It’s been roughly a year since the JOBS act (Jumpstart Our Business Startups) was put in place allowing certain regulations and securities encouraging crowdfunding or micro-financing in the US. From crowdsourcing t-shirts, education or even people, entrepreneurs have adapted to the changing scenery of investment innovations. 2012 was the year of Kickstarter as more than 500-million dollars have been pledged to fund almost 40 000 projects on this popular crowdfunding site. Are the recent crowd-based enterprises just an inevitable post-fad ripple effect? Or are they future symptoms possible of disrupting traditional concepts of finance, markets or economics?
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In this Wired article, Dave Girouard mentions that although the idea of crowdfunding being regarded as potentially disruptive in the venture capital industry, “desire is the disruptive ‘feature’ of crowdfunding.” Take the Kickstarter community for example: people are motivated by the desire to get involved with either a product, service or cause. People aren’t necessarily cash-driven when it comes to crowdfunding projects, they also want to be involved and associated with a certain product or cause.
Since last year’s crowdsourcing success, thousands of sites have sprouted up around the world in an attempt to join the trend. How far have the crowdfunding concept evolved since its commercial debut of Kickstarter? Here are some interesting concepts together with some startups that I thought might paint you a rough picture of what the industry looks like at the moment.
Consumer incentive-based crowdfunding
This is the common, so last year, form of crowdsourcing that most people know about. Like Kickstarter or popular rival, Indiegogo, people are generally awarded a taste, sample or full product depending on how much money they pledge. This is usually either overflowing with bad ideas that just die out or a dog-eat-dog environment where only the top few manage to achieve millions of funding. First you need to get accepted by the site (which is hard enough apparently), then you have a chance of battling it out with other projects in an attempt to race to a deadline using the luck of viral success or good promotion skills.
If consumer crowdfunding was hip in 2012, equity-based crowdfunding is the new trend of 2013. CircleUp is an example of an equity-based crowdfunding platform allowing you to receive equity in return for your investments. Many small investments are pooled that take your chosen business to the next level. While mostly concentrating on food products and cosmetics, CircleUp also focuses on companies with a proven revenue stream. Other similar platforms include SeedInvest, Seedrs or Robinhood.
General good and open innovation
Charity based crowdfunding platforms have of course joined the scene. The non-profit StudentDonate, as the name suggests, allows people to donate money to cash-strapped students in order for them to afford a higher education. Although currently in Beta, Medstartr allows you to fund ideas and services in healthcare. There’s also Google’s One Today app which aims to innovate the donation process has been made available this week. These initiatives together with many others are often driven by what is known as “open innovation.” This is the process whereby a problem is identified, a deadline is created to encourage people and a reward is given to those who participate. Many other examples include popular Razoo or Crowdrise
Entertainment and collaboration
Crowdsourcing creativity seems like a very vague concept. Though until you look at some popular sites that have joined the stage recently, you might get a better grip of what it is. Sites like PledgeMusic and Sellaband lets you pledge some of your cash to a group or artist of your liking and you’ll be rewarded with band goodies once they have reached their goal. Teepublic is a platform centred around t-shirt designs where people vote for their favourite designs by pledging their moolah. The better the design, the more people pledge, the more t-shirts they will get and the more commission the designers and Teepublic get.
Investing in people with Upstart
Upstart stands out from the rest as it’s equity based, but you invest in people rather than your run-of-the-mill startup. Backers or investors raise money by promoting your idea or business for a share of your future income. As mentioned in this New York Times article, Upstart uses a “financial model on the applicant and the idea, and predicts the applicant’s future income.” Once you get your income or profit on a roll, your backers will be able to share some of your spoils ranging from 2.5 to six per cent of your income.