[This article was originally published on Social Media Week Global blog]
On Tuesday 20th September, at Social Media Week Glasgow, an entire day was spent dealing with the subject of Crowdfunding. The founders of the Crowdfunding platform SoLoCo– which launched that same week – had gathered together an impressive group of representatives from some of the major crowdfunding platforms in the UK for a workshop-based happening, highlighting the opportunity and the collaborative spirit of those engaged in this increasingly talked about activity. It was right and proper that this happened during Social Media Week as the links between crowdfunding and the reach, empowerment and engagement of social networking are strong ones.
Of course the idea of raising money through collection from donors or investors is neither new nor novel. But crowdfunding goes beyond that. Fundamentally it is rooted in the idea of microfinance, the notion that small sums, when aggregated, make a difference. It is that idea of a groundswell of small actions that, when gathered together, have a significant impact that is at the heart of so much of the attraction of social media and social networks as a method to effect action and change. It is in this link we can begin to explore the affinity between crowdfunding in particular and social media in general.
If we refer to Charlene Li and Josh Bernoff’s book Groundswell they make a point of illustrating that much of the empowerment and impact of social networks is often found in communities and consumers of whom a brand or organisation may be completely unaware. And so it is with crowdfunding. Your intention in a crowdfunding campaign should be to reach beyond your immediate tribe and tap into individuals and groups that you may not be aware of and perhaps, before your campaign began, were unaware of you. This process is possible through the viral referral and reach of social networks where you seek to make first touch contacts into advocates and ambassadors to use their connections to jump the six degrees of separation to a global investor community. This means we must embrace diversity and accommodate emergent views, and accept that motivations to get involved are many and varied and not necessarily the ones we immediately imagine. In a highly networked and diverse world we need to broaden our notion of expectation of return in keeping with the sort of groundbreaking insight developed by people like Yochai Benkler in his work Coase’s Penguin.
Our next step down this path will take us into the notion of The Long Tail as popularised by people like Chris Anderson. This is a concept that lies close to the heart of crowdfunding and many of the innovative economic models being enabled though social networks. To tap into the long tail the cost or barriers of each “transaction” needs to be sufficiently low to make it “economic” to work there. Once there, the traditional models are no longer the only game in town. In a crowdfunding scenario, the transactions barriers are lowered by making the contributions small enough to extend the number of people who are both able and willing to participate. The turnkey crowdfunding platforms that provide a transactional solution for a crowdfunding campaign reduce the friction and costs further and make the process increasingly viable.
The transformational power of these tools is another feature that crowdfunding shares with the ethic and spirit of social networks. They allow us to reimagine ourselves in different guises, to become things that were once gated from us or perhaps we considered fanciful. In the same way that we can become film critics and political commentators, citizen journalists and inventors, the barriers and gatekeepers of investment fall away so that the rarefied world of finance becomes imaginable and possible for all of us. We can at last reimagine ourselves as engaged in what was once a closed world.
Crowdfunding has a strong relation to other behaviours that we would recognise as prime aspects of social media in the idea of validation and trust based on distributed cognition- or the slightly more vulgar wisdom of crowds. In crowdfunding we have a network of individual judgement and validation that can asses a business plan, market test a product, and police behaviours based on trust models. These all have value for those seeking both insight and investment in their plans and products, and is born out in the security of many crowdfunded lending models that enjoy repayment rates that high street banks could only dream of, based on transparency and trust tags.
Over the next few weeks we will post a few blogs that investigate and prompt debate around the idea of crowdfunding, its provenance and application, and its growing popularity as a mechanism for raising and sharing funds in a capital constrained but increasingly networked world. We hope you find them though provoking and informative and look forward to hearing your ideas as we step into what is an increasingly common activity in a campaigning world of engaged investors, funders, lenders and entrepreneurs.
If you want to learn more about crowdfunding and how to put together a crowdfunding campaign, then you might want to attend our workshop in Glasgow on the 14th of December