The truth about crowd funding

Most web tools that are re-shaping commerce are doing one thing, handing over control to the users from the producers. They are democratizing the factors of production so that anyone with access and ideas can now play. They do this through cutting out two things that existed and thrived in the industrial era: middle men and gate keepers. The power of collaboration has been touted as a revolution consistently since the the word web 2.0 exited the mouth of Tim O’Reilly. I think it is entirely justified. This is particularly the case with the latest disruptor to emerge – crowd funding. The reason that funding our projects from the crowd changes everything, is because it doesn’t really change anything.

All things have always been funded by the crowd, we just didn’t know it before.

To bring this idea to life let’s consider a couple of examples:

Debt funding via banks is a form of crowd funding: They take our deposits, assess and carry the risk of ‘sub-letting’ our deposits on margin. Essentially banks make money from crowd funding projects and managing the organisation of it.

Capital raising via VC firms is a form of crowd funding: They take large portions of their venture money from Superannuation or 401K funds which has been allocated to ‘high risk’ investments. This is typically between 1-5% of the total asset allocation. Again, our money is being allocated in our behalf from which transaction profit margin is made.

The point is that pretty much every type of investment that involved aggregated money, has always been the money of the ‘audience’ hidden within a structured system. A system which we are now re-structuring with deomcratised tools so that we can organise our capital amongst ourselves. So that we can access each others funds without permission from financiers. So that we can decide what is worth funding. So that we can make the margin available on float capital. And this is just the start of the inevitable changes to the financial system.

The very truth about crowd funding is that before it arrived in its current ‘web organised’ form – we got locked out of the system that our money funded. And it feels like crowd funding of micro projects is just the begging of something much bigger and more important. The question for aspiring entrepreneurs is how can we disrupt the finance industry further with newly connected commercial eco systems?


5 Comments The truth about crowd funding

  1. Sam Sabey

    You forgot to add the customer who pays for the product or service based on the value it can deliver.

    And sometimes, the crowd pays a lot of aggregated money to someone with just an idea. The idea part is fun the product part is work and skill, and scale can take a lot of time. Lets also not neglect, service, support, recalls, warranty nd other things.

    Sure crowd funding is interesting, and so is bootstrapping. It’s easy to see those on the crowd finding who have the cred – I.e. they are kick starting something that’s nearly 12 months to becoming a product as opposed to a 3 month idea cycle.

    There is lot of hype, which is trite s far as I’m cocerned. Build something for your customers, add value, make the product amazing. None of these dynamics change – except a big dollar kickstarter will have a lot of expectation, pressure and development risk, with payday some time after all the money needs to be spent.

    So ask yourself, would you rather iteratively learn your idea for a business, organically putting down long term roots to build a business to survive, or are you after the hype of the party and the idea, thinking the work an be delegates, whilst dipping to the bottom of the barrel on price where sustainability of a business is just a one shot?

    These are philosophical questions, to which there is no real answer.

    Sam, @samotage.

  2. Steve Sammartino

    Sam, I’m not talking about products at all… I totally agree that funding itself is nothing and pointless if we don’t end up with something people want. But this post is about the way money is moved around for business investment and who controls it… and how that is changing for the better as barriers to control are being removed through new financing models enabled via the web…

    Yes – I’d rather bootstrap my business as you know, but for those with no option but to accept funding externally, surely this is a better model for them?

  3. iCrowd

    Investment Crowdfunding is a new form of crowdfunding that is expected to be available in 2013. Made possible by the JOBS Act, Investment Crowdfunding is a departure from older forms of crowdfunding like “trinket” crowdfunding, peer-to-peer lending, and microfinance. It allows entrepreneurs to tap much larger crowds with the opportunity for investment returns, attracting enthusiasts willing to share the risks and rewards of ventures. iCrowd offers a complete ecosystem for entrepreneurs to launch and grow a business. Investors become integral to that success through their advice, investment, and advocacy and share in the rewards of success.

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