book.chapter Journey to present

Crowdfunding, which is reshaping funding landscapes, thrives on today's interconnectedness, technological advancements, social media's reach, and regulatory changes. This innovative funding method empowers startups and projects, marking a significant shift in societal structures and funding mechanisms, echoing peter drucker's observations on historical transformations. Crowd's ascension In the modern era, the concept of the g-7, representing the seven major economies of the world in 1985, has evolved significantly. By 2010, this group expanded into the g-20, encompassing the 20 major economies globally. Parallel to this economic evolution, the digital landscape has undergone a remarkable transformation. From a mere few hundred users, the internet has burgeoned to connect around 2 billion individuals out of a global population of 7 billion. This exponential growth has effectively turned the internet into a vast, informal network, humorously dubbed the g-2 billion. With projections suggesting a potential shift towards a g-7 billion in the near future, the implications for business and social structures are profound. The term "crowdsourcing," first introduced in a 2006 article by jeff howe in wired magazine, encapsulates one such disruptive potential. This concept isn't entirely new; it echoes the collaborative spirit of free software and open-source movements, which have thrived on the internet and continue to expand. The ancient greek philosopher democritus's observation that "birds of a feather flock together" aptly describes the internet's role in facilitating connections among like-minded individuals, fostering collaboration and innovation. The rise of the internet and social technologies has significantly diminished physical barriers to human creativity, enabling the formation of affinity groups that tackle complex challenges, from writing encyclopedias like wikipedia to engaging in various collaborative projects. Today, internet users often play dual roles as both consumers and producers of content, contributing to a culture of "pro-sumers" and "pro-ams," amateurs who produce work at professional standards. This digital landscape has also given rise to "crowd-ployees," individuals who derive their income from crowdsourced activities, and "crowd-porations," agile web-based companies that leverage the crowd for essential business tasks. As the digital crowd continues to grow, its influence on the future of internet and society is undeniable, underscoring the shift towards a culture of sharing as a pivotal aspect of the digital age. Traditional funding downturn Venture capital has traditionally been seen as a key player in the success of startups, particularly in the tech industry. However, a report by morgan stanley in 2003 highlighted that the industry's ability to pick winners was less than stellar. The study found that only a small fraction of startups reached an ipo stage, and even fewer managed to create shareholder value. This marginal success can be attributed to several emerging socio-economic trends that venture capital seems to be at odds with. The pace of change across industries is accelerating, shortening the lifespan of expertise. Venture capitalists, once adept at valuing startups, now often face industries they are unfamiliar with, leading to more valuation errors. Additionally, many groundbreaking ideas today are cross-disciplinary, making the collective knowledge of a diverse crowd more valuable than the insular networks of venture capital. The compression of time to market has also altered the landscape. Where venture capitalists could once wait to back a fast follower in an established market, the big returns now go to those who create the markets, and venture capitalists are no better at identifying these pioneers than anyone else. Startups today also require less capital, as they can leverage cloud computing and other scalable technologies instead of building costly infrastructure. This reduces the number of startups seeking venture capital, diminishing its value. Moreover, the funding process has evolved from large, staged investments to a "rolling close" approach, decreasing venture capitalists' leverage. Venture capital's cyclical nature further complicates its effectiveness. It tends to be scarce when most needed to spur economic activity and abundant just as markets decline. Additionally, the shift from a focus on execution to a pivot-oriented approach in startups challenges the traditional venture capital deal structure. In the past, venture capitalists succeeded by being the earliest and smartest investors at the table. However, the world has changed, and new funding models that collaborate with the crowd are needed. As complexity increases, so does the value of the crowd's collective wisdom. The future of funding will likely involve harnessing this collective insight for both investment and divestment decisions, as suggested by kevin lawton and dan marom. This approach aligns with the reality that the market itself is the best judge of its needs and potential. Timely outsider emergence Historically, securing venture capital for a startup often hinged on having a prestigious degree from a renowned institution. This approach, however, has proven to be less effective in today's dynamic and complex world. Malcolm gladwell, in his research for "outliers," discovered that attending an elite college does not significantly increase one's chances of winning a nobel prize in medicine or chemistry. Instead, he found that extraordinary achievements are more about seizing opportunities than inherent talent. The business realm is replete with examples of individuals who left college to embark on successful entrepreneurial ventures. Notable figures include bill gates and paul allen, who founded microsoft; larry ellison, the mind behind oracle; sergey brin and larry page, who paused their doctoral studies to start google; michael dell, who began selling pcs from his dorm room; mark zuckerberg, who left harvard to focus on facebook; steve jobs of apple fame; and filmmakers james cameron and steven spielberg. Additionally, the founders of kodak, polaroid, disney, ford, learjet, bank of america, jet blue, dominos, mcdonalds, nbc, and holiday inn, as well as the faces on u.S. Currency, all share a common trait of having left college to pursue their ventures, contributing significantly to the american economy. Despite these examples, the venture capital community still often seeks shortcuts to identify potential success stories, favoring founders with prestigious degrees or those who have previously succeeded. However, data does not support the effectiveness of these criteria. A more accurate predictor of success might be identifying passionate college dropouts, as they represent a significant portion of america's wealthiest individuals and the brains behind many groundbreaking inventions. Their willingness to leave formal education behind suggests that determination and seizing the right opportunities may be more indicative of future success than traditional academic achievements. Early funding's rise Business incubators, emerging prominently from 2005 onwards, served as the precursors to crowdfunding, offering a platform for nurturing and expanding early-stage companies. However, their scope was often too limited, focusing on a single geographic location or a specific type of startup, and primarily providing seed financing. This approach proved inadequate for high-impact ideas requiring substantial capital from the outset, highlighting the need for a more versatile and robust funding mechanism. Crowdfunding has rapidly evolved to fill this gap, offering a dynamic and inclusive way for entrepreneurs to secure funding. Unlike incubators, crowdfunding platforms facilitate the raising of capital from a wide audience for a diverse range of projects, including movies, food ventures, fashion lines, sports careers, music albums, journalism, startups, and real estate investments. This method has demonstrated its versatility and potential for growth, experimenting with various approaches to identify sustainable business models. Crowdfunding's success hinges on the ability to engage a community of supporters who are not only financially invested but also emotionally and socially connected to the projects they fund. This initial community of enthusiasts plays a crucial role in building trust and momentum, enabling projects to attract further support from a broader audience. Despite its promise, the crowdfunding landscape still faces challenges, such as ensuring the delivery of promised products, avoiding the pitfalls of groupthink, making collective decisions, valuing completed projects, pricing private stocks, and determining the ownership of intellectual property. Crowdfunding represents a shift towards a more collaborative and democratic form of investment, leveraging the collective wisdom and capital of the global community to bring innovative ideas to life.