If you’re a budding producer or director you could put your script or storyboard, a list of stars you want in the roles and a link back to some examples of your work on the web on the future exchange and then let the public decide if they want to see the film.
If they like the idea then invite them to help fund it by buying a share in the film. Alternatively sell them a T-Shirt, a Base Ball Cap, an iPhone App or a signed copy of the script and use the profits to fund the film. This application of the wisdom of crowds would help to take some of the risk out of creating expensive block busters that nobody wants to see. After all if the hard-core fans aren’t interested in funding it they certainly won’t be that interested in paying to watching it.
The model would probably only work with established Franchises like Bond, Star Wars, Die Hard and the Comic Books or big name Hollywood stars and directors but it could provide an alternative funding platform when investment funds are in short supply.
The reality is these film funding sites already exist on the web and there have been many attempts over the past 5 years to apply the principles Crowdsourcing to the problem of securing working capital and investment funding across a wide variety of industry sectors.
We regularly read about the next disruptive web 2.0 start-up but the problem is they are not really making much of an impact on the world of investment and business banking. So the question has to be asked why is this and will the emergence of a viable and legally compliant “Wisdom of the Crowds” investment model really help SMEs to resolve the ongoing problem of securing investment capital.
A few weeks ago I stumbled across Grow VC, a Hong Kong based start-up that is trying to make the Wisdom of Crowds work as a start-up community investment model.
TechCrunch ran a profile piece on Grow VC back in February. In that comprehensive review Mike Butcher explained how Grow VC manages the investments, but the community decides where the money should be invested.
As a business model it’s an interesting mix of traditional Funds Management meets P2P Investing. Essentially there are two investment products on offer the first is a traditional P2P investing model the second is a community investment model.
P2P investing has been around for some time now (e.g. Kiva). It is essentially an extension of the P2P Lending concept that has been established by Prosper, Zopa and Lending Tree.
The problem with the P2P concept of course is, unlike the traditional Banking model that spreads the risk across a portfolio of loans from a portfolio of depositors, the loan or investment is between the two parties. So if the borrower defaults on the loan the lender or investor does not benefit from sharing the risk with other investors.
As we have noted before traditional Banking isn’t so much about picking winners but spreading the risk across a portfolio on investments so that the winners more than offset any losses. Traditional Banking – prior to the excesses that lead to the GFC – utilised a proven process to significantly reduce the risk exposure of the loan portfolio.
In the community model employed by Grow VC the group’s structure utilises a management layer to manage the fund on behalf of the community. This is a common Financial Services model. A funds manager may operate many funds (i.e. Products) that are managed under a single regulated entity.
The use of a licensed Funds Manager to manage a community fund would be essential in most jurisdictions. Not only for the piece of mind for the community of “investors” but also to meet the regulatory requirements of running any investment fund. This is in the end is what makes community style investing models based on social network models so difficult to bring to market. The technology component is not particularly complex. It’s the regulatory requirements that make the model complex. However, once you have established one community fund it should be relatively easy to clone the business technology model to establish a portfolio of start-up funds.
Although I can see the merits in utilising a manager of funds approach to resolving the community funding problem I suspect the crowdsourcing or community investment model would be more efficient if it was set up as a new company.
For example: The community could purchase options in the company prior to the innovation review. Once the share holding was fully committed each shareholder could submit their idea as a 3 minute video elevator pitch onto the company website and the shareholders then get to decide through a series of secret ballots which idea(s) the company should develop. If the idea proves successful then all of the investors receive a share of the ROI. The entrepreneur of the selected idea would receive a bonus offering of 25% of the company shares leaving the other shareholders to equally share in the remaining 75% of the company.
The model is based on the idea that
- A company structure is a proven investment vehicle that is compliant with Federal and State investment and securities laws.
- Any or all of the individual investors can sell their share at any stage.
- Other investors (i.e. Funds Managers, VC’s, Pension Funds or Corporations) can buy shares
- The performance of the Entrepreneur and the management team can be monitored by, and made accountable to, the other shareholders.
- The other shareholders don’t lose their “entry fee” nor do they pay for the privilege of just turning up to see who wins.
- The other shareholders learn from the experience and are in a better position to make their own ideas work.
- If the shareholders agree the Company can raise extra funds to commercialise more than one idea by offering more shares to the shareholders or other investors.
The list of benefits could continue but essentially it is based on the idea that the Company structure is the best vehicle for Crowdsourcing Investment simply because it is the most flexible and proven market model available.
I say this because in reality the principles of Crowdsourcing or Crowdfunding have been with us for almost 150 years. The legalities of calling upon the crowd to invest small amounts in new innovations and business models were ratified in the Corporations Act of 1870. Today this 19th Century “crowdsourcing” investment model and the stock exchanges that emerged out of the Europeean coffee houses have proven to be so successful they have become the cornerstones of modern capitalism.
The advent of crowdsourcing on the web will not revolutionise how we speculate or invest in business opportunities but it does provide yet another vehicle for the industries predators to take advantage of the inexperienced investor. That’s why it is important these “revolutionary” crowdsourcing investment exchanges should be properly regulated so they conform and operate within the existing corporations laws governing the exchange of investment and securities.
Further Reading
- The Great American Bubble Machine – Matt Taibbi of the Rolling Stone
- At the heart of the crash – Jeff Madrick The New York Review of Books
- Crowdsourcing – What it means for innovation – Business Week
- When Crowdsourcing Fails - Techcrunch
- Will the corporation survive - Peter Drucker
- How To Disrupt Wall Street – Chris Dixon
- Is the Internet Finally Robbing the Greedy Financier’s Gravy Train? – Techcrunch
- How Entrepreneurs Are Using Kickstarter to Fund Their Dreams – Mashable
June 10th, 2010 → 12:38 am
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