

The crowdfunding bubble of 2013 - bootload
http://www.cringely.com/2012/06/05/the-crowdfunding-bubble-of-2013/

======
muhfuhkuh
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
"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.

~~~
mahyarm
Only 23?! UVic across the gulf graduates more than that.

~~~
sirmarksalot
UW has historically capped its CS program at what seems like an absurdly low
number of students. When I was there, they accepted only 80 students per year
(40 more for computer engineering). The stated reason for this is to keep the
student/faculty ratio low, and to maintain a sense of community in the
department.

Also, I know quite a lot of UW CS graduates who headed down to the valley to
do startups. While they could have conceivably found the talent to do it in
Seattle, they perceived the environment as better down South. It's not that
students from other schools don't do startups, it's just that they go to the
Bay area in order to do them, and the culture perpetuates itself.

------
irollboozers
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.

~~~
zanny
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.

~~~
derefr
> 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.

~~~
muhfuhkuh
So, the masses are stupid, VCs are smart. Stock brokers and investment bankers
are the ones who _truly_ caused every recession and the Great Depression. Oh,
sure, poor and dumb people getting mortgages wasn't a very good idea, I
totally agree. But it would've been a drop in the bucket compared to tarring
and gzipping said mortgages into 30:1-leveraged bundles (laughably
underwritten by AIG) created by Wall St. They _knew_ they were unsustainable,
but pressed on, some not even taking the "five cumulative minutes" of thought
to what they were investing in or how much of not-their-own-money they were
putting into it, until it burst.

So, you're saying we should _still_ keep all the money in that silo? That we
should keep letting "risk modelers" who have exacerbated every speculative
bubble since the Great Depression keep investing in Color and Groupon and
boo.com and flooz because the masses are too stupid to do it for themselves?

Well, okay. But, I disagree.

~~~
derefr
Er, no, no I'm not; you're reading moralizing from what was supposed to be a
purely phenomenological description.

Personally, I think it's _okay_ that regular people risk ( _extremely_ small,
in relative terms) money and, more often than not (in the long term), lose it.
It's _okay_ to build businesses that only profit because of human
irrationality. It's their money to spend (or lose) as they please--and, in
aggregate, as businesses, it's our profit. Just so long as nothing's coercing
anyone into doing this--like, say, a gambling addiction--we have no reason to
feel bad for allowing people to bet on us and then, potentially, flopping.

------
rlucas
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=histor...](https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical)
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
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.

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llimllib
I see that the bubble bubble of 2012 continues unabated.

~~~
shiftpgdn
We were talking about bubbles in 2011 too
<http://news.ycombinator.com/item?id=2231352> .

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

~~~
wtvanhest
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.

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

------
veyron
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
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.

------
Dove
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.

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

Zing...

