2,650 crowdsourcing and crowdfunding sites
Editor's Note: The following guest post comes to us from Kevin Lawton, whose book The Crowdfunding Revolution: How to Raise Venture Capital Using Social Media has just been released in a new, updated 2nd edition.
While crowdfunding has already proven itself to be very effective and without material fraud in the U.K. and Australia, the rest of the World is stuck awaiting regulatory change. In the U.S., it will still be some time before the crowdfunding component of the JOBS Act is finalized. But life has a way of pushing back, when we get too busy reinventing the same ineffective systems that got us into the mess. It’s time for us to look at where we’re naturally headed, and use that perspective to define mechanisms which are available now.
From a macro perspective, if we look at the convergence of many trends in culture, finance, innovation, art and other areas, they share a number of common factors. Structurally, almost every static and hierarchical system is morphing into a dynamic social networking graph – we use the phrase “peer to peer” a lot, but the transformation is more towards a network of curators and communities. Even more exciting is another factor in common, the transition from brutal competition through a “co-opetition” phase and on our way to a paradigm of cooperation and contribution. Emerging, is the age of the co-creative sharing economy. One might even dare call that paradigm, community.
When we start with that mindset, some interesting doors open in equity crowdfunding. Notably, a lot of the things that get us into trouble with securities general solicitation issues, dissipate. Check out the following funding models variants, as examples. I’ll let you (and your lawyer) be the judge. If you look at upcoming events such as the One Spark crowdfunding festival, the beginning of what is presented below is already in the works.
Members of a community forgo the direct sense of ROI on the investments, and instead donate money into a common pool. With no expectations of returns, there is no “capital at risk.” Perhaps the community members are given a vote as a ‘perk’, allowing them to influence where the community fund invests its capital and/or to recommend potential deal-flow opportunities. Now, if pitches from entrepreneurs are only exposed within the community, that knocks out another element of the current ban – general solicitation. But taking this further, having entrepreneurs sign exclusivity agreements, such that they will only take funding from such vehicles, means that the pitches could potentially be exposed to the general public (for better vetting and market signaling), but never be funded directly from them (to live within the spirit of the general solicitation ban).
ROI from the community fund, could then be re-cycled back into further investments. That’s why this has the potential to be a “perpetual motion machine” of funding. And if there are net losses, a little more community capital could be introduced, or the capital base could be expanded at-will.
Rather than donate money into the system, another option is to allow a return of up to 100% of the original capital within a given time (or other metric), with no ROI. Where this would be super-interesting, is in allowing the wealthy and the famous (especially the “accredited investor” types), to offer up sums of money for a period of time, to allow a community to boot-strap its own economy. Once boot-strapped, the community fund could return funds back to the providers of capital. This would create a whole new method of philanthropy, including brand name ‘funds’ – e.g. a Steven Spielberg fund for filmmakers, a Deepak Chopra fund for healthy living or a Mark Zuckerberg fund for social networking. But allow the community to decide on investments. Imagine, philanthropy which creates community economies, and then re-cycles money for the next cause! To be legit, this model is probably best applied to accredited investors because as soon as there is an assumption of returning the capital, there’s a potential of pattern matching to “capital at risk”, even without ROI involved.
To quote Indira Gandhi, “Have a bias toward action - let's see something happen now. You can break that big plan into small steps and take the first step right away.” As a first step, I propose that we don’t wait for solutions. As a community, let’s express the market demand and give the solutions a way to find us. Doing this is simple, in the days of social networking. I suggest tweeting or otherwise posting with a common hash-tag (#CommunityCF), intended contribution amount in your own currency and whatever other info you care to offer (location, area, sector of interest, etc):
"I want to #CommunityCF $1000 San Francisco California film [shorted-URL here]"
For those who put together community funds, please get many of the interested parties together. Talk to your mayor, professors, community leaders, professors and business owners. And by all means, get some big names interested. The more parties you get involved, the more economic opportunities you will co-create.