Crowdfunding: A New Era or a New Trend?
In general, those who ask for money from strangers are seen as lazy, parasitic or irresponsible. But when that same proposition is put upon the Internet, the response changes. Kickstarter, Indiegogo, GoFundMe and other platforms designed for the easy access of “crowdfunding” have risen from the depths of the new millennium. Usually, this type of investing occurs on Wall Street or from some sort of mega-corporation business deal, but these websites have allowed regular people to request funding from other regular people. Similar to the relationship of YouTube and television, these crowdfunding websites have allowed individuals to bypass requirements that had existed previously and still find the same success.
The practice that these platforms surround, crowdfunding, is explained by the word itself. A crowd, or a group of regular people, fund, or donate money to a cause or product that they would like to see exist or occur. This is basically investing, like the stock market, but on a much smaller scale. The range of things you can fund also widely varies. You can see a project aimed toward raising money to help someone who’s struggling pay their rent, or another requesting funding in order to bring an innovative product to market. Once again, like Youtube, crowdfunding allows for a deeper communication between an audience and someone proposing a new product. It’s also an outlet for people to reach out to a wide audience for financial aid.
But like all new things, Kickstarter and other websites are open to criticism. Within our culture and economy, many hold onto the idea of “earning” your success. This idea of digital sharing is rejected in this way, under the premise that such funding makes people lazy. Or for the fact that it is a different way of finance from the past, as it has changed business models and contributed to a new “start-up” era.
While the ease of participating in crowdfunding is just a few clicks away, obligations between investors and those who own these funds aren’t as clear.
In January of 2015, a start-up company, the Torquing Group, raised $3.4 million for a project they wanted to launch through Kickstarter. The product they were trying to make a reality was a handheld drone. For around $250, financial backers would get an “ultra-portable, personal aerial photography and HD video capture platform, small enough to fit in the palm of your hand and intelligent enough to fly all by itself!”
With the funding they received, they met their promise of providing their customers with the product in July 2015. But the drones were reported to not work as they were promised. They were “staying airborne for only a few minutes, colliding with walls, and delivering very poor video.” About 600 of these were shipped out to customers. Shortly after, the company’s CEO and lead engineer resigned for “personal and irreconcilable differences.” The company itself went under, declaring bankruptcy in November of this year. This became such an issue between the backers, who essentially gave away $3.4 million and Kickstarter, that Kickstarter even hired a freelance journalist to investigate the company and what went wrong.
Despite this large scandal involving crowdfunding, Kickstarter reports that only nine percent of its projects fail to deliver. Projects known to have had outrageously successful turn-outs include The Micro: The First Truly Consumer 3D Printer. This 3D printer offered a more affordable and available option to everyday people who wanted to get their hands on this new technology. Within a month, more than $3 million was raised and the product was shipped to satisfied customers.
Another product, a “3D pen,” found success in allowing users to make free-standing, 3D drawings with a pen. This project amassed $820,000 between 8,030 backers and shipped out to customers last year.
The weighing of risk and reward comes into play when considering crowdfunding and the opportunities it offers. Even so, this new platform, one that is slowly leaving its experimental stage, has created a new way of navigating finance and is distinct in this era of start-ups and innovation.
– by Cheyenne Haskins ’16