The Wild West of Crowdfunding

Looks like I have a new example to use in class for legal changes that create new business opportunities.  There are several new entities popping up due to the the growing interest in crowdfunding and the passage of the JOBS Act that will allow crowdfunding to be used for equity investments rather than just donations (the Kickstarter model).  We are also seeing growth in microfinancing, which is another segment of this industry.

One entry into the wild west of crowdfunding is a Nashville-based company InCrowd Capital, founded by Phil Shmerling.  Phil has started writing a blog on crowdfunding that should become a valuable resource for those interested in this budding new industry and those hoping to learn how to become an effective crowdfunder.  Phil is a sharp guy who will surely offer all of us useful information through his blog.

Another site was recently launched is called Seeds.  Seeds is not taking an equity approach to crowdfunding.  Instead, they have established a “game” site that links participants to real entrepreneurs seeking micro loans.  They describe Seeds as “Farmville meets Kiva.”

Here is how they describe how Seeds works:

The Seeds revenue model is three-pronged:

1) We monetize impatience. As you rebuild a citadel in the game, you can either wait hours in real time to complete a level, or use virtual currency to expedite the process. Virtual currency can be purchased with real dollars. Proceeds will be microlent to borrowers.

2) The sale of virtual goods: Within the Seeds virtual world, you can purchase limited edition virtual goods using in-game currency to decorate your world. Proceeds will be reinvested in for-profit microloans.

3) Actively asking players to make microloans to the businesses of their choice.

Thus, we’re merging two multi-billion dollar industries – social gaming and microfinance. We’re taking the profits social games make, and reinvesting it in entrepreneurs for a profit, empowering women and buoying economies (including our own!).

While some are beginning to worry that crowdfunding is just one big train wreck, I think that the evolution of the crowdfunding industry is going to be a fascinating combination of a series of little train wrecks and some amazing successful innovations.

Who is going to win?  Nobody knows, but the market will begin to give us some insights very soon.