WEBVTT 00:00:00.000 --> 00:00:02.259 I want you to imagine a scenario. It's a classic 00:00:02.259 --> 00:00:05.860 setup. You have an idea. And not just a wouldn't 00:00:05.860 --> 00:00:08.519 it be nice kind of idea, but a burning keep you 00:00:08.519 --> 00:00:10.859 up at night idea. The kind that you're scribbling 00:00:10.859 --> 00:00:13.119 on napkins at 3 in the morning. Exactly. Maybe 00:00:13.119 --> 00:00:15.419 it's a cooler that has a built -in blender for, 00:00:15.560 --> 00:00:18.699 you know, beach margaritas. Maybe it's a video 00:00:18.699 --> 00:00:20.940 game that simulates an entire living galaxy. 00:00:21.539 --> 00:00:24.600 Or maybe, and this is a real example, you simply 00:00:24.600 --> 00:00:27.170 want to make... The world's best potato salad. 00:00:27.329 --> 00:00:29.350 The potato salad example is actually crucial 00:00:29.350 --> 00:00:32.030 here. Do not underestimate the potato salad. 00:00:32.229 --> 00:00:34.509 Oh, we are definitely, definitely getting to 00:00:34.509 --> 00:00:37.030 the potato salad later. But here's the reality 00:00:37.030 --> 00:00:39.409 check. Traditionally, if you wanted the money 00:00:39.409 --> 00:00:42.170 to make that idea real, you had a very specific, 00:00:42.310 --> 00:00:45.729 very narrow path. A very intimidating path. Totally. 00:00:45.770 --> 00:00:48.210 You had to put on a suit. probably an uncomfortable 00:00:48.210 --> 00:00:51.189 one walk into a bank and sit across from a loan 00:00:51.189 --> 00:00:54.210 officer. And you had to convince this one person 00:00:54.210 --> 00:00:57.289 who essentially holds your fate in their hands 00:00:57.289 --> 00:00:59.429 that your potato salad was a viable business 00:00:59.429 --> 00:01:02.789 model with a projected ROI. Or if you were in 00:01:02.789 --> 00:01:04.950 the tech world, you were pitching to venture 00:01:04.950 --> 00:01:09.670 capitalists on Sand Hill Road. And, you know, 00:01:09.670 --> 00:01:12.049 they generally only care about one thing. Is 00:01:12.049 --> 00:01:14.069 this going to give me a 10x return? Can this 00:01:14.069 --> 00:01:17.239 be a unicorn? Exactly. It was a gatekeeper model, 00:01:17.379 --> 00:01:20.560 a centralized model of finance where a tiny, 00:01:20.620 --> 00:01:23.019 tiny group of people with money decided what 00:01:23.019 --> 00:01:25.939 the rest of the world got to see, use, or play. 00:01:26.239 --> 00:01:28.480 It was high friction, high barriers to entry, 00:01:28.560 --> 00:01:31.739 and usually a massive allergy to risk. If it 00:01:31.739 --> 00:01:33.879 didn't fit the standard box, it didn't get funded. 00:01:34.079 --> 00:01:36.519 End of story. But now I want you to flip the 00:01:36.519 --> 00:01:39.480 script. Delete the bank manager. Delete the boardroom. 00:01:39.599 --> 00:01:43.099 Instead, imagine a swarm. thousands, maybe tens 00:01:43.099 --> 00:01:45.019 of thousands of strangers on the Internet. A 00:01:45.019 --> 00:01:47.760 crowd. A crowd. And they don't want equity necessarily. 00:01:47.920 --> 00:01:49.700 Maybe they just want a taste of the salad or 00:01:49.700 --> 00:01:51.480 they think the pitch video is funny or they just 00:01:51.480 --> 00:01:53.359 believe in the mission. They each throw in 10 00:01:53.359 --> 00:01:56.359 bucks, 20 bucks. Suddenly you have capital. You 00:01:56.359 --> 00:01:58.939 have a market. You have momentum. And crucially, 00:01:59.019 --> 00:02:02.120 you have bypassed the traditional financial intermediaries 00:02:02.120 --> 00:02:05.099 entirely. You have, in a sense, democratized 00:02:05.099 --> 00:02:08.060 the capital race. Today we are doing a deep dive 00:02:08.060 --> 00:02:11.030 into crowdfunding. But, and I want to be very 00:02:11.030 --> 00:02:13.310 clear about this right up front, we are not just 00:02:13.310 --> 00:02:15.569 talking about buying cool gadgets on Kickstarter. 00:02:15.849 --> 00:02:17.849 That's the surface level. That's the tip of the 00:02:17.849 --> 00:02:20.449 iceberg. Right. Because when you really look 00:02:20.449 --> 00:02:22.530 at the stack of articles and reports we have 00:02:22.530 --> 00:02:25.189 here, crowdfunding has morphed into something 00:02:25.189 --> 00:02:29.090 much more significant. I mean, it's reshaping 00:02:29.090 --> 00:02:31.710 how we build skyscrapers, how we fund scientific 00:02:31.710 --> 00:02:34.110 research, how we pay for high stakes lawsuits, 00:02:34.229 --> 00:02:37.449 and perhaps most concerningly, how millions of 00:02:37.449 --> 00:02:40.280 people are paying for basic health care. We have 00:02:40.280 --> 00:02:42.919 a massive stack of reports, historical data, 00:02:42.979 --> 00:02:45.240 and case studies to get through today. We're 00:02:45.240 --> 00:02:47.180 going to look at the history, which, spoiler 00:02:47.180 --> 00:02:49.300 alert, goes back way further than the internet. 00:02:49.460 --> 00:02:51.620 We're going to break down the different weird 00:02:51.620 --> 00:02:53.780 and wonderful mechanics of how it works, look 00:02:53.780 --> 00:02:55.919 at the biggest successes and failures, and then 00:02:55.919 --> 00:02:57.840 really get into the ethics of it all. It's a 00:02:57.840 --> 00:03:01.139 huge topic. It is. So let's unpack this. What 00:03:01.139 --> 00:03:03.479 exactly are we dealing with when we say crowdfunding? 00:03:03.699 --> 00:03:06.379 At its core, the definition is pretty simple. 00:03:06.729 --> 00:03:09.289 It is the practice of funding a project or venture 00:03:09.289 --> 00:03:12.189 by raising money from a large number of people, 00:03:12.229 --> 00:03:14.789 typically, but not always, via the Internet. 00:03:14.949 --> 00:03:16.849 Okay. Simple enough. Yeah. And it's considered 00:03:16.849 --> 00:03:19.569 a subsector of crowdsourcing, and it falls under 00:03:19.569 --> 00:03:22.129 this big umbrella term of alternative finance. 00:03:22.770 --> 00:03:25.409 Alternative finance. It makes it sound so underground, 00:03:25.530 --> 00:03:27.750 like we're meeting in a parking garage to exchange 00:03:27.750 --> 00:03:30.750 briefcases full of cash. Well, it used to be 00:03:30.750 --> 00:03:33.530 a bit fringe, but the numbers are just staggering 00:03:33.530 --> 00:03:36.360 now. I was looking at a report that showed as 00:03:36.360 --> 00:03:40.240 far back as 2015, over 34 billion U .S. dollars 00:03:40.240 --> 00:03:43.120 was raised worldwide through crowdfunding. 34 00:03:43.120 --> 00:03:45.919 billion in 2015. Yeah, and the projections for 00:03:45.919 --> 00:03:48.719 the future are even more wild. Some suggest that 00:03:48.719 --> 00:03:51.840 by 2025, the industry could reach $1 trillion. 