Will entrepreneurs save the world?

Raising capital online: The new thundering herd Raising capital online The new thundering herd Wanted: small sums of money to finance young companies. Click here to invest PEBBLE, a watch that displays messages from the wearer’s iPhone, may not be a record-holder for long. The $10.3m raised last month from 68,929 people after Pebble’s inventors posted a pitch on Kickstarter, a “crowdfunding” website, dwarfed the previous high of $3.3m set in March by Double Fine Adventure, a video game (see chart 1). Until February, no project had raised $1m. Now seven have. This “feels like an inflection point”, says Yancey Strickler, a founder of Kickstarter, a site where anyone with an idea can ask the crowd for small sums of money that, added up, can bring it to fruition. Crowdfunding is booming. A report by Massolution, a research firm, forecasts that $2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011 and only $530m in 2009 (see chart 2). There are over 450 “crowdfunding platforms”, including four in China, up from under 100 in 2007, with Kickstarter America’s largest. This month Indiegogo, its closest rival (though global and with a broader mix of projects), secured the biggest chunk of venture capital so far for crowdfunding. The effect of this has perhaps been most marked in the creative arts: around 10% of the films shown at the Sundance and Cannes festivals this year were crowdfunded, says Mr Strickler. Charity is benefiting, too. But America’s recent Jumpstart Our Business Start-ups (JOBS) Act is raising hopes that crowdfunding will also transform the way in which firms raise capital. Duncan Niederauer, the boss of NYSE Euronext, claims that, properly done, it “will become the future of how most small businesses are going to be financed”. Is the hype justified? From fad to finance Talk of crowdfunding as a short-lived fad has largely ceased, as evidence mounts that lots of people value personal engagement with projects they help to finance. “People increasingly want humanity with their technology,” says Caterina Fake, an early investor in Kickstarter. Hitherto people have opened their wallets for three main reasons: “caring about the person or company; wanting the product; or being part of a community,” says Slava Rubin, a founder of Indiegogo. Adding profit as a motive will bring fresh challenges. Raising money from strangers requires a lot of effort to gain their trust. One indica … http://www.economist.com/node/21556973