35 ms·

The crowdfunding bubble of 2013

54 points by bootload 14y ago

llimllib 14y ago
I see that the bubble bubble of 2012 continues unabated.
- taligent 14y ago
  Indeed. And I also see the bubble around writing about bubbles will continue to bubble.
- shiftpgdn 14y ago
  We were talking about bubbles in 2011 too http://news.ycombinator.com/item?id=2231352 http://news.ycombinator.com/item?id=2231352 .
irollboozers 14y ago
As someone actively trying to help shape the crowdfunding space, I personally think it really is the next big thing and not just a bubble. As Tim Brown puts it, big design used to be big companies making solutions for little people, then little companies making solutions, now it's people making solutions for themselves. I don't think crowdfunding will be another venture-infused flash in the pan. As long as the regulatory framework and the tools continue to make proress for the end user, then the potential for crowdfunding to become a huge engine for disruption is unknown. We have to make sure we treat crowdfunding with the patience and respect of a new idea. It's not going anywhere, especially as people start to see the power of leveraging it in yet unseen ways.
- chj 14y ago
  Agree, it is just the beginning of a phenomenon.
- zanny 14y ago
  There will be tremendous recoil though when layman VC's realize their investments are so very risky. It won't be so much a bubble, because the real artificial force here is the monopoly marketplace of shares being on wallstreet. It is a positive move, but all economic shifts like this will produce excessive momentum with some recoil effects. It is good in the long haul though. The easier it is for normal people to own stake in business the sooner we can close the tremendous gaps in socioeconomic status between the elites and common folk.
  - irollboozers 14y ago
    Yup, that's the one part I disagree with from this article: the ending where he says VC today is inbred. First off, VC today is by no means doing poorly. IPO's, incubators/accelerators, and the spillover of excitement from SV to NYC/LA/Seattle/Boston is pretty evident that big money goes where it needs to go. It's more so that there isn't -enough- VC out there today, in my opinion, that's really driving crowdfunding and crowdsourcing. Now that the barrier to entry has dipped so low (technical costs) and the need for innovation is so big, that there just is too much consumer demand to get involved with the game. Up until the JOBS Act, to play ball you had to enter the field as an entrepreneur. No one really takes money anymore from someone who hasn't had skin in the game (whether from a successful startup of failed investment). I like to think of it as thirsty kids at a summer concert, where VC's were the big scary macho bouncers who threw out water bottles to a select few in the front. Only, now, there's more thirsty people than ever and the concert organizers just brought over a firetruck.
  - derefr 14y ago
    > There will be tremendous recoil though when layman VC's realize their investments are so very risky. Do you really think laymen understand risk, though? Casinos make billions of dollars each year off people who can't correctly model risk even after risking, and losing, large sums of money. Of course, VCs wouldn't put their money on black at the Roulette table--but VCs (and stock-brokers, and investment-bankers) model risk for a living, whereas the median layman micro-investor will have given their one or two investments maybe five cumulative minutes of thought in their lifetime. To put it another way: there's a sucker born every minute--but no-one stays a sucker for very long, once they've been burned. This means that, when there is friction to investment, the suckers will slowly drain from the pool until only the sharks are left; whereas, when fiction is low, each sucker leaving the game will be replaced by a new sucker joining in, fresh and naive. When 90% of your revenue comes from people who have never invested in anything before, you can build your business model on the mob's irrational overconfidence in your ability to deliver.
kvnn 14y ago
I'm not really sure what is being said here.
- wtvanhest 14y ago
  I actually wondered the same thing so I came to the comments to try to figure it out. I think it was up voted due to the fact the word bubble was in the title.
- bootload 14y ago
  "... The glory years of venture investing are over, or threaten to be, unless new blood, new values, and new ideas make their way in. That’s the value of crowdfunding, which promises to bring vast amounts of new capital to bear, not just on the same old ideas but on a broad array of ideas and business types that could never get through a door right now on Sand Hill Road. ..." Tech startups are the seeds of new corporations. The disconnect between VC's and the market continues. Founders are gaining power over investors ~ http://paulgraham.com/future.html http://paulgraham.com/future.html
veyron 14y ago
I think the term 'bubble' is sensationalist. The author is trying to say that crowdfunding is not a panacea and can do things the normal paradigm wouldn't support, but at one point people may do something stupid and back projects that shouldn't be backed. There's no reason to believe that the community can't select for the best projects (I'd say there's a bubble when every garbage project gets funded)
- gojomo 14y ago
