Ten years ago if you wanted to fund a technology business idea you either had to have rich parents, be willing to live on Ramen noodles for two years or be able to persuade a bank or investors to loan you money (see rich parents). Since then there has been a very interesting phenomenon that allows thousands of more ideas to get funded with minimal hassle, vetting or paper filling out -- crowd funding. On sites like Kickstarter or Indiegogo (there are a number of others), all the aspiring technology entrepreneur needs is a video camera, a plausible idea, enthusiasm and a little luck to pre-sell their first 100, 500 or in the case of the Pebble Time smartwatch, first 78,471 units.
Indiegogo claims to have raised approximately $210 million for technology projects. Kickstarter, which funds artists, musicians, filmmakers, designers and other creators including technology projects has raised $2 billion. These are just two of the most active crowd funding sites. I think that it is safe to say that crowdfunding is starting to be a real alternative funding vehicle for certain types of projects. The best projects seem to be those product ideas that are pretty mature but that require some modest investment (but above the financial capacity of the entrepreneurs) usually either for tooling or some other component of the initial manufacturing process. So, is this trend a good thing?
Indiegogo claims to have raised approximately $210 million for technology projects. Kickstarter, which funds artists, musicians, filmmakers, designers and other creators including technology projects has raised $2 billion. These are just two of the most active crowd funding sites. I think that it is safe to say that crowdfunding is starting to be a real alternative funding vehicle for certain types of projects. The best projects seem to be those product ideas that are pretty mature but that require some modest investment (but above the financial capacity of the entrepreneurs) usually either for tooling or some other component of the initial manufacturing process. So, is this trend a good thing?
Oculus Rift was kickstarted in September of 2012. 9,522 backers pledged $2,437,429 to help bring this project to life. Two years later, the Oculus company was purchased by Facebook for around $2 billion. Not understanding how Kickstarter really works, some people even griped when Oculus was sold to Facebook for $2 billion last year. They somehow believed that they should participate in the company acquisition proceeds, when in fact all they were was a customer of Oculus. [There are crowd-funding equity investment sites, but that will need to be for another post.] While the Oculus Rift would very likely have been able to attract angel and or venture capital, the existence of Kickstarter simply gives the aspiring entrepreneur, like Palmer Luckey, another avenue for funding their product.
The product in the lead-in photo, the solidLUUV, all-in-one-camera stabilizer had 1,126 backers for $235,449 pledged against a goal of $113,034 (which means it will be funded) only a couple days into its campaign. Interestingly, there are more than 10 products on Kickstarter alone that appear to be trying to solve the same problem (camera stabilization) including EZ Steady Camera Stabilizer (raised nearly $80,000), and SteadXP - The Future of Stabilization (raised over $500,000). An aspiring entrepreneur can learn a lot about design differentiation, marketing, customer demand and so much more by watching the myriad approaches that different teams are taking to solving the same problem. I believe that there is a very useful educational function inherent in these crowd funding sites. The public nature of crowd-funding sites makes it much easier to see what the product creator is doing.
Crowd funding has a bit of the feel of the centuries old patronage system. Patrons would fund the work of an artist, architect or other skilled artisan and the benefits flowed along a two way street, it gave the talented person the ability to do what they love and gave the patron prestige, a sense of contribution to society and access to the product of the work they had commissioned. Since I haven't always come out a winner when I have backed certain projects and they nearly always take from 6 months to a year longer than promised, I tend to take some solace in the fact that I am helping other entrepreneurs get a chance to do what they love, learn how to actually bring a product to market and maybe even help to contribute to the creation of something that society wants or needs.
Do I think that this whole crowd funding thing is a good idea? I really do. Here's why:
So how many projects have I funded? I'm counting on the fact that my wife no longer reads this blog, but I will admit that I have funded more than ten projects and attempted to fund a couple others (such as a 3D Holographic Display and the ThirdParent child online protection software) which didn't meet their funding goals. Dang, in looking up the failed hologram project to cite to it, I found another one Holapex Mobile Hologram for Smartphones and Tablets and, of course, pledged to it. Somebody please stop me!
The product in the lead-in photo, the solidLUUV, all-in-one-camera stabilizer had 1,126 backers for $235,449 pledged against a goal of $113,034 (which means it will be funded) only a couple days into its campaign. Interestingly, there are more than 10 products on Kickstarter alone that appear to be trying to solve the same problem (camera stabilization) including EZ Steady Camera Stabilizer (raised nearly $80,000), and SteadXP - The Future of Stabilization (raised over $500,000). An aspiring entrepreneur can learn a lot about design differentiation, marketing, customer demand and so much more by watching the myriad approaches that different teams are taking to solving the same problem. I believe that there is a very useful educational function inherent in these crowd funding sites. The public nature of crowd-funding sites makes it much easier to see what the product creator is doing.
Crowd funding has a bit of the feel of the centuries old patronage system. Patrons would fund the work of an artist, architect or other skilled artisan and the benefits flowed along a two way street, it gave the talented person the ability to do what they love and gave the patron prestige, a sense of contribution to society and access to the product of the work they had commissioned. Since I haven't always come out a winner when I have backed certain projects and they nearly always take from 6 months to a year longer than promised, I tend to take some solace in the fact that I am helping other entrepreneurs get a chance to do what they love, learn how to actually bring a product to market and maybe even help to contribute to the creation of something that society wants or needs.
Do I think that this whole crowd funding thing is a good idea? I really do. Here's why:
- Crowd funding encourages innovation. It enables creative people, some of whom have no chance of access to traditional funding, to try out an innovative idea.
- Crowdfunding brings the product creator into closer contact with the ultimate consumer of the product. This often results in pre-release product improvements.
- Crowd funding is a relatively inexpensive means (at the individual level) to aggregate enough money to get an idea off the ground. In angel investing, for example, there is much more at stake for each investor individually.
- There are some basic controls on people getting ripped off. There probably could be a few more, but frankly I haven't see that be too much of a problem so far. I'm sure it happens from time to time, but the stakes for any one funder are usually manageable.
- It doesn't hurt the other funding sources that are open to entrepreneurs. It simply adds another alternative. If anything, that may mildly strengthen the hand of the entrepreneur as they seek capital.
- Crowd sourcing allows consumers to participate in an area (the funding of new ideas) that was once the province of only the wealthy.
- Entrepreneurs who use a crowd funding site like Kickstarter do not have to give up any ownership of their company (at least until a later round as in the case of Oculus).
- Crowdfunding is basically like a crash course in entrepreneurship. And I don't think it really matters that a number of these projects actually crash.
- Failure may be cheaper via crowd sourcing. For one thing, there are generally no legal fees. Also, the process is a de facto consumer interest survey. If you can't get folks to think your idea is a good one when you are in the friendly confines of a tech crowd funding site, your product has no chance.
So how many projects have I funded? I'm counting on the fact that my wife no longer reads this blog, but I will admit that I have funded more than ten projects and attempted to fund a couple others (such as a 3D Holographic Display and the ThirdParent child online protection software) which didn't meet their funding goals. Dang, in looking up the failed hologram project to cite to it, I found another one Holapex Mobile Hologram for Smartphones and Tablets and, of course, pledged to it. Somebody please stop me!