like, we just don't, we don't publicly disclose it.
JOEL JOHNSON: The implication was never there that I was going to be providing a seed round for a company that would eventually sell for billions of dollars.
SHAHANI: Joel Johnson is a crowdfunding backer who's angry. He says this new venture capital activity is changing crowdfunding. Kickstarter was supposed to be an alternative to the marketplace. Now it's becoming the marketplace with traditional companies.
JOHNSON: Now they can just use Kickstarter as a pre-sale mechanism to test their idea before they ever have to spend a dime of their own money.
SHAHANI: In 2012, Kickstarter issued a strongly worded statement. Quote, "Kickstarter is not a store" and "no one should feel otherwise." Today, founder Yancey Strickler is striking a different tone. I called to ask him: What is the difference between a customer and a backer?
YANCEY STRICKLER: Well, I think in some ways that difference is up to the creator.
SHAHANI: Though there is one stark difference: Customers often buy products from total strangers. In crowdfunding, backers interact directly with the maker.
STRICKLER: And by virtue of that, a backer has I think more of an emotional relationship than a customer does.
SHAHANI: And venture capitalists agree. Kickstarter has helped create an emotional bond that can serve many interests.
For NPR News, I'm Aarti Shahani in San Francisco.
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