A Brief History Of Crowdfunding

A Primer On Crowdfunding – The History and The Impact

Crowdfunding pulls funds from many people together for a common purpose. Some campaigns are for a project, others are for a business, some are for charity, and some are to support a very specific cause such as covering a person’s medical bills. Without a doubt, this phenomenon has had an impact on the economy as we move toward the information age. Crowdfunding isn’t a new phenomenon, it’s just that the internet has made doing so easier and more accessible. This also means that larger sums of money can be raised at once for any given campaign. In many cases, crowdfunding is motivated by the prospect of earning a reward or some other stimulus such as public outrage.

Crowdfunding is a way that people can raise funds for their business venture without having to take on debt. There are also fewer strings attached to crowdfunding projects, as there are no investors in the picture making decisions regarding the leadership of the company. There is still a social obligation to deliver, as people whom are funding the campaign are typically expecting that they will receive the reward that they paid for in return.

There are several historic examples of how crowdfunding has had an impact on our lives. August Comte, the French Philosopher, issued notes which allowed for support of his work in 1750. More notably, the Statue of Liberty was also a result of crowdfunding as newspaper solicitations were used to raise the funds to build a base for it. Even war bonds can be an example of crowdfunding, as governments use these in order to “crowdfund” the military expenses required to fund a war.

The first modern example of crowdfunding occurred in 1997, which fans of a British Rock Band raised $60,000 to cover the costs of a US tour. This crowdfunding campaign began through the internet, and relied on the collaboration of many people to raise funds for a US tour of the rock band. Six years later, one of the first crowdfunding online platforms was launched called ArtistShare. This platform allows artists to raise the funds that they need for their projects, whether they be music or art projects.

crowdfundingLater on, some of the more famous crowdfunding platforms launched. In 2008, IndieGoGo became the first platform which allowed people to crowdfund for projects, charity, or business. The site earns revenue based on a percentage of the money that individuals raise using the platform. IndieGoGo also launched a separate version of it’s platform for people whom are raising money for illness, gift, or charitable purposes which features reduced fees. Following IndieGoGo was the launch of Kickstarter, which became even more popular among the entrepreneurial community. Both IndieGoGo and Kickstarter have been used to raise funds for all sorts of interesting technology projects. Without a doubt, these projects have the potential to change the world around us, which is why crowdfunding is something very important to watch. Many of the popular crowdfunding projects have been aimed at electronics/technology enthusiasts.

Even the government has stepped in to make crowdfunding startups easier for entrepreneurs. The federal government recognizes the benefits that entrepreneurship has on the economy, and has since then legalized crowdfunding from individuals whom are not considered “accredited investors.” The original crowdfunding bill was signed into law in 2012, and had support from both parties. Thus, by design it has essentially legalized and rubber-stamped crowdfunding as being a great force which allows ideas to come to fruition. Legislation was also written to update the original crowdfunding bill repeal many other regulations which hinder an entrepreneur’s ability to raise capital as recently as 2016. Holding back regulations was a major reason why these crowdfunding bills were passed.

Studies have also indicated that the most successful forms of crowdfunding are All-or-Nothing campaigns. Essentially, if the target is not met, then the project will not be funded. This can partially be explained due to increased levels of details in the description, but the alternate reality is that people are more motivated to contribute to all-or-nothing crowdfunding campaigns.

One of the strangest crowdfunded campaigns was in 2014, for a bowl of potato salad and was created by a young man named Zac Brown. The campaign raised $55,000 for what was originally intended to be only a $10 bowl of potato salad and turned into a potato party.

Crowdfunding exists outside the traditional financial model. Although it is such a new phenomenon, it has been going on for centuries. Even informally, crowdfunding has been used when people get together to contribute to a single cause such as a gift or a lottery ticket pool. Crowdfunding campaigns are often fairly successful at raising large amounts of funds for many different purposes. Crowdfunding has also made things more equitable for startups whom now don’t have to waste as much time looking for venture capital.

New companies such as SmashFund are emerging and taking crowdfunding to a new level. CEO and creator Rob Towles (robtowles.com) has visions of a whole new business model and making social crowdfunding easier than ever before. Having only been released since July of this year, we will see where this new model takes us!

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