Who Decides Who Can Raise Money Through Crowdfunding?

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Crowdfunding has been receiving some extra coverage this past week, and rightly so. Zach Braff announced a new movie he wanted help funding with a goal of $2 million from backers. This sparked a whole controversy about who should put up campaigns. Should celebrities use resources that are “meant” for folks that couldn’t afford to make a movie?

Nathan Hurst also had an insightful piece on platforms now challenging Kickstarter. They try to take advantage of what Kickstarter lacks, or provide attention to a more niche-specific market. For example, CrowdIt is a new platform that will launch June 4, and plans to roll out equity crowdfunding once it becomes legal with the JOBS (Jumpstart Our Business Startups) Act.

What the real question that these new sites offer and what Kickstarter already has implemented is who decides who can raise money through crowdfunding? Should Kickstarter or any other platform discriminate on who can launch projects? The answer is no.

Kickstarter only vets projects that might not meet its Terms of Service Agreement. The fact that there is not a preventative celebrity clause means Zach Braff is in the right on this one. If you’re against celebrities using a platform to help them further themselves, there are other platforms you can use with more restrictions.

The other side of this is people backed him. He wasn’t just given the money. The general public made a conscience decision to back Braff, and in the process brought the most traffic Kickstarter has ever garnered in a single day. This no doubt lead to more people seeing more projects.

What would happen if anything changed with Kickstarter is it would effect people who made successful campaigns in the past. Would the makers of the Pebble Watch ever be able to put up another campaign since they received $10 million in funding. An alarming 10,266% over funded project? Couldn’t they just afford to make something themselves?

What needs to happen is good projects need to continue getting backed. Whether it’s a previously successful crowdfunded company, a celebrity, or someone trying to breakout in the scene.

Minnesota’s Technology Scene Needs to Break out of its Shell

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A recent report from personal finance website NerdWallet ranked the 10 best cities to start a business in the U.S. Among the cities, Minneapolis was ranked 8th overall. The report was based of information dealing in small-business lending in 2012, average income, population growth rate and business per 100 residents. But in order to get more attention, Minnesota needs to open up its communication borders.

Throughout all the events I’ve attended and folks I’ve talked to in the scene, it’s painfully obvious that more attention needs to be brought to Minneapolis and the state of Minnesota in general.

The scene is thriving, even if VC is down, and the excitement is here along with the traction and local user groups to keep things churning. The only issue is we are closed off. Social media isn’t used efficiently, and many publications in the Twin Cities refuse to step outside the boundaries of B2B.

It’s not emulation, it’s a refusal to take advantage of precedents set up in major technology hubs. What Minnesota needs to do is advertise itself and let go of the ‘Midwest pragmatism’ that we all suffer from. Sure, modesty is great, but taken to an extreme it can prevent prominent business interaction.

As my coworker Holden Page wrote on his blog, we need to have a voice for Minnesota’s thriving tech scene. The hesitancy and procrastination needs to stop. We could be Austin, albeit with worse weather, and we could drive web traffic to our region besides our own.

What we need is a grand, statewide marketing campaign. Someone needs to speak up and take action. Let the national public know what’s going on. The fact that Wisconsin is emulating our success in enough to show we have something going on. They have dominated us in small business for years, and now they’re starting to pay attention.

We need a collaborative movement to bring attention to the scene. Something that truly represents Minnesota. A local initiative, ready to deliver our skills and contributions as a state. There is nothing wrong with B2B publications, but in my experience it keeps the already interested up to date. What we need to do is bring in people to the growing scene. People that may have different ideas, and allow for more collaboration in a promising space.

Crowdfunding in People Over Projects

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Last Friday, David Girouard posted an opinion piece on Wired discussing why he sees the future of crowdfunding going towards investing in people over projects. Girouard is the co-founder and CEO of Upstart, a company that allows investors to back both college grads and up-and-coming grads for a portion of the money they make in the next ten years. So naturally, this idea is one he is very passionate about.

The main argument of the article describes the difficulty in predicting the outcome of a start-up, and if a VC firm struggles with its predictions, how can someone with no prior investing experience hope to get a good return? The answer, according to Girouard, is investing in people.

While the idea of investing in people is a fascinating one (Read: The Man Who Sold His Fate to Investors at $1 a Share), the limitations of what Upstart offers in investment seem to drag the fledgling philosophy down.

I love the idea of putting money into a person over a business. It gives your investment more reach. If one project fails, the next could gain traction and vice versa. However, it could be argued that an individual has much more variables to consider than a standalone project.

If you invest in a project, you invest in a team that has assembled itself because they think their strengths and weaknesses accent one another in a positive way. With only investing in a single person, you get all their strengths, but also all their weaknesses — they don’t get distributed into a collaborative group.

This may work for some individuals, such as Steve Jobs, Bill Gates and even Mark Zuckerberg, but the majority of startups are formed by teams and collaboration from the get-go.

The other problem is the way Upstart determines how much income an individual will eventually make. The article describes the process like this:

“It’s not unlike the logic used by big companies or universities faced with countless candidates, by recruiting firms and talent agents, and others. By using data and algorithms — in this case, a sophisticated regression model that considers variables like school, area of study, standardized test scores, internships, job offers — we can statistically predict a person’s future income.”

To me, the idea of entrepreneurship and what makes an entrepreneur is to cross over these statistics and create your own path to success. For example, what would Bill Gates’ estimated income be when he dropped out of college? Would Upstart’s process have truly predicted the success of Microsoft?

