Because “crowdfunding” is a relatively new term in my lexicon, I found this article to brush up on the basics of crowdfunding and why it seems to be such an essential influence in the paths of many entrepreneurs. In the article, Wharton professor Valentina Assenova describes the facets of crowdfunding, and, in particular, who it is affecting. Assenova began by noting that venture capital, the traditional source of funding for entrepreneurs, is very concentrated in the US (specifically, in Cambridge and Silicon Valley). With the outbreak of crowdfunding, though, geographies around the US that have not traditionally attracted capital have had upticks in investment. As Assenova describes, “All of that is to say that crowdfunding appears to be democratizing access to capital among a larger pool of innovators who are coming up with innovative ideas around the U.S.”
According to Assenova, the implications of this finding are numerous. Entrepreneurs no longer have to move to Silicon Valley in order to acquire funding. This may mean that an impressive business degree is also no longer necessary. Additionally, crowdfunding can be a great way to not just attract money from the “crowd,” but can eventually attract venture capitalists, as well.
To me, this all sounds like a wonderful way for non-traditional entrepreneurs to obtain necessary capital for their ideas. My only question would be whether it gives hope to too many ideas and entrepreneurs, who, perhaps, could use more iteration before receiving money to put these ideas into action.
This article reinforces your comment that other American cities are attracting investors! Portland, Oregon has been recognized as the next vibrant start up scene. They’ve had many successful companies in the last 10 years. Puppet, a data software center received $107 million in start up funds. Additionally, start ups that originated in Oregon have sold for a “pretty penny”. In 2017, Pacific Foods sold their company to Campbell for $700 million.
As for your conclusion, I agree. If there is a flood of entrepreneurs into the market, after failed start ups, investors may not be as willing to invest.
Forgot the article….https://www.inc.com/magazine/201804/hannah-wallace/destination-portland-oregon.html
Katherine, this is great analysis! Peter Thiel has stated publicly that one of the biggest challenges Silicon Valley faces is high rent. He argues that the increasing costs of living will eventually drive startup entreuprenurship to other areas of the country. Your observation that, “crowdfunding appears to be democratizing access to capital among a larger pool of innovators …around the U.S.” was insightful because it provides further support for Thiel’s main argument that technology is the driving force behind globalization.
for a person who didn’t know anything about crowdfunding – this was quite helpful ! thanls
This article in fact is a very helpful introduction into the topic and a very interesting analysis of the crowdfunding culture. Personally, I see crowdfunding more as an additional source for funds, added to the catalogue of to the “classic” options and not necessarily as something that might replace them. In that sense, it provides a perfect option to get funds for an extraordinary or just strange idea that is outside of the classic business models and, thus, unfamiliar to traditional investors. Since the risk is also distributed to (and thereby shared by) a large number of people, for ideas with low odds of success this even might be the only available option. However, we should also not forget that business angels and venture capitalists not only provide funds but also experience and knowledge, as opposed to crowdfunding. Therefore, I still think that traditional sources of funding and capitalization should not be underestimated.