The Agenda

Alex Goldmark on the Coming Crowdfunding Revolution

There is at least one part of President Obama’s jobs plan that makes a great deal of sense — a call to end the SEC’s ban on crowdfunding. Alex Goldmark of GOOD has written a worthwhile post on the subject:

Crowdfunding sites like Kickstarter and IndieGoGo have set the standard for creative types looking to launch a project on small donations, but the casual donor crowd doesn’t have the scale to spark an economic recovery, nor get a $5 million startup off the ground and hiring new workers. That requires investors, not donors, but the Securities and Exchange Commission forbids crowdfunding for businesses, as it has for more than 75 years.

As the entrepreneur Jessica Jackley observes, the effective ban on crowdfunding has proven an obstacle to getting new firms off the ground:

Jackley and her cofounder, Dana Mauriello, are frustrated by the current laws and how hard it is to raise money for the smallest of startups.

“Dana and I saw our classmates at Stanford trying to raise money for startups, but they couldn’t get it done.” Jackley says. “One classmate sent an email asking for $1,000 investments,” but under California law he couldn’t accept money from sixty interested investors. Eventually, after legal costs, it cost him $20,000 to raise $35,000.

Part of the appeal of crowdfunding is that it could play an educational role. By making it easy and attractive for ordinary people to become equity investors in small-scale enterprises, a new wave of crowdfunding sites could make entrepreneurship seem more accessible. The cultural prestige of entrepreneurship and business more broadly has increased dramatically over the last thirty years, despite a post-crisis backlash against finance capitalism. Virginia Postrel has artfully explained the origins of this renaissance:

In the 1980s, entrepreneurs became heroes, celebrities and role models. The Apple whiz kids, Steve Jobs and Steve Wozniak, were the new face of business.

Money was, of course, part of the appeal — millionaires in their 20s! — but there was much more to it than that. The aspirations for pleasure and self-expression that the sociologist Daniel Bell had condemned as the “cultural contradictions of capitalism” turned out to be its fuel.

“It’s a neat way to play,” said Dave House, who was the manager of Intel Corp. (INTC)’s microprocessor division in 1982 when he posed for a magazine in a hot tub with his girlfriend, apparently naked. House wasn’t talking about his hot-tub frolics. He was explaining why he kept working once he had more money than he knew what to do with.

In the 1980s, business became a realm of passion and personality and, above all, surprises. 

Perhaps crowdfunding can help restore the magic — by freeing entrepreneurship from the taint of Big Finance.