Entrepreneurial

from Felix Salmon:

Annals of dubious statistics, crowdfunding edition

Felix Salmon

Jul 27, 2012 15:25 EDT

Are crowdfunding statistics the new counterfeiting statistics? Certainly they seem to have become a meme. If you know that crowdfunding is a big deal, it's probably because you read all about it in TechCrunch, in May ("these portals raised $1.5 billion and successfully funded more than 1 million campaigns in 2011"), USA Today, a few weeks later ("About $1.5 billion was raised in 2011 by about 450 crowd-sourcing Internet sites worldwide"), or maybe the Economist, a week after that ("$2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011"). More recently, Forbes upped the ante even further: "This year alone, an estimated $3.2 billion dollars is expected to be raised through donation-based crowdfunding platforms like Kickstarter".

All of these statistics, you won't be surprised to hear, come from the same place: a May report from Crowdfunding.org and its research arm, Massolution. The report lists -- by placing their logos on five successive pages of the report, so that their names can't be searched -- 135 different "participating companies", starting with Lending Club and Kiva, and ending with… um, hang on a sec. Lending Club and Kiva? Since when are they "crowdfunding platforms"?

It turns out, if you look at the definition of a "crowdfunding platform" that the report uses, it's incredibly broad: "an operator of a funding platform that facilitates monetary exchange between funders and fundraisers." Which turns out to include not only peer-to-peer lenders but also FirstGiving, a website which non-profits use to accept donations, and which claims to have moved $1 billion of funds through its system. For that matter, the definition doesn't even say that the crowdfunding platform needs to be online: I reckon that if anybody hosting a political fundraiser probably counts as a crowdfunding platform under this definition. Hell, the New York Stock Exchange would even qualify.

Oh, and guess what: if you add up all the money raised in 2011 from all 135 companies listed, it doesn't come to $1.47 billion at all. It comes to just $575 million. Where does the other $895 million come from? The report basically pulls it out of thin air, reckoning that since it didn't manage to get numbers from all of the crowdfunding companies in the world, it would try to extrapolate, somehow. Or, in the language of the report:

Each CFP was modelled individually based on key metrics, market growth dynamics and other characteristics for a number of large CFPs that did not provide data in order to estimate the total funds.

It's very hard to know what this means, but when it comes to crowdfunding platforms, all of the big ones, including Kickstarter, are already on the list. It beggars belief to assert that there's a whole bunch of other platforms out there which together raise more money than those 135 companies put together.

In any case, you won't find it in the abridged version of the report, but the key chart is this one:

IDEO’s Tom Hulme on visualizing your business model

John Peabody

Jul 23, 2012 10:59 EDT

In this video, Tom Hulme, Design Director at IDEO and founder of OpenIDEO, introduces a tool that IDEO and HackFWD designed to help founders design and build startups. Although the focus is on tech startups, non-tech entrepreneurs will likely find some applicable lessons from Hulme’s 12-minute talk, including strategies to identify the “backbone of your business,” marketing and how to refine your business model.

HackFwd: Visualize Your Business Model in 15 Minutes Flat from IDEO on Vimeo.

Q & A with Greg Damerow, athlete and adaptive bicycle builder

John Peabody

Jul 9, 2012 13:47 EDT

Greg Damerow is an athlete and small business owner. Damerow, based in Ohio, is the owner of Personalized Cycling Alternatives, which builds custom adaptive bicycles. He was attracted to handcycling after he became ill with ankylosing spondylitis, a severe form of arthritis that affects the body’s joints. The Hartford recently awarded Damerow with a small business grant, and he spoke with Reuters about competing and running a small business.

First off, can you tell me about your disability?

I was diagnosed with ankylosing spondylitis at 18 years old. It causes inflammation of the major joints. It’s a form of arthritis. It affects knees, ankles, shoulders. It was a very painful time for me. There are two forms that the disease can take. One is chronic and you lose function over years. The second form moves rapidly. This was the form I had and so I lost function over a matter of months. The major part of the disease burned itself out after about two years time. I was spared. I was essentially bedridden for two years time and as the major symptoms of the disease dissipated finally, I didn’t have any movement in my hip sockets and much secondary damage in the spine. I have limited neck rotation. Out of that experience I learned how to walk again using my knees and ankles.

