InsightaaS: As we reach the end of August, we thought we'd provide a second perspective on a couple of the debates that enlivened the summer. Today's featured post, from Gartner, provides a guarded perspective on crowdfunding; it follows a Nick Carr piece that we featured last Sunday in seeing shadows in key aspects of the "sharing economy."
ATN isn't really in the nay-sayer camp when it comes to the sharing economy - we've been following Jeremiah Owyang's commentary with interest (for example, with this infographic illustration, and this piece on the link between crowdfunding and loyalty). However, when sources as illustrious as Carr and Gartner are wondering aloud about a practice, it pays to spend some time understanding the source and nature of the objections. In this case, Gartner GVP Anthony Bradley (formerly of Booz Allen) wonders whether the "crowd" part of the crowdfunding appellation isn't misplaced, given the limited participation of the masses in crowdfunding initiatives.
What do you envision of when you think of a Crowd? I think of a place with the bustling energy of people moving to and fro in a flurry of activity. Either somewhat synchronized like a New York City street during pedestrian rush hour or apparent pandemonium like 7:00 AM at Tsukiji Tokyo, the largest fish market in the world. It is hard to imagine a crowd without activity...
Yet activity is missing from the vast majority of crowdfunding sites. Even those that I believe do have activity don’t make that activity apparent to site visitors. Crowd participation in crowdfunding should take three major forms; 1. crowds of people looking to provide funding, 2. crowds of people looking for funding and 3. crowds of people helping each other determine what to fund. All three of these are critical to a well-functioning crowdfunding environment. There is a whole set of sites that call themselves or are categorized as crowdfunding when they are not.
First, I addressed the missing crowds from investing in my last post since, at least in the US, you need to be an accredited investor (about 1% of the population) to participate (at least until title III of the Jobs act of 2012 is enacted). I won’t belabor that point now. Some return-based sites actually require you to be authorized or accepted to invest. You "apply" and they will contact you, I guess, if you are worthy. This is not crowdfunding. It might be some alternative to or extension of the traditional angel or VC model, even a good one, but it isn’t crowdfunding. Also, if your minimum investment is $1000.00 (most I’ve seen are $10,000) you are not attracting the crowd.
Even those Marquis donation/reward sites like Kickstarter and Indiegogo do a poor job at exposing busting activity. How many people are on-line now? How many opportunities are being explored right now? What are they doing/what are they funding? The closest they get to is what funding opportunities that are "hot" or "trending" and even then I don’t know the freshness of this categorization. On most crowdfunding sites I feel like I’m the only one there. A crowd of one?
Second, if your environment has fewer than 50 open opportunities, as many, many do, I’m not sure how it is considered a crowd. And if the site like Wefunder and AngelList "hand selects" a few highly vetted funding opportunities and controls the investment fund then again, it is not crowdfunding...