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 BLOG >> Recent

Continuum of Crowdfunding [Future
Posted on May 24, 2017 @ 07:41:00 AM by Paul Meagher

Crowdfunding is regarded as a recent evolution in finance, however, there were precursors to crowdfunding and crowdfunding exists in less conspicuous forms all around us today.

In 1983, the father of Permaculture, Bill Mollison discussed the topic of Self Finance in his Permaculture Design Course lectures. Bill advised that the way to self-finance a business was to presell the item that your business was going sell. This would give you funds to actually create the item to sell. He cited the example of a startup restaurant that began by preselling a certain number of meals at the would-be restaurant. Bill noted that when you presell in this way, not all of the presold inventory will actually be consumed, possibly only half (another benefit of preselling). One marketing technique that Bill promoted was to send hand-written post cards (with postage paid for a response) to a carefully selected set of contacts advising them of your upcoming venture and what they might do to help. Bill advised that this would only work if you had a good product to presell and some convertable moral capital.

One way to look at crowdfunding is as an evolving market with self-finance being one of its precursor forms.

There has been recent legislation to open up the crowdfunding market and as a result we are seeing more participation in this form of financing. Markets can evolve through regulation just as football, soccer, and rugby evolved from primitive football. Likewise, Crowdfunding can be viewed as an evolution of self finance; with the proviso that self-finance has been around longer and may survive longer in the end.

Regulations require that arbitrary quantities be used to circumscribe what is or is not considered to be crowdfunding. One arbitrary quantity is the minimum number of micro-investors or micro-funders that must participate in a fund raise in order for it to be considered crowdfunded. If you have only 2 to, say 10 funders, that is probably not going to be considered an example of crowdfunding.

You can look up what minimum number they suggest as the threshold but that the number is arbitrary and we may sacrifice a deeper understanding of self-financing strategies by accepting regulated limits as real limits.

Perhaps all we can say is that the threshold of crowdfunding is crossed when there are alot of funders involved.

Amazon does crowdfunding on behalf of authors when it presells their work in progress. Amazon is not often identified as a crowdfunding platform perhaps because it is more strongly identified with being the premier e-commerce platform.

Online personalities that have lots of facebook, youtube, instagram, twitter followers may be able to use their moral capital to crowdfund upcoming projects. They can try to bring their following to a crowd funding platform to collect fees.

You can squander moral capital if the product you ultimately deliver is sub par. That has happened to me and it will likely not happen a second time with the same person. It is important to ensure that you have a good product to presell by developing prototypes, minimum viable products, meals, chapters, etc.. to get feedback so that you can verify that it is a good product before you spend moral capital promoting it.

In this blog I have suggested that crowdfunding might be better viewed as existing on a continuum rather than as a discrete type of financial innovation. It has precursors in the ways that entrepreneurs have self-financed in the past and as such we can potentially learn about modern day crowdfunding by studying strategies used in the past. We obviously have a layer of social media on top of everything these days and I acknowledge that this has a big influence in how self-finance is done today; but the basic need to have a good product and moral capital to spend arguably apply today just as they did in the past.

Not only does crowdfunding extend back into pre-internet days, it also extends laterally into platforms such as Amazon that can pre-sell books on behalf of authors. By seeing crowdfunding as existing outside of the official crowdfunding platforms, we open up the possibility of integrating crowdfunding into popular e-commerce platforms or social media platforms. Because crowdfunding also does not need the internet it can also continue to evolve offline as well.

Update: After posting this proposal I read that Facebook is now allowing its users to create crowdfunding campaigns. I think this supports my thesis that crowdfunding cannot be neatly categorized any more and that it will soon spread into e-commerce and social media platforms, and not just dedicated crowdfunding platforms.

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