This is the copy of a speech I delivered at a crowdfunding conference in Austin. It’s similar to the content in the series I did a few months ago. I also did some slides with it, you can download them here if you want to see them. We’ve also added a link to a PDF version of the slides at the bottom of the article.
When new technologies or ideas come up, people tend to draw a straight line forward.
They assume the future will be the past, but just more of the same. That’s not how new technologies work. Truly innovative ideas fundamentally alter relationships, which in turn create entirely new possibilities.
For example, TV was not filmed radio. It completely changed the way people interacted with media. The iPhone was not a phone with a screen; it’s actually a computer that makes calls, and it completely changed how humans related to computing and the Internet.
I think equity crowdfunding is the same. It won’t take what exists in venture capital and angel investing and create more of it. I think equity crowdfunding will create entirely new classes of business and entirely new business models.
In fact, I think equity crowdfunding changes the way that people interact with money and power.
But before I get into my predictions, let’s do something fun: Let’s look at all of my social media accounts.
My social media value
This is not about bragging, I promise, it’s actually going to make a point:
Twitter: 375k+ followers. Pretty solid, plus I have a verified account. Nice.
Instagram: 2,200 followers. I’m not a picture guy, it’s mostly just pictures of my dog or my girlfriend.
LinkedIn: 500+ followers. (Why do they cap that number? Who knows.) Anyway, a lot of people on LinkedIn
What if I got paid by social media companies?
Now, those assets have value. They are nodes in the network, and not just small nodes. I’m a power user of at least two of those networks. So, considering I have created value for them, let’s look at how much money these companies paid me:
That’s probably about what you get paid for your social media accounts, isn’t it? So why am I showing you this? What does this have to do with crowdfunding?
What is my Twitter account worth?
Hypothetical 1: A different type of social media company
Well, let’s take a second and imagine a different type of social media company. Let’s imagine a social media company that does all of the exact same things as Facebook or Twitter or any of these companies, but one thing is different: it recognizes that all of its value is derived from its network of users. So, what if instead of collecting all the of value that the network provides for itself, it pushes all the of this value to the edges of the network?
To make it simpler, what if the people using the social network got paid the profit that the social network makes?
Right now, Facebook exists to make money for Mark Zuckerberg and the rest of its shareholders.
But what if Facebook existed for a higher purpose – to serve its network of users? What if it paid the profits that the network made from their activity?
If that company could be magicked into existence, that would be an incredibly disruptive company, wouldn’t it?
I know what you’re thinking, that’s impossible. First off, there’s no way that company gets funded. Who would put money into a company that can’t be profitable? No VC I know would do that. And why would people even use it, we already have Facebook, right?
OK, let’s put a pin in that discussion, and come back to it later.
Let’s imagine a different scenario. Let’s imagine that a few of the best engineers and programmers in Silicon Valley get fed up with the political status quo in America – they’re pissed off at the government. Either end of the spectrum, doesn’t matter which. Whether they think Obama is coming to take their guns or they think Bush did 9/11, it doesn’t matter. The point is, they’re not armchair revolutionaries – these are smart, serious and capable dudes and they want to create REAL change.
What could they do?
Well, right now they only have three options:
1. Altruism: This is bullshit. They’re not going to fly to Africa, dig a well, pet some poor people, and fly back (ahem charity: water). They want to really create a new system that is freer and more democratic, that creates real value for lots of real people, not just for the elites.
2. Make Money For The System: they have to create a company that does something good, but in order for it to exist, it has to make money for the capital system that it comes out of. Make no mistake about it, Facebook and other social networks create IMMENSE amounts of value for users, but the problem is that they capture most of it themselves or at least a lot of it. So anything they do like this, the money will inevitably go to the system they think is unfair and corrupt.
3. Attack the System: they have to attack the system. They can join Anonymous, or Wikileaks, or Occupy Wall Street, or do something like that. But lets say these are peaceful guys, and they don’t hate America, they don’t want to destroy things, they just want to make the world better. Doing any of these things makes them outcasts and quite frankly, could endanger their lives. And violence is never a good path for change. None of those are good options for them, or for real long-term change
Well, let’s jump forward to when equity crowdfunding becomes fully legal in the Western world. And let’s pretend that all the legal issues are worked out, and equity crowdfunding works great. What happens then?
