Crowdfunding vs Venture Capital
January 30, 2017 Leave a comment
It seems like a catchy idea is all an aspiring entrepreneur needs these days in order to raise money on crowdfunding sites like Kickstarter, Indiegogo, and GoFundMe. Do crowds gravitate toward funding bad ideas? Or can crowds make rational funding decisions and, better yet, exceed venture capital investors and banks in identifying promising projects?
The crowd is often thought of as being a group of fools, but it turns out the crowd does consider the quality of projects and outcomes pretty well. One reason crowds might do as well, or even better, at picking promising projects is that they tend to be more diverse and might avoid, for example, some of the gender biases that have long directed the bulk of the venture capital funding to male entrepreneurs. Studies have shown that crowdfunding is actually opening up entrepreneurship and investing to more women.
For women entrepreneurs, crowdfunding promotion sites like 40Billion.com have become very popular because they help to even the playing field by enabling women investors to find women entrepreneurs to invest in. Crowdfunding promotion sites broadcast projects to their large networks of users across online sites, including the most popular social networking sites – Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for crowdfunding entrepreneurs of all types to tap into a growing, active “crowd” online without spending thousands on pay-per-click ads or traditional advertising.
In the last several years, crowdfunding has grown from a tool for fledgling bands to raise money from fans for an album they can’t afford to produce to a way for high-tech inventors to get access to capital for their new, innovative startups.
Venture capital investors are scrambling to tap the wisdom of the crowd by financing projects that initially got their start through crowdfunding. Crowdfunding platforms have become a valuable source of deal flow for VC investors.