The crowdfunding bubble of 2013
cringely.com
cringely.com
Oh, I know, it doesn't really mean anything. I just find it interesting that two otherwise academically talented areas are burgeoning hotbeds of neither startups nor even talent for said startups. I guess we can further break down what kind of degrees the citizens of these two Rodney Dangerfield of academic and tech hubs have. I mean, for all we know, they could be in philosophy or advanced basket weaving or, worse, gasp, English.
But the rise of crowdfunding couldn't come at a better time, in my opinion. It's high time the silo gets drained for a more swampy, organic, bubbling ooze sort of scattershot approach of crowdfunding. It'll be spendy, it'll be risky, it'll make outside observers think it's all at best a big gamble and at worst a big liberal boondoggle that will further weaken our country like everything else democrats come up with that dilutes and distributes power into the hands of "the masses".
Further, it'll make professional VCs cringe when successes actually start coming out of these crowdsourced ventures, as they talk of "amateur hour" money crowding out their world of term sheets and share dilution calculations over tapas in Menlo off Sand Hill Rd.
Whatever is going to happen, things like kickstarter and indiegogo and JOBS et al. are going to shake the status quo up big time. In my neohippie indie-and-proud idealistic head, it's not only exciting, it's necessary.
FWIW, there are half a dozen YC startups in Seattle that are doing well. And there are dozens more that have people who came from Seattle.
Also, companies are opening up engineering offices in Seattle pretty rapidly (Twitter, most recently, but also Facebook, Hulu, Google, Jawbone, Zynga, etc).
The reason you don't seem more startup activity in Seattle is that many are lured down to the Valley.
To one of your other points-- UW graduated 23 comp-sci students this year.
Also, I know quite a lot of UW CS graduates who headed down to the valley to do startups. While they could have conceivably found the talent to do it in Seattle, they perceived the environment as better down South. It's not that students from other schools don't do startups, it's just that they go to the Bay area in order to do them, and the culture perpetuates itself.
I don't think crowdfunding will be another venture-infused flash in the pan. As long as the regulatory framework and the tools continue to make proress for the end user, then the potential for crowdfunding to become a huge engine for disruption is unknown. We have to make sure we treat crowdfunding with the patience and respect of a new idea. It's not going anywhere, especially as people start to see the power of leveraging it in yet unseen ways.
It is good in the long haul though. The easier it is for normal people to own stake in business the sooner we can close the tremendous gaps in socioeconomic status between the elites and common folk.
First off, VC today is by no means doing poorly. IPO's, incubators/accelerators, and the spillover of excitement from SV to NYC/LA/Seattle/Boston is pretty evident that big money goes where it needs to go.
It's more so that there isn't -enough- VC out there today, in my opinion, that's really driving crowdfunding and crowdsourcing. Now that the barrier to entry has dipped so low (technical costs) and the need for innovation is so big, that there just is too much consumer demand to get involved with the game. Up until the JOBS Act, to play ball you had to enter the field as an entrepreneur. No one really takes money anymore from someone who hasn't had skin in the game (whether from a successful startup of failed investment).
I like to think of it as thirsty kids at a summer concert, where VC's were the big scary macho bouncers who threw out water bottles to a select few in the front. Only, now, there's more thirsty people than ever and the concert organizers just brought over a firetruck.
Do you really think laymen understand risk, though? Casinos make billions of dollars each year off people who can't correctly model risk even after risking, and losing, large sums of money. Of course, VCs wouldn't put their money on black at the Roulette table--but VCs (and stock-brokers, and investment-bankers) model risk for a living, whereas the median layman micro-investor will have given their one or two investments maybe five cumulative minutes of thought in their lifetime.
To put it another way: there's a sucker born every minute--but no-one stays a sucker for very long, once they've been burned. This means that, when there is friction to investment, the suckers will slowly drain from the pool until only the sharks are left; whereas, when fiction is low, each sucker leaving the game will be replaced by a new sucker joining in, fresh and naive. When 90% of your revenue comes from people who have never invested in anything before, you can build your business model on the mob's irrational overconfidence in your ability to deliver.
So, you're saying we should still keep all the money in that silo? That we should keep letting "risk modelers" who have exacerbated every speculative bubble since the Great Depression keep investing in Color and Groupon and boo.com and flooz because the masses are too stupid to do it for themselves?
Well, okay. But, I disagree.
Personally, I think it's okay that regular people risk (extremely small, in relative terms) money and, more often than not (in the long term), lose it. It's okay to build businesses that only profit because of human irrationality. It's their money to spend (or lose) as they please--and, in aggregate, as businesses, it's our profit. Just so long as nothing's coercing anyone into doing this--like, say, a gambling addiction--we have no reason to feel bad for allowing people to bet on us and then, potentially, flopping.
If point of capitalism is the efficient distribution of resources to the places they need to go then the VC's are actually doing a pretty bad job of it (on average)
At least with crowd sourcing it's a step in the right -direction- toward funding ideas that seem popular, that a bunch of consumers who invest would hopefully be doing so because they also want to use the product.
I'm sure there'll still be serial swindlers and greedy investors who get scammed, but in a utopian world it'd be great if it was sort of like Kickstarter, where you put in $50 with no guarantee of actually getting what you're funding, but now there's a chance you'll not only get that product, plus your money back, plus a nice little bonus sum if the company succeeds. I guess the key is managing the expectations of the investors
What with micro-trading practices looking for ups (and downs) in fractions of a second, market activity no longer seems to make sense, from the previous point of view.
Maybe with a fresh round of investment by "laymen" we can once again move back towards a model that is closer to that of patronage...
(If you don't believe me check out the MoneyTree historicals at https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=histor... Notice that the deal volume roughly matches a 1-2 quarter lag on the stock market's performance.)
Crowdfunding has no exit mechanism. There will be no bubble because there's no "pull" effect.
The critique "derefr" provides below is more apt. There will be fraudsters who will try to prey on the fact that nobody can afford to do much diligence on a $1000 investment.
It's still a new experiment overall that can be innovated upon, but it's not immune to a crash in people willing to throw their money at random pet projects.
Even if the reality is that most projects deliver, having enough bad apples or outright frauds can be enough to hurt progress.
I read a recent piece talking about how many game projects seem to terribly underestimate the amount of money required to fund a game. Enough people who are terrible at estimating their financial needs can also hurt everyone. It's not like this problem can't be solved, but it shouldn't be ignored if you want crowdfunding to succeed.
Tech startups are the seeds of new corporations. The disconnect between VC's and the market continues. Founders are gaining power over investors ~ http://paulgraham.com/future.html
People are going to be ripped off. People are going to lose a lot of money in ventures that aren't rip-offs, but still just fail, because that's the nature of new things. (Because the expectations will be so high, and the investor understanding of the downside risk so low, lots of these people will loudly complain and allege wrongdoing where there is none.) Some bad actors will enrich themselves.
And yet, crowdfunding will still be a rich new source of innovation and wealth, even with the growing/learning pains.
But then it became clear that there had, indeed, been two bubbles.
Now everyone sees bubbles everywhere.
Zing...