Role of the Crowd: Crowdfunding and beyond by David Seaton

The role the crowd plays in the process is an essential component to
eventual project outcome. Despite the seemingly simplicity of
exchanging a promise to pay for a promise to deliver, the entire
process is highly interactive. Given the finite funding time
constraints successful crowdfunding projects require viral marketing,
which is ultimately determined by the crowds overall involvement. Each
individual acts as an agent of the offering, selecting and promoting
the projects in which they believe most in. They will sometimes play a
donor role oriented more towards providing help on social projects. In
some cases they will become shareholders and contribute to the
development and growth of the offering. Each individual disseminates
information about projects they support in their own personal online
communities, generating further support in the role of (promoters).
Motivation for consumer participation stems from the feeling of being
at least partly responsible for the success of others’ initiatives
(desire for patronage), striving to be a part of a communal social
initiative (desire for social participation), and seeking a payoff
from monetary contributions (desire for investment). This is often the
most overlooked benefit of crowdfunding, as regardless of the project
type (Equity or Rewards) the early funders will often become brand
evangelists driving accelerated growth before early adapters and
beyond market maturation.

Crowdfunding Risks and Industry Barriers: by David Seaton

Crowdfunding also comes with a number of potential risks or barriers.

Reputation – failure to meet campaign goals or to generate interest
result can be considered a public failure. Reaching financial goals
and successfully gathering substantial public support but being unable
to deliver on a project for some reason can severely negatively impact
one’s reputation ultimately causing irreversible damage.

IP protection – many Interactive Digital Media developers and content
producers are reluctant to publicly announce the details of a project
before production due to concerns about idea theft and protecting
their IP from plagiarism.

Donor exhaustion – there is a risk that if the same network of
supporters is reached out to multiple times, that network will
eventually cease to supply necessary support.

Public fear of abuse – concern among supporters that without a
regulatory framework, the likelihood of a scam or an abuse of funds is
high. The concern may become a barrier to public engagement.

Time Investment – The required level of time resources which must be
dedicated prior to launching a crowdfunding project, and during the
management of the project itself, can often be overlooked and
misjudged by many people considering raising funding through
crowdfunding. Crowdfunding draws a crowd: investors and other
interested observers who follow the progress, or lack of progress, of
a project. Sometimes it proves easier to raise the money for a project
than to make the project a success. Managing communications with a
large number of possibly disappointed investors and supporters can be
a substantial, and potentially diverting, task.

Crowdfunding Benefits and risks: Crowdfunding and Beyond by David Seaton

Crowdfunding campaigns provide producers with a number of benefits,
beyond the strict financial gains. The following are all examples of
the non-financial benefits of crowdfunding.

Profile – A compelling project can raise a producer’s profile and
provide a boost their reputation.

Marketing – Project initiators can show there is an audience and
market for their project in advance of full scale launch. In the case
of an unsuccessful campaign, it provides good market feedback and can
even allow for positive iterations and changes to be made prior to
sunk costs.

Audience engagement – crowd funding creates a forum where project
initiators can engage with their audiences. Audience can engage in the
production process by following progress through updates from the
creators and sharing feedback via comment features on the project’s
crowdfunding page. Long-term engaging an audience to this degree is
precisely the type of community building that can lead to the creation
of an loyal evangelist customer base.

Feedback – offering pre-release access to content or the opportunity
to beta-test content to project backers as a part of the funding
incentives provides the project initiators with instant access to good
market testing feedback.

Proponents of the crowdfunding approach argue that it allows good
ideas which do not fit the pattern required by conventional financiers
to break through and attract cash through the wisdom of the crowd. If
it does achieve “traction” in this way, not only can the enterprise
secure seed funding to begin its project, but it may also secure
evidence of backing from potential customers and benefit from word of
mouth promotion in order to reach the fundraising goal. Another
potential positive effect is the propensity of groups to “produce an
accurate aggregate prediction” about eventual market outcomes.
Proponents also identify a potential outcome of crowdfunding as an
exponential increase in available venture capital. One report claims
that If every American family gave one percent of their investable
assets to crowdfunding, $300 billion (a 10X increase) would come into
venture capital.  Proponents also cite that a benefit for companies
receiving crowdfunding support is that they retain control of their
operations, as voting rights are not conveyed along with ownership
when crowdfunding.

Philanthropy and projects: Crowdfunding and Beyond by David Seaton

The social and philanthropic nature of crowdfunding is what originally
drove a great deal of the initial popularity prior to main stream
adaption. A variety of crowdfunding platforms have emerged to allow
ordinary web users to support specific philanthropic projects without
the need for large amounts of money. Global Giving allows individuals
to browse through a selection of small projects proposed by nonprofit
organizations worldwide, donating funds to projects of their choice.
Microcredit crowdfunding platforms such as Kiva (organization) and
Wokai facilitate crowdfunding of loans managed by microcredit
organizations in developing countries. The US-based nonprofit Zidisha
offers a new twist on these themes, applying a direct person-to-person
lending model to microcredit lending for low-income small business
owners in developing countries. Zidisha borrowers who pass a
background check may post microloan applications directly on the
Zidisha website, specifying proposed credit terms and interest rates.
Individual web users in the US and Europe can lend as little as one
dollar, and Zidisha’s crowdfunding platform allows lenders and
borrowers to engage in direct dialogue. Repaid principal and interest
is returned to the lenders, who may withdraw the cash or use it to
fund new loans. A firm called DonorsChoose.org allows public school
teachers in the U.S to request materials for their classrooms.
Individuals can lend money to teacher-proposed projects, and the
organization fulfills and delivers supplies to schools. There are also
a number of own-branded university crowdfunding websites, which enable
students and staff to create projects and receive funding from alumni
of the university or the general public. Several dedicated civic
crowdfunding platforms have emerged in the US and the UK, some of
which have led to the first direct involvement of governments in
crowdfunding.

Real estate crowdfunding

Surely one of the most dynamic and widespread utilizations of
crowdfunding will be made in the Real Estate Lending industry. Real
estate crowdfunding is the online pooling of capital from investors to
fund mortgages secured by real estate, such as “fix and flip”
redevelopment of distressed or abandoned properties, and equity for
commercial and residential projects, acquisition of pools of
distressed mortgages, home buyer down payments and similar real estate
related outlets. Investment, via specialized online platforms, is
generally completed under Title II of the JOBS Act and is limited to
accredited investors. The platforms offer low minimum investments,
often $100 – $10,000. Currently, the only alternative to stringent
traditional bank financing is hard money or private money sources made
up of a handful of loosely regulated and scrupulous lenders
counteracting approval requirements by charging exuberant fees. Thus,
the more virtuous nature of crowdfunding could break down industry
barriers, increase competition, and ultimately lead to a more
prosperous and inexpensive source of real estate project funding.
Alternatively, the potential for fraud and concerns of deception are
also seemingly more of a concern with Real Estate Crowdfunding
compared to other relative uses of crowdfunding.