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Guest Post: Is There Wisdom In The Crowd?

Tyler Durden's picture





 

Submitted by Doug Hornig of Casey Research,

Back in the 1960s, a clever but financially disadvantaged fellow placed a small ad in a national magazine that read something like: Money needed. Please send $1 to the address below. Do it today! No specific need was given, and nothing was promised in return, so that fraud could not later be charged.

Yet within a few months, thousands of dollars arrived in his mailbox, a considerable sum in those days. Or so the urban legend goes.

P2P Money

A half-century later, many things have changed, but one thing remains unchanged: People still need money, and they have not ceased to innovate ways in which to get it.

We have written extensively in this space about many of the P2P Internet connections that are transforming the planet... in commerce, in education, in the job market, and with business and social networking. The list of possibilities is truly endless. For yet another example, the world of money has been given a Red-Bull jolt by a fast-growing phenomenon known as "crowdfunding."

Previously, if you had a grand scheme for a new product or service and you needed seed money to get your project off the ground, you had to save it yourself, borrow from friends and relatives, or go with begging bowl to your local bank, which was unlikely to see you as the next Steve Jobs. If it was a big enough idea, you might even attract the attention of a venture capital (VC) company, but there you had to be prepared to offer many pounds of flesh in return. And still, those ideas that didn't meet with bank criteria (there's no collateral for a software startup) yet weren't large enough for the VC crowd often fell into a no man's land, scraping out some funding from unorganized, so-called "angel" investors, or never getting funded at all.

More recently, we've seen the rise of for-profit Internet alternatives to traditional lending, such as Prosper, Zopa, and the market leader, LendingClub. These P2P companies specialize in small loans – LendingClub's limit is $35,000. They don't originate loans – they facilitate them, cutting out the banks and creating a situation that allows individuals with spare cash directly to invest in other people's dreams, while the dreamers can borrow based on the public responses to their particular (hopefully compelling) stories. For each loan, there is a multitude of lenders, not just one.

It's a win-win proposition. Borrowers receive below-market rates with less hassle than is usually encountered at a traditional financial institution. Investors get an excellent rate of return, and can attenuate risk by building a portfolio spread across multiple loans. And LendingClub prospers by taking a cut. The site claims a very low default rate of less than 3% since its inception in 2007, and it has been a monster success. To date, LendingClub has negotiated nearly a billion dollars in loans, a meteoric ascent from about $175 million just two years ago.

Other, more philanthropically oriented organizations either are or function a little more like nonprofits. They solicit donations in order to make very small micro-loans to budding entrepreneurs, primarily in the developing world. Donors either simply get their money back, or the principal plus a small amount of interest. Those that work this way include Kiva, Zidisha, Fundable, PayPal's MicroPlace, GlobalGiving, FirstGiving, CreateaFund, Calvert Foundation's Community Impact Investing, and the Grameen Foundation, which received tremendous worldwide publicity when its partner organization Grameen Bank shared the Nobel Peace Prize with Muhammad Yunus in 2006.

At the other extreme – if you're an upscale investor looking outside of the traditional markets for greater risk/reward potential – there are alternatives for you as well, in the form of secondary markets. Sites such as SharesPost and SecondMarket provide access to participation in private placements and the purchase of already existing, pre-IPO shares in privately held companies. These opportunities are generally only open to accredited investors, i.e., those who can verify that they are high-net-worth individuals and attest that they're comfortable with assuming a high degree of risk.

Not quite so well-heeled? You can still play the game. MicroVentures was the first Internet broker/dealer to help startups in the US raise capital in exchange for equity. Companies can apply for up to $500,000, and individuals can buy in with an investment as low as $1,000. There's also MediaShares, which offers companies the opportunity to crowdfund IPOs, and investors the chance to buy as little as a single share of stock. The stock can be sold online, with or without an underwriter. A new US law (H.R.1070) has been passed by Congress that will allow for advertising the sale of stock to the general public and selling to non-accredited investors; this is expected to greatly expand these types of online offerings. Crowdcube, Grow VC, and Symbid also finance business startups. SeedUps specializes in tech.

