VC + Wisdom of the Crowd = Welcome to Peer Financing

By March 23, 2010 2 comments

Last Friday at the Peer Financing for Developers conference at the Sun Campus in Santa Clara Menlo Park, CA, the discussion of new project-financing possibilities was a heated one. PayPal Platform Product General Manager Jason Kor

osec made a clear call to developers: “Stop spending time on putting your idea in a PowerPoint to convince VCs," Korosec said.

"Get first seeds from the crowd, start creating your product, bring it to the market, improve it with customer feedback and after that get funds from VCs to scale up your business,” Korosec said.

Danae Ringelmann, co-founder of IndieGoGo, explained that this was the purpose of her platform, which was initially dedicated to artistic endeavours. The artist submits their project with all the information as well as what the reward would be for potential investors, then IndieGoGo publishes the project and people can invest whatever they want.
IndieGoGo wants to expand the concept to the developer sphere, for any kind of application. The transaction fee of 9 percent is perhaps too high but the idea is there: with no more intermediaries like VCs or banks, you go directly to the crowd, tapping your network or community of interest.
“Getting money from your peers to fund businesses is not new,” said Ram Lakshmanan, founder of Chittai.
“Social networking is not a Silicon Valley invention," Lakshmanan added. "It has been around for centuries in most regions of the world, in local communities, but the big change today is the Internet: you can think of it at a large scale without physical connections.”
Connecting your projects with people who trust you or are interested in your projects is much easier than before. You have access to all the project information needed to put your money on the table and therefore you don’t need a trusted third party to invest your money (i.e., banks or other investment institutions).
“Anybody has the same information level so it's the end of institutions” said Rob Garcia from Lendingclub, a major US P2P platform.

The disintermediation of finance is coming and PayPal, the event's main sponsor, wants to play an active role with their PayPal X initiative. We think that "peer financing" could be a very interesting alternative for starting a business and would make sense in areas with wealthy professional networks like Silicon Valley. Financing platforms could be also a very lucrative business but it's too early to determine who will be the key players in this area.

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[...] crowd was disappointing. It recalls PayPal Platform Product General Manager Jason Korosec’s words at the Peer financing conference: “Stop spending time on putting your idea in a PowerPoint to [...]

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