"Crowdfunding will never catch on" investment trainee age 46 | SMLXL - Engagement Marketing and Communication principles from Alan Moore

“Crowdfunding will never catch on” investment trainee age 46

July 12th, 2010

I stole the headline from an old economist advert, but just tweaked a little for context!

The crowd has the potential to be a larger funding source than anyone of us ever expected

Argues Paul Kedrosky in The Venture Capital Journal July 2010. The Journal tells the story of a start up called Diaspora, which seeking to raise $10k, produced a cheeky video on kickstarter that promoted their, “privacy-aware, personally controlled” social network that allows users to share data on their own terms. This is a key and growing area of debate – the data topic is indeed something I have a perspective on having sat on the board of a data analytics company for 3 years and co-authored a book on the subject.

When Facebook announced plans to change its policy on privacy – Diaspora, partly because it was connected up to the networked went vertical in its fundraising with equates to $200,000 from some 6,400 backer in a few weeks.

Beware the network for those that think only in Straight Lines is my advice. The Journal writes

For VCs and other professional investors who had previously dismissed crowd funding as a gimmick, Diaspora served as a wake-up call

And of course, the power is in the lowering of the barriers to participation – something that a Mr Obama recognised when he raised his mighty campaign war-chest not from the $2000 minimum that some candidates asked as the base price of admission, but the $5′s and the $10′s and the $20′s.

The article also mentions Profounder, which is a friends and family tight knit community funding business, founded by Jessica Jackley of Kiva. My interest was piqued by the presence of GrowVC – a company that I am personally involved with as an advisor, and was pleased to see has about 3,000 registered members who have committed more than $13 million to some 800 startups looking to raise between $10,000 and $1 million.

The power of the network means this, yesterday, an entrepreneur from Australia and a member of GrowVC reached out and I was happily advising his company to connect with others somewhere else in the world as I could see the benefit in the connection. I did not ask what is in it for me – I was just very happy to help.

And this is where we see the crisis of existing venture capital and funding. In the UK 6% of the UK population cannot access a bank account, as the banks will not touch these pariahs. Faisel Rahman who is not part of the crowdfunding story per se, but is in terms of grassroots,microfinancing has enabled through his company Fair Finance to Business 150 companies to get off the ground. I see a pattern, and as Jouko Ahvenainen argues that when you get poor deal flow, you stifle innovation, creativity and the opportunity for people to take control of their own lives.

Are people to be trusted?

It is a question that is explored in the article and this is where some see the wheels coming off – which ever way you look at this however, I have to ask the question, what exactly are we protecting? The biggest culprits of economic mis-mangement exist inside corporations, not on the pavement (sidewalk) asking for some spare change, or trying to make ends meet by doing 3 jobs, or having a dream that requires the type of funding some might leave as a ‘small tip’ at a swanky restaurant.

The rules of microfinancing, and the way in which people bond themselves to things through narrative is important here – what our mass consumer world did to people was to teach them, they were not accountable to each other, and therefore there was no reason to behave accordingly. Whereas, when we are part of creating the story of something, here the raising of a new barn for business, we put something of ourselves into that barn, and consequently we become accountable to each other. We write trust into the fabric of the contract, and with greater transparency via the nature of how networks operate, when that trust is transgressed it will be clear to all.

The rise of these companies once again places great pressure on the legal frameworks that have been painstakingly built over a long period of time. In the same way that Napster and the whole file sharing thing placed great pressure on the legal frameworks of copyright. Once you see legal frameworks creak, you know things have changed.

And in the same way that Rupert Murdoch now rails against the networked world like a character in a Shakespearean tragedy, we will see I am sure something similar in the banking and finance industries – pooh-poohing the ridiculous nature of crowdfounding. I pity them.

And a tip for any chancellor, want to save money? Empower people to take control of their lives – from the likes of GrowVC, Fair Finance to Business, Kiva and profounder there are real lessons to be had.

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