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THE CROWD-FUNDING REVOLUTION
HOW TO RAISE VENTURE CAPITAL USING SOCIAL MEDIA
By KEVIN LAWTON, DAN MAROM
The McGraw-Hill Companies, Inc.Copyright © 2013Kevin Lawton and Dan Marom
All rights reserved.
THE RISE OF THE CROWD
If Facebook were a country, it would be the 3rd most populated. —TechXav
The Group of Seven (G-7), an international organization established to facilitate economic cooperation, dates back to the member nations' summit meetings circa 1975, but it was officially established in 1985, not that long before the commercialized Internet was born. In the ensuing decades after its establishment, a lot has happened on the global economic scene, including the expansion of the group to become the G-20, representing 20 of the world's major economies. But another important trend, at least as profound, has been growing: the number of Internet users in the world has grown to over 2 billion, out of a total population of 7 billion. If we utilize the number of Internet users as a proxy for sizing the available Earthly "crowd," then we have already in essence implicitly formed the Group of 2 Billion (G-2 Billion). And given the current rate of Internet penetration and population growth, in just a few years or so, we may have in just three decades transitioned from the G-7 to the G-7 Billion.
This isn't creative hyperbole. Use of the crowds has disrupted or has begun to disrupt an extraordinary number of business and social activities. Until the more recent crowdfunding trend emerged, many uses of the connected crowd were referred to under the more encompassing rubric of "crowdsourcing," a term coined by Jeff Howe in his 2006 Wired magazine article "The Rise of Crowdsourcing." Conceptually, crowdsourcing using the connected crowd has been in use for much longer than the term crowdsourcing has existed. Perhaps one of the earliest and most high-impact examples is the free software and open source movements that now power many of the world's websites. In fact, free and open source software development has been ongoing since long before the Commercial Internet Age, back when, as your author can attest to, e-mail had to be addressed through an ugly predetermined routing path (the "bang path" for you cadre).
It's hardly surprising that the earliest adopters of what we now think of as crowdsourcing were technology enthusiasts: technology was much harder to use, and enthusiasts were close enough to the technology to be aware of its potentials. Equally as unsurprising were the motivations of the early adopters, which are perhaps better expressed by asking the contrary "Why wouldn't they?" Human nature has always driven people to seek others with common interests and to commune in those areas of interest, as embodied in the proverbial "Birds of a feather, flock together," the essence of which dates back at least to the Greek philosopher Democritus (circa 460 BC). The latent urge has always been there, and the Internet (even prior to its commercialization) has served to merely open up the playing field to a much larger group. Opening up the playing field it did, as the Internet-enabled open source movement built an ever-increasing momentum and entered the mainstream in the late 1990s and early 2000s, coincidental with the general technology initial public offering (IPO) bubble. It received the most flattering of endorsements any newcomer could hope for by the incumbents, being called a "cancer," "communism," "hype," and all kinds of other terms of validation, especially when emanating from big players who would otherwise not waste their breath. Remember the Ghandi-esque "First they ignore you, then they laugh at you, then they attack you, then you win"? Open source was already in the third phase by then.
Today, Microsoft has a web page dedicated to open source, but at the time it was launched, Microsoft took a very different tone: "We recognize the value of working with others ...," which the company wrote out in a familiar and personalized handwriting style, as if on a chalkboard. Well, we now live in a world in which the power and value in collaboration are much more widely respected.
What's been interesting about the name-calling, across the social networking spectrum from open source to crowdfunding, is that they all got it wrong. A more apropos term might better have been "community-ism" because that's what it is—decentralized, self-determined community clusters woven into the tapestry of the greater whole. Communism, by contrast, is when community is centralized, intermediated, and dictated to by a hierarchical bureaucracy. Or in other words, it uses a power structure that often resembles, at least in spirit, the place where an overwhelming percentage of the name-callers come from.
As the web revolutionized the general population's access to information and to each other, and as it made doing so increasingly easier, opportunity costs dropped. What happened to open source happened similarly to a broader class of crowdsourcing and other forms of accessing the general crowd. Mobile phone penetration exploded, and the phones got smarter including offering access to the web. Innovations in personal computers and their portability continued to accumulate, and personal computers morphed into netbooks, tablets, and other form factors. Mobile data plans, WiFi, Internet terminals at libraries, coffee shops, and airports—and more recently Internet-enabled TVs that have applications much the same as personal computers—all are part of the wave of increasing connectivity that has fueled the crowd. And there is absolutely no mystery in any of this—the power of the crowd is essentially a mathematical inverse function of opportunity costs (including lack of access). Technology and Internet access have changed everything.
Wikipedia is one of the most publicly visible "crown jewel" achievements of crowdsourcing, involving massive and organic orchestration. But behind the scenes, search engines such as Google feed on even more massive and yet implicitly crowdsourced information—the web of intersite references (links) on the Internet. Kiva popularized crowdsourced microlending to entrepreneurs across the globe for the purpose of alleviating poverty. CrowdSPRING and 99designs offer crowdsourced graphic design. Springwise crowdsources business idea spotting. The Google Translator Kit mixes artificial intelligence (AI) and crowdsourced language translation. kaChing and Covestor crowdsource finding investment managers. The pilot Peer To Patent project opens the patent examination process to public participation, and it has been trialed with some successes in the United States, Japan, and Australia. Even in the quant hedge fund industry, there is Algodeal, which allows people to build their own quant strategies on their platform—Algodeal allocates money to the best strategies and lets the algorithm authors share in the profits!6
A relatively exhaustive list of crowdsourcing efforts would be an enormous undertaking; a shorter list might be one that itemizes the industries which have not been subject to crowdsourcing. On the long list of the industries that have used crowdsourcing are drug discovery, oil and gas research, search for extraterrestrial life, Mars crater analysis, map and traffic information construction, restaurant and movie ratings, T-shirt design, problem solving, executive recruiting, web usability testing, fashion design, news, and photography. And it was only a matter of time: there is now a crowd conference, billed as "the world's first conference on the future of distributed work," and a crowd consortium. Many people and organizations now recognize the value of working with others.
The Dynamic Duo: Social and Physical Technologies
Conceptually, the collective wisdom and power of the crowd dates back to at least the days of Plato in ancient Greece, where dialogue was the es
Excerpted from THE CROWD-FUNDING REVOLUTION by KEVIN LAWTON, DAN MAROM. Copyright © 2013 by Kevin Lawton and Dan Marom. Excerpted by permission of The McGraw-Hill Companies, Inc..
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