Crowd-funding: the Web provides the answer to the crisis

by Margherita Fabbri - 2013.04.18
Crowd-funding: the Web provides the answer to the crisis
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Greg Pak writes cartoon novels. On his page on www.kickstarter.com, the backers of his project are still rising. At the time of writing there are about 2,681 of them: private citizens from around the world who, in 72 hours, have funded the princely sum of $106,909 for the production of the 60-page graphic novel proposal by the author.

Incredible but true: with one project, internet and a broad circle of acquaintances, even in the darkest of economic times, dreams can become reality.

It's called crowd-funding and it represents a big opportunity. In a world where banks are reluctant to lend and governments more likely to cut, there is certainly a need for a financing tool like this.

Developed in the United States in the nineties, the idea has caught on around the world and, since 2005, it has had some success in Italy too. There are now 16 online platforms that have attracted over 30,000 project submissions, 9,000 of which have been approved and published. They have attracted financing of €13 million.

Innovative start-ups, websites, video games, theatre performances, collective projects for urban regeneration, scientific research: crowd-funding allows you to fund any proposal which is deemed valid by other web readers. The rules of the game are simple. You submit your idea, set the minimum budget to achieve it and the deadline for fund-raising. After that, it's up to the web community to evaluate, select and share the idea. Investors in the project are usually rewarded with a small gift: a video, stickers, a CD or tickets for the front-row. There is no marketing nor strategy: just word of mouth, a solid contacts network and mutual trust. If the project doesn't reach its funding target within the time allocated, investors get their money back, in total transparency and safe from failure.

The fact that even Consob, the Italian securities market regulator, recently began paying attention to crowd-funding, shows that this is not just a passing phenomenon. The authority proposed a measure last March that would regulate crowd-funding equity, namely the widespread collection of venture capital (up to €5 million) for start-up companies through the issuance of equity instruments on specialized web sites. If approved, the proposal would make Italy the first country in the world to introduce a law on this phenomenon and it would certainly open the door for numerous initiatives that do not normally receive attention from traditional lenders.

Just this week, the International Monetary Fund again emphasized with alarm that in Italy “the continuing credit crunch has starved the vital sector of small and medium-sized enterprises, effectively blocking economic recovery.” Of course, Washington will have to think of other kinds of solutions, but who knows if crowd-funding could play an important role in the management of the credit-crunch. It is perhaps only a small percentage of what is needed, but it is real and, at least for the moment, much more encouraging than the austerity policies adopted to date.

Published in Education and work.
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