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An interview with Dan Marom, co-author of The Crowdfunding Revolution

An interview with Dan Marom, co-author of The Crowdfunding Revolution

A few weeks ago, we had the pleasure to have a chat with Dan Marom, co-author of The Crowdfunding Revolution. He will be skyping in during our event at Social Media Week Glasgow taking place on the 28th of September at 5pm. The event will be live streamed too.

 

Hi Dan, thanks for taking the time to do this interview, really appreciated. You’re probably a person as well known and well published in the crowdfunding area as anybody, so we really appreciate your time. Tell us a bit about your view of crowdfunding.

Thank you for the kind words. One of the first things to note about crowdfunding is the nature of it is purely social. Kevin Lawton and I recently finalized the second edition of our book, “The Crowdfunding Revolution”, where we wrote a chapter dedicated to the idea that crowdfunding is the new “Like”.  I am of the opinion (albeit a provocative one), that companies who are looking to be “liked” on Facebook are doing yesterdays work. Why? Because “liking” a company is a passive way to engage, whereas crowdfunding is active engagement. Individuals can pick and choose the brands, initiatives, and entrepreneurs they care about, and invest in them. It is a more sophisticated and active form of engagement, engagement, and the social effects are what count.

We would echo those feelings entirely. It’s quite a profound connection that you make when you invest and you offer a level of binding to the brand and organisation or to a project in a way that is much stronger than buying a ticket.

Yes, absolutely. I find it extremely fascinating, and it is my honour to participate to Social Media Week (Glasgow), and to crowdfuture (Rome) in October to talk about this.

It will be our pleasure to have you there. When is the book actually due to come out?

The 2nd edition is forthcoming soon (this December) by McGraw-Hill.

Looking forward to that. Where did you meet Kevin Lawton, the co-author, and what prompted you to write the book in the first place?

It’s actually a funny story–despite writing a book together, Kevin and I have not yet met in person. In the book’s introduction, we discuss the global effects of crowdfunding and the manner in which the age of the internet has changed the way we interact, and we are a living, breathing example! Kevin and I are live 15,000 miles from each other, we have never met, and yet we are writing the second edition of our book! Our story is a testament to virtual cooperation.

Three years ago, while I was looking for an exciting issue to write a Phd thesis about, I wrote several pages and started to interview academic researchers. At the same time, I thought that I should write a popular science book, so I started approaching and interviewing different thought leaders in the field.  At that time, many of the current platforms were in their infancy, but I had the opportunity to interact with the different parties involved. Then I happened upon a blog post Kevin authored about trends, was intrigued by his material, and then one thing led to another and we decided to write the book together. Kevin is a fantastic guy, very smart, and is a true thought leader in this field.

That’s amazing and it’s a great testament to what’s possible now with these technical platform that are available to us (and giving that SMW’s main global theme is empowering change through collaboration there is a wonderful example of it, it’s fantastic).

Going back to the book, when writing the second edition, you must have seen quite a few changes in the 2 years since you did the first edition. Have you updated it at all and what would be the key things that are different now from when you first published? 

That is a great question. We wrote the book in mid 2010, so the landscape has changed in the past two years. The second edition has several updates. First, integrated the latest milestones of the crowdfunding scene. Second, we added several chapters that are focused on the funding campaign, with best practices, suggestions and pointers to make the book more practical.
When we started to interview the major players at the beginning of 2010, the overall crowdfunding market was very small. We have gone a long way since then and the book illustrates the metamorphosis both companies experienced.
All in all, I think that most of our predictions were actualized and we illustrated some of the future trends that we are seeing now.

The thing that I think will make huge difference is that whilst equity crowdfunding has been possible in the UK for some time with Crowdcube leading the way, and Brewdog, a Scottish craft brewery, that raised 3.5 million in equity share sales through crowdfunding, in the States this wasn’t legal. But now if the JOBS act becomes permissible then clearly there will be a massive burgeoning of the take up and popularity of equity based crowdfunding platforms.

Absolutely. Over the past three years, Kevin and I have been involved in several groups working on the regulatory aspects. We are optimistic the JOBS act will transform crowdfunding from a trend to the industry standard. While it will take time, and there will certainly be challenges, I think it will happen. I am also interested in the regulations aspect of crowdfunding. Kevin took a leading part at the work on the JOBS act, and we anticipate the SEC regulations will be impactful on the future of crowdfunding in a positive way.