Well, here’s one possible way this story can play out, a way to combine hypothetical 1 and hypothetical 2 and create something new:
Take this same team of engineers. Let’s even assume they’ve already made some money in a start-up, so that’s not an issue to them. Like I said, what they really care about is making the world freer, more democratic, and they care more about delivering value to people than to making money for Wall Street or corrupt politicians or terrible VC’s, or pick your evil of choice.
So, what if they decide to create a new social network? One that is basically just like Facebook (or Twitter, or Instagram or whatever) except there are three huge changes:
1. Every decision is about what’s good for the users: They decide their social network will be technologically exactly the same (or better) than the current Facebook, it will put the user first, not the company. This means they respect the privacy of the user, they don’t work with the NSA, offer every customizable feature possible to make Facebook how you want it, etc, etc. The point is, they make it their mission to make decisions that will favor the users of the network, NOT the shareholders of the company. Think of something like Patagonia’s mission statement, and you’ll know what I mean.
2. Profits go to the users, not the company: They decide to structure the company such that 50% of the net profit of the company goes to the people who financed the company, and 50% goes to the users of the platform. There are no major investors, no way for this company to exit, no IPO, no sale. It’s like a co-op, sort of, except they run it. They’re doing this as a mission, not about their personal profit.
3. Equity Crowdfunding: They finance this through equity crowdfunding. Let’s even say they restrict investments to $100 from 10,000 people worldwide, under the assumption that it’ll take them 1 million to get started on building and growing the platform.
[Let’s assume for the sake of conversation that 1. the founding team has the engineering chops to do this, and 2. the credibility that people believe them.]
Is this even possible?
I know what you’re thinking: this is impossible. No company could do this.
Is it really impossible though? Let’s see…what are the arguments against it:
1. They couldn’t raise the money Normally, you’d be exactly right. Under the current VC capital system, they’d NEVER be able to raise money for something like that, because what VC would finance a company that won’t create a huge ROI?
But they’re using equity crowdfunding. There are about three billion people on social networks now worldwide. If they are believable and do a good job with marketing, they could raise more than they’d ever need to build this out.
And if your argument is that $1 million won’t get them to scale, you’re right. But once they have a working prototype, why can’t they raise more money? Especially via crowdfunding? Yes it’ll get more complicated to do this, but there are ways to do it that are not hard.
2. It can’t make money, so it can’t survive long term without more capital
Why can’t it make money? It can sell ads, just like Facebook does. I am not talking about using the Wikipedia model – that’s stupid. I’m talking about the basic Facebook ad model. This is designed to be a profitable company.
It will NOT be as profitable as Facebook, that’s for sure. We all know advertisers will go where the eyes are, and if this thing takes off, they WILL pay to get access to people.
If it’s selling ads, then it can easily make enough money to survive. Remember, the users own it, it doesn’t need to be “profitable” in the Wall Street sense. If just has to make more money than it costs to run, because all excess profits go to the users.
3. No one will join the network
Are you sure? Why not? Are you telling me that Facebook can’t be technically improved upon? Really? You don’t think “Facebook but no NSA and you control the ads you see and your privacy functions” would be a huge hit? Or a Facebook with a social conscience might not work?
Now, your argument might be that the network effects make the cost of switching high. OK fine, that’s a good argument. But they’re using crowdfunding, so the first 10k users are already on it, they’re the investors.
And what happens when announce that they will structure the profit payouts such that, let’s say, the first one million people who sign up get a bigger cut? Or that they will have an algorithm that rewards the 1% power users a little more than everyone else?
All of the sudden, this becomes the place to be. And if it’s better than Facebook–less privacy issues, more responsive to customers, more about the user experience and not about ad experience, why won’t everyone eventually shift?
It’s at least possible, right?