00:03:52.400 --> 00:03:55.639 Trillion with a T. With a T. So while we might 00:03:55.639 --> 00:03:57.539 think of it as a way to buy a cool backpack or 00:03:57.539 --> 00:04:00.000 a board game, structurally, it is becoming a 00:04:00.000 --> 00:04:02.770 real pillar of the global economy. It connects 00:04:02.770 --> 00:04:05.330 the project initiator, the person with the idea, 00:04:05.469 --> 00:04:07.969 directly to the crowd, usually through a platform 00:04:07.969 --> 00:04:11.270 that mediates the exchange for a fee. So it effectively 00:04:11.270 --> 00:04:14.550 removes the friction of distance and the friction 00:04:14.550 --> 00:04:16.790 of, you know, institutional approval. That's 00:04:16.790 --> 00:04:19.350 the key. It removes the gatekeepers. OK, so before 00:04:19.350 --> 00:04:21.050 we get into the trillion dollar industry it is 00:04:21.050 --> 00:04:24.230 today, let's rewind because I think most people. 00:04:24.779 --> 00:04:26.839 And I'll admit, myself included, until I read 00:04:26.839 --> 00:04:28.699 these notes, assume this whole thing started 00:04:28.699 --> 00:04:31.740 with Kickstarter or maybe Indiegogo in the late 00:04:31.740 --> 00:04:33.879 2000s. That's the common perception, yeah. But 00:04:33.879 --> 00:04:36.860 you found some evidence that the crowd has been 00:04:36.860 --> 00:04:39.639 funding things for a very, very long time. Much 00:04:39.639 --> 00:04:42.139 longer. I mean, the term crowdfunding is new. 00:04:42.279 --> 00:04:44.720 It was only coined in 2006 by a guy named Michael 00:04:44.720 --> 00:04:48.199 Sullivan. But the behavior. Yeah. That's centuries 00:04:48.199 --> 00:04:50.860 old. If you look at, for example, the subscription 00:04:50.860 --> 00:04:54.000 model for books in the 17th and 18th centuries, 00:04:54.199 --> 00:04:56.339 that was essentially crowdfunding. How did that 00:04:56.339 --> 00:04:58.579 work exactly? Was it like a preorder? Pretty 00:04:58.579 --> 00:05:02.579 much. An author, let's say Alexander Pope, translating 00:05:02.579 --> 00:05:05.040 the Iliad, would say, I intend to write this 00:05:05.040 --> 00:05:07.120 volume. He'd advertise it in pamphlets and newspapers. 00:05:07.600 --> 00:05:09.959 And people would subscribe. They'd pay up front 00:05:09.959 --> 00:05:12.459 to provide the confidence and, more importantly, 00:05:12.579 --> 00:05:14.660 the capital to get it printed. So it established 00:05:14.660 --> 00:05:17.519 that a market existed before the hard work of 00:05:17.519 --> 00:05:20.399 printing actually happened. It de -risked the 00:05:20.399 --> 00:05:22.779 whole project for the publisher. You got it. 00:05:22.800 --> 00:05:25.079 It's the exact same principle as a modern campaign. 00:05:25.740 --> 00:05:28.279 Prove market demand before you manufacture. That's 00:05:28.279 --> 00:05:30.379 amazing. It's like a pre -internet Kickstarter 00:05:30.379 --> 00:05:34.209 for literature. But my favorite historical example 00:05:34.209 --> 00:05:36.009 that we found in the research, and this one really 00:05:36.009 --> 00:05:38.050 blew my mind because I walk past it all the time, 00:05:38.189 --> 00:05:40.889 has to be the Statue of Liberty. This is the 00:05:40.889 --> 00:05:43.269 classic case study. It really sets the stage 00:05:43.269 --> 00:05:46.110 for everything that comes later. It has all the 00:05:46.110 --> 00:05:48.430 same elements. So pick the picture for us. It's 00:05:48.430 --> 00:05:51.910 1885. The Statue of Liberty is a gift from France, 00:05:52.029 --> 00:05:53.769 right? Everyone knows that part. Right, a gift 00:05:53.769 --> 00:05:55.569 from the French people to the American people. 00:05:55.810 --> 00:05:58.870 But the deal was France builds the statue and 00:05:58.870 --> 00:06:00.930 America has to build the pedestal she stands 00:06:00.930 --> 00:06:04.540 on. A seemingly fair trade, you know, a you bring 00:06:04.540 --> 00:06:06.839 the statue, we'll bring the big stone block kind 00:06:06.839 --> 00:06:10.680 of deal. Sure. Except the statue is on its way. 00:06:11.000 --> 00:06:14.100 It's literally sitting in crates in a warehouse 00:06:14.100 --> 00:06:17.279 in Paris ready to ship. But construction on the 00:06:17.279 --> 00:06:20.040 pedestal stalls, there's just no money. And it 00:06:20.040 --> 00:06:22.339 was a political mess. The governor of New York 00:06:22.339 --> 00:06:24.399 refused to use city funds. He actually blocked 00:06:24.399 --> 00:06:27.040 it. And Congress couldn't agree on a federal 00:06:27.040 --> 00:06:29.639 financing package. It looked like the statue 00:06:29.639 --> 00:06:31.660 was going to end up in pieces in a storage warehouse 00:06:31.660 --> 00:06:34.160 or maybe even shipped back to France. Imagine 00:06:34.160 --> 00:06:36.819 the humiliation, a massive symbol of freedom. 00:06:36.899 --> 00:06:39.139 And we were too cheap to build the base. It's 00:06:39.139 --> 00:06:41.899 almost comical. It's deeply ironic. And that's 00:06:41.899 --> 00:06:44.980 when Joseph Pulitzer steps in. Yes, that Pulitzer. 00:06:45.420 --> 00:06:48.800 He owned the newspaper The World. And he decides 00:06:48.800 --> 00:06:51.379 to launch a campaign in the paper. He basically 00:06:51.379 --> 00:06:53.699 says. We aren't waiting for the millionaires 00:06:53.699 --> 00:06:55.459 or the government. The people are going to build 00:06:55.459 --> 00:06:58.339 this. And he used a very modern crowdfunding 00:06:58.339 --> 00:07:01.259 tactic, didn't he? He offered a reward. He did. 00:07:01.399 --> 00:07:04.360 It was recognition. He promised to publish the 00:07:04.360 --> 00:07:07.300 name of every single person who donated, no matter 00:07:07.300 --> 00:07:09.779 how small the amount. Whether you gave a dollar 00:07:09.779 --> 00:07:12.139 or a dime, your name was going in the paper. 00:07:12.279 --> 00:07:14.079 And it worked. I mean, it didn't just work. It 00:07:14.079 --> 00:07:16.279 was a massive success. They raised over $100 00:07:16.279 --> 00:07:19.120 ,000. Which in today's money, that's roughly 00:07:19.120 --> 00:07:21.620 $2 million. So it was a serious amount of capital. 00:07:21.949 --> 00:07:23.550 But here's the stat that I love, the one that 00:07:23.550 --> 00:07:26.949 I think defines this whole episode. 160 ,000 00:07:26.949 --> 00:07:29.810 people donated. Which implies the average donation 00:07:29.810 --> 00:07:32.930 was incredibly small. We're talking cents, not 00:07:32.930 --> 00:07:35.449 dollars. That's it. We're talking about waiters, 00:07:35.449 --> 00:07:38.470 children, regular folks sending in 15 cents or 00:07:38.470 --> 00:07:41.610 a dollar. It wasn't a few rich guys writing big 00:07:41.610 --> 00:07:44.089 checks. It was a tidal wave of pocket change. 00:07:44.430 --> 00:07:46.990 And that democratized the ownership of the monument. 00:07:47.129 --> 00:07:49.290 It wasn't built by a tycoon. It was built by 00:07:49.290 --> 00:07:52.250 the crowd. And that psychological buy -in is 00:07:52.250 --> 00:07:55.050 something we still see today. When people fund 00:07:55.050 --> 00:07:57.730 something, they feel a sense of patronage, of 00:07:57.730 --> 00:07:59.949 ownership. They aren't just consumers. They are 00:07:59.949 --> 00:08:03.209 builders. They own a piece of the story. You 00:08:03.209 --> 00:08:04.930 know, we also saw this with war bonds, right? 