I think you’re right. (A law firm here in Glasgow just launched their own equity based crowdfunding platform, it’s really starting to take off over here too.) The thing that I find fascinating is that much of this equity based crowdfunding will be first round, so the traditional capital market will get involved at the second and third round funding. I’ll be really interested to see if and how these traditional capital market players will come get to grips with the fact that they’re second-round investing in a company that has already sold 10 per cent of their equities to people that are out of their traditional environment.

Great point. I believe hybrid mechanisms are the future. The crowd itself will find it hard to succeed with a start-up company or any other initiative alone without some institutional money, and the classical financing intermediators are currently resisting to any change. There is  tension between these mechanisms, and I think we will see a lot of change in the next five years. There are no alternatives to these hybrid mechanisms. It is also a major business opportunity, and has serious potential to be a gold mine. The bridging between financial institutions to crowdfunding platforms and players could be a significant area of growth in the near future.

Thank you very much, Dan. 

TinyLightBulbs for tiny little innovators

TinyLightBulbs for tiny little innovators

Last week I attended World Wide Rome, a very innovative conference celebrating the “makers movement”. A couple of days before we spoke to Mark McLachlan, of TinyLightBulbs. And it was a pleasure for me to be able to reconnect the dots of an always more connected world.

The concept of the conference was a simple one: we are in a world of makers, we have the tools, we have the mindset, so we can just go and do it ourselves. We have gone from User Generated Content to User Generated Goods.

To put it with the words of Chris Anderson, who inspired the audience with a fascinating talk, over the past 20 years the web and the PC liberated us to be makers, revealing a new way to work, collaborate, innovate in alternative to the 20th century industrial model. In the past century the only products that made it to market were those of mass popularity, the “one size fits all” products. What we were missing before were the right infrastructures, the right tools, and also the confidence in our own capabilities. From the web, Chris Anderson continues, we have learnt that we can do it, and that we can move beyond the broadcast and the mass-media model. The web liberated voices and talents and at the same time it liberated distribution. And let’s not forget the web also liberates capital through crowdfunding. Basically, “if you can find 10000 people who want your product you can do it.” It’s the long tail of physical stuff: “all that other stuff, the niche products, the specifics, the things that are just right for you but not for everybody else”.

We mentioned that one of the main obstacle before was the limited number of channels to reach the market. And that’s where TinyLightBulbs comes in: here you will find “tiny little ideas” of innovators that are making the world better all together, but that “didn’t have where to go or that decided not to go to big investors to get their product up the ground”. TinyLightBulbs is one of those channels that is now available to all those little makers and innovators who decided to “do it themselves” and either crowdfunded their product or independently produced it and want to bring it to market.

It was a pleasure to talk with Mark, who kindly told us their story:

DC. What is TinyLightBulbs (TLB) and when did you set it up?

MM.  TLB is a site that exclusively lists products that either came about through independently funded projects or crowdfunded projects, those projects could come from Kickstarter, Indiegogo, Rocket Hub, any of the crowdfunding platforms. We actually, my associate and I, have been having this idea rallying around our brains for a while but we actually just started to set up the site and get the ball rolling on things about two months ago, around mid January.

 

DC: Ah ok, so it’s very new.

MM: Yes, we are very young but really progressive start up company, we’re experiencing a lot of rapid growth which has been nice.

DC: So how did you come up with the idea of the website?

MM: The idea came about when my associate who had a successful project on Kickstarter, when his project ended he started to notice that there is a decrease and fluctuation in the sales once he was no longer on Kickstarter so he realised that there was definitely a need for an ecommerce site that cares specifically to projects come from that same type of background. And so that’s where the whole idea came from, there needs to be a site that specifically allows independent projects to be sold there, so that’s where TLB came from. The name comes from the idea that, we would like to view each of the projects that we sell on the site as, I guess, tiny light bulbs if you will. The light bulbs being an idea so all the projects that we have on our site are these small ideas that are just very early stages, some of them at the later stages of developing and growing further.

DC: So you mentioned that all the products are independently produced or they are produced thanks to crowdfunding. Is this a criterion to get on the website, every product has to be crowdfunded and/or independently produced?

