Crowdfunding: Tech Bubble or Innovation Boon?

According to a report from Clarity, the crowdfunding economy has grown to more than $5.1 billion in the last 3 years. In addition, due to the Jumpstart Our Business Startups Act passed in 2012, the SEC is now developing new rules for Equity Crowdfunding, which should provide startups with even more flexibility with finding funding. This could be good news for the increasing number of startups in the edtech industry. However, Mark Cuban, American businessman, investor, and owner of the Dallas Mavericks, writes in a recent blog post that this tech bubble is worse than the tech bubble of 2000 due to the number of private investors funding small tech companies and apps with zero liquidity.

“In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story,” says Cuban. “To the investor, its the hope of a huge payout. But there is one critical difference. Back then the companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.”

Countering Cuban, founding partner for SierraMaya360Amish Shah writes in the Business Insider that in the post dot-com bust era, there is more scrutiny facing start-ups and a better understanding of the Internet market–points that make a bubble less likely. More important, though, Shah believes crowdfunding is spurring increased innovation.

“The democratization of cash, which is essentially what crowdfunding and angel investing really are, is not just leveling the playing field for America’s innovators, its revolutionizing it,” writes Shah. “In 2000, it used to cost an average of $5 million to launch a startup. Today, because of private investor-fueled incubators, accelerator programs and crowdfunding platforms like Kickstarter and Indiegogo, it only costs a fraction of that. This is opening the door for a greater level of experimentation and risk-taking than what could ever have existed during a VC-dominated funding environment.”

Read Mark Cuban’s post, “Why This Tech Bubble is Worse Than the Tech Bubble of 2000,” on Blog Maverick, the Mark Cuban Weblog.

Read Amish Shah’s response, “Why Mark Cuban is dead wrong about the ‘tech bubble’,” on Business Insider.

Digital Issues