00:08:05.029 --> 00:08:07.490 The principle is similar. Theoretically, yes. 00:08:07.649 --> 00:08:10.110 War bonds are essentially crowdfunding military 00:08:10.110 --> 00:08:12.829 conflicts. You are asking the public to lend 00:08:12.829 --> 00:08:15.129 money to the government to fund a war, usually 00:08:15.129 --> 00:08:17.569 based on a strong patriotic appeal. And we found 00:08:17.569 --> 00:08:19.990 other examples, like Cairo University in 1906. 00:08:20.350 --> 00:08:22.769 Yeah, that was a fascinating one. Mustafa Kamal, 00:08:22.810 --> 00:08:25.629 a nationalist leader, ran ads in a newspaper 00:08:25.629 --> 00:08:28.629 asking specifically for donations to start a 00:08:28.629 --> 00:08:31.180 university to help pay off national debt. School 00:08:31.180 --> 00:08:34.000 children donated, farmers donated. It's the same 00:08:34.000 --> 00:08:36.100 impulse. And then there's Auguste Comte, the 00:08:36.100 --> 00:08:38.379 French philosopher. This one feels very modern, 00:08:38.500 --> 00:08:42.120 almost like a Patreon. Totally. In 1850, he actually 00:08:42.120 --> 00:08:44.120 issued notes to the public to support his work. 00:08:44.259 --> 00:08:47.019 He was essentially crowdfunding his own life 00:08:47.019 --> 00:08:49.360 and philosophy. He sent out circulars asking 00:08:49.360 --> 00:08:52.059 for support from his followers. It's not so different 00:08:52.059 --> 00:08:54.539 from a creator today having a Patreon to support 00:08:54.539 --> 00:08:57.570 their video essays or their art. So the impulse 00:08:57.570 --> 00:08:59.690 has always been there. We like supporting things 00:08:59.690 --> 00:09:02.669 we believe in, but the internet obviously changed 00:09:02.669 --> 00:09:05.289 the scale. It removed the friction. When did 00:09:05.289 --> 00:09:08.230 that digital switch really flip? There are a 00:09:08.230 --> 00:09:10.450 few key moments, and the music industry was actually 00:09:10.450 --> 00:09:13.889 a huge pioneer here. In 1997, the British rock 00:09:13.889 --> 00:09:16.250 band Marillion couldn't afford to tour the U 00:09:16.250 --> 00:09:19.070 .S. Their label wouldn't fund it. Okay, a classic 00:09:19.070 --> 00:09:21.509 problem for a mid -level band. Right, but their 00:09:21.509 --> 00:09:24.570 fans... and this is the amazing part, without 00:09:24.570 --> 00:09:27.490 the band even asking, initially organized an 00:09:27.490 --> 00:09:30.909 internet campaign and raised $60 ,000. Wait, 00:09:30.950 --> 00:09:33.470 the fans organized it themselves? How? Yeah, 00:09:33.529 --> 00:09:35.809 through online mailing lists and early internet 00:09:35.809 --> 00:09:38.190 forums. They just did it. The band eventually 00:09:38.190 --> 00:09:40.710 heard about it, accepted the money, and used 00:09:40.710 --> 00:09:43.090 it to tour. It was a massive light bulb moment 00:09:43.090 --> 00:09:45.690 for the industry. They realized, we don't need 00:09:45.690 --> 00:09:48.309 a record label to front us the money. Our fans 00:09:48.309 --> 00:09:50.350 will do it. That is the power shift. It completely 00:09:50.350 --> 00:09:52.870 cuts out the middleman. Exactly. Then you have 00:09:52.870 --> 00:09:55.509 the software world. In 2002, there was the free 00:09:55.509 --> 00:09:57.470 Blender campaign. And we're not talking about 00:09:57.470 --> 00:09:58.929 a kitchen appliance. We'll get to that later. 00:09:59.049 --> 00:10:01.950 This was for 3D modeling software. Ah, Blender. 00:10:01.990 --> 00:10:04.309 I know that one. It's huge now. It is. And this 00:10:04.309 --> 00:10:07.210 campaign is why. They raised 100 ,000 euros to 00:10:07.210 --> 00:10:08.990 buy the source code from the original investors 00:10:08.990 --> 00:10:11.990 and make the software open source forever. That 00:10:11.990 --> 00:10:15.129 was a huge precursor to the platform era. Then 00:10:15.129 --> 00:10:17.350 ArtistShare launched in 2001, which is often 00:10:17.350 --> 00:10:19.929 cited as the first dedicated crowdfunding platform 00:10:19.929 --> 00:10:22.169 for musicians. And then the big ones came along. 00:10:22.429 --> 00:10:25.990 Then the floodgates opened. Indiegogo in 2008, 00:10:26.350 --> 00:10:32.129 Kickstarter in 2009, and GoFundMe in 2010. That's 00:10:32.129 --> 00:10:34.340 when it really went mainstream. OK, so that brings 00:10:34.340 --> 00:10:36.320 us to the modern era. And this is where it gets 00:10:36.320 --> 00:10:37.980 really interesting, because I think people tend 00:10:37.980 --> 00:10:40.600 to lump all crowdfunding into one big bucket. 00:10:40.720 --> 00:10:43.320 I give money. I get a thing. Right. The Kickstarter 00:10:43.320 --> 00:10:46.080 model. Yeah. But looking at the breakdown from 00:10:46.080 --> 00:10:48.419 the crowdfunding center and other sources, there 00:10:48.419 --> 00:10:50.799 are actually several distinct models here and 00:10:50.799 --> 00:10:53.120 they work very, very differently. Precisely. 00:10:53.220 --> 00:10:55.519 If you want to understand the economics and the 00:10:55.519 --> 00:10:58.440 social impact of this, you have to separate them. 00:10:58.600 --> 00:11:01.000 The most visible one, the one we all know, is 00:11:01.000 --> 00:11:03.230 reward based crowdfunding. OK, so that's your 00:11:03.230 --> 00:11:05.750 Kickstarter, your Indiegogo. Right. You are essentially 00:11:05.750 --> 00:11:08.730 pre -selling a product or a service. No. You 00:11:08.730 --> 00:11:10.669 aren't giving away equity in your company and 00:11:10.669 --> 00:11:12.470 you're not taking on debt. You're making a promise. 00:11:12.649 --> 00:11:15.929 If you give me $50 now, I will send you this 00:11:15.929 --> 00:11:18.470 really cool smartwatch when it's done. And the 00:11:18.470 --> 00:11:21.110 backers here aren't really investors in the traditional 00:11:21.110 --> 00:11:23.629 financial sense. They don't own a piece of the 00:11:23.629 --> 00:11:26.570 watch company. No, they're early adopters. They're 00:11:26.570 --> 00:11:30.129 fans. They're patrons. And geographically, this 00:11:30.129 --> 00:11:32.889 is fascinating, the funding doesn't rely on location. 00:11:33.269 --> 00:11:35.789 You could be in a garage in Ohio raising money 00:11:35.789 --> 00:11:38.629 from people in Tokyo, Seoul, and Berlin. But 00:11:38.629 --> 00:11:40.509 the research shows nothing interesting there, 00:11:40.529 --> 00:11:43.309 right? Even with that global reach, it still 00:11:43.309 --> 00:11:46.710 clusters. It does. Funding still tends to track 00:11:46.710 --> 00:11:49.389 with traditional finance hubs. Silicon Valley, 00:11:49.570 --> 00:11:52.950 New York, London. There's a network effect. But 00:11:52.950 --> 00:11:55.710 the barrier to entry is just so much lower. Okay, 00:11:55.769 --> 00:11:58.350 so that's rewards. Then you have equity crowdfunding. 