Capitalism, crowdfunding and gadgetry

Capitalism brings up thoughts of great big phallic buildings, a concrete forest of tall buildings thrusting towards the light to eclipse the others in a Darwinean struggle for urban domination. Loads of folks in sharp suits talking important stuff into mobile phones.

God v Mammon contest - Mammon has the edge when it comes to size...

God v Mammon contest – Mammon has the edge when it comes to size…

That gherkin in particular dominates the skyline, it’s not just the sheer size of it, but the symbolism is all Wolf of Wall Street

more tall buildings

more tall buildings in the Wolf of Wall St

A couple of finance guys from the Square Mile party.

Couple of guys from a Square Mile press release

Couple of guys from a Square Mile press release

Seems to be a lot of guys, FinanceRomance sheds a bit of light on some of the issues. Maybe all this testosterone is why the buildings have a certain profile ;)

still there, rising...

still there, rising…

And that’s all good. Finance is something that Britain happens to be good at 1, or perhaps I should say the future city-state of London is good at. Must unearth my birth certificate and apply for dual nationality when it secedes, and hope citizenship is jus soli. We’re good at it, and we have scale, but let’s face it, share-owning capitalism isn’t that widespread in Britain, because, er, you need capital to make it work for you. And you still need to be a pretty big fish to list on the LSE.

Gonzo capitalism – no tall buildings and yachts needed

However, there seems to be a curious form of capitalism rising, called crowdfunding. I’d already come across this phenomenon in the electronics small biz area. Getting a small run of electronic items made is dear, because you have fixed non-recoverable engineering costs for making masks for the printed circuit boards and assembly. These are sunk costs before you even start the project, they aren’t dependent on how many items you make. I’d used radio modules from Ciseco and they used kickstarter for one of their projects.

Crowdfunding gets a bunch of ordinary people together to put up some of the money in small bite-sized chunks. It’s gonzo capitalism – or alternatively capitalism going back to its roots. The Stock Exchange originally started a few hundred years ago with a bunch of people coming together to share risk-funding of projects that were too big for any one individual to take on. I like the story that they got ejected from the original place for being too rowdy – looks like the high jinks that seem to go with the territory nowadays started a long time ago!

Crowdfunding the Calf at Foot Dairy’s move

The Ermine came across this again because I got to dig out my old MiniDV video camera a couple of days ago. This is seriously ancient, steam-driven technology from about ten years ago, and it was pressed into service to shoot a crowdfunding video for the Calf at Foot dairy, which has been given short notice to quit the place they’ve been for the last year and a half.


It’s been an awfully long time since I worked at the BBC and saw how people pulled a programme together, and I was an engineer, not a creative sort. It’s no easy task to try and tell a story using video – you’re always fighting the tendency to run too much material and overrun. Plus the Ermine no longer has a working TV in the house, and much has changed in the 10 years since I last worked with video – HD has arrived, and computers and progressive scan seem to have muddied the waters. Culturally, it appears that attention spans are much shorter. Obviously what I needed was new video camera, but what the hell, I will see if I can tell the story with the junk that I had.

Because in the end the story is one bunch of humans relating a tale to another bunch. The technology is part of it, and it would be a lot better with a HD camera. But there are some universals to video – hold the camera steady,  preferably with a tripod, don’t hosepipe , do not zoom on-screen. The elements of story-telling haven’t changed much from the original three act drama told around prehistoric campfires.

A lot of the challenge here wasn’t technical. I grew up in a city, FFS. I am really, really scared of cows, indeed any animal bigger than myself. And cows are HUGE…

Cows. They're big. And they're scary - could just crush you by sitting on you

Cows. They’re big. And they’re coming to  get me!

Crowdfunding seems to take two forms. The sort that the Calf at Foot use, and the sort used by Ciseco to get enough interest to do a prototype run is in fact fundraising to do a specific job or project. It’s the kind of co-operation that previous generations used for a barn-raising – everyone chips in a little to help get something to happen. In some ways it’s closer to a retail bond, but with the coupon paid in kind. These are relatively easy to qualify and secure against the natural fears of fraud because of the transparency. With Ciseco, if they achieved their target, you get a circuit board or kit, if not you get your money back. With Fiona’s dairy move, you get to see that the cows are up near Lowestoft rather than out near Hollesley – in this case it’s a straightforward support of the specific project, rather than a purchase as such.

However, there is an equity form of crowdfunding that is in its infancy, that is closer to shares. There are strict conditions around both forms, but particularly the equity variant. After all, what do you get as an equity shareholder? You get a share in the company, and sometimes a share in the earnings of the company. Many of the equity crowdfunding projects are hard to measure value, and they are startups, so they are unable to produce money that the shareholders can take out of the company as income, just as in general you don’t go to the AIM looking for dividend stocks. Of course, this applies to stocks and shares too, but it’s particularly hard to qualify risk and do all the due diligence associated with qualifying counterparty risk. After all, over half of startups fail within the first three years. The FCA seems to require investors declare they don’t have more than 10% of their free capital 2 in equity crowdfunding.

