Crowdfunding and risk

I’m a big fan of crowdfunding, that idea put forward by websites like Kickstarter and Indiegogo┬áthat allows people with ideas to connect with groups of people interested in their idea to help fund it. I’ve helped fund a few ideas myself.

Recently, I’ve been reading a lot about crowdfunding initiatives that have failed and the various amounts of ire felt by the people who helped fund those initiatives. Most of these articles leave me shaking my head.

What it seems that most people who engage in crowdfunding fail to realize is that it is simply another form of venture capitalism, one with usually lower dollar amounts and with the risk distributed among far more people. Venture capitalists will tell you that such initiatives are fraught with risk and that many, if not most, of them fail at their initial premise even if they eventually go on to succeed.

Crowdfunding is not some kind of magic elixir for success for ideas the Man won’t fund. Instead, it is venture capitalism for the masses, a mechanism to bring ideas forward that would not otherwise have a chance for all sorts of other reasons, usually profit margin.

In realizing that crowdfunding is venture capitalism, crowdfunders should realize there is going to be risk. A lot of it. Not a small number of projects are going to fail. Even after they are funded. Sometimes even after the product has been produced. There will be all kinds of reasons for these failures. They can’t be helped. They can’t be stopped.

And none of these things should stop dedicated crowdfunders from continuing to crowdfund. I know, for me, realization of this risk has made be a particularly discerning funder. I watch a lot of projects for a long time before I commit, and there have been more than a few successful projects I decided not to invest in because I was not sure. There have been some projects that I have invested in only to have them fail. That’s how the system works.

But, beneath all of those ideas, is the critical idea that makes crowdfunding worth it: giving life to ideas that might not otherwise succeed even though they are worthwhile simply because they will never make enough money to become a larger venture. Crowdfunding bypasses the court of the big venture capitalists and gives the little guys a chance.

Risk and all, that’s a venture worth supporting.

DLH