MM: Yes, actually the majority of our products come from crowdfunding websites, the majority of them come from Kickstarter, some from Indiegogo and Rocket Hub and other sites like that, but we actually do have several products, quite a few actually, that have nothing to do with crowdfunding, they just came from innovators with a great idea that didn’t have to go, or that decided to not go, to big investors to get their product off the ground. So let’s say we‘re open to any type of products that could be classified as independently funded.

DC: The most used platform to crowdfund a product that is now sold on TLB you mentioned is Kickstarter, which is of course the biggest one, then IndieGoGo, and …

MM: And Rocket Hub, we’ve got a couple of products from there, but yes, definitely Kickstarter just because they’re positioning themselves as the foremost crowdfunding platform.

DC: Any European platforms?

MM: Not quite yet. Some of the products that we may have found through various means that were not crowdfunding, that may have not started from crowdfunding but none of them I’m aware of are through European platforms.

DC: How do you find these innovators and how do you drive them to your website?

MM: Over the past couple of months we’ve just been getting in touch with some of the products that really stood out to us as being what we feel as a great fit for our site. So we’ve been emailing a lot of these small business owners and innovators. We presented our product to them and see whether or not they would be interested in forming this partnership with us. More recently, over the past week or so, we’ve had a couple of the sellers that have come to our site actually agreed to post links on their project pages, such as on Kickstarter, so when people now go to their page on Kickstarter or Indiegogo or wherever they are there will be a little link there directing them to our site letting them know that their product can be purchased there and that certainly brought a significant amount of traffic to our site over the past week or so.

DC: Have you got any partnership with the crowdfunding platforms themselves?

MM: No, we haven’t actually created any partnership with the platforms themselves. Just because we feel the partnership should really be between us and the sellers themselves. We feel that the platforms that are in place are excellent and they do what they do very well but then once the product has been produced, as I said before, there really hasn’t been until now a platform that allows them to distribute their product passed that point.

DC: How is the platform working so far? It’s very new but are you are already selling a lot of products or are you finding it difficult to sell the products that are now on the platform?

MM: Some of our products are selling very well, or sell several of them a day, other don’t sell in such as large quantity as that, but what we noticed one of the big contributing factors, as I was mentioning before, is whether or not the sellers themselves are directing traffic towards the site and letting their base of potential customers know of our site. As you just said we are a very new start-up so we’re still in the early stages and over the past couple of weeks we just started to organise our campaigns, we’re still beginning to see the results of those. But yeah, so far so good, we’re very pleased with the sales that we’re getting and we’re hoping there will only be an increase from here.

DC: Great, and what are the major challenges that you’re facing?

MM: Probably the biggest challenge right now is something that I’m sure any startup would be facing is just the factor of visibility in itself. We can have the best website out there for these indie projects, but if nobody knows about that, we’re not going to be able to go anywhere. So right now we’re just trying to get over that obstacle, just getting our brand out there and getting our name recognised on the internet. Initially we thought that our biggest challenge would actually be getting the products on the site and getting forming partnership with these innovators but really that’s been one of the easy things because people, so far we’ve just got such a positive response from these innovators that have signed on with us, so our biggest challenge is probably just visibility and establishing ourselves more as the go-to-place for all these indie products.

DC: How important is social media to the success of your website? Are you using them at all to enhance your visibility and reach more people?

MM: Yeah, definitely, we of course are on YouTube, Facebook, twitter, we actually have just started a review programme on YouTube, so we will give sellers the option to send us review products and then we will upload review videos on YouTube. So, I mean we are doing that on YouTube, we of course tweet out about a new product on twitter and all that stuff. Just because the whole crowdfunding community is, I think, very socially driven, it’s a very unique type of community, definitely social media is a very crucial part for our development as well because it goes hand in hand with that whole idea of the community driven approach.

DC: Is there any vetting process or do you accept any products on the platform?

MM: I would say that probably the closest thing to a vetting process is we just want to make sure that any of the products that we sell on our site are finished products, we don’t usually accept like an arty and craft type of thing, I mean something that is not quite finished, but as long as you can be considered “one of the little guys” or underdogs, anyone who can be classified as independently funded we’re hoping to sell their products.

DC: Are there any fees?

