Capital formation strategy use to revolve around credit-score, which means access to money only when you prove you don’t need it . Crowdfunding has changes all that. To get access to money, instead of mathematical formulas, you need to exchange value. A value in form of story, passion, vision and a sense of mission that has value. Much of the art and science of obtaining money for your project centre around your ability to craft the story, to build relationships that allow you to access the right audiences and to continuously promote your value proposition by way of offering the opportunity to be part of your story to other people.
According to World Bank Over 2 billion People are either Unbanked or under banked, Which means that 40% of the world population does not have bank accounts or they regularly make non bank financial transaction.
Why is this important? Because this fraction of people do not have credit score, which translates into inadequate opportunity to access capital for their business ventures and personal projects. Let’s call these people under capitalised.
How many of these people wants to create products, services or entertainment that other people want? How many of them are people of wish to make documentaries about important contemporary topics? How many of these undercapitalized innovators who wish to create physical gadgets for smartphones?
I feel there are many people who fit these descriptions and collectively they represent an enormous untapped marketplace of economic activities at all levels of scale. Its easy to assign this disconnect in capital needs to barriers in the banking system. But at issue isn’t so much the banking system. Rather it is how or why we use banking systems. Banks are very capable of moving funds between the accounts of person A and person B, given that transferring funds in a very mechanical and passive process that scales well, including across national boundaries. But what on earth do banks know about validating the market for your endeavour or about hooking you up with the like-spirited team members? Do they bring their fan base into your equation by retweeting your urgent message? Is the bank president going to be in your play? Any chance the banks will fund your documentary about their scandals? Very little. These are just no activities that today banks are setup to do. These are just not activities that today bank are set up to do. The banks operate based on purely passive and readily measurable metrics such as credit score, incomes, expenses, and cash flows, these are conditions that put banks in the awkward position of being a “place that will lend you money if you can prove that you don’t need it”
At the highest level, our current ills in capital formation come from the fact that we traditionally don’t access capital from an open marketplace, or community if you will. Seeking financing from people (bankers or VCs) who are paid to mostly say no to risky deals doesn’t constitute an open marketplace. And in the end, what you only get if successful is mostly capital.
On the other hand, a crowdfunding campaign is, by contrast a way to access many types of resources from the marketplace. Capital certainly is one key resource, and what better way to obtain that than via market financing? But there are many other equally important resources that comes from tapping into and becoming part of the community. What’s more, every person who comes to the table with various elements of trust, passion, ideas, a network, a mission has something else to offer.
This is a breath of fresh air after decades of centralization by the financial world, which has stripped out many important elements of why people invest in each other, expecting for those that can be expressed by mathematical formulas. But it also means that the way, we present our story, seeking the assistance of others, needs to be refactored. There is much more to be gained from the process, and each person has much more to be offer. Maybe my banker would not like it, but as fund-raiser, you matter, your story matters, backers are along for the ride with you. Your banker gave you two colors, to paint with: black and white, but with crowdfunding campaigns, we get to paint with vibrant colors.
The article is written by Varun Chandra, Co-Founder -DesiredWings.com