Kickstarting Utopia

Crowdfunding lets you route around the Man.

"The middle class is struggling," the longtime left-wing economics wonk Robert Reich notes in the 2013 documentary Inequality for All. Why? Because billionaires and corporations are bulk-purchasing congresspeople like tube socks at Target, undermining democracy and turning America's once-vital middle class into disenfranchised, exploited exurban serfs, trapped in a downward spiral. "If you don't have a voice, if you don't have power, you are vulnerable economically in society," Reich says. "You don't have anybody to protect you."

But even as the former secretary of labor paints this bleak portrait of contemporary American life, the movie that was constructed to showcase his argument provides a curious counternarrative. Inequality for All was partially funded by Kickstarter. In November 2012, its producers took to the revolutionary crowdfunding platform to ask for money to pay the film's editors, purchase archival footage, and compose an original score. A full 1,015 people came to their aid, contributing a collective $83,392. And thus, for a few weeks in the fall of 2013, Robert Reich's economically vulnerable voice rang out in select theaters nationwide.

The theater where I watched Inequality for All-the Balboa in San Francisco-was also a recent beneficiary of a Kickstarter campaign. This past September, 1,063 people contributed $101,957 to help the place purchase new digital projectors and a new sound system. When Reich explained that we are "losing equal opportunity in America," he sounded crisp, humane, vivid-and also a little dated, as if perhaps he hasn't changed his stump speech much since, oh, 1985.

"I've been saying much of the same thing for 30 years," Reich notes at one point. In that time, technology has been on a bit of a roll. First we got spreadsheets. Then we could obtain every song ever recorded for free. In the last few years, from a personal empowerment perspective, things have really been getting interesting. Airbnb helps you turn your couch into a profit center. Etsy and Shopify let you take on Walmart even if you have trouble calculating sales tax.

Finally, there are Kickstarter, Indiegogo, LendingClub, RocketHub, and countless other radically democratic platforms of alternative finance. Surely it's worth mentioning, somewhere among the lamentations over rigged games and middle-class voicelessness, that you can now get a home improvement loan, raise capital for your organic vegan food truck business, and in a few months, when changes in security regulations take effect, even recruit equity investors for your startup, all without ever rubbing shoulders with the dreaded 1 percent.

Crowdfunding, in short, is a big deal. It is also profoundly political. As a September report from a progressive think tank called the Roosevelt Institute notes, crowdfunding has its roots in the non-profit sector. One pioneer, DonorsChoose.org, raises money for school projects. Another, Kiva.org, provides microloans to entrepreneurs in developing countries (and now in the U.S. as well).

Kickstarter explicitly aims to depoliticize its platform, with its official guidelines explaining that the site "cannot be used to raise money for causes." Even so, it has evolved into a marketplace of considerable political expression, a place where aspiring entrepreneurs routinely stake their dreams on finding constituencies that are eager to support sustainable charcoal or upcycled messenger bags manufactured by U.S. military veterans.

Consumers have always voted with their wallets. But in a post-Kickstarter world, the crowd doesn't just dictate what gets bought. It dictates what gets made. And all it takes to be a part of this new powerful cabal is a few spare dollars.

To see the political implications of this in action, consider Mosaic, an Oakland, California, crowdfunding platform that relies on individual investors, rather than colorful signs held aloft at rallies, to bring power to the people. Mosaic was co-founded by Billy Parish, a climate-change activist who identified a lack of financing as one of the main factors impeding solar power's growth in the U.S.

While solar photovoltaic systems remain costly to install, solar leases, which have grown increasingly popular over the last decade, allow customers to purchase sun-generated power on a monthly basis from companies that cover the costs of setting up and maintaining the equipment.

Of course, these companies still need capital to install their systems, especially on commercial-scale projects designed to generate between 100 KW and 3 MW of power. "There's a gap in financing this size of solar project because virtually no small banks are familiar with solar and therefore do not offer financing," says Greg Rosen, Mosaic's chief information officer. "And most big banks with some knowledge of solar have high overhead costs and third-party diligence fees, and therefore focus on large financings greater than $25 million to cover their expenses."

Capitalizing on this gap in the market, Mosaic makes loans to solar providers seeking capital and generates capital itself by attracting individual investors online. Investors can loan as little as $25 to a project, and if everything works out as planned, loan repayment occurs on a monthly basis, along with annual interest rates ranging from 4.5 to 7 percent.

Mosaic makes money because it charges the solar providers a loan origination fee and 1 percentage point more interest than it pays to its crowdfunders. Once an installation is up and running, the solar provider begins charging its customers for the energy they consume. It uses this money to pay off its loan.

After beta-testing its platform with a handful of zero-interest loans in 2012, Mosaic began offering interest-bearing loan opportunities to investors in January 2013. By November, it had fully funded 18 projects, raising amounts ranging from $25,500 to power four units of senior housing in Novato, California, to $815,000 to power a bee farm in Red Bluff, California. All told, approximately 2,600 individuals have invested a collective $5.6 million in these projects.

Those numbers probably won't make polar bears breathe any easier, but Mosaic is only getting started. And even at this nascent stage it's a remarkable development. If you fervently believe that accelerating solar adoption is crucial to mitigating climate change, you can now vault past petitions and donations and go straight into building infrastructure, maybe even making a few bucks in the process. (Mosaic loans are unsecured. If a project runs into trouble, your investment could convert to unplanned philanthropy.)

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  • Ken Shultz||

    Awesome piece!

    "Because of federal regulations, only residents of California and New York-or individuals who meet the U.S. Security and Exchange Commission's definition of an "accredited investor"-can invest in Mosaic. (To qualify as an accredited investor, you must have $1 million in net assets excluding your home, or annual income of $200,000 or more.)"

