Jay P. Greene's Blog

(Guest Post by Greg Forster)

Access to capital is essential for entrepreneurs. It doesn’t matter how good an idea you have, you can’t get it off the ground if people don’t fund it. Of course that means you have to convince investors, but persuasion is not the only variable. Legal, regulatory and financial systems have to exist that make it possible for people to invest.

On that front, things have been moving in the wrong direction for a while now. It’s harder and harder for an entrepreneur with a good idea to raise funding, because the systems are more and more choked up by regulations, exposure to frivolous litigation, and other barriers to entry.

In the spirit of one of my all-time favorite Al nominees, Herbert Dow, my nominee has found a clever way to exploit a loophole in the system and drive millions of dollars’ worth of entrepreneurial activity through it. In this particular case, the loophole is simple yet ingenious: “investment” is just about totally free if you don’t get equity in return. In four years, Kickstarter has moved $828 million from five million investors to 50,000 entrepreneurial projects.

All you have to do is call it “art.” Sure, there’s lots of legitimate art on KS – you can fund a dance performance, a film project, even a painting. But you can also fund the manufacture of ordinary products, as long as they’re just a tiny bit innovative or aesthetically pleasing. KS is drowning in desk accessories, bike accessories, clothing, you name it. There are tons of video games being made on KS, including some of the biggest creators in the business. Hobby board games are having a huge renaissance on KS – people are funding an amazing variety of new titles. Princess Bride fans should check out this officially licensed Princess Bride party game based on Indigo Montoya’s famous “you killed my father – prepare to die!” line. It’s basically an extremely clever adaptation of Apples to Apples.

But why would you want to invest in something if you don’t get equity? All kinds of reasons, actually. People aren’t motivated only by money. They have all kinds of reasons to want to see a product brought to market. I invested in Zack Braff’s new movie because I think it will be a force for cultural renewal. Other people invest in their friends’ projects or in art that they want to see produced because they enjoy it.

That having been said, most KS projects provide tangible rewards for backers. You can’t get your money back, but you can get an ROI in the form of a product. A lot of the stuff on KS is clearly just an alternative way of selling products – you pay in so much to help them manufacture widgets, and you get a widget as a reward. And if it’s not the kind of project that produces a tangible product, you can still get branded items or other swag that you might easily value at more than the cost of your investment (I’m getting a T-shirt from the Braff movie).

Take a look at UnderRepped Tees, which is using KS to fund the design and manufacture of t-shirts depicting “the forgotten people behind great ideas.” Somebody hire them to make a shirt of Al Copeland! Better yet, we could start a KS of our own and get all the JPGB readers who like The Al to kick in a few bucks to make them. Kick in enough, you get a shirt.

There are two things I really like about KS. One is that it cuts out a lot of useless middlemen who get in the way of entrepreneurs. The gatekeepers to mainstream investment can keep out anything that threatens the status quo too much. This has a particularly bad effect on cultural products like movies – the investors want to know they’ll get their money back, so every movie is now a carbon copy of every other movie. With KS, creators with unique visions can retain total control and get funded, if they can persuade people like me that it’s worth their investment.

The other thing I like about KS is that it runs on trust. In theory you can sue the people you invest in if they don’t deliver, but in practice that’s very difficult. Good! That means people have to decide whom they trust – they have the freedom to trust each other. People can prove they’re trustworthy, which they can only do if there’s no safety net. And reputations will matter.

Why give an entrepreneur The Al when we can give it to people who empower entrepreneurs?