The Uncertain Effect of Crowdfunding Portal Failure

People Listen to President Barack Obama as he delivers remarks on the American Jobs Act 2012This article is part two in a series on entrepreneurship and access to capital. I recently talked to Richard SelinePrincipal of Global NextGen Advisors, who just spoke at the Crowdfund Texas conference. He also offers support to the entrepreneurial community through his organization, Competitive Texas.

As crowdfunding rules are being finalized, there is an entire industry waiting to meet demand for crowdfunding offerings and investment. The degree of this demand is still an unknown, but despite this uncertainty hundreds of entrepreneurs have already bet on America’s newest form of capital formation.

I have had numerous conversations with industry stakeholders about the sheer number of crowdfunding platforms that are either in existence or in the works. Many of those I talk to expect contraction in the space immediately following the law’s implementation.

Will entrepreneurs successfully crowdfund their businesses in a way that can support 700+ portals?  In my opinion, probably not. Any attempt at predicting the impact and course of crowdfunding in the US is admittedly speculative, though.

If the first months and years of Title III crowdfunding are rich with news of failing startups in the space, could that negatively affect the public’s perception of crowdfunding as a whole?

richard-selineI brought this question to Richard Seline and his response was poignant. He agrees that there will be failure and drew parallels to the mobile health space, which has been tumultuous in recent years.

“There are hundreds of people who are trying to move rapidly into the electronic mobile health arena. I’m talking about (everything from) big name global companies to small, 5-10 person shops. Everybody knows that there is something there. Here’s the problem: no one knows how to monetize all of it and no one knows how the health community is going to be reimbursed to pay for it.”

Seline said the same phenomenon applies to Title III crowdfunding.

“Everybody knows that there are lots of resources sitting idle or dormant and that if you could find and easier more efficient way of deploying capital in smaller amounts then this would be very helpful. There’s going to be some failures. There’s going to be some screw ups, but nothing transformative ever occurs without some failure and it doesnt occur without some people rolling themselves up with a bunch of other partners.”

Richard’s perspective serves as a reminder that failure is a natural, necessary part of entrepreneurship… even in an industry aimed at making entrepreneurship easier.

“If every entrepreneur got funded, I’m not sure that’s a good thing,” he said. “So, to some degree the system is set up for the tough slog, because it really comes down to something I learned a long time ago. I’ve got the greatest idea in the world… right now I’ve got the greatest idea in the world. If there isnt a market, it isnt going to happen.”

How will investors and the media react to turnover among crowdfunding stakeholders? Only time will tell.

Now, Read Part One: The Three Texas Industries That Will Benefit Most from Crowdfunding

 

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