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Aug 27

Crowd Funding – Fad or Phenomenon

Seldom do you get an industry that grows at the rate of 91% per annum. Rarely do you see a sector achieving global growth that is not restricted to one continent or another. And never do you see such exponential growth surviving beyond the “fad” phase. But in the case of crowd funding, we see a wonderful new form of e-commerce defying conventional thinking and achieving all of this and so much more.

Perhaps it can be argued that the growth curve may flatten out a little. Whilst that may be true, the naysayers who dismiss crowd funding as merely a fad fail to recognise the deeper significance of this form of e-commerce, its timeliness given the state of the world economy, and the stage it represents in the evolution of social networking.

Venture capitalists are no longer venturing. Over the last 10 years, the amount of venture capital worldwide has dried up by 90%. The conservative nature of this source of funding has left start ups and new concepts without venture capital as a reliable form of funding, as venture capitalists require a proven track record and a degree of market traction to have been established before they consider their financial intervention. Indeed, it can be argued that the term “venture capital” should be recoined “development capital” as it has shifted to being just that – funding for the development of verified products, theories and business concepts.

Venture capital as a source of funding is not on its own in retracting its cavalier approach to the markets, especially since the GFC three years ago. Punch drunk banks and traditional funders as a whole have been beaten by regulator and market scrutiny post the losses of the global economic meltdown. The amount of available capital has dried up, and those seeking funds have realised that the bar has been considerably raised, leaving a gaping hole at the bottom of the funding ladder. Those with great ideas and inspiring innovations have found it nigh on impossible to access the lowest rungs of available funding. It is this vacuum in the capital markets that has created fertile ground on which crowd funding could succeed at the grass roots level.

The economic conditions of the world, coupled with the emergence of microfinance (the ability to transfer small amounts of money quickly and easily) and the rapid rise of social media created the perfect storm in which the planets aligned, with crowd funding being the solution of not only best fit, but of perfect fit.

And with the power of social media, the concept of crowd funding was build on a rock solid and sustainable platform. Many recognise crowd funding as the next evolution of social media, where people not only say they “like” you and what you are doing, but are prepared to put their hand in their pocket to show it.

With the world in post GFC mode and traditional lenders being more conservative with loaning money, this is a fast and flexible form of accessing capital, and allows “tribes” to support their own. It is true governance by the people, for the people, where the real judges of what “gets up” and what does not is determined by the most democratic of ways – by the crowd.

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