This basically consists in giving a project to a group and obtaining its financing through contributions from each group member
A Crowdfunding project is also a form of natural selection, where only the ideas that attract the attention of the minimum number of people intending to contribute economically, will actually go ahead
When talking about smart cities, we are really referring to the intelligence of the citizens, as they are the ones who give large cities their raison d'être. And in the last case, it is citizens who make cities dynamic entities in constant development.
Defining “Crowdfunding” could be as easy as saying that it is a form of collective project financing. It can also be called “micromecenazgo” (micro-patronage), which alludes to the figure of patrons who provided the economic backing so that artists and professionals could dedicate their lives to cultivating their talent, without having to worry about their economic livelihood. Basically, the concept consists in giving a project to a group and obtaining its financing through contributions from each group member. These contributions would be limited according to the various forms of participation outlined by the organisers, ranging from lesser to greater contributions, from mentions as members of the project, to receiving the complete end product once manufactured and launched on the market. This form of financing is the latest trend in incubating all sorts of projects whether technological, social, humanitarian, audiovisual or journalistic.
“Crowd” something more than just the sum of the parts
The concept of Crowdfunding became fashionable a few months ago. Like nearly all phenomena in our time, its origins lie in the past, in concepts like donations, or even property co-operatives where the actual home purchasers become project promoters providing the capital to meet the cost of building their homes. At any event, terms using the prefix “crowd”, whether it is Crowdfunding or others like Crowdsourcing, with their virtues and capacity to supply projects or provide data to useful user applications, all rely on people. Huge amounts of people in fact. Crowdsourcing refers to the collective gathering of data collected by the members of a community, whether they be drivers in traffic management applications, or accessing an online shop in marketing related applications and, based on these huge amounts of data, services are devised like real time traffic management using the Waze application, for example. Something similar is happening with Crowdfunding, but in the area of financing. Platforms like Kickstarter (www.kickstarter.com ) or Indiegogo (www.indiegogo.com) make it possible to set up projects which would otherwise be very complicated to implement.
How does Crowdfunding work?
Essentially, a Crowdfunding project grows around an idea with the firm intention of making it a reality, irrespective of whether it is a technological product, an audiovisual production, a concert tour, a journalistic publication, an artistic initiative or an altruistic and humanitarian project, just to name a few of the many types of initiatives possible. To a certain extent, a Crowdfunding project is also a form of natural selection, where only the ideas that attract the attention of the minimum number of people intending to contribute economically, will actually go ahead. You can contemplate obtaining financing from a bank entity or a risk capital fund, but the conditions would be more complicated for those submitting their idea. With a Crowdfunding project, if the necessary amount is not obtained, the money is returned and there is no problem at all. On the other hand, if the stipulated amount is obtained, the project is produced and submitted to the funders, or in the event of less tangible projects like humanitarian initiatives, the results are accountable.
A collective financing project can be managed personally through plug-ins associated with blogging platforms, or through platforms like Kickstarter or Indiegogo, where in exchange for accommodating the project that is to be financed, they charge commission on the amount of funding collected. At any event, the formula has been accepted very well with significant figures. Kickstarter, for example, has collected more than 576 million dollars since 2009 when it was launched. More than 3.9 million people have shaped over 39,000 projects (www.kickstarter.com/help/stats). With more than 900 Crowdfunding platforms established, it seems to be a sustainable way of setting up fundamentally “Smart” projects, with interesting implications in areas like industrial production. First of all, at least in principle, only those products or services that have been requested by the funders will be manufactured or sold. In a second stage, the most likely event is that the project is published to a wide audience, however in principle they do not enter into market dynamics where first the good or service is produced and then the demand is created for it.
Also, the feedback from funders is constant, and therefore the product or service specifications can be modified dynamically.
It is a simple concept, but overall the approach of en masse financing requires that those who set up the specific initiatives perfectly define, explain and communicate the products or services they wish to make a reality. Also, based on these crowdfunding platforms very interesting data can be gathered on detecting trends, by just observing which projects out of those published are accepted more among the audience.
Crowdfunding in Spain
In Spain we do not yet have a very deep-rooted Crowdfunding culture. One of the national platforms which covers most projects is verkami (www.verkami.com), with 174 projects listed in its catalogue. Nevertheless, Spanish initiatives like Wattio (www.indiegogo.com/projects/wattio-live-in-a-smarthome), focusing on home automation and energy efficiency, are on international platforms such as Indiegogo. There are very few Spanish projects on Kickstarter, even though its project financing formula covers a wide sector and also brings fiscal and legal issues into play. In the US, legislation has been amended with a view to giving official status to Crowdfunding as a form of company financing. In April 2012 the JOBS Act was enacted, and May 2012 saw some spectacular results like PebbleWatch, a watch with an electronic ink screen, which attracted as much as 10 million dollars on Kickstarter. The 3D FORM 1 printer has collected nearly 3 million dollars, as well as 3Doodler, with 2.3 million dollars. These are really significant figures that mean the difference between making an idea come true or not. In Spain, at the moment there are no initiatives aimed at modifying legislation to contemplate collective financing in particular. At www.yoapoyoelcrowdfunding.com you can view the text for this petition, which should promote consolidating this formula and obtaining funds which act as the start-up motor for potential companies. In fact, when a Crowdfunding project is successful, in a high percentage of cases, it ends up with an associated Start-up. An intermediate formula that is operating through portals like TheCrowdAngel, consists in combining the Crowdfunding formula with risk capital companies, or the Business Angel figure, rather than opening participation to any one who wishes to contribute a micro investment. Another platform that is operating well in Spain is Socios Inversores (www.sociosinversores.es) although again it combines a business model aimed more at professional investors than individual users, applying a “crowd” formula, but in this case limited to capital sums from larger entities.
Crowdfunding in smart cities
One of the keys to the success of Crowdfunding is the technology that makes it possible. Technology that allows citizens, institutions and companies to connect on equal terms and in real time. At present, collective financing projects are aimed mostly at global projects, but platforms are beginning to emerge with scopes limited more to city, district or even company level, where groups of people or local groups can benefit from these financing techniques to improve their environment. An example is http://neighbor.ly, with initiatives like building a kids park or installing WiFi networks. Another example is Citizeninvestor (blog.citizinvestor.com/) which also has projects focused essentially on improving the local environment. At any event, taking these projects as a city “thermometer”, they can be included in global control panels to detect needs on a city level, and also some of these ideas can be reused and implemented in other locations. One example, without going any further, is Goteo.org that has collectively financed projects like Smart Citizen, for implementing the idea of citizen sensors (http://goteo.org/project/smart-citizen-sensores-ciudadanos), a good example of the initiatives required to achieve the Smart City concept.
At any event, the technology and the methodology behind Crowdfunding will possibly become integrated into the dynamics of smart cities, just as Crowdsourcing has insofar as data collection is concerned. “Crowd” is a fundamental ingredient in smart cities. From detecting citizen trends from the bottom to the top, to achieving global projects from the top to the bottom, and promoting active participation on citizen demand in collective financing projects is an innovative way of understanding economics in the digital revolution era.