00:11:58.570 --> 00:12:00.509 This feels like the grown -up table. This is 00:12:00.509 --> 00:12:02.950 the high -stakes table, for sure. Here, backers 00:12:02.950 --> 00:12:04.710 actually receive shares of the company. They 00:12:04.710 --> 00:12:07.220 become part owners. And this was a massive shift 00:12:07.220 --> 00:12:09.320 in the U .S., largely due to something called 00:12:09.320 --> 00:12:12.679 the JOBS Act of 2012. Yes, the Jumpstart Our 00:12:12.679 --> 00:12:15.000 Business Startups Act. It was a complete game 00:12:15.000 --> 00:12:17.720 changer. Why was the JOBS Act such a big deal? 00:12:17.759 --> 00:12:20.080 What did it change? Well, before the JOBS Act, 00:12:20.179 --> 00:12:22.139 you generally had to be an accredited investor 00:12:22.139 --> 00:12:25.080 to buy into private companies and startups. Which 00:12:25.080 --> 00:12:27.320 basically means you have to be rich, right? Essentially, 00:12:27.480 --> 00:12:30.360 yes. You had to have a net worth of over a million 00:12:30.360 --> 00:12:33.820 dollars, excluding your house, or an annual income 00:12:33.820 --> 00:12:36.730 over a certain threshold. The government's logic, 00:12:36.850 --> 00:12:39.169 you know, was that startups are incredibly risky 00:12:39.169 --> 00:12:41.590 and they wanted to protect regular people from 00:12:41.590 --> 00:12:44.190 losing their life savings on a bad bet. Which 00:12:44.190 --> 00:12:46.929 sounds reasonable on the surface. It does. But 00:12:46.929 --> 00:12:49.409 it also meant that all the potential upside of 00:12:49.409 --> 00:12:51.889 early stage investing was reserved for the wealthy. 00:12:52.190 --> 00:12:56.379 The JOBS Act changed that. It allowed unaccredited, 00:12:56.379 --> 00:12:59.379 meaning regular investors, to buy equity in startups 00:12:59.379 --> 00:13:02.740 through regulated online platforms. So I, a regular 00:13:02.740 --> 00:13:05.639 person, can own a tiny slice of the next potential 00:13:05.639 --> 00:13:08.820 Facebook or Google. Theoretically, yes. And that's 00:13:08.820 --> 00:13:11.179 the dream they sell. But this comes with a huge 00:13:11.179 --> 00:13:13.500 economic concept called information asymmetry. 00:13:13.820 --> 00:13:16.179 Okay, let's unpack that term, information asymmetry. 00:13:16.200 --> 00:13:18.720 It sounds very academic. It does, but it's a 00:13:18.720 --> 00:13:21.320 really simple idea. It just means one party in 00:13:21.320 --> 00:13:23.799 a transaction knows a lot more than the other 00:13:23.799 --> 00:13:26.080 party. In this case, the person asking for money, 00:13:26.220 --> 00:13:28.720 the founder, knows way more about the risks, 00:13:28.879 --> 00:13:31.019 the technology, and the real potential of their 00:13:31.019 --> 00:13:33.210 business than the person giving the money. So 00:13:33.210 --> 00:13:35.610 if I buy a stock on the New York Stock Exchange, 00:13:36.029 --> 00:13:39.330 that company has to file massive audited reports 00:13:39.330 --> 00:13:42.029 with the SEC. I can see their books. Exactly. 00:13:42.149 --> 00:13:44.929 There's a baseline of transparency. In equity 00:13:44.929 --> 00:13:47.389 crowdfunding, you're investing in a private startup. 00:13:47.710 --> 00:13:49.590 They might not have books yet. They might just 00:13:49.590 --> 00:13:52.110 have a pitch deck and a prototype. You are fundamentally 00:13:52.110 --> 00:13:55.210 trusting the founder's story. You're flying blind 00:13:55.210 --> 00:13:57.429 compared to a Wall Street trader. You really 00:13:57.429 --> 00:14:00.769 are. And the risks are so much higher. In reward 00:14:00.769 --> 00:14:02.990 -based crowdfunding... The worst case scenario 00:14:02.990 --> 00:14:04.990 is, you know, you don't get your cool watch. 00:14:05.350 --> 00:14:07.570 In equity crowdfunding, you're investing in a 00:14:07.570 --> 00:14:10.289 company that's very likely to go bankrupt and 00:14:10.289 --> 00:14:13.190 your equity goes to zero. So how do platforms 00:14:13.190 --> 00:14:15.789 deal with that risk? Well, one mechanism that's 00:14:15.789 --> 00:14:18.490 evolved is the syndicate model. You'll see this 00:14:18.490 --> 00:14:20.909 on platforms like AngelList. A lead investor, 00:14:21.110 --> 00:14:23.309 someone who is experienced and knows what they're 00:14:23.309 --> 00:14:25.789 doing, puts in their own money and does the heavy 00:14:25.789 --> 00:14:28.100 lifting on due diligence. And then the crowd 00:14:28.100 --> 00:14:30.759 follows them. Exactly. They piggyback on the 00:14:30.759 --> 00:14:33.019 experts' research. It's like copying the homework 00:14:33.019 --> 00:14:35.919 of a smart kid in class. It reduces the due diligence 00:14:35.919 --> 00:14:38.539 burden on the individual and provides a signal 00:14:38.539 --> 00:14:40.720 of quality. That makes a lot of sense. Okay, 00:14:40.779 --> 00:14:43.080 next up, there's debt -based crowdfunding, which 00:14:43.080 --> 00:14:46.120 is also called peer -to -peer or P2P lending. 00:14:46.879 --> 00:14:48.559 And this is actually the biggest chunk of the 00:14:48.559 --> 00:14:51.700 money in many markets. It's less flashy than 00:14:51.700 --> 00:14:55.460 Kickstarter, but the volume is enormous. In 2014, 00:14:55.659 --> 00:14:59.019 for instance, something like 75 % of all crowdfunding 00:14:59.019 --> 00:15:02.480 money in the UK and US went through PDP platforms 00:15:02.480 --> 00:15:05.480 like Lending Club or Prosper. So how does that 00:15:05.480 --> 00:15:08.159 work? Is it just like a personal loan? It's very 00:15:08.159 --> 00:15:10.399 simple. Borrowers apply online for a loan just 00:15:10.399 --> 00:15:12.649 like they would at a bank. But instead of a bank 00:15:12.649 --> 00:15:14.649 using its deposits to lend the money, individual 00:15:14.649 --> 00:15:17.590 investors like you or me can fund a piece of 00:15:17.590 --> 00:15:20.289 that loan. You might put $25 into a loan for 00:15:20.289 --> 00:15:22.389 someone's home renovation and someone else puts 00:15:22.389 --> 00:15:24.750 in $50 and so on. And the investors earn the 00:15:24.750 --> 00:15:26.750 interest. Correct. The platform takes a small 00:15:26.750 --> 00:15:28.730 fee for connecting everyone. The borrower gets 00:15:28.730 --> 00:15:31.429 their cash and the crowd of investors gets a 00:15:31.429 --> 00:15:33.570 return on their money. It's just cutting out 00:15:33.570 --> 00:15:35.909 the middleman bank. OK, now for the really niche 00:15:35.909 --> 00:15:38.789 ones. The next one is litigation crowdfunding. 00:15:39.470 --> 00:15:42.009 This one really surprised me. Crowdfunding lawsuits. 00:15:42.509 --> 00:15:46.389 Yeah, this is a fascinating and pretty controversial 00:15:46.389 --> 00:15:49.769 corner of the market. It allows plaintiffs or 00:15:49.769 --> 00:15:52.450 sometimes defendants to raise money for their 00:15:52.450 --> 00:15:55.070 legal fees. But there's a twist, right? It's 00:15:55.070 --> 00:15:58.320 not just a donation. No. On platforms like LexShares, 00:15:58.399 --> 00:16:01.159 for example, investors can actually buy a stake 00:16:01.159 --> 00:16:03.559 in the potential outcome of the case. If the 00:16:03.559 --> 00:16:05.440 plaintiff wins the lawsuit and gets a settlement, 00:16:05.639 --> 00:16:08.240 the investors get a pre -agreed cut of that money. 