  There is going to be a bubble: it is a natural, necessary stage that comes with enthusiastically exploring a new space. (If there isn't a bubble, some people aren't trying hard enough.) People are going to be ripped off. People are going to lose a lot of money in ventures that aren't rip-offs, but still just fail, because that's the nature of new things. (Because the expectations will be so high, and the investor understanding of the downside risk so low, lots of these people will loudly complain and allege wrongdoing where there is none.) Some bad actors will enrich themselves. And yet, crowdfunding will still be a rich new source of innovation and wealth, even with the growing/learning pains.
rlucas 14y ago
Worse than even the expected "Cringely level" of analysis. Bubbles (despite appearances) aren't pushed by inputs; they're pulled by expectation of outputs. That's why, roughly, the pace of VC dollar inputs is a lagged dependent variable on recent M&A and IPO volumes. (If you don't believe me check out the MoneyTree historicals at https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=histor... Notice that the deal volume roughly matches a 1-2 quarter lag on the stock market's performance.) Crowdfunding has no exit mechanism. There will be no bubble because there's no "pull" effect. The critique "derefr" provides below is more apt. There will be fraudsters who will try to prey on the fact that nobody can afford to do much diligence on a $1000 investment.
- TheCowboy 14y ago
  There are expectations that these projects actually deliver their stated goals, including the 'rewards', when they receive the requested funding. It's still a new experiment overall that can be innovated upon, but it's not immune to a crash in people willing to throw their money at random pet projects. Even if the reality is that most projects deliver, having enough bad apples or outright frauds can be enough to hurt progress. I read a recent piece talking about how many game projects seem to terribly underestimate the amount of money required to fund a game. Enough people who are terrible at estimating their financial needs can also hurt everyone. It's not like this problem can't be solved, but it shouldn't be ignored if you want crowdfunding to succeed.
Dove 14y ago
When the housing bubble started, everyone was like, "We just had a bubble. This can't be another one. Nobody sees TWO bubbles in one lifetime." But then it became clear that there had, indeed, been two bubbles. Now everyone sees bubbles everywhere.
muhfuhkuh 14y ago
I agree with alot of what Cringely is implying, because current VC funding at every level (including YC) has been very cliquey. You simply can not with a straight face say that the only insanely great technology business ideas come out of four places (Harvard, MIT, Stanford, Berkeley) and basically nowhere else. For example, two cities that have the highest concentrations of baccalaureate degree holders in the US are Seattle, WA and Raleigh, NC. Now pop quiz: Name a YCombinator company in either of those cities. Oh, I know, it doesn't really mean anything. I just find it interesting that two otherwise academically talented areas are burgeoning hotbeds of neither startups nor even talent for said startups. I guess we can further break down what kind of degrees the citizens of these two Rodney Dangerfield of academic and tech hubs have. I mean, for all we know, they could be in philosophy or advanced basket weaving or, worse, gasp, English. But the rise of crowdfunding couldn't come at a better time, in my opinion. It's high time the silo gets drained for a more swampy, organic, bubbling ooze sort of scattershot approach of crowdfunding. It'll be spendy, it'll be risky, it'll make outside observers think it's all at best a big gamble and at worst a big liberal boondoggle that will further weaken our country like everything else democrats come up with that dilutes and distributes power into the hands of "the masses". Further, it'll make professional VCs cringe when successes actually start coming out of these crowdsourced ventures, as they talk of "amateur hour" money crowding out their world of term sheets and share dilution calculations over tapas in Menlo off Sand Hill Rd. Whatever is going to happen, things like kickstarter and indiegogo and JOBS et al. are going to shake the status quo up big time. In my neohippie indie-and-proud idealistic head, it's not only exciting, it's necessary.
- webwright 14y ago
  "I just find it interesting that two otherwise academically talented areas are burgeoning hotbeds of neither startups nor even talent for said startups." FWIW, there are half a dozen YC startups in Seattle that are doing well. And there are dozens more that have people who came from Seattle. Also, companies are opening up engineering offices in Seattle pretty rapidly (Twitter, most recently, but also Facebook, Hulu, Google, Jawbone, Zynga, etc). The reason you don't seem more startup activity in Seattle is that many are lured down to the Valley. To one of your other points-- UW graduated 23 comp-sci students this year.
staunch 14y ago
Crowdfunding would have worked for many of the best startups. Dropbox absolutely could have been funded by HN/Digg/Reddit users.
raintrees 14y ago
"and for real entrepreneurs there are some things even worse than failure, like boredom or just being like everyone else." Zing...
deleted 14y ago
[deleted]