    There's the problem.

    It should be noted that even in places where it's legal, it's unwise to accept equity contributions from unaccredited investors--because if the investment goes badly, unaccredited investors can and will sue whomever raised the equity: I didn't know what I was doing! I'm just a stupid unsophisticated investor and they took advantage of me!

    It's shameful that we've come to the point that the unaccredited investor can't directly participate in equity pools like that until after it goes public. The idea that everyday, average people could own equity in any given enterprise was a major historical development; wasn't the essential difference between a serf and the Lord of the Manor a question of equity participation?

    The left has it all so backwards. Imagine Marx telling the workers of the world that they can't own the means of production because it's too risky for them to participate, and you've got the general consensus on the left today. Hell, they created the Consumer Financial Protection Bureau because it's too risky, supposedly, for common scum to sign a loan and own their own homes.

  • Duke||

    It's shameful that we've come to the point that the unaccredited investor can't directly participate in equity pools like that until after it goes public. The idea that everyday, average people could own equity in any given enterprise was a major historical development; wasn't the essential difference between a serf and the Lord of the Manor a question of equity participation?

    This is the real tragedy of the insanely idiotic “accredited investor” rules and is something Reason really needs to do an in-depth analysis of. This rule perfectly exemplifies the disconnect betweeb busybody lawmakers and voters. A “non-accredited” investor can go out, leverage his house, and put all his savings in a hot stock tip and lose everything. Or buy investment real estate he can’t afford; or buy other crap he can’t afford, go broke, and nobody is there to bail him out or feel sorry for him.

    But a private equity deal among “insiders?" OH HELL TO THE NO! We must protect these nitwits from actually having a chance to make money. If these satanic bastards actually cared about small investors losing money, THEY’D LET YOU WRITE OFF MORE THAN $3,000 A YEAR FOR CAPITAL LOSSES!

  • CE||

    Yeah, the government cares so much about protecting you that it wants to make sure you can't invest in potentially lucrative opportunities. For your own good. Or maybe just to keep you down.

  • EDG reppin' LBC||

    For the allegedly disenfranchised 99 percent, it has never been easier to seek common cause with like-minded souls, to pool your resources, and to exert influence in strategic and tangible ways.

    Nope. It's easier to camp out in public parks and petition government for higher taxes on the rich, to pay for stuff the 99% wants. Unfortunately politicians, being politicians, will entertain these people. Sometimes you can even get prominent members of civil society, such as Warren Buffett, Bill Gates, or these no-talent ass-clowns to support this confiscatory policy.

    You see, most people want to reap rewards without having to take the risks. Capitalists are wiling to take the risk. Socialists use government force to mitigate risk.

  • CE||

    It's the socialists who are greedy. They want to take other people's money. Capitalists want to earn it by providing something of value, or at least the promise of future value.

  • The Late P Brooks||

    "If you don't have a voice, if you don't have power, you are vulnerable economically in society," Reich says. "You don't have anybody to protect you."

    Nothing says "We're here to protect you" like a few thousand pages of regulations allowing the Federal Election Commission to dictate how you may disburse your election campaign contributions.

  • Ken Shultz||

    And talk about propagating a culture of dependency!

    What ever happened to protecting yourself? And who's gonna protect me from the protectors?

    What about the courts?

    Are civil courts so bad now that average people can no longer go there to get their contractual rights protected?

    If the courts' ability to protect our contractual rights is severely constrained now, it's in no small part due to the regulation, some of it created under the guise of protecting us from average people making their own choices.

  • John Galt||

    Anytime the protectors show up at your door hopefully your beloved family dog is wearing his body armor.

  • Brian||

    And, how much freaking effort do libertarians have to go through, just to be left alone?

    Since anything and everything is on the table for government consideration, if you just want to live your life, you still have to either engage in massive political action, just to be let alone, or deal with death by a thousand cuts, as your taxes go higher and higher to pay for everyone else's ideas.

    When you're dealing with people who have no problem using violence to get what they want, you have to pay either way: going with them, or against them. It's very effective. I just wish they didn't pretend like democracy makes it all soft and cuddly for everyone.

  • John Galt||

    And, how much freaking effort do libertarians have to go through, just to be left alone?

    They have to take up permanent residence in a coffin or cremation urn or the like. And even then, only maybe.

  • RishJoMo||

    Sometimes man you jsut have to roll with it.

    www.Anon-VPN.com

  • David_B||

    Sir Thomas More's Utopian ideal was a totalitarian dictatorship.

    It confuses me why the word "Utopia" is so frequently used out of context.

  • John Galt||

    Imagine a world without taxes within which all public projects are funded by Kickstarter participation...

    Sigh...

    The pols would go into instant high level panic mode causing them order the killing of every family dog within the USA before a full week had passed.

  • Don'tTreadOnMe||

    It's an interesting thought experiment, anyway. What would the world look like in 5 years if this happened? What 'programs' would be funded more, less, not at all? What would a pitch from the current managers of public programs look like if they actually had to ask YOU for money? I kinda want to see this one happen.

  • CE||

    I'm hoping we can crowd-fund the colonization of Mars, without stealing billions from taxpayers.

    Mars One has selected their top 1,000 finalists...

  • John Galt||

    That's the awesome thing about projects such as Kickstarter, people can get things done without billing the taxpayers.

    That's worthy of applause.

  • Don'tTreadOnMe||

    I would love to see a cost-effectiveness comparison of a crowd funded program with a governmental 'tax' funded program. Even if they were equally effective (I am willing to wage against that one, by the way) I would say the satisfaction of voluntarily funding a program of individual interest would be far better than the feeling of being ass-raped by the IRS.

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