MM: There are no fees to list with us, so let’s say you had a product and you wanted to sell with us and the product did not make any sales for the length of time that it was on our site we would not charge you anything. The only time we get paid is when the actual seller get paid, so when the product sells we take 13% of that sale, and the 87% goes to the seller. That’s another great thing, a lot of sellers that have signed on with us have been very pleased we don’t charge them anything just to be with us on our site, we will only take that 13% when they will start making money.

DC: A question about crowdfunding, I think it’s very important for you and for your concept that crowfunding is developing. Where do you see crowdfunding going, especially in the light of the changes in the US legislation?

MM: I haven’t been able to look into what are the latest updates with the US legislation but if I understand it correctly I believe that the bills that they are wanting to pass are going to be beneficial to crowdfunders. I believe that they are going to make it easier for the little guy to get the project off the ground and so I think that that on top of the fact that these platforms such as Kickstarter, are becoming more of a household name, I definitely think that crowfunding is something that is going to be around for a long time because it is a win-win for the innovator, they get their project funded, for the backers, they get a feel like they have some sort of ownership and they’ve invested in the product and so there is a fulfilment there, and I definitely see it being around for a long time and developing even more.

DC: Thanks a lot Mark, and good luck.

*** A podcast of this interview is available on twintangibles.podbean.com ***

Our Crowdfunding Seminar at Social Media Week London

Our Crowdfunding Seminar at Social Media Week London

Our last few posts have been all about crowdfunding,  a phenomenon that is picking up pace the world over. The proposed changes in legislation on crowdfunding for equity before the Senate in the USA, if passed, will probably give it another big push. Crowdfunding is set to become a common and effective approach to funding for the future, so why not learn a bit more about it? It’s never too early to be ready for the next “big thing” in the social web.

We help organisations to understand, identify and create value from the opportunities presented by Social Media and the mindset that underpins it, and our advice on crowdfunding is part of that. Crowdfunding is very rooted in the dynamics of Social Media, i.e. lower barriers to entry, the concept of the ‘long tail’, social media reach to name but a few. Our research and work in this area over the past couple of years has, we believe, given us excellent insight to the the practicalities of effective crowdfunding.

Last June, we organised one of the first events on crowdfunding to take place in Scotland, and during Social Media Week, which we curated for Glasgow, there was a very interesting gathering of UK crowdfunding platforms, including GrowVC and WeDidThis. Scotland itself seems to be a very fertile area for crowdfunding, and the buzz around it is growing. Furthermore, we have just completed  our crowdfunding blog series on Social Media Week website, which gave us the opportunity to speak  again with some of the key players in the field, like Crowdcube, Profounder, Fund:it.

We would like to share some of our insights with you. That’s why we are hosting a free seminar on crowdfunding, as part of Social Media Week London, addressed to those who want to learn more about crowdfunding and how it links to the Social Media mindset. Delegates will hear about the options available and how they can develop a strategy for success in their approach to using this new model for raising finance.

Hope to see you there!

Book Here: Crowdfunding – A Concept Whose Time Has Come? – Fri 17, 12-1pm, Hub Westminster,  London

Components of a Good Crowdfunding Campaign

[This article was originally published on Social Media Week Global blog]

Like everything, there is no secret recipe for a successful crowdfunding campaign. From our previous posts it should be clear that there are lots of options, motivations, possibilities and tools behind every single crowdfunding project and similarly there is no single approach to creating a successful campaign. However, we have used our experience and analysis of crowdfunding to come up with a bit of general advice that should be useful to anyone wishing to start a crowdfunding campaign.

1. Clarify objectives, targets and time frame
It might sound obvious but it is important to clarify early on exactly what it is that you are seeking to achieve and share it amongst the team tasked with delivering the project. This is an important step because it should encourage you to come to an agreed position and also help bound the scope of your aims. It should make you realistic, and consider if this is a single project or perhaps a multiple project process, making the targets more manageable. As they say, eat the elephant bite by bite.

If you are planning on selling equity, establish how much and what value it is, and get the right legal advice before proceeding.

Give yourselves a time frame, this is crucial: it will help to manage the resources you will need to allocate to the project and to factor in that cost if necessary. It’s also a call to action. Don’t be afraid to review your schedule,  you may need to revise the date as you establish what needs to be put in place before starting.

