The next step for crowdfunding: “crowd-directing”?
Investors today have access to a wider variety of investments than at any other time in history; the rise of the alternative finance industry has democratised investment, and unquoted equity is no longer just the preserve of finance professionals and industry insiders.
We now have unprecedented access to investments, and crowdfunding platforms give us the ability to evaluate, question and guide the offers and the entrepreneurs. This open forum is forging an era of investor education and knowledge-sharing which some people believe is contributing to the success of the enterprise.
According to the Altfi 2015 report Where are they now? over 80% of the companies that crowdfunded between 2011 and 2013 are still trading. Of these, many have raised further capital at higher valuations – and one has even realised a return for investors. This compares favourably alongside an October 2014 report by the insurer RSA that found that 55% of UK small and medium-sized enterprises did not survive five years.
Is the survival rate better for crowdfunded companies because the crowd contributes to its success and collaborative decision-making is better at picking a winner? Or is it too soon to judge?
In his 2004 book, The Wisdom of Crowds, James Surowiecki suggests that a large group of reasonably informed and motivated people is able to make better decisions than a small group of experts.
The book suggests that the view of a crowd is more accurate than all but a handful of individuals and that no individual is able consistently to make decisions superior to those of the crowd.
Surowiecki’s work was published long before crowdfunding was conceived, and its findings changed the business’ understanding of leadership and management. However, as the premise emerges that crowdfunded companies are more successful than non-crowdfunded companies should we should we revisit Surowiecki’s findings and examine again why diversity works?
If we agree that the crowd is more capable of selecting successful businesses than business angels, venture capital partners (VCs) and traditional financiers, are entrepreneurs missing a trick if they then forget about the crowd after funding?
