Category Archives: crowdfunding

Some thoughts on the ado about crowdfunding fails

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Or, caveat emptor always applies.

If you’re at all like me and follow the crowdfunding world with a sense of excited curiosity, then you can’t help but to have noticed the crop of “how not to get scammed” articles littering the tech writing world in the wake of the FTC ruling over a known Kickstarter based fraud. I think the thing that surprises me the most about all of this is the apparent naivety it seems to reveal about the crowdfunding world.

Don’t get me wrong, because I don’t think even most crowdfunders are naive. Rather, I think enough of them are that their collective outcry when a campaign fails or turns out to be a scam gets a lot of attention. And that attention seems to come from the fact that not a small number of people think the crowdfunding world is somehow immune from the risks that have attended all ventures since the beginning of mankind.

Quite to the contrary, crowdfunding is its own unique kind of risky venture because it lets anyone who wants to help incubate ideas that other forms of venture would never would probably never let see the light of day. It democratizes the incubation of ideas, and as anyone who has paid attention to democracy will note, it’s a messy, error-prone process.

So, yes, crowdfunding efforts are going to fail. Even ones for great ideas. Scamsters are going to succeed in separating people from their cash. Even seasoned venture capitalists fall for that (Dot.com bubble or Enron anyone?). Neither of those facts make the process bad. Rather, they reveal crowdfunding has risk. If that bothers you, don’t participate.

As for me, I take the risk because I enjoy the potential outcome. That’s worth losing some money once or twice, because the potential reward so often outstrips the risk.

DLH

Crowdfunding and risk

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I’m a big fan of crowdfunding, that idea put forward by websites like Kickstarter and Indiegogo that 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