2. Choose the right crowdfunding platform
As we’ve seen in the latest post, choosing the right crowdfunding platform is a very important step in the process. You will almost certainly use one of the many turnkey solutions rather than trying to set it up by yourself. As ‘turnkey’ solutions they make the process more straightforward and have the typical functionality you need to operate a successful campaign. As a result this should lower the cost of the campaign by comparison to doing it yourself on a bespoke self-built platform. Also they will have passing traffic on their suite that will often fall outside of your own contacts and this ability to reach beyond one’s immediate audience is a key aspect of running a successful campaign. But each platform has a specific value proposition and you must choose from amongst this diversity a platform for the one that is correct for your campaign. It’s useful to articulate your decision making factors to ensure you have given this the necessary thought.

Of course the onus on delivering the campaign is very much on the project holder. These platforms offer a transactional service but the project holder must do the outreach and campaigning.

3. Choose the right rewards
Considering what rewards you should offer in a campaign is often the most difficult part. It can be challenging as it would be good to have a portfolio of rewards that are diverse and are of varying value in order to attract the widest spectrum of contributors and investors. Expectations of return can be extremely diverse, particularly in a networked world, therefore you should seek to accommodate that diversity of reward by including tangible and intangible returns. You should keep in mind that what you might like may not be what others like. Given that you should always seek to tap into the long tail of investors, you should imagine that people who at present know nothing about you or your project may well turn into funders. You absolutely want your initial contacts to want to reach out to their contacts, and those contacts to theirs and so on. We may not know or have any awareness of exactly where all of our funders will come from, so a reward’s value is both in the specific return to the investor but also in the value as an item to be shared further. By this we mean: would an investor want to tell the world about the reward they have just bought?

Another key element of operating in the online environment is the idea of lowering barriers to entry. You must be able to allow a diversity of funders to step in with opportunities for even very small donations being possible. Aggregation of small amounts into a largest overall total is fundamental to the offer of crowdfunding. Additionally every investment is an opportunity to celebrate and communicate, so lots of excuses to keep those communications lively and regular is important for momentum.

Different organisations will have different scope for generating rewards. Product developers can, and usually do, offer different versions of the product at optimum prices, ahead of normal availability and value added services in combinations that constitute a variety of reward packages. Some circumstances and organisations may have less tangible things to offer. Diversity and exclusivity are two fundamental elements. If an organisation finds it hard to identify tangible rewards, as it might perhaps be a third sector service provider, then creativity is important at arriving at a reward package. It is legitimate to consider approaching third parties to provide rewards for a given project. They benefit from the exposure and association with the project and may well have social media communities and relationship capital that can also be leveraged for a project. Collaboration is a key aspect of the networked environment, and it should be taken into account for every project.

4. Pitch and communication strategy
Having a well thought-through pitch is essential. Potential investors need to understand what they are involved with and why they should care. Being able to communicate and reiterate those key messages throughout the campaign is fundamental. Likewise, it’s important to identify the key words in the story we are telling as these will be valuable in identifying an audience as we reach out to online communities.

Passion is important – why should others care if you don’t? We can’t emphasise enough that you are reliant on your contacts reaching out to theirs and so on for this to succeed. If you simply appeal to your usual contacts and don’t find ways of making them reach out further then you are not using the power of social media and networked communities and you are not tapping into the “long tail”.

To do this the story in the pitch must be easy to tell and be worth telling. There are many approaches to developing compelling stories. One of them is Chip and Dan Heath‘s approach in Made to Stick: Why Some Ideas Survive and Others Die. They offer the SUCCESS model for developing quality content:

Simple – Find the core of any idea
Unexpected – Grab people’s attention by surprising them
Concrete – Make sure an idea can be grasped and remembered
Credible – Give an idea believability
Emotional – Help people see the values and importance
Stories – Empower people to use an idea through narrative

It’s worth trying it out on people outside of our immediate circle for an objective view.

5. Video and other media
A video to promote a project is very valuable. In a rich media world people are readily attuned to rich visual prompts. We will get only limited attention time so video can convey more in a short space of time: one will say more in terms of message in a short video that in a written pitch. It can be more engaging and can introduce quirkiness or humour and other elements that can make a campaign more attractive. If you are going to make one, then you need to ask yourself if and how you can make it. It doesn’t have to be Oscar quality, however, depending on the circumstances, professional video can be very slick. In any case, you should carefully consider the commitments associated with creating one: technical skills and equipment, time, participants, etc.

