Start Up Blog

The truth about crowd funding

Posted in entrepreneurship by Steve Sammartino on October 29, 2012

Most web tools that are re-shaping commerce are doing one thing, handing over control to the users from the producers. They are democratizing the factors of production so that anyone with access and ideas can now play. They do this through cutting out two things that existed and thrived in the industrial era: middle men and gate keepers. The power of collaboration has been touted as a revolution consistently since the the word web 2.0 exited the mouth of Tim O’Reilly. I think it is entirely justified. This is particularly the case with the latest disruptor to emerge – crowd funding. The reason that funding our projects from the crowd changes everything, is because it doesn’t really change anything.

All things have always been funded by the crowd, we just didn’t know it before.

To bring this idea to life let’s consider a couple of examples:

Debt funding via banks is a form of crowd funding: They take our deposits, assess and carry the risk of ‘sub-letting’ our deposits on margin. Essentially banks make money from crowd funding projects and managing the organisation of it.

Capital raising via VC firms is a form of crowd funding: They take large portions of their venture money from Superannuation or 401K funds which has been allocated to ‘high risk’ investments. This is typically between 1-5% of the total asset allocation. Again, our money is being allocated in our behalf from which transaction profit margin is made.

The point is that pretty much every type of investment that involved aggregated money, has always been the money of the ‘audience’ hidden within a structured system. A system which we are now re-structuring with deomcratised tools so that we can organise our capital amongst ourselves. So that we can access each others funds without permission from financiers. So that we can decide what is worth funding. So that we can make the margin available on float capital. And this is just the start of the inevitable changes to the financial system.

The very truth about crowd funding is that before it arrived in its current ‘web organised’ form – we got locked out of the system that our money funded. And it feels like crowd funding of micro projects is just the begging of something much bigger and more important. The question for aspiring entrepreneurs is how can we disrupt the finance industry further with newly connected commercial eco systems?

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