Nevertheless, it is heartening to see that there are attempts being made to democratise capitalism, that it isn’t all about massive buildings, that people are looking for ways to increase access to small scale funding. It’s to the stock and bond markets like Zopa is to the banking and savings market. And it’s where some of these large institutions had their roots. After all, building societies got their name because in more cash-straitened times, people banded together to raise the capital to build houses. The crowdfunding website Abundance Generation draws out this parallel in their blog. One of the things the original building societies got wrong is the concept of one member one vote (OMOV), which gave rise to carpetbaggers taking out a lot of accounts with the minimum amount of £1 or so. They then used their OMOV votes to force a demutualisation and get a hold of the fossil wealth accumulated by the building society. The moral of the story is allocate voting rights by invested capital, but the problems weren’t obvious in the 1700s. I don’t know how equity crowdfunding works, but if you see OMOV as an investor avoid. Or open lots of accounts funded with the minimum amount for lots of voting rights ;) OMOV is one of the problems with consensus decision making. It hamstrings it – in the end people who put more in should have more say, to build an effective system. Dunno where this goes with democracy, perhaps we have to live with the Churchillian democracy is the worst form of government except all those other forms that have been tried from time to time.

One of the pluses of being in charge of my own time – I can say Hell Yeah if I want to

I don’t know if this is the way of the future, or it is an evolutionary dead-end of the tree of capitalism. But it was an interesting diversion. And it’s one of the things that is a joy of being retired. It didn’t cost me anything apart from a couple of late nights to start with nothing and end up with something that might help someone take their cows to pastures new. An Ermine is capricious. If something tickles my fancy, I’ll have a go. If it doesn’t, I’ll pass. I enjoyed the challenge of trying to make a coherent story out of this. Of course the result could have been better if it were made by some indy video house somewhere. It would be better if I used a modern video camera, it would be better if I’d had more time and less coffee. But it’s probably good enough, and I learned about crowdfunding, something I had no idea about. I don’t personally have any application for it, but I have to say, looking at the projects on crowdfunder and kickstarter, that there are a lot of small enterprises that are in the extreme bootstrapping phase.

Although I worked for a year in a 10-man SME firm at the start of my working life I didn’t realise it was so hard out there for entrepreneurs. I also ran a multimedia firm on the side for a few years, but that was purely selling the products of mind – I took on commissions but didn’t have the cashflow issues that are associated with doing real stuff, where you have to buy the supplies and services  to make the product. I have a renewed admiration for the grit of Britain’s SMEs!

It isn’t all about your camera

Oh yes, and one in the eye for consumerism. A lot of consumer goods like cameras and the like are sold with the promise that this gizmo, feature or gimcrack will make you creative. And I’m sort of susceptible to some of the siren song. But I don’t need the latest, I probably do want to upgrade to HD if I do more video, but ebay will probably be my friend – you can get now for about £150 what you’d have to pay £500 before. But what I do need is the ability to set the exposure to manual. And a camcorder sound is junk – I shoot separate sound with an audio recorder and separate furry microphone and resynchronise in post, so all I need of the camera is some sound to sync to. Eliminating any quality cares there saves me a load of cash.

I did experiment with an iPod, my stills cam and with the last gadget I bought before I went into save for retirement mode, a Flip cam. All of those are great for shooting first-person simple stuff, and facebook here’s my mates mucking about in a bar, but they just don’t let you shift perspective. All of them can give a better rendition in that first-person up to 10 yards away scenarios that my 10-year old camcorder – two of them can even do HD. But I realised why they make me angry when trying to do anything else – the auto gain kills anything in the shadows and the lack of zoom is a massive handicap. A truly talented artist would probably be able to work within those limitations, but it would take them time. I ain’t got that sort of talent. But I’m not so gormless that I need face-tracking.

So I learned something and had some fun. I saw a new form of capitalism in the making. And the cows didn’t crush me!

Notes:

  1. yes, we did have a major snafu a few years back, but it seems we sort of survived that, and animal spirits seem to be back
  2. free capital excludes property and pensions. I am pleased to see that the FCA has adopted the Ermine’s policy – your house is not part of your financial capital assets. It’s official, and you read it here first :)
8 Mar 2014, 9:15am
by living cheap in London


A great read & such a wonderful way to spend some of your time (helping people & facing your bovine based fear!).

I’ve been looking at crowdfunding for a little startup myself recently – not ready to go forward yet, but I think I will go this route for some of the funding when the time is ready. It would be on a non-equity basis though: for ones help funding the business you would get some FOC services once the business was open, & perhaps some future discounts, invite to opening party…. that sort of thing. The less tangible benefit/upside of this route is the network of “friends” that your brand/business gets even before you are open… it’s an evolved form of pre-launch marketing that locks in customers for your opening weeks.

Have you read about BrewDog brewerys crowdfunding, which has gone insanely well for them: http://www.brewdog.com/equityforpunks.

8 Mar 2014, 2:29pm
by Romany


@Ermine,
“free capital excludes property and pensions. I am pleased to see that the FCA has adopted the Ermine’s policy – your house is not part of your financial capital assets. It’s official, and you read it here first :)”

Have they told the tax man? :-)

@living cheap – that personal connection is very much a part of what seems to make this work. It doesn’t pay to think too hard about what happens when the Nigerian 419ers get into that sort of thing, but for real people who know the project, the people in there or people who know the product it seems a real win. The cows are moved now, so it worked!

@Romany hehe – your house provides essential services. So it isn’t part of your free capital assets. So if you do count it as part of your networth, you should still discount it in seeing how much networth you have to captialise risky ventures. As the FCA correctly say ;)

Presumably this is why HMRC levy no CGT on the primary residence, even they don’t consider it part of your networth, until you leave it in a will – whereupon you usually aren’t using it!

[…] luck, out of time and out of options but needed to suck it up for long enough to buy freedom.  I have added value to other people’s projects without being paid, because of […]

 

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