Four dimensions of crowdfunding

JOBS Act or not, crowdfunding platforms and opportunities are evolving rapidly. How might we better understand the crowdfunding ecosystem — what’s out there, what’s promised, and what might be missing?

Here are four dimensions for consideration.

Payback: What’s the nature of the exchange?

A May 2012 global industry report distinguishes four kinds of platforms: donation-based, reward-based, lending-based, and equity-based. Examples include Kickstarter for rewards, ioby for donations, Kiva for lending, and Fundrise and FundersClub for equity.

(Fundrise and FundersClub have each qualified under existing U.S. regulations and gotten ahead of the Securities and Exchange Commission’s JOBS Act ruling. On whether rules will be formulated by the Act’s end-of-year deadline, WaPo and Forbes commentators seem bullish, others less so.)

Curating: Are projects filtered or accredited for inclusion?

Kiva curates; Kickstarter is largely buyer beware. Fundable yes; Indiegogo not so much.

Impact: How significant is the project?

There are of course a lot of ways to think about impact. Ethan Zuckerman takes up the topic of civic engagement in last week’s “How Do We Make Civic Crowdfunding Awesome?

He voices the concern that if crowdfunding becomes commonplace for what-were-once-considered public goods, such as public transportation infrastructure (e.g., on or public street or park maintenance (e.g., on ioby), then it might undermine, rather than strengthen, the social contract. This article is really worth a read.

In order to explore further, let’s take a case from my hometown of Portland, Oregon. Brief summary of a long story: Columbia Biogas wants to build a factory to turn food waste into biogas. Great project. Sought leverage funding to guarantee its loans. Portland City Council indicated some support but then backed off. The company was subsequently able to secure private financing. Personally, I’d support an active government role in this instance (and Ecotrust did support it), while also acknowledging that cases of business financing may be more complicated than those involving public goods like public transportation or parks.

Now let’s imagine that companies like Columbia Biogas could turn to crowdfunding. What might the platform look like? Lending or equity platforms like these could start to resemble the local stock exchanges that Michael Shuman has been advocating. He cites the example of Wyoming’s Powell Mercantile, a clothing store founded in 2002 on a local stock offering. Regional exchanges are in various stages of discussion and development by SVX in Ontario, LanX in South Central Pennsylvania, and Friends of the Hawaii Local Exchange.

Which leads to the last dimension: local-global.

Local-Global: How local or global is the platform’s ecosystem?

Kiva is fundamentally global. Regional exchanges like Ontario’s SVX aim to inhabit the other end of the spectrum. Still others like ioby follow the Craigslist playbook: Start in one place — SF for Craigslist, NYC for ioby — and then scale out.

Does place matter when it comes to crowdfunding ecosystems? For project listings like Columbia Biogas, would the development of local-regional exchanges enable trust building and provide credibility in ways that nationwide platforms could not?

I’ll leave this post here and welcome your thoughts.

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