If there’s one technology trend for this decade that has people scratching their heads, it’s crowdfunding. This method of raising capital for companies, projects and even sports teams using the Internet to accept investments both large and small is increasingly becoming the go-to method of raising cash. Once generally limited to tech companies and new inventions, crowdfunding is showing up everywhere today: two recent films at the Sundance Film Festival were crowdfunded, and the Jamaican bobsled team, headed for the 2014 Winter Olympics in Sochi, Russia, raised some of its funds from crowdfunding.
So why are people scratching their heads?
The method is unique, and the long-term implications are still unknown. While many worthy projects have launched thanks to crowdfunding, any method of raising money will eventually attract crooks, and crowdfunding risks getting its reputation tarnished if too many scams originate in the model. There is also a risk of eventual “donor fatigue” in that too many investors will weary of requests and a lack of returns after exposure to too many projects.
Still, there is evidence that many people are willing to place bets on crowdfunding as a viable method of raising money. The prominent Web site Kickstarter is the world’s largest crowdfunding platform. Since its launch in 2009, the site has seen more than five million people contribute to fund more than 50,000 creative projects of different types. The company is in the process of expanding its reach globally.
Another crowdfunding platform, Indiegogo, has been raising some venture capital as of late (albeit the traditional way). This week, the San Francisco-based company announced that has raised $40 million in funding that will help it expand its global reach and build up its mobile presence. This is the company’s third round of funding and its largest effort to date. It comes on the heels of the success of two Indiegogo-backed films at the Sundance Film Festival, “Dear White People” and “Life Itself.”
According to one of the company’s co-founders, Slava Rubin, the crowdfunding model is becoming more accepted as business as usual.
“If the 80s were about desktops, the 90s were about commerce and the 00s were about social, then the next decade is going to be about crowdsourcing,” Rubin told the UK newspaper The Guardian. Rubin noted that while the company has some 1,000 competitors today, it currently maintains a leadership position. “We bring the crowd to crowdsourcing,” he said.
The model is important because it frees itself of the whims of venture capital firms that are generally looking for large and immediate payback. Crowdfunding investors often offer funds for more daring projects, admiring the vision rather than the high return on investment rates.
According to John Doerr, general partner at KPCB, one of the firms backing Indiegogo, the crowdsourcing model has the potential to transform the global economy.
“We are excited to partner with Indiegogo to help support the dreams and aspirations of the Indiegogo community and continue establishing Indiegogo as the leading international platform for funding new ideas and innovation,” said Doerr.
Edited by Ryan Sartor