Can you tell me about how you started your business? What was the attraction of the bike?

I had been working an active job at a small company as a plumber’s assistant and a salesman. I got promoted into dispatch which required a lot of time at a desk. I’ve always been skinny and the disease makes it difficult to stay strong and keep the weight on. When I sit still I don’t gain weight. So it was that promotion into that sedentary job that lead me to look for a way to build myself up.

Once day I was doing some research on the internet and I came across a YouTube video of a guy cranking a handcycle and I thought, “I could do that,” and “I could build that.” When I saw it I knew instantly that’s what I had to do. The first time I rode, I had such a sense of speed and freedom of movement, something I had missed for almost 20 years.

Once I got out in the handcycle racing world I saw that I could innovate. And that’s kind of the genesis of the company.

Tech Tonic checks in with HealthTap

John Peabody

Jun 28, 2012 13:21 EDT

HealthTap wants to make visits to the doctor’s office a thing of the past. Anthony De Rosa talks with HealthTap founder Ron Goodman about his new app that allows users to ask doctors questions without ever leaving home. But is less face time actually a good thing?

As video chat becomes easier, text chats still rule

John Peabody

Jun 26, 2012 15:51 EDT

Sean Parker and Google are both pushing group video chat products pretty hard right now. Parker’s latest product is Airtime, and Google’s is the Google+ Hangout. The idea, it seems, is that video conference calls offer a better, more social experience.

But based on my totally unscientific research and observations about how I communicate with friends and family, phone calls are pretty much out, as are video chats. Text messaging is the preferred method of communication; I really only video chat with friends and family who are abroad, and because of time differences, these happen pretty infrequently. Phone calls, and voicemail especially, are seen as almost rude impositions among my friends. So I have serious doubts about Airtime and Google+ Hangouts.

But the main reason I’m skeptical that my peer group will adopt video chat is because of an app called I’d Cap That, which my friends have wholeheartedly embraced. The app adds a random sort of edgy, and perhaps NSFW, caption to a user’s photo. (The new paid version, released today, allows for custom captions.) See the I’d Cap That Twitter page for a sampling of captions.

This is how the communication chain tends to work with this app: One person sends an embarrassing photo with a sophomoric caption to a group of friends and laughter ensues, followed by a flood of group text messages. It’s playful social interaction that is kept in a tight circle of friends and not shared over larger social networks.

And judging by the ads Google aired for its hangouts, this is pretty much the playful kind of group exchange Google had hoped to foster via its video chat platform. The main difference of course is that it’s all done over text, so interactions are quick and easy.

So while I’d actually love it if phone calls, and perhaps even video chats, were suddenly the accepted form of communication, for now it seems friends would rather cap that than video chat that.

Image: REUTERS/Screengrab

from Paul Smalera:

Brad Feld’s four ingredients for thriving startup cities

Paul Smalera

Jun 26, 2012 13:18 EDT

BOULDER, Colo. -- One of the most resonant talks I heard at last week's Big Boulder conference was also one of the shortest. In about twenty minutes, Brad Feld, who is without exaggeration the godfather to the Boulder startup community, explained exactly why it is that Boulder feels like a town on the verge, and why it's teeming with startups. A lot of it has to do with Feld himself.

It's not just that Feld is a co-founder of Techstars, the nationwide startup incubator that got its start in Boulder, or that the college kids -- and lately, mid to late twenties startup veterans -- flock to Boulder in hopes of getting a few minutes of his time to discuss their ideas. It's not just that Feld's Foundry Group scored big with an exit on Zynga, though that credibility certainly helps. And it's not just that he picked Boulder as some magical perfect place to be a startup Mecca. In fact when I asked him why he moved there from Boston, he said, laughingly, it was because, "my wife told me she was moving to Boulder." He figured he had better go along.

"Happy warrior" is usually a phrase reserved for politicians on futile crusades, but the four principles that Feld talked about that make Boulder a burgeoning startup locale are ones that he seems to embody, not just talk about. And as to my earlier post, wondering where and whether Boulder needed a billion dollar startup (or founder) to justify itself, Feld more or less shrugged it off. If that outcome is a natural result of the principles Feld sees as key to keeping Boulder a great place to found a company, then great. If it's not, I get the sense no one, he least of all, would mind very much.