00:16:08.399 --> 00:16:11.519 That sounds remarkably like betting on a court 00:16:11.519 --> 00:16:14.159 case. That's the criticism. It's turning justice 00:16:14.159 --> 00:16:16.919 into a speculative asset class. The argument 00:16:16.919 --> 00:16:18.679 for it is that it helps people who can't afford 00:16:18.679 --> 00:16:21.799 justice to take on big corporations, a classic 00:16:21.799 --> 00:16:24.320 David versus Goliath scenario. It levels the 00:16:24.320 --> 00:16:26.360 playing field. And the argument against it. is 00:16:26.360 --> 00:16:28.519 that it creates a perverse incentive to sue for 00:16:28.519 --> 00:16:31.080 profit, not for justice. It could potentially 00:16:31.080 --> 00:16:33.159 clog up the courts with speculative lawsuits 00:16:33.159 --> 00:16:36.019 funded by people hoping for a big payday. A really 00:16:36.019 --> 00:16:39.519 thorny ethical area. And finally, the Wild West. 00:16:39.720 --> 00:16:44.299 Digital security crowdfunding. ICOs, DAOs. Right. 00:16:44.480 --> 00:16:47.059 Initial coin offerings. This is where a project 00:16:47.059 --> 00:16:50.220 offers its own digital tokens or currency instead 00:16:50.220 --> 00:16:53.179 of shares or a product. This is all deeply tied 00:16:53.179 --> 00:16:54.779 to the world of blockchain and cryptocurrency. 00:16:55.519 --> 00:16:57.960 We saw this explode a few years ago. Absolutely. 00:16:58.059 --> 00:17:00.559 You had projects like Ethereum, which was initially 00:17:00.559 --> 00:17:03.139 funded this way. And then things like the DAO, 00:17:03.220 --> 00:17:06.019 which raised a huge amount of money before famously 00:17:06.019 --> 00:17:09.180 collapsing. It's a highly complex, highly volatile 00:17:09.180 --> 00:17:12.319 and often regulatory gray territory. So we have 00:17:12.319 --> 00:17:16.660 rewards, equity, debt, lawsuits and crypto. It's 00:17:16.660 --> 00:17:19.160 a huge ecosystem. But let's try to ground this 00:17:19.160 --> 00:17:21.460 in some stories because you can't talk about 00:17:21.460 --> 00:17:23.519 crowdfunding without talking about the Hall of 00:17:23.519 --> 00:17:25.960 Fame. And, of course, the Hall of Shame. The 00:17:25.960 --> 00:17:28.059 hits and the misses. And there have been some 00:17:28.059 --> 00:17:30.819 truly spectacular ones in both directions. Let's 00:17:30.819 --> 00:17:33.220 start with what you called the whale, the biggest 00:17:33.220 --> 00:17:35.779 of them all, Star Citizen. You cannot ignore 00:17:35.779 --> 00:17:38.880 Star Citizen. It is a video game, an incredibly 00:17:38.880 --> 00:17:41.259 ambitious space trading and combat simulator 00:17:41.259 --> 00:17:44.140 that launched a Kickstarter campaign way back 00:17:44.140 --> 00:17:46.980 in 2012. 2012? That's a long time ago in Internet 00:17:46.980 --> 00:17:49.559 years. It is. They raised a couple million on 00:17:49.559 --> 00:17:51.559 Kickstarter and then moved the funding to their 00:17:51.559 --> 00:17:55.339 own platform. As of early 2025, public funding 00:17:55.339 --> 00:17:58.880 trackers indicate it has raised over $900 million. 00:17:59.700 --> 00:18:04.299 Nine hundred million dollars. That's more than 00:18:04.299 --> 00:18:06.900 the budget of most Hollywood blockbusters combined. 00:18:07.000 --> 00:18:09.480 That's major corporate acquisition territory. 00:18:09.759 --> 00:18:12.359 And it's all from gamers. Pretty much all from 00:18:12.359 --> 00:18:14.720 individual backers buying digital spaceships, 00:18:14.779 --> 00:18:17.299 some of which cost hundreds or even thousands 00:18:17.299 --> 00:18:20.250 of dollars. But here is the catch, right? It's 00:18:20.250 --> 00:18:22.650 been over a decade, and the game is technically 00:18:22.650 --> 00:18:25.950 still in alpha. It hasn't had a confirmed full 00:18:25.950 --> 00:18:28.410 release date. That's the core of the controversy. 00:18:29.109 --> 00:18:32.190 So is it a massive success or a colossal failure? 00:18:32.470 --> 00:18:35.390 That is the debate. Critics call it a perpetual 00:18:35.390 --> 00:18:37.990 crowdfunding model. They argue it's suffering 00:18:37.990 --> 00:18:41.089 from massive scope creep. They keep adding features 00:18:41.089 --> 00:18:43.769 instead of finishing the core game. Every time 00:18:43.769 --> 00:18:45.690 they raise more money, they promise more things, 00:18:45.769 --> 00:18:47.650 which delays the game, which means they need 00:18:47.650 --> 00:18:49.829 to raise more money to keep the lights on. It's 00:18:49.829 --> 00:18:52.410 a vicious cycle from that perspective. Some have 00:18:52.410 --> 00:18:54.430 called it a scam, though that's a strong word. 00:18:54.609 --> 00:18:56.869 But the supporters would say what? The supporters, 00:18:57.069 --> 00:18:59.829 and there are millions of them, would argue that 00:18:59.829 --> 00:19:01.819 they are already playing it. They get regular 00:19:01.819 --> 00:19:05.140 patches, new ships, new planets to explore. They 00:19:05.140 --> 00:19:07.880 see it as a live service that is funded as it 00:19:07.880 --> 00:19:11.059 goes. Yeah. It completely challenges our very 00:19:11.059 --> 00:19:14.680 definition of what a finished product is in the 00:19:14.680 --> 00:19:16.640 gaming world. It's fascinating. It's almost like 00:19:16.640 --> 00:19:18.480 the development of the game is the game for its 00:19:18.480 --> 00:19:22.700 community. Okay, so on the flip side of a high 00:19:22.700 --> 00:19:25.480 -tech, billion -dollar space sim, you have Potato 00:19:25.480 --> 00:19:29.359 Salad. Zach Danger Brown. Yeah. 2014. A legend. 00:19:29.519 --> 00:19:31.400 This guy goes on Kickstarter and his pitch is 00:19:31.400 --> 00:19:33.660 literally I'm making a potato salad. He said 00:19:33.660 --> 00:19:35.680 he hadn't decided what kind yet. His funding 00:19:35.680 --> 00:19:37.720 goal was $10. That was it. That was the entire 00:19:37.720 --> 00:19:39.519 pitch. He didn't have a business plan. He didn't 00:19:39.519 --> 00:19:42.099 have a grand vision for a potato salad empire. 00:19:42.420 --> 00:19:44.359 He just wanted to make a salad. And he raised 00:19:44.359 --> 00:19:50.299 $55 ,492. $55 ,000. Why? Why did nearly 7 ,000 00:19:50.299 --> 00:19:52.920 people give this man $55 ,000 to make salad? 00:19:53.119 --> 00:19:55.380 Pure entertainment value. It went viral. It became 00:19:55.380 --> 00:19:57.299 a meme. People wanted to be part of the joke. 00:19:57.460 --> 00:19:59.859 The stretch goals were hilarious, like, I'll 00:19:59.859 --> 00:20:01.940 say your name out loud while I make the salad. 00:20:02.140 --> 00:20:04.099 Yeah. It proved that crowdfunding isn't just 00:20:04.099 --> 00:20:07.640 about you. It's about community, humor, and performance 00:20:07.640 --> 00:20:09.720 art. And he actually followed through, right? 00:20:09.920 --> 00:20:12.660 He did. He threw a massive public party called 00:20:12.660 --> 00:20:16.259 Potato Stock 2014 with 3 ,000 pounds of potatoes. 