Crowdfunding: open business models

While crowdsourcing is mainly focused on the knowledge and preferences of consumers (as input for innovation for example), crowdfunding is about the financing of projects and people by (large) crowds. Prime examples of crowdfunding are:

• Act Blue: Has gathered $22,863,961 for the Democrats since 2004.
• Prosper.Com: “Where people come together to borrow and loan money”.
• The Crowdfund Company: “Crowdfunding new business ideas and startups”.
• Zopa: “The first lending and borrowing exchange”.
• Kiva: “Loans that change lives”. A crowdfunded micro credit initiative.
• Grameen: “Banking for the poor”. Another crowdfunded micro credit initiative.
• Ringside Startup: A failed initiative, that has reincarnated to WeBothLike.
• First Giving: “Online fundraising for everybody”.
• Chipin.com: “The easy way to collect money” .
• Swarm of Angels: “Remixing cinema”. Create a million pound movie.
• Sellaband.Com: “Your Music, Your Choice”. Crowds have funded the recording of six albums so far.
• MyFootballClub: crowdbuying a soccer team.

What’s the relevance to managers and entrepreneurs? Mainly the crowdfunding of projects might open up new opportunities. As a company you can communicate more directly to your investors and circumvent the middlemen, i.e. the stock exchange, especially for specific projects. You can also liquidize more abstract objects (such as bands: Sellaband). Especially for entrepreneurs, opportunities arise. On MyFootballClub 50,000 subscribers will each pay £35 for the purchase of a soccer team, receiving an equal share and voting rights in the newly purchased club afterwards. Smart entrepreneurs could copy this business model to other projects and industries.

Turn people’s dreams into reality (like for a soccer fan: buying a soccer team and receive voting rights with respect to team formation and tactics). Or set up a business model like Sellaband, where 5000 believers fund the recording of an album of a particular band and both parties earn money when it is released. At this moment, people have funded the recording of six albums. Actually, the real benefits of these business models aren’t in the funding itself. When 5000 people choose to crowdfund a particular band (and not the other available bands), the incorporation of the crowd’s preferences is inherent to the business model. Next to that, people can come up with new ideas and opportunities quite easily. So the open innovation & crowdsourcing component is included in the crowdfunding model. And third, the emotional and financial connection between the people and the bands results in a lot of free marketing, since the people also have a financial incentive to promote the album. Consequently, this seems to be an open business model with a lot of potential.

Which other industries could be revolutionized by crowdfunding business models? Are there opportunities to combine different types of projects and to develop one market platform for crowdfunding artists and small start-ups? Like a sort of stock market, but with smaller scale projects and between crowds? Please feel free to add you comments or remarks.