To compare entrepreneurship logic with that of logic used by big companies is to miss the point entirely. The algorithm shouldn’t rely on standard forms of success, because no successful startup has followed the exact same path. And likewise, no individual pursuing entrepreneurship finds success in the same way.

Crowdfunding is Growing, but has Side Effects

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Today, analyst firm Massolution reported that crowdfunding in 2012 nearly doubled since 2011, raising funds upwards of $2.66 billion in 2012 as opposed to $1.47 billion in 2011. Analysts suggest that crowdfunding in 2013 could surpass $5 billion if the trend continues on its current trajectory.

While crowdfunding has become a major trend in early investment, it is important to remember areas where it falls short. Mainly, the idea of mentorship goes out the window. While this idea may seem a stretch, many early stage, first time entrepreneurs gather an assortment of skills through experienced investors.

Without this experience and mentorship, it can take longer to fully develop a product as well as a plan to get it out to the public. This takes away from efficiency  and could easily affect your reception and traction if the product takes too long to ship, and it can also take away form your products market placement.

That being said, if you are an experienced founder, crowdfunding could benefit you immensely. You already possess the skills needed to turn a product around and meet goals without the need for mentorship. In fact, you are most likely in the position to mentor, and have already had experience garnering the necessary funds for pre-Series A investment.

An important fact to remember is crowdfunding is a young idea to early stage investment. If it were a new drug to help concentration, the long term effects would not yet be known and the success stories could begin to have major side effects in the next 30 years.

Whether you go with crowdfunding, VC or bootstrapping it is important to measure the positives and negatives of either situation. Otherwise, your great idea could be squandered before it starts.

Enterprise IT in the Cloud Decade

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This morning as I read the news and settled into another work week I was greeted with two articles from GigaOM that caught my attention. One discussing the ‘golden age’ of enterprise IT, and another discussing how IT departments must adapt to the process instead of being left behind by new trends (a theory coined ITaaS, or IT-as-a-Service).

In all, the first article describes that VC in big data/enterprise solutions is jumping and analysts predict it will stay that way for upwards of 7 years. They link multiple trends that brought on this trend such as BYOD, cloud computing and the growth of data sets. With all of these innovations, it leads to disruption which entrepreneurs can then make more efficient, thus garnering a considerable amount of funding for early stage investment.

And with this trove of innovation comes companies that would like to be at the helm of it, which is why you see accelerators such as Microsoft Accelerator for Windows Azure, Citrix Startup Accelerator and many more. And yet, with all the funding and moves happening within the industry  IT professionals are still hearing more and more about how their jobs are being outsourced.

And so we are led to the second article, which describes ways in which IT departments can still be effective. And while Bart Copeland, the author of the piece, describes the theory as ITaaS, it seems awfully familiar to a theory we all know and love: consumerization.

Consumerization is the main argument behind BYOD, and describes that information technology that first shows up in the consumer market then trickles into a work environment, which IT departments then have to manage.

In all, IT is shifting more towards a service industry, this is true. But while it is so easy to find an SaaS package to help your department become more effective, whether it’s accounting, communications or anywhere, companies still need professionals to be able to vet which applications make the most sense in their work environment. Without those professionals, environments can become clogged and take away any efficiency gains.

So while the IT department is being changed due to emerging technology trends, it is now necessarily in a bad way. Instead, it is shifting towards a more service-based industry.

Best Buy Capital Phasing Out

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Weekly Round-Up

Last week the 49er’s announced plans to build a behemoth of a WiFi network in their new Santa Clara Stadium due to open in 2014. With the assistance of Dan Williams and Kunal Malik from Facebook, the ambitious plan aims to have over 68,000 devices connected at one time. More than double the size of devices connected during Super Bowl XLVII. Now if only they make an app so I can order more nachos…

EA’s CEO John Riccitiello announced he was resigning and stepping down March 30 and Larry Probst will be stepping in as Executive Chairman. The announcement was made in response to EA’s poor financial performance this quarter. The resignation supposedly has nothing to do with Sim City’s poor reception at launch.

A report released last Tuesday described a massive botnet that reportedly drains $6 million a month from the online ad industry. These “ghost sites” work buy getting ad revenue put on sites viewed heavily by bots and not actual internet users. If only I had ad revenue…

ARM CEO Warren East is deciding to step down after 12 years at the company and being at the forefront of the mobile computing processor market. Simon Segars will be stepping in as CEO after working with the company for 22 years.

Along with the news that Richard Schultze is rejoining Best Buy as the Chairman Emeritus, CEO Hubert Joly announced a move to redirect funds from Best Buy Capital to more pressing issues like price matching and store sales. Best Buy Capital was formed in 2008 and funded several start up companies, but was met with little success.

The U of M Introduces Entrepreneurial Leave Program

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University of MinnesotaThe biggest news out of Minnesota last week was Governor Mark Dayton’s proposal to lessen the amount of taxation on business-to-business transactions but to extend the policy. Luckily, by March 8, he dropped the proposal entirely.

Small businesses were very vocal on the tax, which would forced many companies to look to other states to provide computer services, making the issue more about jobs than the tax itself. But while all this was occupying the news cycle, something else was brewing at the U of M.

Last week the U announced the Entrepreneurial Leave Program, which grants faculty the option to temporarily leave to assist other organization in commercializing products or services with University intellectual Property.

The major highlight of the program is the ability to keep benefits such as health insurance, which were previously not included in the former program. In all, the move proves the U’s progress in becoming a major player in research universities.

The move was made to further the scope of the U’s IP, but more importantly it will attract more talent to the campus.