The Collaborative Economy is NOT Big.
PART 5. Makerspaces & Crowdfunding.
In this section I’m going to go over Maker Spaces and Crowdfunding as they relate to the sharing economy.
Collaborative Creation: Maker Spaces.
Maker Spaces are networks of connected individuals and communities that take manufacturing away from centralized companies and into their workshops. Maker spaces are physical nodes where people gather to collaborate on engineering, computer science, and graphic design projects. They function as libraries where instead of borrowing books you can borrow tools and expertise.
Maker Spaces were inspired by the hacker movement and they’re famous for hardware projects. They have a lot in common with Coworking spaces in that both are the collaborative economy manifested in a physical space. They democratize manufacturing and this is where they fit in to the collaborative economy.
Tools for metalworking, electronics, textiles, computers, 3D printers and laser cutting equipment can be found there. Rapid prototyping is used to improve product design. Hardware development is then outsourced at a fraction of the price it was 20 years ago.
The wave of major disruption that social media brought, was largely digital. Software taught us about iteration and collaboration. Now these lessons are being applied to the physical world of atoms. But these atoms are supported by bits that make the resources sharable. R&D is moving from the corporations and into these networks of makers and inventors powered by 3D printing and social networks.
Now there’s a national week of making started by the White House. The democratization of invention is at a historical high, and the maker movement has a lot to do with this. Traditional employment is decreasing because of the combination of the maker movement, the gig economy, and micro-entrepreneurs on sites like eBay, and Amazon.
Thingverse, the makerbot digitizer and, Square all came from maker shops. Some extremely interesting startups like Oculus Rift and Meta AR were also started by makers.
Makerspaces reduce time to complete products because of the expertise that a maker can draw on to get questions answered.
It opens up more options for consumers. Again the theme of lowering the barriers for entry is found here also. The lowering of the commitment level, means people don’t have to be full blown manufacturers. They can just go to a makerspace and tinker and this alone multiplies potential projects and lengthens the long tail of physical goods. Some percentage of these people will end up entrepreneurs.
Cities like Pittsburg and Chattanooga are enjoying growth that came from their investment in makerspaces and Makerfaire’s now draw hundreds of thousands of people.
I’m hoping to see more libraries expand into fully blown makerspaces. This way the information to create and the means to do so are in one place. A recent survey of 143 librarians noted that 41% of respondents (from 30 US states and 7 countries) currently provide makerspaces in the library .
Despite makerspaces having been around for a long time there have been very few breakout successes stories. This is probably due to the fact that makers are creating amazing products that no one wants. The link between these spaces and startups, will have to get stronger so that we can see more cases like Square.
The incentive structure is designed to create openness and collaboration. Not necessarily a successful business. Maybe in time someone will emerge from the makerspace who’ll make a big hit that defines the space and inspires others to follow. But for now, the chances of something big coming from this space seem small.
Meron Griebetz of Meta and Lucky Palmer from Oculus VR created their headsets themselves. Though they were not directly out of the maker movement, they have the maker ethos and they made something that can be market validated.
The impact the maker movement will have on education could be huge. Learning by doing will take over learning by theory. Savvy educational institutions will provide the learning tools that makers are looking for.
The democratization of the means of production we will bring a more inclusive economy because people who would have never had the chance to participate in the economy will be pulled in.
The price of 3D printers is going to keep dropping. This means they will proliferate and with more people creating on these platforms we will see an explosion of physical product types the same way the Apple App store and Google’s Play Store created an explosion of Apps.
Except there’s no Apple. This is a space that can benefit from some type of entrepreneurial centralization to distribute product validation thinking.
Right now it does not look like there are any obvious contenders. But I could be wrong. Let me know in the comments if you know of any success stories.
Collaborative Financing: Crowdfunding.
