Crowdfunding Industry Spotlight #27: Kevin Berg Grell, PhD

Editor's Note: In this interview series I put crowdfunding industry thought leaders in the spotlight and ask them ten questions to inspire and educate. Today I am happy to welcome my friend, crowdfunding expert, author and co-founder of Apen Designs: Kevin Berg Grell.

Co-founder and CEO of Apen Designs, an online platform for stakeholder communication. PhD in Business Administration (Finance) and MSc in Mathematics and Economics.

Kevin got involved with crowdfunding in 2012 as the research director for Massolution and Crowdsourcing.org, and has since his he left in August 2013 been working as a fintech consultant for various private companies. He co-founded Apen Designs a couple of months back.

He is co-editor of “Crowdfunding: The corporate era” with Dan Marom and Richard Swart, and is a contributor to Wired, Wired Innovation Insights, Crowdfund Insider, Crowdfund Beat, and the entrepreneurial outlet WestJournal.us. He is based in Los Angeles.

He loves presenting, attending crowdfunding events, networking, and mixers, but being a startup CEO puts a natural limitation all of these. He spends his spare time with his wife, Marcela, with friends… or with practicing capoeira and archery.

Q: How did you get into crowdfunding and what was it that attracted you to this industry?

I’m an immigrant… Native Danish, so when I came to the US in 2011, I had to wait a while before getting the work permit. Being a geek through-and-through, that time was spent studying areas that I’ve always found fascinating, but simply hadn’t had the time to dig into. I guess we all have unexplored areas like that, and in my case, they were sociology and network economics. When you combine those with my finance background, the step into crowdfunding (and to some extent crowdsourcing) research seemed quite natural.

Q: What's the most common question people ask you about your job and how do you respond?

Most of the questions I get are related to our content. We recently kicked off our "Content is King" strategy which is an attempt to bridge academic research with entrepreneurial readership and at the same time challenge academia with entrepreneurs’ experiences. It’s a great way to engage both sides of the table in a dialogue that hopefully will bring value to both.

However, it often means that we (Apen Designs) need to lead the charge in terms of setting relevant research agendas etc. One example is a local (Los Angeles County) research on incubator/accelerator activity. We do this in collaboration with WestJournal. It’s a great challenge, and an area that unfortunately in underserved on the research front, and I feel that we are the right company to attack that challenge head-on.

There are some interesting overlaps between crowdfunding and the incubator ecosystem. We have several examples of startups who spend their time in the incubator getting “crowdfunding-ready” – I believe you wrote an article about one such company last year (Editor's Note: The Hush campaign on Kickstarter).

Q: Did you have a mentor or is there someone who inspires you as a leader? How did/do they impact on your career and life?

I meet people who inspire me every day, but no single person inspires on all levels…

Q: What is the biggest challenge facing crowdfunding as an industry today and what solutions would you suggest?

The biggest challenge pertains to how crowdfunding elevates the importance of social capital. From building up social capital (or a crowd) prior to a campaign, over communicating why and how you wish to include that crowd during a campaign, to actually cultivating a line of communication afterwards. These are challenges that larger corporations have teams of people to handle… in the crowdfunding space, the same challenges fall on the lap of small companies who don’t have resources to implement that solution.

It’s a challenge, but also a great opportunity. With the right education on the entrepreneurial side, and with the right communication tools in place, small companies can significantly improve on any level from product development to marketing. I’ve discussed some of these aspects in "Startups and Crowd-First Tactics".

Q: What advice would you give someone trying to get into crowdfunding right now?

Be very careful with "hockey-stick" assumptions! You are most likely building on the idea that the customers will attract new customers (economists call this a network externality), and for the most part it is a reasonable assumption, BUT although this effect over time lowers your acquisition costs, you still need to understand how the rest of your cost centers respond to up-scale. This is important, especially if your business model allows for a customer-for-customer interaction. For instance, if you plan to operate a crowdfunding platform, and your users can make specific inquiries to you about some of the deals you present, then you need to have very accurate estimates of the marginal costs throughout the scaling process. Because, if there are network externalities on your platform then the growth itself will be out of your control… and so will your costs.

