I wonder if this will make angels worry, the same way that angels made VCs worry. And if so, I wonder if we'll be seeing better terms for future founders from the old system investors.
Yes because Kickstarter has a high profile now, and there is rather significant amounts of money flowing through it. Angels and VCs sometimes only put in a few k or a few mil. for a company, and now it seems as though you can just go to kickstarter for that amount.
No because kickstarter isn't for everything. The closer your project is to the ideal of a semi-artistic one-off project with a timeline of months that produces a tangible product that the backers can receive the more likely it is to be approved and funded. But not all businesses fit in that model. More so, that model of venture isn't necessarily the sort of thing that is most attractive to an investor. Kickstarter projects are the sort that scale up slowly and carefully. But a lot of the most desirable investment targets are software companies which provide a service who can scale up by a factor of thousands or millions in a matter of months.
Now, there is still a sizable niche that straddles both worlds (such as game development) and you can expect a lot of interesting things to happen in that space in the near future.
It might but there's a couple of reasons that Angels/VCs need not lose too much sleep. Kickstarter only accepts "projects" that have an end point. To be fair, they're perhaps loose in their application of this, but generally speaking, the project needs a finish point. For example, Pebble will ship the core product, a completed watch.
When it comes to software/web apps, there's a less definitive end point. Games seem to get through ok, because they reach a pretty clear release point. "Projects" like Instagram would likely not have made it through as a Kickstarter project, because they're designed to be iterated on. Getting to the "first release" is not generally what Kickstarter accepts... unless you're Diaspora... or anything open source.
I think they probably should be. Kickstarter may not fund all types of projects but Kickstarter is only the beginning. The world works on trends right? Put all these things together and look forward 2-3 years:
AngelList
Kickstarter
JOBS Act
Software boom
Open hardware innovations (Arduino, Raspberry Pi, Open 3rd printers, etc.)
I'm not really certain that things at the VC level would be a whole lot different but I would sure be worried if I was an angel or earlier. Pretty soon, we'll be far less dependent on them than they are used to. If you ask me seed stage may have so many options that they'll have to reverse-pitch ;)
It's really not comparable to VC money in any normal way though.
When you're raising VC money, especially early rounds, you're trying to prove and build a business model. You're trying to get market awareness and acceptance, develop your product, etc. There is a statistically high probability that you will fail entirely, or will at least fail to achieve the progress intended (meaning you may have to raise more money, affecting valuations and dilutions).
One upside to VC money is that you get to use all of it in almost any way you like.
Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It is assumed that there is a profit margin on the product, but it's also reasonable in these early cases to assuming the manufacturing costs may overrun estimates, and that roughly 10-25% of the money raised will actually end up being "profit".
Sure, even 10% of $7M is a nice chunk of money, but $7M of kickstarter money is way less working capital than $7M of VC money.
Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product.
It's funny because Kickstarter is intended NOT to be pre-purchasing but to be an investment in something that might not pan out. People have gone out of their way to point that out when some of the high profile failures have happened.
For digital goods you can probably spend 85% of the funding on building the product AND you don't need to give up shares of your company to a VC. As for physical goods I don't think most physical kickstarter projects aim for 25% margins, especially when you look at all the diffident tiers. Many of which end-up as 1,000$ twice what you would get for 200$ but we will say thank you on our website.