Video is a fundamental and very engaging communication method, but it’s wrong to rely only on that alone. There are still a lot of people out there who aren’t able to watch videos all the time, especially on the workplace, or on the go. Therefore it’s important to consider also other engaging pitch formats, such as a funny and short slide presentation, or a podcast, and to never underestimate the value of a simple and clear text. You should always keep in mind that the audience is very diverse. It’s good to keep it short and simple, and at the same time to provide enough material for those who will want to know more (link to more information, more resources, etc).

6. Audience & Channels
Whilst we emphasise the need to reach beyond the initial immediate audience, you will always have to target an audience to begin with. This audience may be part of your existing relationship capital and contact groups, but it may also be that you are seeking to make contact with a group you have not had extensive contact with before. Nevertheless the viral reach of social media is a key component in the success of crowdfunding and if an organisation is not already social and does not have a social media asset base to draw on then it may be useful to spend time and effort establishing that before entering a crowdfunding campaign.

Whatever audience you are seeking to reach you need to ensure you can identify them and their behaviours, particularly in a social media context. Do they use it and if so what channels? How can you find more contacts? Key words identified in the pitch development might help here. Fish where there are fish as they say, so you need to make sure your choice of channels matches where your initial audience is likely to be. It’s crucial that you evidence your thinking, do some research, and don’t just assume.

7. Resources, Responsibilities and Action
Any project will require time, effort and resource to make it a success. It is down to you. You will be generating momentum for your campaign, populating it with compelling content and messages, and sustaining that throughout the project.

The communication aspect will have several facets. Original content created by you  and used to generate interest and engagement; content that reflects and comments on the progress of the project; and content generated in the transactions and conversations that develop through the course of the campaign. You can plan to resource the latter two in terms of time and effort but it is difficult to predict what the content will be. But the first element – original content – you can and should plan for as it will be important priming material to kick start a campaign, and extra ammunition you might need to sustain the communications.

You should not underestimate the demands made by this process. Planning is important and will pay off in the long run. It’s worth surveying your organisation for content that can be re-purposed to keep up a rich and compelling stream of material that will both develop the relationship with investors and be items that could be shared by them and so extend the reach of the campaign.

You should think about what you have that you can already use and how you might produce it in the course of the campaign: fact sheets, newsletters or archives that you can draw on, for example. You could set up alerts and monitoring to trawl for material on line that you could use. It’s important to establish who will actually do the publishing and engagement with the community, and if there is an optimum time when your key audience might be open to communications, and what channels are they likely to use. A style of engagement is designed to bind people in and engage them in a relationship, so listening is a key part of one’s behaviour. In a communication plan everybody should pay attention to the following behaviours and approaches:

• Engage – Listen, nurture, converse, respond

 Give funders privileged access to information

• Promote – Don’t assume that people know

• Keep updating – keep the campaign alive

• Honour your promises – sounds obvious but not doing it will kill a relationship

• Be naturally social – don’t talk only about the project, share other thoughts, join other conversations, be social for the sake of being social

• Say thank you! – it’s common sense and common courtesy

We keep emphasising that a crowdfunding campaign takes effort and so before starting any project you should ensure you have the right people to help and that you consider their skills and their needs.

8. Monitoring
It’s important to set some monitoring targets. Each crowdfunding platform will be able to give some insight to traffic and activity but there are many other monitoring tools you could use, many of which are free. Setting targets will help to keep engaged and indicate progress. They will act as indicators of when you are doing well in order that you reinforce this and keep your enthusiasm. Just as importantly they can act as alerts for when things are not going so well and you can take the necessary action to adjust and respond.

To précis the long post above, these are the main steps to a successful crowdfunding campaign, which should be applicable to any project.

– Have a strategy. You need a plan

– Set an achievable target

– Select your project carefully.  It must be realistic & achievable

– Identify your target audience/s

– Select your platform carefully; choose the right model for your project

– Develop your rewards. More is better, be creative. What assets can you draw on?

