At Open Innovation 2.0 in Dublin tomorrow, a roster of thought leaders will discuss how the practical application of innovation can improve society. One of these speakers is Dan Marom, co-author of ‘The Crowdfunding Revolution’.
Marom trained as an electrical engineer and spent a few years working in R&D before his entrepreneurial spirit took hold and he decided to set up his own company. At the time, crowdfunding wasn’t an option but, if it had been, Marom reckons his ‘edutainment’ start-up would have been an inviting prospect for funders.
Do you think it would have helped if crowdfunding had been accessible at the time you were starting your own business?
I think so, because crowdfunding is not only about financial value, it’s about emotional value and, in the educational field, there are a lot of emotional aspects for parents and for kids.
Do you think it’s this emotional connection that encourages ordinary people to part with their money in support of a crowdfunding campaign?
Definitely. A good crowdfunding campaign leverages an emotional connection and offers some functional returns to create success.
There is also a very big segment of peer-to-peer lending in crowdfunding and now we see an emerging business of, say, alumni-to-student loans. In this case, you are not only getting good interest on your loan to the student, but you are also feeling some kind of fulfilment, some kind of emotional value. It’s becoming very big in the US and I think it’s a good example of such a connection.
Because people are putting up the money to support these products or services in their early days, do you think that can lead to problems down the line, such as the reaction from funders of Oculus Rift when the company behind it was bought by Facebook for US$2bn?
I have heard that criticism many times. I think that crowdfunding is becoming the new ‘like’. ‘Likes’ on Facebook, for example, or other social networks are quite passive. And, even though crowdfunding usually spreads through word of mouth, it’s about trust and real engagement.
I think sometimes investors feel that they should have earned more than the product itself. So, there’s a new mechanism called equity-based crowdfunding, where you’re not only pre-purchasing the product, but also buying a share in the company. These mechanisms will evolve and this criticism will disappear, because these people will not only buy the product but will really be a part of the company.
Do you think that would be a stronger approach for crowdfunding?
I think that it would be complementary to other financing alternatives, like venture capitalists and angels.
Because we are speaking about open innovation and the Open Innovation 2.0 conference speaks about synergy between the crowd or the community and corporates and academia, I think that crowdfunding could be a very interesting cornerstone in that synergy. Bottom up, we could leverage the power and the wisdom of the crowd, and that could be very instrumental if we combine it with other financial mechanisms.
So, for your question, I think that equity-based crowdfunding will be very big. I think that it will become even bigger and it will be wise to co-operate with other financial intermediaries.
Do you think crowdfunding needs to be regulated?
I think that there’s a debate or a tension between our efforts to protect small investors and, on the other hand, our willingness – and, even, our need – to invest in small and medium enterprises, which are the engine, in many cases, in the economic evolution of a nation. Within this tension there is the delicate issue of taking care of the regulation.
Crowdfunding regulation should still protect the small investors, but it should also allow entrepreneurs to fund a business in an alternative way and to have access to capital regardless of geography, race, gender or ethnicity, which is a big problem in many nations.
Indeed, it should be solved. There are solutions across the world because many countries are adopting new sets of regulations in order to cope with that tension. But I think it’s crucial.
Is a strong crowdfunding market necessary for a country to support entrepreneurship?
I don’t think it should be the only mechanism and I don’t think it will rule out any other alternatives, but I do think that, if we craft it properly, it could be very very useful for different segments – segments that have less access to capital – and actually democratising the funding process. It could be very powerful.
So, do you see crowdfunding as disruptive or enabling – or both?
I think that it’s a bit of both. I think it’s disruptive, in a way, but in order to grow into a big industry, it needs to be an enabler and it needs to work together with other parties and not against.
Now that it’s an established norm for entrepreneurs, what’s next for crowdfunding?
I think that the new wave of crowdfunding is about corporate crowdfunding. When corporates find that crowdfunding can be useful, the scale, the impact and the potential all become much much bigger. Big corporates can tap into the crowd, as well, and that’s a great opportunity.