June 19th, 2012 by Tim Greenhalgh
Crowd funding is to my mind the best single social innovation enabled by the internet. But while I am a fervent supporter of the communal aspects of this next step on the web, I have some concerns, largely based around the rules of finance, which we know are elastic and variable.
Crowd funding, as I understand it, is a practical concept that connects people who have money with people who need it. Like so many brilliant ideas, fluid and so is without boundaries.
It simply provides the space where people can find the investment or loan they need and where people with money to invest can find the best return.
The banks used to do this but they stopped doing it a long while ago, preferring to take a punt on the stock casinos around the world. And weâ€™ve always known that banks are basically high-falutinâ€™ money shops that have gone way beyond their station in life. Crowd funding takes things back to basics, which benefit all parties.
First lesson of the market is that if you leave a space, someone will come in and fill it, usually at your expense. Thatâ€™s what has happened to the banks.
So, while the majestic financial professionals continue to embrace Bigtime Betting, and continue to ignore the real world (millions of people who need them), crowd funding fills the very big gap that these masters of the universe (MOTU) have left.
We have Zopa, Funding Circle and Ratesetter, for example, providing the connection between people who want a better than zero return on their money offered by the MOTU and those that need a loan minimum of fuss. Sweet.
And we have Kickstarter blazing a trail in crowd funding for business ideas, connecting investors, reducing risk, and helping to build new companies.
My concerns are first that the crowd funding loan market is largely unregulated and so can be fatally damaged by one or more bad news stories, where someone loses life savings, or an investment opportunity is simply a scam.
My second concern is that the incredibly obese MOTUs will close in and so crowd funding will be swallowed whole. These fears were raised by news that SoMoLend had raised $1.17 million in a seed investment round. Thatâ€™s traditional, old-school and weird. The companyâ€™s LinkedIn profile is also scary but so is the idea that the traditional funders have bought into the new game.
I can see a better future with crowd funding but also, in my bones, understand that the global banking brands drag their enormous bulks into meetings where they will buy up the crowd funding universe.
But they will leave another small space for creative people to engineer new ways to exchange money.