Brad Feld's four ingredients for thriving startup cities:

1. The startup community has to be led by entrepreneurs.

Everyone who's not an entrepreneur, says Feld, "is a feeder." Feeders can be useful, indeed even essential. Lawyers, bankers, shared workspace providers, venture capitalists, business services, city hall, even incubators, are all essential components. But if one of those groups get into the position of calling the shots on what the community should be, Feld thinks it won't work.

2. Take a very long term view of success; a twenty year view at least.

from Paul Smalera:

Startups are big in Boulder, but where are the tech billionaires?

Paul Smalera

Jun 20, 2012 13:37 EDT

"I'm not interested in working on this unless it's going to be a multi-billion dollar idea. If I thought this would be a hundred million dollar company -- what's the point?" - Anonymous entreprerneur discussing his startup. Overheard in front of Ozo Coffee, Boulder, CO.

I'm in Boulder, Colorado for a few days this week to attend Big Boulder, a conference devoted to the social side of "big data." Gnip, the company hosting the conference, is one I've written about before. They're doing the plumber's work of connecting all the firehoses of raw, public user data from social media companies like Twitter and Tumblr up to clients that want to derive insights from the wisdom of these online crowds.

A quick note on the definition of "big data." Generally speaking, it's the sort of data set that's so huge, even running a simple report on it won't tell you anything interesting. For example, if you could ask the IRS for a list of all the 25-30 year olds in the U.S. that paid taxes last year, you'd get back a list, alright. But what would be useful about it? On the other hand, if you could filter that list by several other factors: did they pay capital gains, did they owe over six figures in taxes, what is their self-reported job title, and so on, you might end up with a list highly correlated to young, dot-com millionaires and billionaires, like Mark Zuckerberg. And you might cross reference that list against all the other data sets you can find on them: where they live, where they shop, where they travel, what they watch, eat and listen to. It's all out there.

Social media companies have woken up to the idea that their user bases are throwing billions of data points that have huge potential value, in aggregate. But to get to the point where big data is useful, the tooling around asking and getting the answers to those sorts of questions has to be very, very good.

That -- getting to the point where insights are derived from huge firehoses of content -- is where data science comes in, and where Big Boulder attendees get wildly excited about the potential for big data to change the way the world works. (There are plenty of skeptics on the other side of the coin too, that wonder if the phrase "big data" has simply become the latest marketing jargon in the tech industry, even as it has yielded insights in unsexy fields, like milk production, for decades now.)

More on those topics in later dispatches this week, but back to the quote at the top of this post. Right now, Boulder feels like a town on the verge. At dinner at The Kitchen last night, a very good restaurant that seems to blend Boulder's crunchy past and its silicon future into a classy, urbane present, a similar conversation took place at the table next to me, where a jeans-and-polo-shirted biotech founder was intently pitching a venture capitalist. The venture capitalist, wearing a blue blazer, khakis and penny loafers, was pleasantly surprised to learn from the waiter that his favorite aperitif was in stock behind the bar. "I guess I'm not in the hinterlands after all!" he said, to my amusement and his host's chagrin.

Indeed, there's a lot at stake for Boulder right now. Despite actually being the site of the inaugural Techstars incubator program, which has since spread all over the country, there's not yet a "Boulder"-identifiable billion dollar startup just yet. To those outside of its sphere of influence, it can still seem hinterland-ish, even if that's not accurate once you get here and experience it. Other startup Meccas seem farther ahead: The towns that make up Silicon Valley all have their Twitters, their LinkedIns, their Googles, their Facebooks; New York has its Tumblr and Foursquare. The lack of a heavyweight presence in Boulder, thanks to the Techcrunch style of hype-machine journalism, could eventually drain off some of the buzz -- and the money -- the town has been attracting as of late.

from Felix Salmon:

Why Kickstarter’s great for tax revenues

Felix Salmon

Jun 18, 2012 14:17 EDT

Matt Yglesias has a very odd piece at Slate entitled "The Kickstarter Recession". In a nutshell, he seems to think that a crowdfunded economy would run on less money than the current economy, and therefore produce less in the way of much-needed tax revenues. He's wrong on both counts, I think.

