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Mark Cuban Says Crowdfunding Should Be Required for All Startups
© Image: Flickr.com / Steven Rosenbaum
editorial

Mark Cuban Says Crowdfunding Should Be Required for All Startups

Mark Cuban is a successful businessman and investor, owner of the Dallas Mavericks, a judge on the popular TV show Shark Tank, and a… crowdfunding enthusiast?

It certainly seems that way after listening to today's NextMarket podcast, in which Cuban tells host Michael Wolf that “Kickstarter should be a requirement for every startup.” He explains:

It's a way for you create demand and sell the product without giving up any equity. That is a compliment to what an investor might do. In terms of PE (price to equity), there are strategic investors and then there's just money. I'm not a big fan of money investors, which is what most angel investors turn out to be, because they just want their money back. I try to be very strategic, I try to add value, or I don't make the investment.

Cuban goes on to say that there is a bubble in tech valuations, which has encouraged many entrepreneurs to favor a quick exit over long, sustainable growth.

“[The] bubble has created an environment where companies are looking for funding and have no plans on creating a cash flow based business and returning cash to investors,” Cuban said. “It's all about exit strategies because valuations have gotten so high that it's almost impossible to do a cash on cash return.”

While Cuban doesn’t exactly spell all of this out, the implication is that crowdfunding sites like Kickstarter allow entrepreneurs to test the market, get customer feedback, reduce the risk of failure, and make some money off product pre-orders.

Entrepreneurs who manage to raise significant amount of cash from the crowd also don’t have to rely as much on the “money investors,” who are likely to be more interested in a quick exit leading to a plump return than in promoting a healthy, growing business.

The full podcast is here. While it’s certainly worthwhile to hear what Cuban has to say about book publishing, video streaming, and his prediction for the next hot industry (among other topics), those who want to listen to just the crowdfunding segment should tune in from around 13:00 to 15:30.

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Comments

  • Bill Joyce Bill Joyce Jan 06, 2013 03:47 pm GMT

    It is good to hear an investor talk about added value they bring to the table. Thank you Mark. The beauty of our capital formation process it that great people and organizations come together to move a great idea into the market for the benefit of all. The horror stories and the dark side of greed which is so often harped about is not the rule but the exception.

    I too, like Mark believe in the CrowdCreative process and believe that it will become an integral part of the CrowdCo's initial entry in to their market.

  • Kirsty Burnham Kirsty Burnham Jan 08, 2013 02:09 pm GMT

    I agree with Mark. In addition it is a fantastic way of connecting to a loyal customer base and set of brand ambassadors which therefore increases your future sustainability. If the customers don't like it in the first instance then you know that you've got it wrong, which is a great indicator for angel investors/ VCs further down the line. The only down side is that people have to realise how much work it involves before jumping into a crowdfund of any size. It's not a quick fix and has to be planned well.

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