Clearly there are a lot of new and imaginative ways of moving money around that vie for our attention. Many of them would be considered crowdfunding (derived from the general term "crowdsourcing," which has traditionally referred to works like Wikipedia driven by large numbers of amateur contributors), since the definition of this term still tends to be on the loose side. It can be applied very widely, as Wikipedia does, calling it any "collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations."

Crowdfunding, if thought of merely as the pooling of resources for a common cause, is as old as human groupings. Neighbors pitching in to help someone who's had a house fire, supporting the local rescue squad, sending truckloads of canned goods to disaster areas – all of these cooperative efforts represent crowdfunding of a sort.

But that isn't the way it's thought of nowadays. In fact, the very term "crowdfunding" is just six years old, with Word Spy attributing its first official appearance in print to blogger Michael Sullivan on his fundavlog of August 12, 2006. And the first book on the subject – Kevin Lawton and Dan Marom's The Crowdfunding Revolution – wasn't published until October, 2010.

In contemporary usage, "crowdfunding" is generally defined as an ongoing money-raising effort organized through the Internet. As such, it is intimately related to and initiated by online communities and social networks. However, while a given crowd might pre-exist as a community, it can also arise completely spontaneously, from disparate groups around the world which happen to share an interest in funding a person, project, or whatever. And it can be brought together by a website whose purpose is just that. These are the characteristics that distinguish crowdfunding from traditional co-ops.

Funding the Arts

Early crowdfunding efforts often involved musical groups that needed cash to advance their careers. A British rock group, Marillion, wanted to tour the US in 1997, but the band lamented on a newsgroup that they couldn't hack it financially themselves, and their record company wasn't prepared to pony up the support money.

Marillion's fans then took it upon themselves to raise the necessary bucks. Word went out via the Net, and the money poured in. With just a live CD promised in return, the band raised $60,000 from all over the world. Later, Marillion went on to tap its Internet fan base to fund the production and distribution of subsequent albums, cutting out the record company entirely.

ArtistShare, founded in 2000, formalized the concept, becoming the first fully crowdfunded website for music. In 2005, American composer Maria Schneider's Concert in the Garden became the first album in history to win a Grammy Award without being available in retail stores. The album, funded through ArtistShare, received four nominations that year and copped the Grammy for "best large jazz ensemble album." Since then, ArtistShare projects have received several other nominations and taken home four additional Grammies.

Other music-centric crowdfunding sites followed ArtistShare's lead, including SellaBand (2006) and PledgeMusic (2009).

Music and the arts have always been logical targets for crowdfunding and, with barriers to entry in the movie business historically so high, film was a natural. Movie crowdfunding was initiated by French entrepreneurs and producers Benjamin Pommeraud and Guillaume Colboc in August 2004, when they launched a public Internet donation campaign to fund their film, Demain la Veille (Waiting for Yesterday). Within three weeks, they managed to raise $50,000, allowing them to make the picture.

Spanner Films has been a centrally organized pioneer in this area, and has even published a guide titled How to Crowdfund Your Film, just in case you have any great cinematic ideas. Spanner crowdfunded a film called The Age of Stupid, set in 2055 and starring Oscar nominee Pete Postlethwaite. Further taking advantage of the Internet, the company in September 2009 pulled off a gala global premiere, satellite-linking to more than 700 cinemas and other venues in 63 countries, with a total audience of more than a million people.

Many, many other sites – including RocketHub, Sponsume, My Show Must Go On, AKA Starter, inkubato, and A Swarm of Angels – have set up shop to service the creative arts.

One of them, Indiegogo, originally focused on fundraising for independent film, and was launched at Sundance in 2008. But the site soon branched out into all sorts of creative projects, whose breadth is confirmed by a quick look at the projects currently listed: game development; a graphic novel; a documentary film; a gender-transition calendar; a Canadian comic-book anthology; an asthma education app; traveling dramatic performances; and some kind of knitting endeavor (which you can back if you read German), among others.