– Create a powerful pitch. Stories, passion and multiple media

– Select your channels. They vary.

– Develop a publishing plan: content, channels, timing. What resources can you draw on, where does your content come from, what can you repurpose, when?

– Define the resources required; Who will do this, and when. What existing skills can you draw on internal and external?

– Set a time frame; even if the platform is open time give yourself one

– Monitor: to gauge progress, to identify where you are successful/less successful

– Be Social Media ready

– Check how Social Media ready your audience is

– Be Human = Be Social

Most importantly, don’t just ‘go do it’!

A social history of crowdfunding

A social history of crowdfunding

[This article was originally published on Social Media Week Global blog]

Many refer to crowdfunding as a “new phenomenon” (or – at worst – the “new bubble”). However, it is not as new as we may think; as a concept, it has been around for some centuries already. The novelty lies in the technologies and the mindset that are giving it a new momentum, technologies and mindset that we will consider in this chronological record of the main events leading to what we now refer to as crowdfunding.

We should mention in passing both Jonathan Swift’s Irish Loan Fund, and Dr. Yunus’ project and Grameen Bank, as ancestors and pioneers of the microfinance phenomenon, each of which have histories of their own but which go beyond the scope of this blog’s subject. We will instead consider crowdfunding strictly in its connection with the web, and as a sequence of developments parallel to the growth of the social web.

Michael Sullivan is credited with coining the term crowdfunding back in 2006 with the launch of fundavlog, a failed attempt at creating an incubator for videoblog-related projects and events including a simple funding functionality. This scheme was “based on reciprocity, transparency, shared interests and, above all, funding from the crowd,” but the term crowdfunding only really began to be used by the masses a few years later with the advent of the platformKickstarter.

Late ‘90s – 2000: Internet campaigning and Charity fundraising

If we accept the “web” and the “crowd” are two essential elements in defining crowdfunding as an activity, the very first examples could perhaps be observed in the late ‘90s, when some Internet campaign funded projects and charity fundraising platforms started to appear.

On the social web front, in the mid-1990s, SixDegrees.com and AOL Instant Messenger were launched, and people were starting to sign up for online profiles and to connect with their friends to share information or to just keep in touch. Web connectivity between people started to grow and go beyond the simple email exchange.

Creative artists- endowed with a loyal and now connected fan base- started asking their “crowds” to fund new music, albums or a tour. For example, the British rock group Marillion, who gathered $60,000 in 1997 to finance their US tour using an Internet campaign, the “Tour Fund.” In 2006, SellaBand emulated this model, “where fans invest in music” building a specific platform where everyone could start raising funds to record an album.

Similarly, charity fundraising began to see the potential of the web and crowds when in 2000,JustGiving was founded as a charity fundraising site for challenge fundraising. Over 11 years, some 12,000 UK-registered charities have benefitted, raising more than £700 million in all.

However, whilst these examples tapped into the web, passion and the innate generosity of human beings, what was still missing was the right technical “social” infrastructure tools, and- most importantly- the mindset that underpins their use.

Mid 2000: Kiva, Microlending platforms, and Peer-to-peer (P2P) Lending

In 2005, Kiva was launched, the first platform to allow entrepreneurs to lend money to developing areas across the world. KIVA is now one of the most successful micro-lending platforms, having raised over $165 million through crowdfunding, and with an outstanding 98.83% repayment rate.

What makes Kiva “social” are some of the typical features you would have in a social network, like pictures, profile, updates; but more than that, it’s that sense of personalisation that originates from knowing what you’re doing with the money you’re giving.

This model was developed and expanded into what is known as peer-to-peer lending, an alternative to traditional bank lending, and it grew to accommodate the process of lending money outside of exclusively developing countries. One of the first peer-to-peer lending site to launch was Zopa, a London-based company providing an online money exchange service. Zopa operates within the UK, Italy and a service is being developed for Japan. In 2006, Prosper was launched in the US, following the same model.  In 2007, LendingClub launched the second peer-to-peer lending site. Like KIVA, individuals submit requests for funding, which include a story, a picture and their credit risk. However these platforms were not particularly successful in the beginning, possibly because of overly tight regulations, and maybe because society was not quite ready, yet.