This is already happening
If you’re still unsure of this hypothetical, there is already a great examples in rewards-based crowdfunding alone:
They’re a blogging platform designed to replace WordPress (and disrupt Automattic, the company that created it). The idea is that they are dedicated to making the best possible blogging platform for USERS. And they’re going to do it by creating an open source platform, curating the best attributes, cutting the rest, and eventually creating an open source company out of it.
The developer is a world-class talent who could easily have done this as a start-up. Instead, he wanted to create the best possible blogging platform without regards to pleasing investors, etc. The point is that he wanted to make the best possible product, not to just make money (though he will make money), and he knew that if he did this as a start-up, he wouldn’t be able to do that. He knew that once he took money, he would be beholden to the money guys. What he cared about was the product, and he raised the money to do this because he shared his vision with the world, and the world agreed.
In case you are missing it, let me be clear: This is a new business model. This is a new business model, and it can’t exist without crowdfunding.
Its not pure altruism, it’s not pure profit motive, its not really a socially conscious business, it’s a combination of these things, and it focuses on the thing that actually matters: how the product actually benefits real people. It focuses on meaning first, profit second.
[Incidentally, I found out after the speech about something called a Benefit Corporation, so even the legal world is moving this way].
These are just a few hypotheticals and one specific example. I don’t want to get bogged down in them. But what I am telling you is that equity crowdfunding is not going to be what you expect. Its not just going to be Angel and VC investing, but more of it. It’s going to create new things, things we haven’t seen before.
What does this mean?
Plainly put: Equity crowdfunding will change the world because it puts any idea–no matter how difficult to implement or revolutionary or challenging to the protected powerful elite–into the realm of possibility.
How? Equity crowdfunding connects ideas with the money and people that can make them happen.
There is now a true path that enables anyone to do anything. You can already build companies cheaply, and you can already connect with people all over the world. The missing component was that you couldn’t effectively raise capital unless the idea appealed to institutional investors. This meant big companies had incredible advantages over everyone else.
But now anyone can do that. raise the money to directly compete with the biggest companies in the world. All you have to be have are three things:
1. An internet connection
2. A compelling idea
3. The ability to convince other people to commit money to your idea
Now, whether you can implement the idea is a different thing, that’s up to you. But the obstacles are now gone.
The dreamers can’t sit in cafes and sip their lattes and talk about what they’d do if the system was fair. It is fair now. It’s as fair as we’re ever going to get in this imperfect, shitstorm of a world we live in. You are free to come up with ideas, the means to connect to the world exists, and now you can raise the money for the company.
Equity crowdfunding + Bitcoin = Democracy
What happens when you add Bitcoin to this?
“The Internet allows any two individuals to transfer data without permission from any central authority. Bitcoin does the same for value.”
And add blockchain technology on top of this–like Bitcoin–and all of the sudden, not only can you finance any project, you can do it from anywhere, taking money from anyone.
This allows people to vote on the world they want to live in, WITH THEIR MONEY. This enables the poor and disenfranchised a chance to compete with the rich and powerful.
What equity crowdfunding does then, is that is basically enables the closest thing to a true democratic meritocracy ever. The closest the world has ever gotten is to this sort of freedom is probably America in the 20th century (pre-9/11), and even as free as we were, there were–and still are–so many barriers, not to success, but to competition.
This is actually my ultimate point:
Crowdfunding will be one of history’s great developments because it provides large masses of otherwise disenfranchised people to organize ideas and capital to compete against entrenched powers.
Equity crowdfunding + bitcoin, on top of the existing internet framework, creates the truest economic democracy the world has ever seen.
I think a mechanism for EQUITY crowdfunding was the last piece of the puzzle.
That’s as world changing as it gets.
Given these facts–that equity crowdfunding allows true competition of ideas in a free and fair market–implies that everyone should back it. Think about it; if you care about these things:
2. the American Dream
4. and human empowerment, and
How can you not be excited about the opportunity to create more of each of these things?
Equity crowdfunding creates true economic democracy. The only people who can reasonably be against crowdfunding are those who have a powerful position who don’t want competition.
Below is a link to the full slideshow presentation in PDF format.