When Congress passed the JOBS Act early this year, included in the Bill was a mechanism to allow for funding of early start ups by Crowdsourcing. The Securities and Exchange Commission is charged with modifying the existing SEC regulations related to investing to allow Joe Public the opportunity to get in on the ground floor of start ups. Online sites will offer the general public the opportunity to buy shares in promising technologies and services.
Until now, funding of start up companies has been solely undertaken by either SBIR government grants, established companies or Angel and Venture Capital funds. While there have been successes, such as Google, that have paid off handsomely, nine out of ten start ups that get funded end up as failures for any number of reasons. In innovation investment failure is not a badge of shame, but the most likely outcome.
That should give future “Mom and Pop” Crowdsourcing investors reason to reflect on the odds their investments will pay off. If the “experts” at Venture Funds with access to market trends, the latest business intelligence and the best technologies coming out of Universities can attain a mere 10% success rate, what are the chances for those without this experience, knowledge and background?
Actually, I think that they will find their investment reward. Most of those who will invest will not be expecting ten times return on their investment. Instead, many will look at it as better odds than buying lottery tickets or betting at the racetrack. This mentality will do something that could never be done under the traditional venture fund approach. It will allow people to invest not based on projected returns but because they intuitively and emotionally believe in a new technology or service.
I had first hand experience of this a few years ago. East Carolina University had a promising early stage vaccine for Multiple Sclerosis, they called it FP88. We put together the marketing materials, a video, text and links to papers, and sent it out to the large drug companies and other investors. You can see it here http://www.urweb.tv/pharma/FP88VaccineForMultipleSclerosis/FP88VaccineForMultipleSclerosis.html .
The video was also put on the ECU “You Tube” Channel. Then, something very extraordinary happened. The Technology Transfer Office at ECU started getting calls from people willing to donate money for future research. One person sent a check for $40,000. Furthermore, the interest did not stop. I could see this in the metrics. Two years after the release, the video was still getting 400 plays a month from places as diverse as Turkey, Poland, Australia, Ukraine, and Japan. The video had gone viral. There were Facebook and Blog discussions groups. All this happened with no marketing, just “word of mouth” and the “click of a mouse.”
This leads me to make a prediction as to why Crowdsourcing will result in new companies making it through the “Valley of Death” to become successful. People will invest not primarily to make money, but because they feel that a certain technology or service is a good idea and deserves a chance. It is similar to the mentality why people want an underdog in a sports match up to win. Not because they are the best, but against great odds they are trying to accomplish something worthwhile. And like buying a lottery ticket where everyone hopes to win but never expects to win, the feeling will be even if it fails it went to a good cause. With millions of people willing to give a chance to long shot new businesses, the odds are some companies that would have never seen the light of day will make it.
There are plenty of people that will point out the opportunity Crowdsourcing offers scam artists for fraud. There are real concerns about how untrained investors will react and the logistics required should a company exit or be bought by another. But there has never been a better time to put to the test that secret longing to run and own a company. There will be hundreds, maybe thousands of well wishers putting up $20, $50 maybe $100 and cheering you on.
image credit: smallbiztrends.com
Peter Doyle is an award winning media marketing, news and documentary producer using rich media to accelerate innovation and commercialization. Check me out at http://www.linkedin.com/in/peterjdoyle