Growth5 Blog

Monday, January 31, 2011

The Crowdfunding Revolution

VentureBeat recently posted this excerpt from Kevin Lawton's book, "The Crowdfunding Revolution: Social Networking Meets Venture Financing." Some interesting points here:
1. Wikipedia defines crowdfunding: "Crowdfunding describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations."

2. "...the old-school model (of vc) seems to hold a belief that the minds of a few partners and their ‘Rolodex’ can outperform the collective wisdom of the billions of people on the planet."

3. "In the same way that social networking changed how we allocate time, crowdfunding will change how we allocate capital."

4. "What are weaknesses of the old methods, especially the sheer scale and volume of information and ideas, are strengths of a new model of funding which has the potential to tap an almost unfathomable collective intelligence to process this collective complexity. Therein lies the immense future of the crowdfunding revolution."
If the regulatory hurdles can be overcome–you can't solicit funding from the public–there is a lot of potential here. The combo of social networking and financing certainly seems like a natural fit. Of course it's a fit for A LOT of things... contacting very large groups of people instantly that have already in many cases broadcast what they are interested in holds a lot of potential across the board.

Crowdfunding has been used successfully for charities and is currently being used in financing smaller ventures as member organizations where a certain amount gets you in the club, you don't get equity, but you can get points to be redeemed for prizes, etc... the British soccer team Ebbsfleet was funded via crowdfunding and is managed by the crowd as well.

These membership club ventures typically have an identifiable audience that can be reached easily and is willing to put in smaller amounts of money for something they are passionate about. It's a start, and who knows 15 years from now crowdfunding might be how a majority of VCs are funding startups.

However, let's not forget how high that regulatory hurdle is though...

Grace: thanks for the article; and you know, hurry back from maternity leave, we miss you!

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