Does Crowdfunding Work?

Barence writes "Is it really practical to fund a business from hundreds of small donations harvested over the internet? With Kickstarter grabbing the headlines with some high-profile projects, it's all too easy to assume crowdfunding is great, the obvious solution for a business that needs investment. But just how feasible is it for most businesses? This article looks at several lower-profile examples and investigates the positives and negatives of this new way to raise money."

Comments

Long article; short TLDR

[vlm]

Its a long winded article, the short TLDR is crowdfunding is the hip new term for the middle aged concert ticket business model which is based on the ancient business model of patronage. Some things like films work really well with a concert ticket / patronage model, almost everything else, not so well.

I've crowd funded a couple films. Mostly tech. Mostly tech documentaries directed by Jason Scott. I'm eagerly awaiting the release of 6502, for which I donated a healthy chunk of change. So I have some experience with this business model, and I like it.

I basically paid "an entire row of movie theater tickets" for a documentary I really want to see, done by a guy with a proven track record of decent tech documentaries. Needless to say the local theater is totally uninterested in taking a couple hundred bucks to put my taste of movie on instead of the bubblegum for the mind they specialize in. I literally cannot get the local movie theater to take my money. But via crowdfunding over the internet, I can finally get someone to take my money.

Crowdfunding really works best when there is no way to get "the locals" or the "established companies" to take my money. There are VERY FEW areas where this actually works. There are no shortage of pizza restaurants around here... crowdfunding a "pizza startup" isn't going to work. Or yet another web 2.0 company following existing trends.

Another thing you need is fanatics... Where mass industry collides with supply and demand. I'm more than willing to give away $15 for Stross's latest novel. Heck I'd give him $50. There is no known business model where I can give a book author $35 more than list price other than crowdfunding.

Finally crowdfunding works well in a gift economy. My wife got me a package deal with some custom signed artwork a couple years ago as a gift. Awesome, but out of pocket I would not have dropped that kind of dough for myself. Right now is prime gift giving time for Christmas, maybe even a little late, so you're going to see crowdfunding articles peak around this time of year.