SXSW 2013 is over and the cultural shifts taking place on the horizon are becoming apparent. One of the biggest shifts will be the impact crowdfunding will have over the next year. In our panel, the Global Impact of Crowdfund Investing, Jason Best and I described how Crowdfunomics© will sweep the globe. Crowdfunomics is the economic impact of crowdfunding. It is the business case for the social web we’ve been waiting for. It is different from donation-based crowdfunding because up until now there was no financial return tied to those donated dollars. Rather than giving to support a cause, you are now investing in people with ideas that have profit potential.
Crowdfunomics is investment-based crowdfunding. Where communities of interest, geography and origin become more than fans, followers or likes but rather small investors. Where a group of investors decide to fully fund an entrepreneur who has provided digitally recorded disclosures about the business, revenue model and investment opportunity. Where investments flow through SEC-registered websites and fund entrepreneurs in their own backyards, in a way that is fraud free (background checks are mandated in the legislation) and transparent. These community businesses will provide economic stimulus and sustainable jobs and the money will cycle from investors to businesses, employees and back to investors in the way of dividends, loan repayments, equity and a return on happiness. Not all companies will be successful but those that have an engaged group of investors stand a better chance.
The 10 day South by Southwest (SXSW) conference contains Interactive (technology/culture), Music, and Film components and takes place every March in Austin, Texas. It began in 1987, and has continued to grow in size. SXSW Interactive is focused on emerging technology and trends. It has earned the festival a reputation as a breeding ground for new ideas and creative technologies. Like the Consumers Electronics Show (CES) in Vegas, it is considered one of the premier events with a Who’s who list of speakers. Speaking slots are coveted and held by names that include famous entrepreneurs, Senators, author and TV personalities. Twitter and Foursquare, everyday tools for tech-enabled Americans, were launched at SXSW. Theory has it, if you can afford to attend and want to be discovered, you’ll be at SXSW parading around with your technology in hand promoting it with a t-shirt on your chest. Just to be in front of the eyes of 27,000 engaged participants who are the cultural and technological vanguard.
Two years ago at SXSW crowdfunding was a concept. Last year, it was a new funding tool for artists or tech-related designers that were using it to gathering massive numbers of followers and hundreds of thousands of dollars of pledges or product pre-orders. Not much attention was focused on the fact that our Bill (we wrote the legislative framework to legalize crowdfunding) was just lumped together with a group of other capital formation bills in the U.S. House and sent to the Senate as part of the very aptly named Jumpstart Our Business Startups (JOBS) Act. The President signed it into law in April 2012. This year crowdfunding is a serious topic. We alone presented on 4 different panels. There were at least 10 other panels that our peers in the crowdfunding industry either spearheaded or participated in. And the buzz was that this is going to spur innovation unlike anything we have ever seen. But not just innovation in apps or technology but in the private capital markets as technologies are built to facilitate communication with thousands of investors seamlessly and reputation management tools á la ebay and amazon are built to review not just ideas, but entrepreneurs, investors and their comments. We have learned the pros and cons of social media. And tying that into capital formation will create more transparent markets.
Investing in private companies (unlike investing in large public companies on stock exchanges) has been around for a long time but these investments have until now – with the passage of the JOBS Act been available, by law, only to the rich. The new Crowdfunding legislation takes friends and family financing and provides an infrastructure, technology and ecosystem to regulate and expand the process. Crowdfunomics will emerge out of the soon to be live crowdfunding provision of the JOBS Act. Once the SEC finishes the rules making, local communities will be able to pick up where Wall Street, the banks and VC’s left off. It will put the power into the hands of people who decide what they want to do with their investible capital. However it will now also include the wisdom and market power of ‘the crowd.’. Companies won’t get funded until the crowd decides they are worthy of funding. Post funding, customers will become investors with a mandate to share knowledge and experience to help the entrepreneur (aka their investment) succeed.
So what will be different between this year’s SXSW and next? This year people were recruiting fans, followers and likes (via the social networks). Next year they’ll be saying, “like what you see? Why not invest in our company?” And with tools like QR codes, they’ll direct people to a funding page on an SEC registered crowdfunding platform very likely hosted by SXSW as well. When people ask companies how successful SXSW was for them, it won’t be measured anymore by ‘likes’ but by how many dollars they raised. The one thing that’s been missing from SXSW until now has been the ability to connect dollars to the ideas. With an engaged crowd of 30,000 next year it will be interesting to see how much investment that equates to.