Over the last ~20 years, we have seen a huge wave of innovation that has transitioned just about everything from analog to digital. Music, newspapers, furniture, pets, relationships, businesses and more now exist in digital format, and are marketed and sold online. I believe the majority of this shift has already occurred and we are currently in the midst of the next macro phase—a transition from the idea of asset ownership to a virtual, on-demand model.

Why buy extra servers when you may only need them for a few hours a week?

Why buy albums, or even individual songs, when you can subscribe to a service that provides every song ever recorded?

With an on-demand model of goods, having access to a car is a realistic and more affordable alternative to actually owning one. Just as analog to digital before it, virtualization is being applied to many markets, radically impacting business fundamentals and pricing by reducing costs.

Need a place to stay? Airbnb can connect you with a virtual inventory of locations without having to bear the cost of property ownership or management.

Need a ride? Uber will send a car from its virtual fleet to pick you up and take you where you need to go.

On top of that, the traditional economic process of building a product and then selling it to customers is reversing. The principle of supply and demand is still intact, but the order has been flipped: establish demand and then create supply.

How the reverse economy works

Companies can gauge customer needs and desires, collect payment in advance and then provide a solution. Simple example: a band pre-sells its album to fans, then goes to the studio to record it and distributes the music to buyers.

This new approach shifts risk that historically belonged to creators (what if customers don’t buy the product?) to customers (what if the creator fails to deliver a quality product?)

On-demand businesses like Airbnb and Uber take this model a step further by providing precisely the required amount of supply, and only for as long as it is needed, significantly reducing capital and operating expenses. Instead of bearing the cost of acquiring, maintaining and marketing properties, Airbnb can simply connect property owners to renters. This competitive advantage enables on-demand companies to disintermediate markets by removing middle-men that add little value but increase cost.

Legacy business model infrastructure and service providers are being replaced by inexpensive and efficient peer-to-peer transactions.

That’s where crowdfunding fits in. Crowdfunding is a means by which people can directly buy or invest in other people’s products or ventures. A local example of a crowdfunding platform is GROUNDFLOOR, a real estate lending provider that connects real estate investors with construction or renovation projects. GROUNDFLOOR democratizes real estate investment by allowing its users to invest in local projects that they can research and check on in person, as an alternative to investing through a REIT—a blind pool of projects managed for a fee.

Similarly, equity crowdfunding has the potential to connect people with interest or expertise in a particular niche to company founders within those specialized areas. New rules reduce investment minimums, and targeted platforms enable people to find opportunities within their spheres of knowledge. Equity crowdfunding follows the backward economic model described above, and one reason I support it is because it enables customers (or investors in this case) to benefit from assuming the risk of financing a venture early on.

Crowdfunding lets people rally behind the products they care about.

Many people have a set of niche interests they are willing to pay to support, as evidenced by usage of Kickstarter for non-equity crowdfunding. Consider the example of Oculus Rift, which launched a Kickstarter campaign less than two years ago. Oculus was initially considered a niche virtual reality kit for game developers, but its crowdfunding campaign drew broad interest and was rapidly over-funded. Following the company’s recent $2 billion acquisition by Facebook, many of the Kickstarter funders are, to put it gently, not thrilled about the lack of payout for their support and risk assumption.

While Oculus is clearly an outlier at the moment, its framework demonstrates how crowdfunding can work effectively:

Step 1: Niche product creator explains a product’s vision through a campaign on a platform that enables them to reach and be found by potential customers/investors within the niche.

Step 2: Expert niche customers/investors who deeply understand the product get really excited about it, support it financially, and evangelize it to their networks (that may include non-niche people).

Step 3: Creator discovers that the solution has potential applications outside of the niche, or simply has crossover appeal based on product wow-factor.

Step 4: Large unforeseen opportunity emerges in the form of significant venture investment, M&A interest, or just massive product demand from customers.

The most interesting part of this process (and equity crowdfunding in general) is Step 2: experts and founders within a particular area are able to connect and partner. Even low-dollar financial support is a critical proof-of-concept if it comes from experts in a founder’s field. Enabling people who understand your solution best to find, validate and spread the word about it is tremendously beneficial to founders. For experts, this process demystifies and opens up what we traditionally call angel investing to a whole new class of people.

Put simply, equity crowdfunding can bring angel investing to the public in a simple and straightforward manner.

To be clear, I’m not suggesting people should put all of their savings into crowdfunding investments, but I believe some level of portfolio allocation into areas where an investor has deep expertise can provide increased diversification and opportunity for improved yield. It’s irrational that regulations allow people to take on a huge mortgage or buy an expensive car (which will quickly lose value) with bank approval, but prohibit people from making a small investment in a business they may have deep experience in unless they meet Reg D criteria as ‘accredited investors”.

Why North Carolina’s JOBS Act matters.

That takes us to the present. Equity crowdfunding has been approved as part of the JOBS Act nationally, but the rules are still being ironed out. Some states like Georgia have moved ahead with creating their own legislature to enable intrastate equity crowdfunding to begin.

According to Mark Easley of the NC JOBS Act Team, here in NC ,the legislation (H680) passed the NC House by an almost unheard of bipartisan vote of 103 to 1 last June and is now pending in the NC Senate for the short session beginning May 14th. So if everything goes as expected, 2014 will be the year that intrastate investment crowdfunding will become a reality in North Carolina. (Easley recently wrote a column for ExitEvent on the subject.)

Companies are increasingly shifting towards an on-demand model to cut costs and improve efficiency, which serves to expand the reversal of traditional economic processes. This change comes with a side-effect that risk is now borne by purchasers.

It only seems fair to compensate early buyers and investors for the risk they assume when there is a payoff, and doing so should in turn increase tolerance and willingness to support niche product creation.

Learn how to support equity crowdfunding in NC at http://jobsnc.blogspot.com/.