As an example of how these things work, here's Indiegogo's model: Entrepreneurs create a page for their funding campaign, set up an account with PayPal, make a list of "perks" for different levels of donation, set a fundraising goal in dollars (or euros, pounds, etc.), then create a social-media-based publicity effort. They publicize the projects themselves, through Facebook, Twitter, and the like. Postings are free, and users have 100% ownership of their campaigns.

In the end, Indiegogo collects 4% if you reach your goal, but allows you to keep money raised even if you don't, minus 9% (to encourage people to set "reasonable" goals). If you fail to reach your goal, you may also elect to return all money to contributors, and you will owe nothing.

Kick It into Gear

Then there is the current king of the hill, Kickstarter. Launched in April of 2009, the site has been a massive success. At the moment, Kickstarter says that over $350 million has been pledged by more than 2.5 million people, successfully funding more than 31,000 creative projects "in the worlds of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater."

The bulk of Kickstarter-funded projects – 68% – were in the $1,000-10,000 range. But 300 raised between $100,000 and $1 million, and 13 raised in excess of $1 million. Of those that are posted, about 45% fully meet their goals, and about 12% end without having received any pledges. 82% of those that reach 20% of their goal go on to attain full funding.

Kickstarter is an "all or nothing" proposition. Project creators make their pitch, set a funding goal, and a deadline by which the full amount must be raised. If they succeed, donors' credit cards are charged at that time; if they don't make it, no one is charged anything. Kickstarter takes a 5% cut of successful fundraisers, and payment processing fees can claim another 3-5%. Outside of that, creators keep 100% of the money and retain all rights to their projects.

Backers receive no equity or financial payback, but are promised "rewards," depending on one's pledge level. Mostly, people participate in good faith, contributing to something they believe in. Kickstarter's "Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill." But there are no legal guarantees.

If a Kickstarter project really tickles people's fancies, the results can be stunning. For instance, a modest project currently listed on its start page began with a goal of $5,000 and, with the deadline still two weeks away, has pulled in almost $110,000.

Where To from Here?

So, is crowdfunding the future capital source for every new venture under the sun? Well, probably not... although we can't say for sure, because it does sometimes seem that way. In no particular order, some current and projected applications include:

  • Journalism – With Spot.us and Global for me, the public provides suggestions and tips for stories. When a journalist accepts a suggestion, he creates a pitch, which is then funded by those who are interested. Whether this will gain any traction with readers accustomed to free Internet news content remains to be seen.
  • Politics – Democratic candidates can benefit from ActBlue, a crowdsourced fundraising site that allows anyone to be part of a PAC. Since 2004, ActBlue has raised over $300 million. Across the aisle, Ron Paul ran his campaign for the presidential nomination largely through crowdfunding.
  • Public projects – Want those bike lanes but your town is out of money? You can turn to CivicSponsor.
  • Fashion Milk and Honey Shoes allows customers to design their own shoes. Several other sites that will let consumers participate in designing new fashions are currently under development.
  • Personal wants and needsGoFundMe specializes in fundraising for individuals, for everything from weddings to funerals, and medical expenses to high-school trips. Greedy or Needy aims to fund make-a-wishes without the necessity of going through a big foundation. Kapipal teams up with PayPal to finance just about anything.
  • Science – Still in its infancy, science crowdfunding has many researchers excited about the possibilities. RocketHub's #SciFund Challenge was the first crowdfunding initiative to support science projects, while Petridish invites donors to "fund science & explore the world with renowned researchers."
  • Biotech – On October 1, biopharmaceutical antibacterial drug-discovery company Antabio, and WiSEED, the French crowdfunding platform dedicated to technologic startups, announce the successful completion of their seed round of financing. Initially funded by more than 200 small investors, Antabio was able to finance a key step in the validation of its drug-candidate molecules, bringing it to the attention of some major players in the drug-discovery arena.
  • Cars – According to Gizmag, Local Motors "is a small Phoenix, Arizona-based automotive firm that uses crowd sourcing for brainstorming, designing, refining and developing vehicle ideas. They work with an Internet community of more than 20,000 designers, engineers, auto enthusiasts and other passionate minds toward developing unique, customer-centric offerings." They're currently working with BMW to crowdsource the Beamers of the future.
  • DIY Launcht claims it "empowers universities, nonprofits, startup crowdfunding portals and others" to design and implement "their own custom white label crowdfunding & voting platforms."
  • Brewskies BeerBankroll is your destination if you want to help fund a small brewery.

