How do you finance an idea? Or that gadget you’ve just invented in your garage? It used to be that you needed to convince someone with a lot of money that your project deserved to see the light of day. These days, instead of romancing a Silicon Valley backer, all you need is a laptop and an internet connection.
Peter Sunde, best known for his infamous Pirate Bay website, recently announced a new online financing service called Flattr. At flattr.com, users pay a self-determined monthly contribution. When they find content online they like, they tag the site. At the end of the month, their monthly contribution is divided up evenly between the people that were tagged.
A similar site, www.kickstarter.com, helps budding artists fund their projects through similar micro-donations. Creators post a proposal for a project on the site and request a certain amount of seed capital. If the project looks interesting, people can donate money into their start-up fund. If they achieve their seed money goal, the project gets made. If not, all the contributors get their money back and it’s back to square one for the artist.
Economists have been struggling to come up with a workable model for online finance ever since the mid-90s. Because content is so easy to copy and share online, the web is still viewed with suspicion by entertainment companies, marketers and financers. This new model of financing described by Flattr has much in common with the microfinance movement spearheaded by the likes of Grameen Bank in the 90s.
There are lots of microfinance initiatives like this online and although they’re still finding their feet, they represent a new and potentially revolutionary model of capital distribution.