00:20:16.819 --> 00:20:19.140 He donated a significant amount of the money 00:20:19.140 --> 00:20:22.359 to charity. It showed that people will pay just 00:20:22.359 --> 00:20:24.599 to be part of a moment. But then you have the 00:20:24.599 --> 00:20:28.390 cautionary tales, the ones that go wrong. And 00:20:28.390 --> 00:20:31.230 the poster child for that has to be the coolest 00:20:31.230 --> 00:20:33.890 cooler. Oh, the coolest cooler. This is a classic 00:20:33.890 --> 00:20:36.829 example of the curse of success. It was an all 00:20:36.829 --> 00:20:39.210 -in -one party cooler. It had a blender, Bluetooth 00:20:39.210 --> 00:20:42.660 speakers, USB chargers. The work. It sounds awesome, 00:20:42.799 --> 00:20:44.700 actually. I'd want one. A lot of people did. 00:20:44.799 --> 00:20:47.180 They set a goal of $50 ,000. They raised over 00:20:47.180 --> 00:20:49.500 $13 million. At the time, it was one of the biggest 00:20:49.500 --> 00:20:51.700 Kickstarter campaigns ever. Which sounds great. 00:20:51.799 --> 00:20:54.140 If I raised $13 million, I'd be celebrating. 00:20:54.339 --> 00:20:57.039 It sounds great until you have to actually manufacture 00:20:57.039 --> 00:21:01.519 and ship 60 ,000 complex electronic coolers with 00:21:01.519 --> 00:21:04.039 built -in blenders to people all over the world. 00:21:04.220 --> 00:21:06.880 The logistics must have been a nightmare. A complete 00:21:06.880 --> 00:21:09.930 nightmare. They massively miscalculated the costs. 00:21:10.009 --> 00:21:13.029 The cost to make and ship each unit was actually 00:21:13.029 --> 00:21:14.869 higher than the price they charged the early 00:21:14.869 --> 00:21:17.410 backers on Kickstarter. Oh, no. So every cooler 00:21:17.410 --> 00:21:19.730 they shipped, they lost money. Exactly. They 00:21:19.730 --> 00:21:21.750 ran out of cash. The company eventually went 00:21:21.750 --> 00:21:23.769 under. Many of the original backers never even 00:21:23.769 --> 00:21:26.210 got their coolers. It highlights a key risk. 00:21:26.549 --> 00:21:28.789 Knowing how to create a viral marketing campaign 00:21:28.789 --> 00:21:31.190 is not the same skill as knowing how to run a 00:21:31.190 --> 00:21:33.759 global logistics and manufacturing chain. A really 00:21:33.759 --> 00:21:35.980 painful lesson for a lot of people. And then 00:21:35.980 --> 00:21:38.519 there's the even darker side. Quackery. This 00:21:38.519 --> 00:21:41.960 is a really serious issue. Platforms like GoFundMe 00:21:41.960 --> 00:21:44.799 and Indiegogo have been heavily criticized for 00:21:44.799 --> 00:21:47.960 hosting campaigns for unproven or disproven medical 00:21:47.960 --> 00:21:49.740 treatments. You're talking about things that 00:21:49.740 --> 00:21:52.019 aren't just experimental but are known to be 00:21:52.019 --> 00:21:55.069 ineffective or dangerous. Yes. We're talking 00:21:55.069 --> 00:21:58.490 about costly, fraudulent cancer treatments, things 00:21:58.490 --> 00:22:01.710 like coffee enemas or dangerous black salve treatments. 00:22:01.990 --> 00:22:05.450 Wait, coffee enemas? Yes. Desperate people, often 00:22:05.450 --> 00:22:08.089 with terminal illnesses, are looking for any 00:22:08.089 --> 00:22:11.329 shred of hope. And scammers or misguided practitioners 00:22:11.329 --> 00:22:14.410 use these platforms to fund treatments that has 00:22:14.410 --> 00:22:17.309 no scientific basis and can cause real harm. 00:22:17.470 --> 00:22:19.789 Which raises big ethical questions about the 00:22:19.789 --> 00:22:22.160 responsibility of the platform. Are they just 00:22:22.160 --> 00:22:25.059 a neutral pipe for money or should they be vetting 00:22:25.059 --> 00:22:27.599 what gets funded on their site? That's the million 00:22:27.599 --> 00:22:30.079 dollar question and one the platforms are still 00:22:30.079 --> 00:22:31.940 wrestling with. That's a perfect segue, actually, 00:22:32.000 --> 00:22:33.839 because we've talked about gadgets and games 00:22:33.839 --> 00:22:36.839 and salads. But the mission of this deep dive 00:22:36.839 --> 00:22:39.140 was to see how this funding mechanism is applied 00:22:39.140 --> 00:22:42.400 in more serious sectors. Let's talk about science, 00:22:42.579 --> 00:22:44.740 because if people are funding coffee enemas, 00:22:44.859 --> 00:22:47.180 are they also funding real science? They are, 00:22:47.420 --> 00:22:49.920 but it's a very double edged sword. There are 00:22:49.920 --> 00:22:52.779 platforms like Experian. that are dedicated specifically 00:22:52.779 --> 00:22:55.799 to funding scientific research. And the advocates 00:22:55.799 --> 00:22:58.180 for this model love it. What's the argument for 00:22:58.180 --> 00:23:00.799 it? It helps early career scientists who might 00:23:00.799 --> 00:23:02.940 not be able to get traditional government grants, 00:23:03.119 --> 00:23:06.279 which are incredibly competitive. It also forces 00:23:06.279 --> 00:23:08.079 scientists to learn how to communicate their 00:23:08.079 --> 00:23:10.339 work clearly and compellingly to the public, 00:23:10.519 --> 00:23:13.599 which is a valuable skill. I can see that, breaking 00:23:13.599 --> 00:23:16.920 down the ivory tower. But I imagine there's a 00:23:16.920 --> 00:23:19.440 big catch. There is. And critics have a name 00:23:19.440 --> 00:23:22.250 for it. The panda bear problem. The panda bear 00:23:22.250 --> 00:23:24.509 problem. I have a feeling I know what this is 00:23:24.509 --> 00:23:27.049 just from the name. Think about it. If you ask 00:23:27.049 --> 00:23:29.809 the general public to fund science, what are 00:23:29.809 --> 00:23:31.589 they going to pick? They're going to pick the 00:23:31.589 --> 00:23:33.910 cute animals. They'll pick the charismatic megafauna. 00:23:34.029 --> 00:23:36.230 They'll pick the projects that sound cool or 00:23:36.230 --> 00:23:38.549 funny or have a direct, obvious application. 00:23:39.049 --> 00:23:41.990 So Save the Adorable Pandas gets funded, but 00:23:41.990 --> 00:23:44.589 a study of the molecular structure of a specific 00:23:44.589 --> 00:23:47.450 soil algae that might someday lead to a new antibiotic 00:23:47.450 --> 00:23:51.309 gets completely ignored. Precisely. Even if the 00:23:51.309 --> 00:23:53.829 algae study is arguably much more important for 00:23:53.829 --> 00:23:57.769 human well -being, it's not sexy. It's hard to 00:23:57.769 --> 00:24:00.250 make a compelling video about it. Research on 00:24:00.250 --> 00:24:02.029 these platforms shows that humor and compelling 00:24:02.029 --> 00:24:04.829 visualizations often matter more than the actual 00:24:04.829 --> 00:24:07.450 scientific rigor of the proposal in getting funded. 00:24:07.869 --> 00:24:10.630 So it risks turning science into a popular contest, 00:24:11.150 --> 00:24:13.769 not a meritocracy. That's the core fear of the 00:24:13.769 --> 00:24:15.809 scientific establishment. What about journalism? 