And so on.

It's difficult to overstate how fast and furious crowdfunding has grown (but it pales in comparison to the growth potential of a new technology in replication).  So red-hot is the sector that a whole secondary support network has popped up out of nowhere, largely as a result of the 2012 passage of the Jumpstart Our Business Startups (JOBS) Act, which effectively lifted a previous ban against public solicitation for private companies raising funds. Among the nascent bureaucracies there is now a National Crowdfunding Association (NLCFA), National Crowdfunding Association of Canada, World Crowdfund Federation, Crowdfund Intermediary Regulatory Advocates, and Crowdfunding Professional Association (CfPA), all of which sprang into existence subsequent to the passage of JOBS. The CfPA offers a course in Crowdfunding 101 and sponsors a Crowdfunding Bootcamp to teach entrepreneurs how to master the process.

While crowdfunding does not yet have the Web presence of some other services, it's headed up with a bullet. Alexa, a leading Web information company, ranks some 30 million websites worldwide, according to the amount of traffic users of its toolbar generate. Its statistics are considered one of the most accurate yardsticks by which site popularity can be measured.

As of August 2012, crowdfunders were nowhere near challenging the top 10 megasites like Google, Facebook, YouTube, Wikipedia, Twitter, and Amazon. But Kickstarter was in 748th place, followed by Indiegogo (#1,798). Rounding out the ten most-visited crowdfunders were GoFundMe (10,892), ChipIn (28,394), RocketHub (47,424), GiveForward (52,383), Fundable (60,149), Crowdtilt (133,246), crowdfunder (105,447), and appbackr (125,977).

Pros and Cons… and Cons

The pros of crowdfunding – the Internet's P2P ability to unite worthy projects with seed capital, in the absence of conventional funding sources, and bring dreams to life – are obvious. But what of the cons?

Well, there's fraud, for one. Though crowdfunding sites claim to do detailed background checking before clearing a project to be posted, in reality this is fertile new ground for scam artists. In fact, in August the Massachusetts Securities Division charged a Lowell man in a crowdfunding scam, alleging that he had bilked 20 investors – who thought they were putting money into a gaming site – out of more than $150,000.

Regulation of securities issuance is another sticky topic. Questions about crowdfunding campaigns involving unaccredited investors and private companies are being closely examined in Washington. Complicating the matter is that due diligence can be very hard if not impossible for a prospective investor to do prior to offering startup money for a new company, and that the stock those companies are offering is often not intended to be traded on any recognized exchange. Private offerings for oil and gas drilling, which are not SEC-registered, are another area of concern.

Though the SEC has yet to set any hard-and-fast rules in place regarding equities, it is widely expected to stick some fingers into this rapidly baking pie as soon as the next few months.

Further, the North American Securities Administrators Association (NASAA) publishes an annual list of emerging threats to investors. This year, NASAA included crowdfunding on its list of worries, warning that fraudsters could use it in new scams involving such unexplored territory as precious metals, real estate, and promissory notes.

