How far has crowdsourcing finance come in five years?

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After watching this BBC report on crowdfunding I started wondering how the piece I wrote for ICAEW’s community in December 2008 on the power of crowdsourcing ‘Is web 2.0 enabling a new kind of financing?’ looks now in July 2014?

Certainly crowdfunding startups through investment (equity) has come along way, first with Crowdcube and more recently Seedrs, which was inspired by Zopa.


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I was at a talk at the RSA last night for a sneak preview of a new film ‘Us Now’ about the potential power of ordinary people using web 2.0 tools to change everything from the way government works to the ownership of football clubs. To quote internet guru Clay Shirky change happens not when we adopt new tools, but when we adopt new behaviours. And web technology can make this happen easier than ever before.

While inspiring and optimistic, and while both main political parties talk positively about digital democracy the reality that came across in the film is that the most innovative ideas were happening outside the confines of Westminster.

What was great about last night’s film though was not so much the grand talking about changing the way government works, but the examples of how the web’s ability to pool a lot of people’s small amounts of money could make real business sense.

So the striking example from political culture not explored in detail in the film, Barack Obama’s successful use of social networking and generation of millions of dollars of individual campaign donations of under $200, not to mention his $46m’s worth of free advertising through YouTube, underlines a powerful theme – the potential for new low-cost ways to finance business.

If you add the Obama example to the small but significant examples the film did provide you start to see a model which is even starting to raise interest (pardon the pun) in the finance community, according to one of the founders of Zopa.

What is Zopa? The clue’s in their catchy slogan, “The human way of getting a low cost loan. Rather than making the fat cats fatter you pay interest to real people.” In essence by cutting out the bank middlemen and many of the associated overheads, borrowers receive lower rates and lenders benefit from higher ones.

How Zopa works, according to their FAQ is essentially:

• We look at the credit scores of people looking to borrow and work out whether they fit into the A*, A, B, C or Young market. If they’re none of these, then Zopa’s not for them.

• Lenders make lending offers – ‘I’d like to lend this much to A-rated borrowers for this long and at this rate.’ Borrowers size up the rates offered to them, and snap up the ones they like the look of. If they don’t like the rates today, they can come back tomorrow to see if things have changed.

• To reduce any risk, Zopa lenders only lend small chunks to individual borrowers. A lender lending £500 or more would have their money spread across at least 50 borrowers.

The BBC News feature on Zopa from back in November 2006 ends by saying that banks may try to under cut the service, though in light of current events constraining new funding models and government intervention in lending policy this certainly seems a little less likely?

OK, so far so good. It’s not a million miles away from how Betfair was able to set up as an alternative the high street bookies. Instead of giving ‘odds’, by using the web it essentially matches up users to users, betting against each others’ opinion of any given sporting outcome. And as a result, as I recall, the site handles “more real time transactions than the London Stock Exchange”.

Fancy your chances as a music producer rather than a banker, then you could try slicethepie:

“Slicethepie is a financing platform for the music industry that enables new and established Artists to raise money directly from Music Fans and Investors.

“On Slicethepie, Music Fans take on the A&R role, earning money reviewing tracks, spotting new talent and ensuring the best Artists get put forward for financing.

“Music Fans can then directly invest in the Artists in return for exclusive Artist access, a copy of the completed album, their name on the album sleeve and a decent share in the financial returns from album and single sales.”

Or perhaps you’re more of a football fan than a music guru? Then have you heard about the success Ebbsfleet United which won the FA Trophy at Wembley early this year? Self-proclaimed “world’s first and only web-community owned football club”.

Launched in April 2007, 53,000 people registered their names and addresses online, and by August they had acquired 12,000 paying members, with a capital fund of £500,000. Between August and November nine clubs approached the site asking to be purchased. In November a deal was agreed to buy Ebbsfleet United, with a final purchase price of £600,000.

In April 2008 members, who can vote on the weekly team selection voted to freeze the season ticket prices, and in May they won the FA Trophy at Wembley beating Torquay 1-0. Finally in September MyFC members voted 82% in favour of EUFC selling John Akinde to Bristol City for £150,000 (plus add-ons). This was a world’s first, where the fans had the final say in a transfer deal. Over 7,000 members voted in 48 hours.

What all these examples show it that the collaborative power of the web is one thing, but harnessing that to the ability to pool financial resources, is starting to deliver some exciting new communities of interest and ways of doing business. It may only be the ‘beginning of the beginning’ but with the credit crunch starting to erode traditional business models and the rise of web 2.0 perhaps the time is ripe for the developments highlighted by ‘Us Now’.

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