Q: What resources and events (blogs, books, conferences, podcasts, videos, etc) would you recommend to someone looking to become a crowdfunding expert and why?

It depends on your starting point. Crowdfunding leverages marketing, finance, psychology, sociology, accounting, law, innovation (business, product/service, organizational), and a bunch of other areas. Whatever your staring point is, you should build on that, and try to get a deeper understanding of how crowdfunding (and Web 2.0 applications in general) disrupts your field of expertise.

However, from my own field (economics and finance), I can definitely recommend the academic works of Christian Catalini, Ajay Agrawal, Avi Goldfarb, Dan Marom, Ethan Mollick, and Thierry Rayna; I probably forgot someone… my apologies!

Q: What are you doing to make sure you continue to grow and develop as an industry leader?

I do not see myself as an industry (or thought) leader, and I do not aspire to be one! We produce content, conduct research, and present at entrepreneurial events in an effort to inform and educate. We do this because we believe in the crowdfunding model and we believe crowd-first tactics can help build sustainable ecosystems and companies.

Crowds do not need (industry- or thought-) leadership!

Q: Can you tell us a little bit about how social networking and Web 2.0 have affected your organization or you personally?

Well… our service builds upon a Web 2.0 premise, so I guess you could say that it got us started.

On a more personal level, once I started to challenge my understanding of finance with crowd-communication (and assumptions like crowd-wisdom), many of the traditional results needed a careful revisit to say it the least. Especially those driven by information economics and the theory of agency. Questions such as “Are crowds efficient channels of and/or for the diffusion of information?” can still keep me up at night… In the end, this is at the very core of the crowdfunding industry’s greatest promise: The wisdom of the crowds. I would wish that this question kept more people in the industry awake at night.

Q: What do you think the crowdfunding space will look like five years from now?

BIGGER! That’s the easy answer, so let’s get that out of the way right away.

The wide adoption of reward-based crowdfunding by B2C entrepreneurs will cultivate an investor mentality, which in turn benefits the investment-based models as well. Colloquially speaking, the "customers" (or the crowdfunders) on Kickstarter are right now learning how to put a value on their own patience and more importantly assess the risks of product development. These are integral components of an informed investor’s mindset; an asset that in turn will benefit equity- and debt-based crowdfunding as well, simply because it smoothens the consumer-investor transition.

Crowdfunding based on revenue-sharing will explode! We have already seen how powerful crowdfunding can be for game developers (The Star Citizen campaign is the prime example). I believe that the next step involves investment vehicles where crowdfunders receive a cut of the sales once the software hits the market. There are already platforms doing this, but we are still waiting for the wide adaptation.

Software development is perfect for this model because we already have well established and recognized markets for these products. The key attribution here is that the early adopters know those markets very well; in many cases, they are themselves the best predictors of wide market penetration, so it seems that a very efficient way to source that information is to let them have skin in the game from product idea to market entry. This mechanism will also work for B2B software entrepreneurs, which could be a game-changer as well.

Lastly, within the next five years I hope and believe that we will have seen at least one major-scale ($1bn+) economic development campaign. Crowdfunding is in its nature challenging the "tragedy of the commons" problem; in short, the problem that self-interested individuals who act independently will deplete any common (or shared) resource. Crowdfunding is about collective actions, and although based on voluntary participation, our Web 2.0 enabled communication options allows us to coordinate without central planning, and WITH the common interests in mind. When you look back 50 years from now, I bet that this is what you’ll recognize as the real impact of crowdfunding… we challenged the "tragedy of the commons". The good question is "Did we succeed?"

Q: What ultimate goal are you working towards?

My ultimate goal is to build products, services, and companies that help entrepreneurs cultivate and nurture social capital. Crowdfunding provides a mechanism where social capital converts into something very tangible, and we (Apen Designs) are working on a solution to secure that entrepreneurs can exercise this opportunity to its fullest.

CONNECT WITH KEVIN: Crowdfunding.biz | LinkedIn | Twitter