Although not overtly fraudulent, there are also going to be ideas (including possibly some great ones) for which the funding goal is unrealistic. A September Reuters article discussed a Kickstarter project called Lifx, which intends to develop a dimmable, WiFi-enabled, multicolor, energy efficient, 25-year LED light bulb that you control with your iPhone or Android... and to start shipping finished product by next March. Talk about ambitious. So far, the bulb is a monster Kickstarter hit, and the project is oversubscribed. Backers have thought so highly of it that they've ponied up more than $1.3 million, in return for which they'll get… well, some bulbs. Once they're in production.

Unfortunately, as the Reuters piece pointed out, "Coming up with a truly worthy LED bulb is enormously complex, requiring expertise in physics, chemistry, optics, design, and manufacturing." One of the early entrants into the space, the Switch bulb, has received an eight-figure investment from one VC company alone; it was promised in October of 2011 and still hasn't arrived. Phillips, which won a $10-million government prize by marketing the first LED bulb, spent much more than that in development. So maybe Lifx can deliver the goods for $1.3M, and good for them if they can. But investors should probably be at least a little skeptical that they'll ever be dimming the room lighting with their phones.

If, instead of bulbs or other manufactured goods that may not show up, you're looking for a return on capital – i.e., investing in a startup that's offering stock – you are also likely to be disappointed, since more than half of all new small businesses fail within five years. Should you wish to make such an investment, it would seem sensible to find one in your immediate area, so you can check it out with your own boots on the ground.

Then there is intellectual-property theft. Most basement innovators probably haven't patented their ideas before presenting them to the waiting world, which means there's nothing to prevent someone with deeper pockets from stealing the idea, producing the product, and getting it to market first.

The reverse is also possible. Someone may, knowingly or unknowingly, post a project that infringes on someone else's patent or intellectual-property rights. According to a recent story in Wired, this has happened on Kickstarter at least five times since April.

On balance, though, we're optimistic. All of these potential drawbacks will eventually work themselves out in the marketplace, we're sure, provided that forthcoming government regulations don't make it too difficult for these sites to thrive.

Investment Implications

Crowdfunders may facilitate transfers of newly minted stock to investors, but they don't sell stock in themselves, so there are no opportunities here, at least for the time being.

However, there are some income-producing sites, like Lending Club, that have been very successful at returning a decent yield. Some Casey Research employees are invested in them, and they may interest readers who are willing to do their homework. By all means, check them out for purposes of portfolio diversification if you'd like to – or crowdfund your own pet project.

THSUDAD48DXP

 


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Sat, 11/17/2012 - 21:36 | Link to Comment Yen Cross
Yen Cross's picture

 We  get smarter, but we never learn.   Wisdom, when I was a child, tought me how to look out for the Bogey Man .../s

 

Sun, 11/18/2012 - 06:04 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Investing money with people on the internet presenting a 'plan' ...

Somehow this very good article, yet makes me think of the Nigerians who have been expert at 'crowdfunding' for many years

And the hit Nigerian pop song about the 419 scams, 'I go chop your dollar!' by Uzodinma Okpechi, hilarious:

"I go take your money disappear ... just a game ... You are the loser ... I am the winner!"

Complete with dancing girls -

http://www.youtube.com/watch?v=f1nKR3gYRY8

Sat, 11/17/2012 - 21:41 | Link to Comment fnord88
fnord88's picture

part of a wave of decentralization that will remake our world for the better: Decentralized finance, energy and manufacturing will remove the centralized power structures we already have oppressing us. Bring it on. No more TBTF Banks, oil companies or car manufacturers. Centralization is evil, and prone to corruption and failure.

Sun, 11/18/2012 - 18:04 | Link to Comment Umh
Umh's picture

Hopefully it is unplanned decentralization. Planned decentralization is an oxymoron, but they keep trying.

Sat, 11/17/2012 - 21:42 | Link to Comment q99x2
q99x2's picture

Dear Bernank,

I am a good person with a secret. My secret is that I need some money. I am merely mentioning this to you because I represent data collection on a universal level for later analysis. Oh that is another secret. Anyhow since you have all the money until it is proven that you don't which is a lot different than saying the US cannot default because you are there to print as much money as needed to pay down any future debt, I thought I would ask you now to send me a little QE in my Christmas gift or should I say Holiday gift before you start asking for money yourself.