So far Kickstarter alone has raised over $2.5 Billion dollars that’s gone to 109,330 projects. That’s 109, 330 small businesses, artists, startups, and individual that have found funding on kickstarter alone. And of all the funding options available none give the project owner more control over their finances because it’s not a loan and you don’t have to give up equity. In most cases it’s based on donations and presales.
Now it’s also a platform for traditional financiers to find new ideas. Successful crowdfunding campaigns are used to prove that markets exist.
You can get funding from any country that has a crowdfunding website. Compare that to a bank where available services drop significantly as soon as you cross a national border. Crowdfunding is just one type of collaborative financing. There are all types of marketplaces that do things like peer to peer loans, peer to peer currency exchanges and microfinancing, but I won’t get into all of them here.
In 2009 Equity Crowdfunding was introduced, and it allowed high net worth individuals to invest in non-listed businesses and startups for equity, debt, or profit sharing. In 2016 when the JOBS Act passed, startups can now raise up to a million dollars from accredited and retail investors, also in exchange for equity securities.
Some interesting startups, like Oculus Rift, Meta and The Grid AI and several Etherum projects all got their start through crowdfunding. Video games like Star Citizen and the smart watch company Pebble Time were also born on crowdfunding platforms.
Funding is no longer in the hand of the few, it’s in the hands of many. Before crowdfunding, most of the projects funded would have found it impossible to find funding. Prior to crowdfunding and besides family and friends, the only way to fund a project would be a loan from a financial institution that would have looked at a handful of metrics like a credit score and collateral. This model under-capitalized projects that were viable, and excluded all kinds of capable people.
Democratization of finance, has lowered the barrier of entry for many people. It fills in lot’s of small scale projects and makes it easier for people to connect with their 1000 true fans. Crowdfunding also creates deeper social links between fans because of the interactions and excitement they share through the funding cycle.
Crowdfunding has surpassed the National Endowment for the arts as a source of funding for artistic projects.
According to Investopedia “In fact, equity crowdfunding is projected to surpass venture capital as the leading source of start-up funding reaching a projected $36 billion by 2020 versus venture capital funding and angel investor funding at around $30 billion and $20 billion per year, respectively.”
This is going to widen the type of projects that get funding and reduce some of the structural prejudices that are built in to traditional Venture Capital.
Crowdfunding creates new communities of supporters. Before the campaign the project initiator has some amount of followers ranging from zero to hundreds of thousands or millions. Through the course of the campaign, a new set of supporters join the movement. This community is extremely important to a young business because it’s not only a source of funding but also a source of idea refinement.
It is the beginning of a community and a platform. The community spreads the word. The campaign leverages the wisdom of crowds.
Research by Ethan Mollick shows that “the projects the crowd (but not the experts) supported ultimately produced a higher number of critical and commercial hits than the projects that the experts approved of. This suggests that platform-based allocation of resources can supplement more traditional expert-based decision making.” In other words crowdfunding is more efficient and less risky than venture capital!
More specialty platforms, like crowdfunding for very specific causes will emerge. In 2014 the Mayday PAC raised $11 Million, the first crowdfunded PAC in history. A PAC is a political committee made to raise funds and spend them to get candidates elected.
Political crowdfunding is going to grow and governments may join the fray and use crowds to vote on different approaches to particular problems.
Many of the top funded crowdfunding projects are based on the block chain and most of these are hosted independently i.e., not on a crowdfunding platform. This is pointing to two trends. More crowdfunded blockchain based applications and more independently ran crowdfunding campaigns not hosted on traditional crowdfunding platform.
Existing social platforms like Reddit, have started running crowdfunding campaigns of their own, and this trend is likely to continue.
We can also expect more corporations getting into the mix to test their products on crowdfunding campaigns like KIA and Sony already have.
Real estate crowdfunding is taking off like crazy. And AIG launched an insurance product specifically to protect equity crowdfunding investors. So an industry that supports crowdfunding is going to grow beyond outsourcing manufacturing and marketing to include financial service products.