By Wun Kuen Ng
The NYU Stern Center for Business Analytics + Magnet Media sponsored a multi-disciplinary study of crowdfunding and crowdsourcing on Friday, May 9.
Crowdsourcing, a term coined in 2005, is using the online community to outsource work or tasks to individuals. Crowdfunding is a way of funding one’s project by asking an online network to contribute a small amount to achieve a monetary objective.
Traditional source of funding came from venture capitalists. However, if one is a beginning or small entrepreneur, no venture capitalist would bother to listen. Hence, the idea of democratization of fundraising online came about in 2008 from Danae Ringelmann, Eric Shell, Slava Rubin, who team up to create Indiegogo. A similar platform like Kickstarter has cropped up in 2009.
Crowdfunding is good for the early stages of trying to raise money. Academics and practitioners weigh in on the questions such as, Is the crowd mad or wise? Will there be fraud? Where is the good deal? Individuals want to know.
Even with professional venture capitalist, they would eliminate eight out of ten projects, and the last two might still be a flop. To be successful with crowdfunding, an individual still needs to tap into their own network, provide a compelling narrative that would appeal to the emotions of the one billion users online. An online crowdfunding campaign will also offer market insight, such as if there is demand for the project/product and where the market is. This can prove helpful for big company investors once they see how the campaign is doing.
If the crowd donates to one cause or project, then is it a good investment? There seems to be an argument for the crowd is wise. One can also argue that just because lots of people are watching the public market, it does not mean it will do well. The product might require more money than estimated. Although, the idea is if there are many eyeballs watching, the bug is shallow, online investors are still giving money at their own risk. After an incident in April 2014, Indiegogo deleted its anti-fraud guarantee. One successful campaign, GiveForward, is a medical crowdfunding, which helps individuals pay for medical bills for their loved ones.
Whether one is looking for money to start a film project, a product designer looking for seed money to create a prototype, or a PTA father looking to raise money for his child’s school, there is now a way to capital.
Leave a Reply