But social networks in those years were quickly becoming more and more similar to operating system. It was not more only about becoming friend with someone or live-chatting. Social networks were becoming platforms able to support a broad range of social applications and interactive functionalities. However, identities and experiences were still essentially disconnected between them.

2008-2009: The years of consolidation

In 2008, IndieGoGo was co-founded by Danae Ringelmann and Slava Rubin to “democratise fundraising” and “to empower creative entrepreneurs with Do-It-With-Others (DIWO) tools.” In 2009, US-limitedKickstarter initiated as a “new way to fund creativity.” These platforms are today two of the most popular crowdfunding platforms in the world. The working principle is the same: a large group of people can pool their money to help fund an idea. The real novelty that they brought in was that when one contributes to these projects, they should not expect to get money back. Depending on the level of pledges, the applicant can get rewards but no money.

Also the P2P model initiated by Prosper and LendingClub started a new life in those years. More and more lenders and borrowers were starting to connect directly via the Internet and avoid the banks. As SMW global curator Don Tapscott describes them: “What these P2P networks do that banks can’t (or won’t) is let people align their investments with individuals or causes that they believe in.” The two platforms registered with the SEC in 2009 and 2008, respectively.

Both the appearance of Kickstarter and IndieGoGo and the “new life” of Prosper and LendingClub are a sign that the technical infrastructure and the social mindset were now there, and ready to give crowdfunding its momentum. The changes in expectations and the personalisation of funding and finance are products of that new mindset that we’re cultivating thanks to – to keep it short – our continuous and rich interaction on social networks.

At the same time innovations like Facebook Connect and OpenID started to allow individuals to integrate their social connections as part of their online experience, blurring the lines between networks and traditional sites. Every experience could now be social, a crucial step for crowdfunding and its dependance on a strong potential for “virality”. The networks grow at the rhythm of community advocacy.

2010-2011 Equity based crowdfunding: GrowVC and CrowdCube

The creators of a Kickstarter project tapped into these elements to successfully crowdfund theirTikTok+LunaTik Multi-Touch Watch Kits. In less than one month, between November and December 2010, 13,512 “backers” pledged $942,578 of their $15,000 goal, setting the world record for the largest amount of money raised using crowdfunding.

This year, at the beginning of October, a woman named Rachel Perrie became the millionth person to back a Kickstarter project when she pledged to a film project.

In the past couple of years, as Kickstarter and Indiegogo have continued to grow quickly, we’ve seen an extraordinary profusion of new reward-based crowdfunding platforms seemingly appearing every day. Many are niche-targeted or limited to a specific geographical area or community or differentiated in some way.

However, there was still room for a new exciting development. In 2010, GrowVC launched, starting what is known as equity-based crowdfunding. GrowVC, which defines itself as “a new community funding model,” wanted to be the new KIVA for technology startups and help startups companies secure initial funding of up to $1M. It has grown to over 9000 entrepreneurs, investors and experts from 200 different countries.

It was followed in 2011, by Crowdcube, the world’s first business finance crowdfunding platform for businesses to raise equity finance. Last month, on the 22nd of November, the Rushmore Group secured £1 million investment from 143 investors to fund the development of a new venture in London. The investment was raised on Crowdcube in only 4 weeks and set a new crowdfunding record.

Both these platforms inaugurated a model that cannot currently be exploited in the US because of legal restrictions. But also these may be about to change. On the 3rd of November 2011, the US House of Representatives passed the crowdfunding bill H.R. 2930 (known as the “Entrepreneur Access to Capital Act”) that could allow startups to offer and sell securities via crowdfunding sites and social networks.

As outlined above and as already mentioned in the last post, crowdfunding has strong connections with the reach, empowerment and engagement of social media. The rapid evolution of social media is giving free rein to our social nature without the limits of any borders. For some time ‘Crowds’ have been forming affinities around interests and missions, creating new products and services, feeding innovation and, to use Wired journalist Jeff Howe’s words, they’ve been “using the Internet to exploit the spare processing power of millions of human brains.” One of the results has been a new mindset built on trust and participation, ready to embrace diversity, capable of reinventing itself, and empowered to change the world. Our need to support and get involved in projects we care about is deep rooted in our humanity as much as our tendency to improve things and innovate in order to live better. Crowdfunding can be seen as a natural response to fill the gap left in capital formation and funding models in the modern society.

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