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Op-Ed: The new face of financing? Crowdfunding grows up, adds scope

Crowdfunding has become a go-to for difficult projects which couldn’t get conventional funding. It’s generated extraordinary results, and a range of products which got off the ground because of its sheer scope.
The nearest thing to crowdfunding in finance, and semi-conventional finance at that, is micro-lending, the occasionally fashionable practical way of borrowing money. Other than that very small acknowledgement of the difficulties of getting finance for new things, finance is the same stagnant sewer of instant negatives for those trying to develop a product or an idea.
Crowdfunding isn’t a loan, but it comes with benefits for those funding. It’s also an opportunity to fund interesting and exciting ideas. The new face of crowdfunding, however is all grown up and quite fascinating in the way it’s developing in to a funding source for all types of new things.

Logo of American Crowdfunding Association

Logo of American Crowdfunding Association

In Google News you’ll see pages and pages of things of all kinds. It’s the nature of the things being crowdfunded which is interesting: new way to get progressives in to the political environment despite the dead hand of conventional UK politics. Elsewhere, UK councils are using crowdfunding to deal with building renovations, renewable energy and infrastructure.
In Hong Kong, crowdfunding is helping female entrepreneurs in a tough market for finance, “removing the gender lens”, as the crowdfunding experts describe it.
Facebook is starting a built-in crowdfunding option which will allow users to donate to 6 classes of funding, including health costs, personal emergencies, and other potential financial disasters.
In Australia, a crowdfunding campaign has raised $200K to unseat the somewhat-loathed Minister for Immigration at the next Federal election. This is in part a reaction to Australia’s much-despised and mistrusted two party donations system, which makes things tough for independent candidates.
In the US, equity crowdfunding, which means getting equity for your funding, is a possible semi-equivalent of a stock float, and a very good idea for new products that need capital but not the murderous conventional placement issues.
Growing up – Getting crowdfunding right
At the same time, crowdfunding platforms are taking action against risky, or in some cases downright improbable, crowdfunding campaigns. Where there’s money there’s trouble, and a perceived free handout environment hasn’t discouraged a few of the world’s least likable from trying out their luck.
In fairness, nearly all crowdfunding campaigns do have to have a degree of solid proof of their campaigns, and that’s where the freeloaders come unstuck. Most of the big platforms have been relentless on eliminating dodgy campaigns, and pretty successful.
This is both a necessary growing-up process for crowdfunding and much better for the crowdfunding environment as a whole. The stricter management of crowdfunding makes it more credible, and more viable. The future ramifications of crowdfunding also make it essential that this “real deal only” approach is always working and always able to eliminate fraudulent campaigns.
Crowdfunding is not regulated to any great extent, but it has become a way of accessing funding which is too popular and too widespread to be contained. It’s meeting a need. It’s a survival mechanism, and a bridge between ideas and funding. Whatever form crowdfunding takes, there’s no law, and can be no law, against contributing to a private funding proposal.
The big question for crowdfunding: Where’s the upper limit?
In theory, classic crowdfunding doesn’t have any limits, but in practice it’s a type of financing which is quite difficult and has no certainty of success. People will or will not fund some projects.
The new types of crowdfunding are much more immediate, with clear goals and no blue sky. The more advanced types of crowdfunding, like political and local government based funding, however, could also have a very high trajectory for funding. That’s a real game changer.
What if:
Crowdfunding impacts Super PACs and other political donations? That’d be a spanner in the holy of holies of global politics, and a very appropriate reminder that real democracy has better options than “sponsor a crook”.
What if it displaces conventional finance like micro lending? Modern lending practices are still very much based on the old business model of commerce. It’s slow, it’s antiquated, and it doesn’t deliver much but debt. Crowdfunding isn’t usually extravagant, but it does deliver a better way of obtaining realistic levels of funding.
What if it becomes a primary source of funding for new products? This is a natural way of beating the start-up finance racket which becomes the grave of many new ideas? That’s not at all unlikely, and lowers risk for all involved. The finance markets and their dino-loans have left themselves open to this, and it is working.
What if crowdfunding evolves as a more efficient option for product development? Crowdfunding usually brings in not angel investors, but expert specialist developers? That could easily happen, because the startup market is always open to better options.
It’d be the classic win-win for startups and supporting finance. Developers and manufacturers usually don’t have to shell out huge money for crowdfunding ideas. They can develop them with relatively low overheads, and without the usual corporate-based major cost issues. Result, more ideas get to market, therefore more products, and more revenue.
I can see a scenario where crowdfunding replaces finance on multiple levels. Crowdfunding can work across crypto-currencies like Bitcoin, too, with blockchain support for transactions. That’s quite a few problem-solving sessions in the future, but it’s not at all out of reach.
Crowdfunding may be the long-awaited legitimate child of capitalism. Not a bastard, but a much needed meeting of capitalism and democracy. Ironic, yes. A possible way out of the doom of faceless, mindless corporate greed, perhaps. A better option, no doubt about it.

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Written By

Editor-at-Large based in Sydney, Australia.

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