00:24:15.809 --> 00:24:19.210 I remember a platform called Spot .us years ago. 00:24:19.390 --> 00:24:21.730 Spot .us was a pioneer, though we eventually 00:24:21.730 --> 00:24:25.549 closed. The idea was brilliant on paper. The 00:24:25.549 --> 00:24:27.789 public would fund specific reporting pitches 00:24:27.789 --> 00:24:30.529 from journalists. An investigative reporter could 00:24:30.529 --> 00:24:32.890 say, I want to look into corruption at City Hall. 00:24:32.990 --> 00:24:35.670 I need $5 ,000 to do it. And the community could 00:24:35.670 --> 00:24:38.470 fund that story into existence. The upside seems 00:24:38.470 --> 00:24:40.869 obvious. Journalism that is independent from 00:24:40.869 --> 00:24:43.309 major corporate broadcasters and a direct bond 00:24:43.309 --> 00:24:45.509 between the reporter and their readers. All true. 00:24:45.650 --> 00:24:47.930 But the panda bear problem rears its head again. 00:24:48.049 --> 00:24:51.789 It does. Do we only get investigative journalism 00:24:51.789 --> 00:24:55.710 about topics that are already popular? Journalism 00:24:55.710 --> 00:24:59.069 often needs to cover boring, depressing or complex 00:24:59.069 --> 00:25:01.789 things that no one would voluntarily pay to read 00:25:01.789 --> 00:25:04.759 about. but are absolutely essential for a functioning 00:25:04.759 --> 00:25:06.579 democracy. And there's a conflict of interest 00:25:06.579 --> 00:25:09.660 question, too. A huge one. If a specific group 00:25:09.660 --> 00:25:12.980 of donors funds you to write a story, do you 00:25:12.980 --> 00:25:15.660 feel beholden to them? Do you feel pressure to 00:25:15.660 --> 00:25:17.900 write the story they want to hear rather than 00:25:17.900 --> 00:25:19.880 the one the facts lead you to? It's a very blurry 00:25:19.880 --> 00:25:21.880 line. Real estate is another one that surprised 00:25:21.880 --> 00:25:24.240 me. I always thought you needed millions to be 00:25:24.240 --> 00:25:26.240 a real estate developer or investor. Not anymore. 00:25:26.640 --> 00:25:28.660 This is one of the fastest growing sectors for 00:25:28.660 --> 00:25:31.579 crowdfunding. Platforms like Fundrise or Realty 00:25:31.579 --> 00:25:33.799 Mobile in the U .S. allow you to invest with 00:25:33.799 --> 00:25:36.839 as little as $100. So what are you buying? A 00:25:36.839 --> 00:25:40.160 piece of a building? Essentially, yes. They pool 00:25:40.160 --> 00:25:42.099 all that small -scale capital together to buy 00:25:42.099 --> 00:25:44.380 things like apartment buildings, commercial real 00:25:44.380 --> 00:25:47.000 estate, or even distressed mortgages. It's a 00:25:47.000 --> 00:25:49.819 form of democratization of asset ownership. It 00:25:49.819 --> 00:25:52.460 lowers the entry barrier to an asset class that 00:25:52.460 --> 00:25:55.319 was previously only for the rich. And this is 00:25:55.319 --> 00:25:58.099 a global thing. Oh, yeah. There are over 150 00:25:58.099 --> 00:26:01.000 platforms worldwide now. China, the Middle East, 00:26:01.059 --> 00:26:03.420 France, it's everywhere. But again, the risks 00:26:03.420 --> 00:26:06.079 are real. Real estate is not a guaranteed win. 00:26:06.359 --> 00:26:09.180 If the market turns, that whole crowd of small 00:26:09.180 --> 00:26:11.980 investors takes the hit together. Let's pivot 00:26:11.980 --> 00:26:14.299 to the human element here, the psychology of 00:26:14.299 --> 00:26:17.119 it all. Why do we do this? I get why a creator 00:26:17.119 --> 00:26:19.319 does it. They need money. But the notes suggest 00:26:19.319 --> 00:26:23.029 it's more than just the cash. For creators, the 00:26:23.029 --> 00:26:26.430 money is often secondary to the validation. Think 00:26:26.430 --> 00:26:28.670 about it. If you put your idea on Kickstarter 00:26:28.670 --> 00:26:31.289 and zero people back it, you've just saved yourself 00:26:31.289 --> 00:26:33.069 two years of your life and your life savings 00:26:33.069 --> 00:26:36.609 chasing a bad idea. You failed fast and cheap. 00:26:36.789 --> 00:26:38.990 It's the ultimate form of market research. You're 00:26:38.990 --> 00:26:41.470 not asking people, would you buy this? You're 00:26:41.470 --> 00:26:44.490 asking them, will you buy this right now? Exactly. 00:26:44.630 --> 00:26:46.990 And a successful campaign has what's called signal 00:26:46.990 --> 00:26:49.829 value. If you raise a million dollars, that signals 00:26:49.829 --> 00:26:52.269 to retailers, distributors, and other investors 00:26:52.269 --> 00:26:54.730 that this is a hot product. It opens doors that 00:26:54.730 --> 00:26:56.609 would have been closed. And it turns your customers 00:26:56.609 --> 00:27:00.470 into advocates. Massively. If I back your project 00:27:00.470 --> 00:27:04.630 for $50, I am now invested. I want you to succeed. 00:27:04.910 --> 00:27:07.089 I'm going to tell my friends about it. I become 00:27:07.089 --> 00:27:09.549 your unpaid marketing team. Okay, so that's the 00:27:09.549 --> 00:27:12.630 creator side. But what about the backers? Why 00:27:12.630 --> 00:27:15.849 do I give $50 for a cooler I might not see for 00:27:15.849 --> 00:27:18.460 two years, if ever? There's a lot of psychology 00:27:18.460 --> 00:27:21.079 at play. Part of it is a sense of patronage, 00:27:21.119 --> 00:27:23.420 that feeling of being responsible for someone's 00:27:23.420 --> 00:27:25.940 success, for helping bring something cool into 00:27:25.940 --> 00:27:28.559 the world. Like the people donating to the Statue 00:27:28.559 --> 00:27:31.160 of Liberty's pedestal. Precisely. Part of it 00:27:31.160 --> 00:27:33.359 is social participation. There is a very strong 00:27:33.359 --> 00:27:35.839 herding behavior that's been observed on these 00:27:35.839 --> 00:27:38.480 platforms. As a project gets closer to its funding 00:27:38.480 --> 00:27:41.160 goal, the rate of funding dramatically accelerates. 00:27:41.549 --> 00:27:43.829 We like to back a winner. It's FOMO, fear of 00:27:43.829 --> 00:27:45.710 missing out on the next big thing. It's totally 00:27:45.710 --> 00:27:48.329 FOMO. And in equity crowdfunding, it's the lottery 00:27:48.329 --> 00:27:50.269 ticket mentality. Everyone wants to be able to 00:27:50.269 --> 00:27:52.250 say they put $100 into the next Apple when it 00:27:52.250 --> 00:27:55.309 was just two guys in a garage. The odds are terrible, 00:27:55.390 --> 00:27:58.069 but the dream is powerful. But we have to talk 00:27:58.069 --> 00:28:01.029 about the risks for both sides. For creators, 00:28:01.250 --> 00:28:04.009 we mentioned the failure to deliver. But there's 00:28:04.009 --> 00:28:07.400 also IP exposure. intellectual property. This 00:28:07.400 --> 00:28:09.920 is a huge risk for creators. To get funding, 00:28:10.059 --> 00:28:12.099 you have to show your work. You have to post 00:28:12.099 --> 00:28:14.759 videos, diagrams, and detailed explanations of 00:28:14.759 --> 00:28:17.440 your idea. Once that's on the internet, it can 00:28:17.440 --> 00:28:19.779 be copied. And it happens. It happens all the 00:28:19.779 --> 00:28:22.359 time. There are countless stories of copycat 00:28:22.359 --> 00:28:24.759 products appearing on sites like Alibaba before 00:28:24.759 --> 00:28:27.759 the Kickstarter campaign is even finished. Someone 00:28:27.759 --> 00:28:30.859 in a factory overseas sees the good idea, reverse 00:28:30.859 --> 00:28:33.359 engineers it from the pictures, and beats the 00:28:33.359 --> 00:28:35.619 original creator to market. And the platforms, 00:28:35.819 --> 00:28:38.400 like Kickstarter, what's their liability? Pretty 00:28:38.400 --> 00:28:41.420 much zero. Slava Rubin, the founder of Indiegogo, 00:28:41.539 --> 00:28:43.460 has been quoted saying, we're not liable for 00:28:43.460 --> 00:28:45.559 any of that stuff. If someone steals your idea, 00:28:45.720 --> 00:28:48.180 that's your problem to solve in the legal system. 