Why crowdfunding heralds a new power, & what this means for small businesses

Look around at the world’s many unpredictable events and it could not be clearer that our political, and social, tectonic plates are shifting.

Fueled by the digital revolution of young technology adoptees who are now reaching adulthood, it is unsurprising that the connected generation is favouring the peer-to-peer model over outdated intermediaries.

As the plates shifted, crowdfunding has been able to blossom, and its societal impact is far more radical than you might realise.

My prediction is that by 2030, all worthwhile ideas will be brought to life via crowdfunding.

As the crowd increasingly becomes the zeitgeist, the perceived wisdom of industry leaders loses its resonance. In other words, pluralism is overtaking individualism. It won’t be too long before all new ideas and brands will not be trusted unless they’ve first gained the trust of the crowd.

This is, of course, just a prediction. However, I’m not the only one theorising this radical shift. In New Power, the fascinating new book by Henry Timms and Jeremy Heimans, the pair propose that we’re trading 20th Century values for new power values of disintermediation – leaderless movements and crowdsourced ideas.

Through this paradigm, society speaks through online petitions, banks are established via crowdsourcing, and, even our beer is owned by the people, rather than shareholders who’d quite frankly prefer something bubblier.

However, this new world also has its dark side. Populist politics tends to rely on untruths, manipulation, and downright lies. The rise of Trump, Brexit and the Cambridge Analytica scandal are obvious examples.

So, how will this affect the startup and funding scenes? And, will this help to drive the industry forward?

Perhaps the more important question to ask is: how can your idea gain momentum by embracing these new powers?

Crowdfunding for SMEs

New power, Timms and Heimans argue, is replacing old systems because the digital landscape allows for instant, positive feedback loops. Ideas and content can snowball online through a continual appraisal process of likes, shares and upvotes. Pass the viral test, and the content creator will know they’ve excelled, and have brought the crowd along with them.

This is exactly why crowdfunding is growing faster than other digital sales channels. It relies on engagement, and primarily on emotional (rather than rational) decision-making, so that people jump on board to bask in the buzz of the feedback loop.

So, as this new power spirals upward, more SMEs will embrace crowdfunding as a means to engage the crowd early, and see their idea appraised at the same time.

The funding aspect simply enables this process to happen and confirms the commitment of their tribe. This process will also lead the wider crowd to trust in the idea or brand itself.

For example, brands such as Monzo and Revolut are already convincing hundreds of thousands of people to quit the same banks that have held monopolies for centuries.

Don’t be a gatekeeper

Crowdfunding has its critics, and TribeFirst has received a negative attitude from the ‘old guard’, or the ‘gatekeepers’ of finance. To be clear, TribeFirst underwrites the costs of our marketing and PR campaign for firms during the crowdfunding process so that they can achieve momentum when they need it most.

This way, startups and growth companies can achieve the same kind of coverage usually seen by big companies with bigger budgets.

So why the resistance from the old guard? It’s because there’s no role for a gatekeeper in this scenario. Their challengers are purveyors of great ideas with the ability to connect tribes with the companies that need support.

Ultimately, the people with gatekeeper attitudes won’t survive the new power paradigm. They’re the Toys ‘R’ Us and Lehman Brothers of the world.

Those looking to thrive in this new paradigm will practice the following:

  • Ignore your ego, listen to your community
  • Don’t be a guardian, be a curator
  • Act like a connector, not a gatekeeper

My go-to case study of why the gatekeepers’ delusions of grandeur are waning involves the two young guys from Aberdeenshire who started a small craft brewery – now widely-known to the world as Brewdog.

Brewdog was rejected by Dragons’ Den – a collection of the old guard who are known to coldly dismiss the sometimes-incredible business ideas of budding entrepreneurs who appear in front of them.

Now valued at more than £1 billion, it’s Brewdog – and their numerous crowdfunding backers – who are laughing. Comparatively, Dragons’ Den has never backed a billion-pound idea.

There are rumours that the show is nearing cancellation, most founders now using it for the brand awareness it brings rather than the potential of bagging a Dragon. Just further evidence that it’s the crowd, and not the gatekeepers who hold the keys to the innovative ideas of the future.

Embrace the crowd

If you’re starting up a company or looking for growth funding, see how the crowd might be able to help you raise funds and validate your ideas.

Two companies recently came to me looking for help that I cannot give. They first took the advice of gatekeepers, which proved to be in the gatekeepers’ self-interest and not in that of the companies.

In a desperate need for cash, these companies gave away more than a third of their equity for a mid-sized loan, which the new shareholder expects to be paid back in full. This buying of shares in place of interest, rather than cash for an equity deal, epitomises the old, flawed system.

When the middle people hold the cards, they will always try to get a better deal. Ironically, all this achieves is reducing the likelihood these companies ever making it to market.

These companies will need two or three more funding rounds to take real advantage of the opportunity, and no crowdfunding platform will accept a company with £1.5m of shareholder debt. So, due to the biddings of so-called experts, both sides have lost.

Make no mistake. There is a bad side to this new power but embracing it and understanding it will help you to thrive in this new paradigm.

This guide has been written exclusively for ByteStart by John Auckland, a crowdfunding specialist and founder of TribeFirst, a global crowdfunding communications agency that has helped raise in excess of £4m for over 20 companies.

Last updated: 13th April, 2021

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