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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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