When Facebook acquired Oculus earlier this week, the virtual reality outfit walked away with $2 billion in cash, stock, and potential bonuses. But Facebook also bestowed a huge gift on Kickstarter, the crowd-funding platform that enabled Oculus in the first place. The $2-billion acquisition lent big-money credibility to Kickstarter and the many projects it helps incubate.
The Facebook deal will put the afterburners on Kickstarter, investors and entrepreneurs say, igniting a financial engine that formerly powered only the most adventurous technologists. It’s the clearest sign yet that Kickstarter has moved beyond hobbyists and is now being deeply integrated into the pipeline that funds Silicon Valley’s most prestigious startups. “Anytime something like this happens, it will draw more attention to the source,” says Matt Murphy, a general partner with the big-name investment firm Kleiner Perkins Caufield & Byers.
Facebook’s acquisition means Kickstarter can now attract a whole new class of creator and garner attention from a wider range of venture capitalists than the maverick investors who put money into Oculus. That could help level the playing field in tech finance, filtering prospective investments through a more rigorous and democratic vetting process than typically occurs in the conference rooms of Sand Hill Road, the Valley’s traditional investment corridor.
“This creates a broader funnel for possible ideas,” says Bubba Murarka, a partner at the venture capital shop Draper Fisher Jurvetson. “You’ll have either bigger impact per idea that gets to the end of the funnel or more ideas that get through the funnel.”
To be sure, Kickstarter has long been on the radar of the venture capital community. Oculus wasn’t even the biggest Kickstarter project. The Pebble e-watch drew $10 million in donations, and the OUYA game console another $8.6 million. Venture capitalists looked at the platform as a way to gauge consumer demand for certain products, particularly high-risk consumer electronics products. But before the Oculus, there was no out-of-the-ballpark financial success. The Pebble was beset by delays and mixed reviews, while Ouya game sales have been disappointing. And neither has sold for $2 billion.
Hardware to the Fore
The Facebook deal provides particular validation for the way Kickstarter has revived hardware startups. “Together with the Nest, it shows that exits can happen for young hardware companies too,” says Gadi Amit, founder of San Francisco’s NewDealDesign. “That’s more than a hint for VCs — after all Oculus started without money from Sand Hill Road.”
Dave McClure, of the seed fund 500 Startups, agrees. THe kind of hardware companies that come out of Kickstarter weren’t getting enough respect among venture capitalists, he says. Now it’s clear they are “sexy, even for software companies like Facebook, Twitter, or others.” McClure expects companies like Google, Apple, and Amazon will start chasing these startups as well, driving prices up even further.
But Facebook’s validation of Kickstarter isn’t just financial. It’s also spiritual. Facebook CEO Mark Zuckerberg approaches Oculus with the same fanboy fervor as the 9,522 Kickstarter backers who collectively donated $2.4 million to get Oculus off the ground. But instead of a few hundred bucks, Zuckerberg put in $400 million cash, 23 million Facebook shares, and $300 million in performance incentives.
This week, Zuckerberg spoke of Oculus’ high-resolution stereoscopic goggles in almost religious terms, saying they’ll change communications, entertainment, education — you name it. “Imagine sharing not just moments with your friends online, but entire experiences and adventures,” Zuckerberg said. “Oculus has the potential to be the most social platform ever.” That may sound over the top, but it’s music to the ears of people across Silicon Valley who are looking to bootstrap new companies.
Tarikh Korula, whose last startup made set-top boxes like the Ybox and Pixelmusic 3000, says we shouldn’t be surprised if venture capitalists follow Zuckerberg’s lead. Korula’s startup shunned outside investment during its seven-year run. But he sees things changing and might do things different today. “In my experience, VCs don’t lead innovation. Hackers do,” he says. “I’ve always felt that had Kickstarter existed for the Ybox and our other ideas that we would have been able to make a business out of the hardware thing.”
This article originally misstated the capitalization strategy for Tarikh Korula’s startup and has been revised to reflect that the startup was bootstrapped. March 27, 2014, 7:20 PM ET