54 points by bootload 14y ago

llimllib 14y ago

I see that the bubble bubble of 2012 continues unabated.

taligent 14y ago
Indeed. And I also see the bubble around writing about bubbles will continue to bubble.
shiftpgdn 14y ago
We were talking about bubbles in 2011 too http://news.ycombinator.com/item?id=2231352 http://news.ycombinator.com/item?id=2231352 .

irollboozers 14y ago

As someone actively trying to help shape the crowdfunding space, I personally think it really is the next big thing and not just a bubble. As Tim Brown puts it, big design used to be big companies making solutions for little people, then little companies making solutions, now it's people making solutions for themselves. I don't think crowdfunding will be another venture-infused flash in the pan. As long as the regulatory framework and the tools continue to make proress for the end user, then the potential for crowdfunding to become a huge engine for disruption is unknown. We have to make sure we treat crowdfunding with the patience and respect of a new idea. It's not going anywhere, especially as people start to see the power of leveraging it in yet unseen ways.

chj 14y ago
Agree, it is just the beginning of a phenomenon.
zanny 14y ago
There will be tremendous recoil though when layman VC's realize their investments are so very risky. It won't be so much a bubble, because the real artificial force here is the monopoly marketplace of shares being on wallstreet. It is a positive move, but all economic shifts like this will produce excessive momentum with some recoil effects. It is good in the long haul though. The easier it is for normal people to own stake in business the sooner we can close the tremendous gaps in socioeconomic status between the elites and common folk.
- irollboozers 14y ago
  Yup, that's the one part I disagree with from this article: the ending where he says VC today is inbred. First off, VC today is by no means doing poorly. IPO's, incubators/accelerators, and the spillover of excitement from SV to NYC/LA/Seattle/Boston is pretty evident that big money goes where it needs to go. It's more so that there isn't -enough- VC out there today, in my opinion, that's really driving crowdfunding and crowdsourcing. Now that the barrier to entry has dipped so low (technical costs) and the need for innovation is so big, that there just is too much consumer demand to get involved with the game. Up until the JOBS Act, to play ball you had to enter the field as an entrepreneur. No one really takes money anymore from someone who hasn't had skin in the game (whether from a successful startup of failed investment). I like to think of it as thirsty kids at a summer concert, where VC's were the big scary macho bouncers who threw out water bottles to a select few in the front. Only, now, there's more thirsty people than ever and the concert organizers just brought over a firetruck.
- derefr 14y ago
  > There will be tremendous recoil though when layman VC's realize their investments are so very risky. Do you really think laymen understand risk, though? Casinos make billions of dollars each year off people who can't correctly model risk even after risking, and losing, large sums of money. Of course, VCs wouldn't put their money on black at the Roulette table--but VCs (and stock-brokers, and investment-bankers) model risk for a living, whereas the median layman micro-investor will have given their one or two investments maybe five cumulative minutes of thought in their lifetime. To put it another way: there's a sucker born every minute--but no-one stays a sucker for very long, once they've been burned. This means that, when there is friction to investment, the suckers will slowly drain from the pool until only the sharks are left; whereas, when fiction is low, each sucker leaving the game will be replaced by a new sucker joining in, fresh and naive. When 90% of your revenue comes from people who have never invested in anything before, you can build your business model on the mob's irrational overconfidence in your ability to deliver.

kvnn 14y ago

I'm not really sure what is being said here.

wtvanhest 14y ago
I actually wondered the same thing so I came to the comments to try to figure it out. I think it was up voted due to the fact the word bubble was in the title.
bootload 14y ago
"... The glory years of venture investing are over, or threaten to be, unless new blood, new values, and new ideas make their way in. That’s the value of crowdfunding, which promises to bring vast amounts of new capital to bear, not just on the same old ideas but on a broad array of ideas and business types that could never get through a door right now on Sand Hill Road. ..." Tech startups are the seeds of new corporations. The disconnect between VC's and the market continues. Founders are gaining power over investors ~ http://paulgraham.com/future.html http://paulgraham.com/future.html

veyron 14y ago

I think the term 'bubble' is sensationalist. The author is trying to say that crowdfunding is not a panacea and can do things the normal paradigm wouldn't support, but at one point people may do something stupid and back projects that shouldn't be backed. There's no reason to believe that the community can't select for the best projects (I'd say there's a bubble when every garbage project gets funded)

gojomo 14y ago
There is going to be a bubble: it is a natural, necessary stage that comes with enthusiastically exploring a new space. (If there isn't a bubble, some people aren't trying hard enough.) People are going to be ripped off. People are going to lose a lot of money in ventures that aren't rip-offs, but still just fail, because that's the nature of new things. (Because the expectations will be so high, and the investor understanding of the downside risk so low, lots of these people will loudly complain and allege wrongdoing where there is none.) Some bad actors will enrich themselves. And yet, crowdfunding will still be a rich new source of innovation and wealth, even with the growing/learning pains.

