October 5, 2012

“Everybody wants ta get inta [venture capital] act,”

…legendary comedian Jimmy Durante might say if he were around today, and the internet is letting them do so. “Crowdfunding” is the entrepreneur’s version of on-line dating, allowing “designers and other creative people [to] connect with audiences who want to finance their dreams,” the New York Times  recently reported. “Nearly three million people have helped a total of 30,000 projects meet their fundraising goals on Kickstarter, the largest such site, to the tune of $300 million in pledges.”

Getting into the venture capital act has pitfalls for designers and their would-be backers. A lot could happen between designing a concept and making it. The designers and backers of an iPhone charging dock encountered some of those pitfalls when Apple announced a redesigned iPhone that wasn’t compatible with the dock. A Wharton School of Management study found that “75% of design- and technology-related projects on Kickstarter…failed to meet their promised deadlines.”

But, as in the production of a new play, the actors are still learning their parts. “The relationship between creators and backers on crowdfunding sites is still being worked out. The backers play the role of philanthropists, investors, customers—or all of the above. And when rewards are slot to materialize, eager backers can get cranky.”  

Does crowdfunding hold any promises for state economic development policy, which includes using tax credits to leverage venture capital from relatively small “angel investors?”  For example, would it be feasible to create a state crowdfunding website where inventors and businesses can pitch their ideas to online investors and, at the same time, have access to a menu showing the full range of state economic development programs?