00:28:48.259 --> 00:28:51.059 The platform is just... venue that is absolutely 00:28:51.059 --> 00:28:53.900 terrifying for an inventor but maybe not as heavy 00:28:53.900 --> 00:28:56.019 as the final sector we really need to discuss 00:28:56.019 --> 00:28:58.500 medical crowdfunding this is where the topic 00:28:58.500 --> 00:29:01.140 moves from interesting economics and cool gadgets 00:29:01.140 --> 00:29:06.059 to a real societal crisis We've all seen the 00:29:06.059 --> 00:29:08.759 GoFundMe campaigns, help my dad pay for his heart 00:29:08.759 --> 00:29:11.640 surgery, help my friend cover her chemo treatments. 00:29:12.039 --> 00:29:15.500 It has become a normalized, almost expected part 00:29:15.500 --> 00:29:18.000 of the healthcare landscape, particularly in 00:29:18.000 --> 00:29:20.799 the United States. But researchers who study 00:29:20.799 --> 00:29:24.319 this view it not as a triumph of community charity, 00:29:24.500 --> 00:29:27.950 but as a glaring symptom. of a failing healthcare 00:29:27.950 --> 00:29:30.309 system. I saw a quote in the research from the 00:29:30.309 --> 00:29:33.710 CEO of GoFundMe, Rob Solomon. Yes, and it's a 00:29:33.710 --> 00:29:36.509 powerful one. He admitted, we shouldn't be the 00:29:36.509 --> 00:29:39.009 solution to a complex set of systemic problems. 00:29:39.289 --> 00:29:41.710 When the CEO of the fundraising platform tells 00:29:41.710 --> 00:29:43.569 you that the system is broken, you should probably 00:29:43.569 --> 00:29:45.980 listen. And there are really difficult ethical 00:29:45.980 --> 00:29:49.160 traps here regarding this idea of deserving this. 00:29:49.339 --> 00:29:50.839 This is the most uncomfortable part of the whole 00:29:50.839 --> 00:29:53.579 topic. To get funded, you need a compelling story. 00:29:53.799 --> 00:29:56.519 You need good photos. You need to be a good writer. 00:29:56.640 --> 00:29:59.119 You need a wide social network to share the campaign. 00:29:59.380 --> 00:30:02.079 So if you are photogenic and popular and can 00:30:02.079 --> 00:30:03.880 write a heartbreaking story, you get health care. 00:30:04.059 --> 00:30:06.680 If you are quiet or you don't have Internet savvy 00:30:06.680 --> 00:30:09.259 or your story isn't tragic enough. You might 00:30:09.259 --> 00:30:12.019 not get funded. It creates what researchers call 00:30:12.019 --> 00:30:15.380 a socioeconomic gradient. People with higher 00:30:15.380 --> 00:30:17.920 status, better education and stronger networks 00:30:17.920 --> 00:30:20.539 consistently raise more money. So instead of 00:30:20.539 --> 00:30:22.859 fixing health care inequality, crowdfunding can 00:30:22.859 --> 00:30:24.740 actually perpetuate it. And the privacy cost 00:30:24.740 --> 00:30:26.980 must be immense. You have to put your medical 00:30:26.980 --> 00:30:30.019 records, your trauma, your worst moments on public 00:30:30.019 --> 00:30:32.720 display for the world to see and judge just to 00:30:32.720 --> 00:30:35.440 survive. It forces a commodification of suffering. 00:30:35.640 --> 00:30:38.400 You have to market your pain effectively to strangers 00:30:38.400 --> 00:30:41.240 on the Internet. It's a deeply fraught process 00:30:41.240 --> 00:30:44.079 for patients and their families. Wow. That is 00:30:44.079 --> 00:30:46.880 that's heavy. But it's a necessary part of this 00:30:46.880 --> 00:30:49.240 picture. So let's try to zoom out and summarize 00:30:49.240 --> 00:30:51.299 this whole thing. We've gone from Joseph Pulitzer 00:30:51.299 --> 00:30:53.720 saving the Statue of Liberty with 15 cent donations 00:30:53.720 --> 00:30:57.099 to a potential trillion dollar global industry 00:30:57.099 --> 00:30:59.380 that includes everything from potato salad parties 00:30:59.380 --> 00:31:03.299 to equity and scrapers to tragically life saving 00:31:03.299 --> 00:31:06.380 surgery. It is a mechanism that has fundamentally 00:31:06.380 --> 00:31:08.579 changed the flow of capital around the world. 00:31:08.859 --> 00:31:11.839 It allows for incredible things, art, inventions, 00:31:12.200 --> 00:31:15.019 games, businesses that traditional gatekeepers 00:31:15.019 --> 00:31:17.299 would have killed in the cradle are now thriving. 00:31:17.380 --> 00:31:20.079 It empowers the crowd in an unprecedented way. 00:31:20.240 --> 00:31:23.660 It comes with significant baggage. You have the 00:31:23.660 --> 00:31:25.960 outright scams, the well -intentioned failures 00:31:25.960 --> 00:31:28.880 to deliver, the panda bear popularity contest 00:31:28.880 --> 00:31:31.460 problem in serious fields like science and journalism. 00:31:31.759 --> 00:31:34.799 And it acts as a systemic band -aid on a broken 00:31:34.799 --> 00:31:36.799 health care system. It really is a double -edged 00:31:36.799 --> 00:31:39.799 sword. It bypasses the gatekeepers, but sometimes 00:31:39.799 --> 00:31:41.660 those gatekeepers, for all their faults, were 00:31:41.660 --> 00:31:43.640 there for a reason, to check facts, to ensure 00:31:43.640 --> 00:31:45.700 viability, to provide a safety net. When you 00:31:45.700 --> 00:31:48.019 remove them, you get the raw, unfiltered power 00:31:48.019 --> 00:31:50.440 of the crowd, for better and for worse. So here's 00:31:50.440 --> 00:31:52.279 the final provocative thought I want to leave 00:31:52.279 --> 00:31:54.740 you with. If we are increasingly relying on the 00:31:54.740 --> 00:31:57.299 crowd to fund essential things, our journalism, 00:31:57.420 --> 00:31:59.420 our science, our health care, our legal system, 00:31:59.759 --> 00:32:02.599 are we actually moving toward a more democratic 00:32:02.599 --> 00:32:05.940 and empowered society? Or are we just moving 00:32:05.940 --> 00:32:08.420 toward a society? society where the best story 00:32:08.420 --> 00:32:11.559 wins, regardless of the underlying need or the 00:32:11.559 --> 00:32:14.160 objective merit. That is the question. Is it 00:32:14.160 --> 00:32:16.940 true democratization or is it just a high stakes 00:32:16.940 --> 00:32:19.900 popularity contest with a price tag? Something 00:32:19.900 --> 00:32:21.880 to think about. Absolutely. Thanks for diving 00:32:21.880 --> 00:32:23.140 deep with us today. Thank you.