rlucas 14y ago

Worse than even the expected "Cringely level" of analysis. Bubbles (despite appearances) aren't pushed by inputs; they're pulled by expectation of outputs. That's why, roughly, the pace of VC dollar inputs is a lagged dependent variable on recent M&A and IPO volumes. (If you don't believe me check out the MoneyTree historicals at https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=histor... Notice that the deal volume roughly matches a 1-2 quarter lag on the stock market's performance.) Crowdfunding has no exit mechanism. There will be no bubble because there's no "pull" effect. The critique "derefr" provides below is more apt. There will be fraudsters who will try to prey on the fact that nobody can afford to do much diligence on a $1000 investment.

TheCowboy 14y ago
There are expectations that these projects actually deliver their stated goals, including the 'rewards', when they receive the requested funding. It's still a new experiment overall that can be innovated upon, but it's not immune to a crash in people willing to throw their money at random pet projects. Even if the reality is that most projects deliver, having enough bad apples or outright frauds can be enough to hurt progress. I read a recent piece talking about how many game projects seem to terribly underestimate the amount of money required to fund a game. Enough people who are terrible at estimating their financial needs can also hurt everyone. It's not like this problem can't be solved, but it shouldn't be ignored if you want crowdfunding to succeed.

Dove 14y ago

When the housing bubble started, everyone was like, "We just had a bubble. This can't be another one. Nobody sees TWO bubbles in one lifetime." But then it became clear that there had, indeed, been two bubbles. Now everyone sees bubbles everywhere.

muhfuhkuh 14y ago

I agree with alot of what Cringely is implying, because current VC funding at every level (including YC) has been very cliquey. You simply can not with a straight face say that the only insanely great technology business ideas come out of four places (Harvard, MIT, Stanford, Berkeley) and basically nowhere else. For example, two cities that have the highest concentrations of baccalaureate degree holders in the US are Seattle, WA and Raleigh, NC. Now pop quiz: Name a YCombinator company in either of those cities. Oh, I know, it doesn't really mean anything. I just find it interesting that two otherwise academically talented areas are burgeoning hotbeds of neither startups nor even talent for said startups. I guess we can further break down what kind of degrees the citizens of these two Rodney Dangerfield of academic and tech hubs have. I mean, for all we know, they could be in philosophy or advanced basket weaving or, worse, gasp, English. But the rise of crowdfunding couldn't come at a better time, in my opinion. It's high time the silo gets drained for a more swampy, organic, bubbling ooze sort of scattershot approach of crowdfunding. It'll be spendy, it'll be risky, it'll make outside observers think it's all at best a big gamble and at worst a big liberal boondoggle that will further weaken our country like everything else democrats come up with that dilutes and distributes power into the hands of "the masses". Further, it'll make professional VCs cringe when successes actually start coming out of these crowdsourced ventures, as they talk of "amateur hour" money crowding out their world of term sheets and share dilution calculations over tapas in Menlo off Sand Hill Rd. Whatever is going to happen, things like kickstarter and indiegogo and JOBS et al. are going to shake the status quo up big time. In my neohippie indie-and-proud idealistic head, it's not only exciting, it's necessary.

webwright 14y ago
"I just find it interesting that two otherwise academically talented areas are burgeoning hotbeds of neither startups nor even talent for said startups." FWIW, there are half a dozen YC startups in Seattle that are doing well. And there are dozens more that have people who came from Seattle. Also, companies are opening up engineering offices in Seattle pretty rapidly (Twitter, most recently, but also Facebook, Hulu, Google, Jawbone, Zynga, etc). The reason you don't seem more startup activity in Seattle is that many are lured down to the Valley. To one of your other points-- UW graduated 23 comp-sci students this year.

staunch 14y ago

Crowdfunding would have worked for many of the best startups. Dropbox absolutely could have been funded by HN/Digg/Reddit users.

raintrees 14y ago

"and for real entrepreneurs there are some things even worse than failure, like boredom or just being like everyone else." Zing...

deleted 14y ago

[deleted]