Thanks and all consideration appreciated.

Sincerely,

Q99x2

Sat, 11/17/2012 - 21:43 | Link to Comment nmewn
nmewn's picture

Just say its "for the children" and watch the money roll in...lol.

Sat, 11/17/2012 - 21:51 | Link to Comment CunnyFunt
CunnyFunt's picture

That line never seems to fail prior to the school budget vote.

Sat, 11/17/2012 - 21:58 | Link to Comment Yen Cross
Yen Cross's picture

C/F "NEW MAN" in "ancient" script, has been nothing more than understanding with you.  [ NMEWN ] kicks ass.

  He puts up with stuff!  That Man has Class!

Sun, 11/18/2012 - 00:54 | Link to Comment Hulk
Hulk's picture

Just say its to "save your soul" and really  watch it roll in...

Sat, 11/17/2012 - 22:01 | Link to Comment HD
HD's picture

Money needed. Please send $1 to the address below:

 

1600 Pennsylvania Avenue

NW Washington, D.C. 20500 U.S.A.

Attention: Barry

Sat, 11/17/2012 - 22:48 | Link to Comment ACP
ACP's picture

Do they accept EBT?

Sun, 11/18/2012 - 11:44 | Link to Comment oddjob
oddjob's picture

Yes, the same way as government employees actually think they pay taxes.

Sun, 11/18/2012 - 07:38 | Link to Comment negative rates
negative rates's picture

It will never get there, the trusties will tap it as they must vet each piece of mail, and then be correspondingly compensated for it.

Sat, 11/17/2012 - 22:16 | Link to Comment The Gooch
The Gooch's picture

Proverbial Warren Zevon- http://www.youtube.com/watch?v=S5puAN1PGQw

"Send lawyers, guns and money".

bitchez

Sat, 11/17/2012 - 22:24 | Link to Comment Yen Cross
Yen Cross's picture

 Same Old,Same Old


Sat, 11/17/2012 - 22:34 | Link to Comment A Lunatic
A Lunatic's picture

The U.S. Gubbermint seems to do well with it's crowd frauding funds...............

Sat, 11/17/2012 - 22:35 | Link to Comment Yen Cross
Yen Cross's picture

All Ways respect.  A Lunatic

Sat, 11/17/2012 - 22:58 | Link to Comment infinity8
infinity8's picture

This is a great resource article. I saved it AND printed a hard-copy. I've been reading a lot, here and there, on this topic. Thank You, ZH!

(this is one of the Big reasons I get scairt they'll turn off the interwebs)

Sun, 11/18/2012 - 00:18 | Link to Comment HowardBeale
HowardBeale's picture

"Back in the 1960s, a clever but financially disadvantaged fellow placed a small ad in a national magazine that read something like: Money needed. Please send $1 to the address below. Do it today!"

I did the same thing in 1975, though the wording of the ad was a bit different: "This is your last chance to send $1 to First Middle Last-Name @ my address."

That was it. That was the complete add--real name and address included. I had done it out of curiosity, having heard from and economics teacher of the guy who did it in the 60s. I received two things: one check from a woman I never met; a visit from the postal inspectors--at my place of employment at the time: they wanted to know how much I had received; when I told them I only received $1 and showed them the check--which they took, they seemed to believe me. Everyone got a good laugh out of it, and life went on. I was 16 years old at the time and was working full time after school and running a vending machine business that I had started. I didn't need the money, but I couldn't let go of the idea that people would actually fall for something like that until I tested it myself...

Sun, 11/18/2012 - 00:29 | Link to Comment The Gooch
The Gooch's picture

This is how the kids are doing it now. Third prize is you're fired!

http://www.uproxx.com/webculture/2012/11/craigslist-ad-for-sick-ass-1971...

