Crowdfunding Strengthens the Economy by Breaking Barriers to Entry

“The crowd is in charge finally and hallelujah and can I hear an amen?”

Funding Launchpad adviser Brian Tsushiya penned this quote on their blog in response to Matthew Yglesias’s Slate article.  You should give Brian’s piece a read.

I would like to build on two of his key points to show how the current form of crowdfunding has strengthened and will continue to strengthen the economy.

1) Removing the gatekeepers. When the crowd has a greater say in which products are funded, this leads to more good ideas being funded and potentially fewer duds.  Unlike pitching their ideas to VCs and angel investors, startups can now open themselves to the crowdfunding community and the broader market as their proving ground.

Crowdfunders themselves are far more reflective of the general market than are VCs and angel investors, who, for all their strengths, are not the Average Jane or Joe.  As Tsushiya points out, the Pebble Smartwatch is a great example of this: when given the chance to pre-order (after VCs had failed to show interest in Pebble), the public responded in full force.  The crowd is not a perfect testing market, but it’s a darn good one.

2) The funding is going places.  Yglesias suggests that crowdfunding leads to more dreaming and less doing.  He states, “A sudden shift in the share of labor and capital that are devoted to dream-following would show up in national account statistics as a large

The funding is going places.

The funding is going places.

fall in productivity.”  Tsushiya appropriately responds by speaking to the rewards and the products made through crowdfunding.  Sure, those who offer e-cards for $20 donations are not fueling an accelerator multiplier, but shirts, DVDs, and pre-orders are tangible goods that require serious labor.  Beyond that, as Tsushiya asserts, “We are not only funding dreams, we are funding people who are turning those dreams into reality.” This is job creation, this is what America needs.

Crowdfunding enables good ideas with broad reach to get off the ground and grow into thriving businesses.  An author whose book might not have been published because of overworked publishers without enough time to spot good ideas could become an author whose book with be published in multiple editions and in several countries. And this is not limited to the artist’s sphere.  Yglesias speaks to the need for labor in hospitals and elsewhere without referencing articles that suggest crowdfunding can make the healthcare industry more efficient.  To consider another scenario, a pizza place that otherwise might not have opened without crowdfunding could not only thrive, but also open a new store a few years down the road.

Sure, many ideas will fail, and no funder should be misled to think otherwise.  But crowdfunding is not removing assets from the broader economy, regardless of Yglesias’s assertions. To the contrary: crowdfunding enables access to economic capital for productive entities that otherwise would be blocked out.  It democratizes the marketplace and rewards strong ideas and better products.

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One Response to Crowdfunding Strengthens the Economy by Breaking Barriers to Entry

  1. Pingback: Crowdfunding | Democratizing the Marketplace | Fund Fever

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