Chapter 9: What The Crowd Funds

The concept of crowdfunding covers various instances of individuals contributing small amounts of money to a cause, whether as an investment or a charitable donation. This is not new behavior - corporations and telethons have long been ways to aggregate small amounts from many people - but the networked technology makes it simpler and more straightforward, and in many instances cuts out the middlemen of bankers and organizers.

Crowdfunding caught recent media attention through the phenomenon ofperson-to-person lending, in which individuals could loan money to others who needed loans that were too small or too risky for the banking industry to deal with. The farmer in a third-world country who needed a few hundred dollars to start a poultry operation could ask for a loan (and repay it) through an online brokerage and be connected to individuals who could spare the money and assume the risk that bankers wouldn't.

The website Kiva, which specialized in small loans between "philanthropically minded lenders" in developed economies and needy entrepreneurs in the third world was a media darling for a time, so much so that the amount of money available to lend was greater than the demand for loans and the firm had difficulty finding enough borrowers to take advantage of the charitable lenders. (EN: Note the language here - Kiva really was more of a charity than an investment to most participants. It was a desire to help, not to profit, as the risk was high and returns very low.)

A pre-internet (1976) experiment conducted by an economics professor in Bangladesh involved making small loans to villages to jump-start local economies - and found that 58% of them were able to establish sustainable operations from his initial loans and "escaped poverty." This suggests that the poverty of third-world nations isn't for lack of vision or willingness to work, but lack of seed capital.

There's mention of the Barack Obama's 2008 Presidential campaign, which collected nearly $300 million from small online donors before the primary.

Another mention of crowdsourcing the production of music, video, and television - though this is still merely a dream. There's a bit of grousing about the relatively small number of movie studios and recording labels that "control" what gets produced (EN: A common misconception - there are many small operations that produce items that have limited audiences. Moreover, it's a bit rigged: if a small independent house is successful, it is declared "big" and removed from the category of independent producers. Catch-22.)

Thus far, there have been no successes in getting people to fund an undertaking of any size. The author describes one filmmaker who has started a crowdfunding project to finance a film, but it's still just a dream.

He then describes a copywriter in England who organized a crowd to buy a local soccer team. In essence, it was like selling shares in a corporation, as those who contributed had voting rights in how the team would be conducted. (EN: He fails to mention that this lasted only a year, and fell apart well before the book was published - so it's an interesting stunt but not evidence of a sustainable practice.)

He likewise aggrandizes the "Sell a Band" project, which enabled music fans to pool their money to pay for the costs for bands to record a studio album. It's another stunt that got some attention, but produced ten albums over four years, none of which was a commercial success. And while he claims that "there has been a lot of talk in the music industry," there is little evidence of any action in switching to a model of crowd-sponsored artists.

(EN: It's rather disappointing that much of this is overblown hype and may be intentionally deceptive. They are interesting ideas, certainly, but not successes nor signs of a change in the industry at large.