Sun, 11/18/2012 - 01:34 | Link to Comment Yen Cross
Yen Cross's picture

 Children/espousing

    Sunday reality.

Sun, 11/18/2012 - 01:50 | Link to Comment Yen Cross
Yen Cross's picture

 It's not about money.

Sun, 11/18/2012 - 02:02 | Link to Comment Yen Cross
Yen Cross's picture

 Hulk Kicks ass !

Sun, 11/18/2012 - 03:20 | Link to Comment Silvertrader
Silvertrader's picture

I know one thing about the crowd. They can help you to make money trading, when you know to pick the right people. I do this over a year now. It's called copy trading

Sun, 11/18/2012 - 03:22 | Link to Comment IridiumRebel
IridiumRebel's picture

Great article. I love the doom and gloom, but a little innovation goes a long way. As a musician, I got a lot outta it.

Sun, 11/18/2012 - 07:37 | Link to Comment Urban Redneck
Urban Redneck's picture

When the government intentionally creates a gray market, participants in that gray market are placed at the mercy of the whims government regulators who at any time may impose white market regulatory standards in order to extract their pound of flesh.

Sun, 11/18/2012 - 07:57 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

The only thing it will take is a high-visibility fraud case involving the "donate" button on some website, somewhere.  Perhaps it gets discovered that Al Ki-Aida donates to a crochet artist in Pittsburgh.  

Sun, 11/18/2012 - 09:52 | Link to Comment bugs_
bugs_'s picture

we "crowdfunded" solyndra.  who knows what else we are "crowdfunding".  "crowdfunding" means what?  it means you don't have equity. 

Sun, 11/18/2012 - 10:14 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

 

Come around tomorrow....we'll take you again.

Mon, 11/19/2012 - 00:38 | Link to Comment jmc8888
jmc8888's picture

With all the ways America is becoming less American everyday, about the only process headed the other way is crowdfunding like kickstarter.

It empowers both the applicant and the funder to engage in an activity that otherwise wouldn't be possible.  It goes around banks.

It can fully or partially fund a project.  It can help showcase that the idea has a market and is worthy of being funded by investors, or anyone really.  Technically banks too, but less likely.

I'll take the example of Star Citizen, a game by Chris Roberts which is currently (for the next ~15 hours) available to be funded on Kickstarter.  He (well the main guy) created the Wing Commander (series of games), Privateer, and Freelancer space sim games of the 1990's to early 2000's. 

Star Citizen is a very ambitious space-sim that will be very expansive and resource hungry game slated for arrival in Nov 2014.  It utilizes the CryEngine 3, game engine that you might have seen used for Crysis 2 and lauded for it's superb graphics and DX11 effects. 

So far Star Citizen has raised about $5.2 million, which isn't a bad way to show to investors that it's worth funding the rest of the way.

When it comes to game creators (and for many people) caught in the Wall Street/corporate corner which stifles ingenuity, risk, and innovation it offers them an alternative.  It can wear creative people down and once they make some money, they're gone because they don't want to deal with the corporate heads dictating to them and creating a hassle. Some people don't want to sit there and make another Call of Duty game.  Sure the market exists for it, but they want to do something else, or might want to take it in another direction, while the corporation wants to pump out a title every year and make as few changes to not upset the cash cow. 

I'm not trying to criticize the Call of Duty franchise too much, as it can be a fun game, and the most recent edition contains the most upgrades in years, however it is an example of minor changes, and yearly production, that showcases a growing problem within the industry.  Other examples are the notoritous EA sports franchises, most notably the Madden football franchise.  Kickstarter is a way to break from this mold and go in a completely different direction or reclaim something lost or some mix of the two.

Kickstarter allows game creators like Chris Roberts the ability to go outside of the usual way to create a game on his own term, visions, and capabilities.  That's what Star Citizen is.

While the risk is there, specifically with Chris Roberts you know of his track history, you can watch pre-alpha footage and be amazed at what he has done so far, and you get a pretty good idea that with the substantial kickstarter funding coupled with private investment, the risk is negligible in this case imo. 

