Four students at New York University’s Courant Institute of Mathematical Sciences listened to a lecture on cloud computing and privacy and began to worry about relinquishing ownership of their data to Facebook and other social networks. They believed that they should retain all of their personal data, after all once you give up control initially you effectively lose the option to regain control over it permanently. The students believed that they could build a distributed social networking service to overcome this which they called diaspora*. Users would set up their own server (or “seed”) to host content; seeds would then interact to share status updates, photographs and other social data. The team wanted to test whether anyone else shared its concerns and to raise $10k seed capital to build the product. Surely the inexperienced team would struggle to get the idea off the ground without giving up huge amounts of equity? And how would they test demand more broadly than just in their close social groups?
机 jī opportunity
Instead of testing the idea with potential users in face to face discussions and tapping into angel funding the team decided to place a request for funding on Kickstarter, a platform that enables crowd-funding of creative projects. The team set their goal at $10k, recorded a video outlining why the project was important to them and explained what donors would receive in exchange for any backing. For example, those that pledged $25 or more would receive “a CD, note, a bunch of cool diaspora stickers, and an awesome diaspora t-shirt!”. As with all Kickstarter projects no equity was offered in exchange for funding (conveniently reducing the need for financial regulation of the Kickstarter platform) and the project had to be fully funded before its time expired or no money changes hands. diaspora* was fully funded within 12 days and within a few weeks the team had received pledges of over $200,000 from over 6500 backers.
Here’s the Kickstarter widget for the Diaspora project:
The team had proven that their product had appeal and had raised 20 times the capital they had aimed for without giving up a single percent of equity. diaspora* is now in build: a developer preview was released on the 15 September 2010 and a consumer alpha is planned for October 2010.
This approach is developing into a business model itself – just look at American Idol or X-Factor (read more in my article here).
- Crowd-funding new ideas – testing demand and perhaps eliminating the need to give up equity?