Crowdfunding has become the mighty beanstalk

Melbourne Herald Sun, Thursday March 12, 2015

Three years ago I introduced my readers to the new concept called "crowdfunding". This was a novel way to raise funds for small projects and products. Well, what a surprise - this little idea is growing like Jack's beanstalk and is now looking at some very serious money indeed as it knocks on the giant's window.

One of the most popular funders is Kickstarter, which originally helped designer Scott Wilson market the idea of a wrist strap which would turn an Apple Nano iPod into a trendy watch. He put his designs on the web and in a day had raised $1 million.

Seeing a few more examples like this, thousands who had a good idea but would be ignored by the banks, followed this method.

The early enthusiasts had small investments for projects like music albums, painting exhibitions, independent movies and concerts. But it quickly grew beyond this to become a source of small-scale financing. There are now several hundred crowdfunder sites on the internet, which all need to be studied with care: Gofundme, Indiegogo, Teespring, YouCaring; Crowdrise and more, all slightly different.

At the start there is always an idea. The originator persuades his immediate circle about its merits and persuades them to invest a little of their savings in it. He or she then builds a prototype and promotes it on the web. They nominate a base amount of money needed to make it work. Hopefully others like the idea and invest a little of their cash in it.

If the donations hit the target, the project is launched. If not, the funds are usually returned (every source has different rules. It's important to read them first.)

The donors are paid in different ways. Sometimes they receive a copy of the product when it is finally made; other times they share the profits of a successful venture. Sellaband raises fans' money to pay for professional recording or manufacture or marketing of their adored artist. With the decline of music labels and their rivers of vinyl gold, bands have had to fend for themselves - not their strong point. But the enthusiasm and investment of their fans make possible that new album or big-city tour.

All the little contributions mount up. In 2013 the crowdfunding economy exceeded $5 billion and is rapidly growing. Just last week smart-watch maker Pebble launched its Time model on Kickstarter and raised $1 million in 30 minutes, $8 million in 12 hours.

In the UK, The Crowdfunding Centre promotes a diverse range of projects and targets like $140,000 to create a hand-held Geiger counter, to $2,000 to support a Green MP for Bristol.

Computer games are also favourite clients. An online game Star Citizen claimed to have raised $90,000,000, a world record so far.

But you ain't seen nothin' yet. The Chinese have discovered it. With 1.4 billion in their middle class - as canny a bunch of money managers as you'll ever find - they are taking to it like ducks to water. So much so that their government is already worrying.

So is the government of Brazil, where the crowdfunding ecosystem has planted roots. Both for the same reason - it is drawing people and money away from the carefully managed bureaucratic paths and setting them free in cyberspace.

Banks, governments, institutions, hierarchies - so much freedom threatens them all. Which is a good reason to applaud it.