Also there are generally 'stretch goals'.  So say they want 1 million, but if they raise 1.25 million they'll add this.  If 1.5 million they'll add this, this, and this.  So on and so forth.  So not only do you get a chance to fund a game, you can allow it to help set the beginning or overall scope of the project...or simply fast forward aspects that might have come to life a year after release and now would be available at launch.

It's not all well known and completely proven talent.  You also have other cases where you can get talented young game creators/designers that want to skip the corporate/wall street grind and limitations entirely/early on, or be the seed to one of these eventual behemoths through an initial kickstart. 

One such game where youngish game creators are doing that is with "Distance - A next generation arcade racer", which was recently funded with $161,000 dollars.  The game looks pretty good, and even has quite the endorsement of Cliff Bleszinski the former long time head of Epic Games (think Unreal, and the licensed Unreal Engine).  You know a guy, about a decade older who Mark Suckerberg only wishes he could be in terms of talent and productiveness.

You even have opportunities of other lesser known game creators who may want to make a sequel to a relatively well selling game from 25 years ago.  There is a wide range of people that figure out what they can do, what they need to do it, and deliver it to an audience that wants it.  Really what's more American than this?

People have opportunity they didn't have before, and if others agree, they can help make it a reality. 

The donator/funder does incur risk, for instance, everything collapsing and receiving nothing for their money, however when you realize you can locate people who are passionate about what they do, especially if they have a track record in the industry, then you can make a fairly appropriate judgement based on their presentation of the vision. 

The benefits are you can receive the game (or whatever it is) for cheaper than when it hits the market.  For Star Citizen, you could of gotten the game at 30 or 35 dollars, now it's 37, as each tier has a number limit.  Still cheaper than a 50-60 dollar launch price.  You can receive other benefits like a better ship early on, in game currency, different skins for your ship, even your name in the credits list.  These are generally relatively cheap.  You can even get some physical rewards like a card mailed to you.  For bigger donators sometimes the devs will allow something to be named after you, or you can be written into the story, or into the world's lore, even fly you out for dinner with the game devs.  Even access to the Alpha and/or beta of the game.  This is just in the context of games, but similar things apply to many other genres of funding.

A few months back someone successfully funded the Oculus Rift, which is a Virtual Reality glasses, that will be far more advanced than say the Virtual Boy of Nintendo from about 20 years ago.  No doubt with motion sensing technology in the Wii and others pushing forward what's possible in another example that creating new tech fosters ancillary benefits (like the Space program helped give us Apple...and the entire tech industry).  While the Oculus Rift isn't grand, it is a passable version of Virtual Reality and good step forward into making that finally a reality. 

As we know bailouts go for fraudulent and/or unpayable debt, it doesn't go for actual creation.  Banks want their derivatives, not so much on funding creative endeavors.  Kickstarter bypasses the madness and truly is a showcase of American Spirit.  After all, so what if there's a risk, there's a payoff, and if people have a brain usually they'll be able to spot out the frauds.  What we have now is legalized fraud and blackmail on the macro level where there is no risk for them. 

I'll gladly help fund Star Citizen or Distance because I can live with the risk, believe in what they are doing and that they CAN do it, and the benefits are good enough to persuade me.  Each one is an individual situation, where you have to analyze, do your due diligence, and take on the risk if you want the spoils.

If you like space sims like Star Citizen, a game that will need a very powerful PC when it comes out, and not be a console port, then head over here, you got about 14 hours to jump in.

http://www.kickstarter.com/projects/cig/star-citizen?ref=category

Note: They have two funding pages, one on their home page here

http://www.robertsspaceindustries.com/star-citizen/

Glass-Steagall

 

Mon, 11/19/2012 - 13:29 | Link to Comment mantrid
mantrid's picture

you mean it was free market that invented crowdfunding?! but but but I thought it was sole invention of Obama and his JOBS act!

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