A few weeks ago Deloitte published the TMT Predictions 2013. One of the predictions covers the rise of crowd funding portals. Well-known international players are Causes, Kickstarter and Ulule. In addition, numerous niche or local crowd funding initiatives have been started such as Voordekunst, Sonicangel, Appbackr, Crowdaboutnow, Symbid and Seeds.
Crowd funding enables potential customers, participants, friends & family, supporters or stakeholders to financially support an initiative such as a project, charity or start-up. Crowd funding portals can be divided in four categories: consumer lending, reward based, donation based and venture capital. Mostly, the individual contributions are small, less than $1000. However, it is these small amounts that make crowd funding a unique value proposition: dozens of small amounts collected through the ‘crowd’ can make the once impossible, possible today. I expect crowd funding to become a great enabler of social innovation building upon the network effects of social media and the ease of use of online payment services.
Crowd funding reaches a tipping point
Crowd funding reached a tipping point last year and is expected to show accelerated growth the next years. Deloitte predicts that globally the funds raised through crowd funding portals will double in 2013, from $1.5 billion to $3 billion.
As commercial banks are becoming more risk adverse, crowd funding is often seen as an alternative for bank financing. I do not share that vision. Despite its fast growth, crowd funding is still very small to compared to bank financing and I don’t expect that to change significantly the coming years. In addition, many crowd-funded projects will not qualify for bank financing due to the nature of these initiatives. Off the $3 billion of total expected funds to be raised through crowd funding, the categories ‘reward based’ and ‘donation based’ account for respectively $700 million and $500 million.
Customer/stakeholder engagement platforms
Rather than an alternative for bank financing, I see crowd funding portals emerging as ‘customer/stakeholder engagement platforms’. Crowd funding platforms help individuals, groups and start-ups to develop products and to realize dreams with the (financial) support of backers. These backers can be individuals, potential customers, employees, supporters, jobbers, companies, partners or stakeholders. In addition to backing these projects financially this group is more than happy to help, collaborate and to provide valuable feedback on early product releases. Moreover, this group is likely to promote your proposition into their network. Crowd funding is therefore more than a funding alternative. It is a platform to raise ‘smart money’, organize the ecosystem and to catalyze ‘word of mouth’ … all very important building blocks for start-ups to launch successfully.
Crowd funding fuels open incubation
In my blog blog OpenIncubation (www.openincubation.com) I am exploring a new breakthrough development in venturing based on open innovation and distributed entrepreneurship. A good example of open incubation is an app store. An app store is for most of us no more than an easy to use library of apps. From a user perspective, the app store is a publisher who sells and distributes the apps to the end consumer. However, this is different for the app developer. For anyone who wants to create an app, the app store is a development and distribution platform that lowers the threshold to realize ideas. It is no longer needed to begin from scratch. The app store will provide you with a software development kit (SDK) to kick-start the development and once completed with access to millions of potential users.
I see the app store as an open ecosystem catalyzing innovation and distributed entrepreneurship through sharing building blocks of code and lowering the development costs. App development is no longer for the happy few but accessible for large audiences. The consequence of this is that no great idea will remain unique and that successful concepts will be duplicated easily. Therefore, successful app developers need to constantly improve functionality and user experience. If not, others will take over. The long tail of available apps is the competitive playground with only a few successful apps leaving an anonymous existence for the most apps on the right hand side of the (very) long tail.
How to deal with the fast moving long tail of available apps if successful, and how develop a successful app in the first place? I expect that an increasing number of apps will be backed through crowd funding portals. However, the most sought after backers are not expected to provide funding only. More importantly, these backers are likely to become the inner circle of test users and promoters. Through crowd funding anyone with a good idea and a surplus of energy can start a venture. For many this adventure will be no more than a single app. For others, it will help them to cross the threshold to start a business.
The vision of open incubation is that venturing will become the default mode for students, entrepreneurs, employees, their companies or anyone looking for a sidekick. Thanks to developments in social- and open innovation, lean venturing, collaboration portals and last but not least crowd funding, I predict open incubation to become mainstream soon.