There’s this urban myth about a programmer who wrote a program for a bank, where for every transaction made, a deposit of a penny, I think it was pennies on the dollar, into his own account. He eventually had millions but unfortunately for him he was caught and jailed. I’m not sure if the story is true or not, but the point of the story is that he used minute amounts on a large scale to make millions in a very short period of time.
The other day, randomly browsing the internet, I found out that there is a growing trend online, the concept of crowdfunding. It is perhaps not such a new concept as politicians have been doing it for years to raise funds, even charities or businessmen do it. However, what is new, at least to me, is that it stems from user-generated content or crowdsourcing, which means allowing the work, or in this case the investment, to be outsourced to the masses or particular groups. of people, therefore, make crowdfunding one part social networking and one part capital accumulation or fundraising. What makes this even more interesting is that it is being used as a business model.
Essentially, the model includes a lot of micropayments, made through supporters or, as some entities call them, microinvestors, who donate or invest a small amount in a concept or product that will eventually pay off if enough people give the given amount. If the set amount is not reached, there is no payout for anyone, which can make it a gamble. If the amount is reached, all investors are rewarded in some way, either in a portion of the total future sales or provided with goods or services in excess of their initial payment. Crowdfunding entities seek to harness the enthusiasm and money of strangers, usually from the Internet, by promising them a share of the profits (the incentive) which, in my opinion, is similar to concepts found in gambling, where a higher the risk equals a higher payout usually.
Although this concept isn’t particularly new, it only seems to be appearing on the web now and is starting to become quite common and socially acceptable. This business model seems to be growing and we will soon see many more companies adopting this model, especially due to three main factors:
- The World Wide Web has become a global phenomenon connecting more and more people on a daily basis; the perfect medium for worldwide communication.
- Increase the confidence and convenience of online moving services. For example, people are less concerned with entering their credit cards online or prefer to check their accounts online, etc.
- global recession; Due to the financial recession of 2008, more cautious behavior towards new investments or payments is more likely. This might contradict my factor above, however not necessarily as it might encourage people to diversify their investments across many portfolios, which lends itself well to crowdfunding.
In conclusion, crowdfunding might still be in its infant stage, it’s bound to grow, especially as it’s a simpler and potentially faster method of raising awareness or generating money. I don’t expect it to become a global phenomenon overnight, as it is not ideal for every business or initiative; however, little by little it will become more and more widespread, especially among more tech-savvy users.
It is currently primarily based on fundraising, but could evolve to include more than monetary gains, such as reviews or exchanges for other services. Whichever the case, it definitely focuses on the commercial use of communities where every individual can become a participant and co-owner of ideas, goods or services.
Some illustrative examples of websites worth checking out:
Crowdfunding can be applied to any industry; As long as there is a community and a need, all kinds of crowdfunding initiatives will appear. Take a look at the following examples to see what I mean.
Peculiar
Probably my favorite crowdfunding website, aimed at inventors and product designers who have the opportunity to market their products through the “social product development tool”, which is essentially a community of users who vote, discuss and critique any ideas submitted. All submitters are required to contribute $99 but in return they get great leads, ideas, reviews, or even threats.
This may not look like your traditional crowdfunding website, but the community support seems to be very good, allowing an inventor to quickly learn about market requirements and expose their ideas to a large audience. Additionally, Quirky claims to provide an easy transition from any successful idea to manufacturing, which could put many designers in the way.
selling band
Sellaband is a ‘fan-funded music’ website, which is based in Amsterdam, the Netherlands and Munich, Germany. It has been operating since 2006. The website allows music lovers to connect with unsigned artists looking to record albums. It allows another way to bypass record labels, which is great news for independent label lovers.
Musicians have profiles with biographies and songs. The musician is obliged to sell 5,000 shares, in each one, where he is allowed to enter the recording studios.
If you’ve invested in a band that achieves a record, all investors will be signed up with free merchandise, music, or even a portion of the band’s future revenue.
Cofundos
Cofundos is provided by the University of Leipzig, Germany. Provides users with the ability to submit software requirements and ideas, which are supported by bids. Developers are then invited to read through these requirements, and if they decide the idea and requirements are feasible, they request to do the work and bid. Once the entire list of developers is done, the community that started the idea or requirements decides which developer will do the work.
Once the developer has completed the project, the submitters will determine, by majority, if they are successful and if the final product achieves the original goals. If this is the case, the developer receives the pot of money.
It may seem quite long and strict, but I would imagine this is to protect bidders from receiving their targets. Software houses could consider this model to attract the right talent and reduce time to market for new projects.
indiegogo
Founded in 2008, IndieGoGo is more of a generic fundraising website meant to use its existing community to help people with any project, which can be anything, like a cause, a movie, or really anything to reach your threshold. in a particular defined time frame. IndieGoGo charges 4% of the total amount collected if you meet your threshold or 9% if your threshold is not met.
Each project or initiative has its own rules and policies with some not even necessarily rewarding their contributors. This seems to be the most generic crowdfunding website I’ve seen so far, but it definitely has the widest range of initiatives.
