Carlson School of Management News

The Crowd-funding Opportunity

Wednesday, April 11, 2012

By Ravi Bapna & Anindya Ghose

With a billion people on the social graph (Facebook, Twitter and the other social platforms) and five billion with cellphones, it's an understatement to say that we live in a hyper-connected world. While we may abhor the physical crowds of our teeming cities, we argue that the Indian entrepreneurship ecosystem is ripe for tapping into the digital crowd, an emerging global reservoir of social connectedness, for its main ingredients--capital, talent and labour. All said, the global socio-economic story of the next 20 years is going to be written on the battlefield of ideas out there, and crowd-sourcing and crowd-funding have the potential to democratize the process of generation, selection, funding, mutation and evolution of the best ideas. Embracing this crowd, however, requires structural changes in mindsets and policies.

At the heart of crowd-sourcing is Joy's law. Tell a CXO that there are, by any measure and for any company, more smart people outside your organization than inside, and the initial reaction is often something akin to that of mixing a bitter pill for those used to drinking their own kool-aid. Yet, as demonstrated in a variety of settings such as Threadless.com for product design, InnoCentive.com for scientific problem solving, and Kaggle.com for the hot new area of big-data analytics and predictive modelling, a global pool of problem solvers and creative minds can be tapped into, often in the form of a contest that fires the competitive spirit, provided one is willing to live by the norms and decentralized decision rights of these crowds of social communities. Similarly, platforms such as Amazon's Mechanical Turk are providing labour opportunities for those at the fringes of the workforce to get engaged in doing routine and mechanical global work.

Crowd-funding markets have recently emerged as a viable alternative for sourcing capital to support innovative, entrepreneurial ideas and ventures. In these markets, any individual can propose an idea that requires funding, and interested others can contribute funds to support the idea. Like many socially networked ideas, this one has taken off in a viral way: entrepreneurs are already using crowd-funding platforms to raise hundreds of thousands of dollars in pure donations. In the US, there have now been more than 10,000 Kickstarter projects funded, with more than $75 million pledged and a 44% success rate, while ProFounder.com has reported average individual investments on the order of $1,300, with entrepreneurs typically raising more than $30,000 from the broader community towards a given project.

Given how crowd-funding has fuelled innovation and entrepreneurship elsewhere, it's only right that policymakers in India start to deal with crowd-funding in a serious way.

Read the rest of the article at livemint.com

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