Kickstarter, when it works well, is a disintermediation tool for creative projects. Films get made, albums get recorded, art projects get realized which would otherwise never have seen the light of day -- because the people who love those things are sending money directly to the creators, without production companies or record labels or art galleries feeling the need to veto any project where they can't make money themselves. When the inefficient intermediary is cut out, many more projects become viable, and the cultural economy expands rather than contracts.

Up until now, the cultural world has been reliant upon intermediaries to the degree that it was basically impossible for a creative person to be successful unless and until they could support not only themselves but also a pretty large number of professionals whose job it was to help package and sell whatever it was that was being created. The result was a heavy artificial dampener on the creative economy. With Kickstarter, that's changing: while professional packaging and selling still has its place, it's no longer the determinant of whether something gets the opportunity to generate money or not.

But even if the creative economy didn't expand as a result of Kickstarter, the chances are that crowdfunding would still increase rather than decrease tax revenues. Here's Yglesias:

In conventional finance, money doesn’t care about your passion or the joy you get from being your own boss. People deposit money in bank accounts, and then the banks try to make a profit by lending it out. That means giving credit to people with sound business plans and likely profits. The genius of Kickstarter is to open the door a bit more widely. People sponsor something like Neal Stephenson’s sword-fighting game or the wildly successful Pebble smart watch project not because they think kicking in capital is the optimal investment strategy, but because they—like the founders—are just enthusiastic about the idea. In other words, Kickstarter gives investors the chance to do what workers and small business people have been doing forever—sacrifice potential earnings for the sake of passion.

What Matt misses here is the tax implications of the two models. I deposit money in a bank account, and get some derisory rate of interest on it: I'm not going to be paying any significant taxes on that income. The bank lends the money out to Neal Stephenson or to Pebble -- but because these are risky startups, a lot of them fail, and the bank has to write off a lot of those loans. Overall, its profits on that lending are small -- and as we all know, banks never pay much in the way of taxes in the first place. Maybe a few bankers will get a slightly higher bonus, and pay income taxes on that bonus. But as a percentage of my original bank deposit, the amount of money we're talking about here is tiny. And the loan itself, of course, isn't taxable: Neal Stephenson and Pebble only have to pay taxes once they've paid back the loan and started making profits.

In the crowdfunding model, by contrast, when Kickstarter writes a check to Neal Stephenson, that's Neal Stephenson's income, right there, and he has to pay taxes on it. Yes, he can probably write off associated expenses. But the fact is that the tax revenues associated with a successful Kickstarter campaign are enormous compared to the tax revenues associated with putting the same amount of money into a checking account. And remember that Kickstarter, too, pays income taxes on its own profits.

from The Great Debate:

‘The only crime that I committed’

DW Gibson

Jun 13, 2012 12:19 EDT

Editor’s note: This week, Reuters Opinion is publishing five excerpts – one each day – from D.W. Gibson’s new book, Not Working, an oral history of the recession. Gibson spent months traveling across America talking to people who had been laid off.

Today’s story is Christine Zika’s. Christine is a veteran and small-business owner mostly from St. Louis and the surrounding towns. She is 40 and married to an electrical engineer.

Years ago, in a galaxy far, far away, I had an expectation of the life I was going to lead. And that life included being in public relations and communications. Instead, I went into the Army National Guard. After two years in college, I went there, and I served 13 years total, having served three deployments at different times. I served in Desert Storm. I also served during Operation Joint Endeavor, which was the Bosnian conflict, and then I also went to Kosovo.

When I came home from Desert Storm, I found myself with only two years of college. Even then, without a degree they didn’t want to hire you in public relations and corporate communications, which was my dream. So the next best thing was to go into nonprofit work. They want those skills; they want everything that you have. And so I went into nonprofits because they accepted me fully, and I believed in a lot of the things that I was doing. I worked for several local nonprofits in membership services. I worked public relations and communications, so newsletters and all sorts of things.

Tech Tonic checks in at Foursquare

John Peabody

Jun 13, 2012 10:19 EDT

Have you used Foursquare to promote your small business? Anthony De Rosa and Tech Tonic recently visited Foursquare HQ to see how the newest version of the location-based app could change the way users find new restaurants, businesses and things to do.

Image: Co-founder of Foursquare Dennis Crowley presents an award during the 15th annual Webby Awards in New York, June 13, 2011. REUTERS/Lucas Jackson