Crowdfunding…What is it?

Crowdfunding has become a common term used daily in many specialised areas to fund small projects. A Crowdfunding campaign can be used to fund a project, product or service through public donations. This can allow a project that would have struggled to gain investors, to go directly to the public and develop a personalised connection. Crowdfunding is defined in the Oxford dictionary as ‘The practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet’ (Oxford, 2016).

Millard (2016) explains that although the term ‘Crowdfunding’ may be relatively new, the practice of lending and sponsoring each other is evident in the biblical age. “The idea of acquiring funding from an ‘alternative’ source is perhaps appealing to business founders because what we now recognise as the ‘sharing economy’ is not so new at all.” (Millard 2016).

These practices have changed and developed with each culture and technological advancements. “Before computer-mediated crowdfunding, creators often engaged in personal crowdfunding initiatives. For example, musicians would publicly ask their fans to fund a new album or tour.” (Gerber, Hui, Kuo 2016). The development of the internet has allowed the movement of crowdfunding to be accessible to anyone and tailored to each individual project. It is also open to anyone with access to money and the internet. Grell, Marom and Swart (2015) describe the movement as ‘Empowering the Crowd’. They explain how crowdfunding was developed at a time of need, when professional investment was extremely hard to secure due to the previous financial crash so entrepreneurs decided instead to raise the funds from a larger source rather than one place.

Freeman and Nutting (2015) explain in their paper ‘A Brief history of crowdfunding’ that the movement began gaining traction in the United States with Brian Camelio who launched ‘ArtistShare’ (2003). The website was designed to allow musicians to seek donations for their work. Donations over $250 were listed in the booklet accompanying the album, as people who “helped to make this recording possible”.

Reward based crowdfunding sites soon followed such as Kickstarter (2009) and Indiegogo (2008) launching the movement into the online communities. David Drake (2015) reported that in 2012 there were more than 700 crowdfunding platforms available which increased to  more than 1250 in 2015. Sourcing the ‘Nesta Report’ Drake goes on to say “that the UK alternative finance that includes crowdfunding is estimated to have provided working capital in 2014 for 7,189 small and medium enterprises, equivalent to 2.4 percent of bank lending to businesses.”

CrowdExpert (2016) Crowdfunding Industry Statistics 2015 2016

Crowd Expert looked at a variety of sources to show the trends of the crowdfunding movement as it has developed from 2009 onwards. Chance Barnett a CEO of Crowdfunder.com is sourced in the article showing crowdfunding surpassing angel investing in 2015.

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Crowdfunder (2016), Barnett (2015)

Crowdfunding Platforms vary in the way donations can be made or projects are marketed. Rewards based models are more successful according to crowdfunder.com (2015) infographic while lending is the less preferred method.

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Crowdfunder.com (2015)

These models are important when choosing which platform to go with to suit a project. Crowdfunding is now branched out to the corporate sector. “It weaves crowdsourcing, open innovation and co-creation into a holistic framework for tapping into the resources and wisdom of the crowd.” (Grell, Marom, Swart 2015) Companies such as Coca-Cola and Honda  who don’t need the funds have instead used crowdfunding to engage with their consumers and promote products. It is an opportunity to gain finance but also consumer investment by using it as a marketing tool alongside social media. It gives a more personalised connection with those donating and interacting with the product.

The creative economy often relies on some form of crowd sourcing to start-up a project. Howkins (2013) states that crowdfunding was boosted in the United States when Barack Obama launched ‘Jumpstart our business start-up Act’ (JOBS) in 2012 as a way to improve the US economy. After crowdfunding (if successful) the next step would be to borrow from a bank for gain finacial investment from a corporation.

So if you need to raise funds for a trip such as Jake’s Dream Trip to Florida, create a potato salad, make a film or build a wind farm, don’t forget to check out crowdfunding as a possible source of income.

References:
Barnett, C. (2015) Trends show Crowdfunding to surpass VC in 2016. Available at: http://www.forbes.com/sites/chancebarnett/2015/06/09/trends-show-crowdfunding-to-surpass-vc-in-2016/3/ (Accessed: 10/10/2016).
Crowdfunder (2015) The History of Crowdfunding. Available at: https://www.crowdfunder.com/blog/wp-content/uploaded-files/History-of-Equity-Crowdfunding.pdf (Accessed: 10/10/2016).
David M Freeman, Matthew R Nutting (2015) “Brief History of Crowdfunding”. Economics and Management: 2013. (Accessed 12.10.16).
Drake, D. (2015) 2, 000 global Crowdfunding sites to choose from by 2016: Top 5 growth indicators. Available at: http://www.huffingtonpost.com/david-drake/2000-global-crowdfunding-_b_8365266.html (Accessed: 11/10/2016).
Gerber, E., Hui, J. and Kuo, P.-Y. (2016) Crowdfunding: Why People Are Motivated to Post and Fund Projects on Crowdfunding Platforms. Available at: https://www.researchgate.net/profile/Pei_Yi_patricia_Kuo/publication/261359489_Crowdfunding_Why_People_are_Motivated_to_Post_and_Fund_Projects_on_Crowdfunding_Platforms/links/00463533f6db1c5c01000000.pdf (Accessed: 11/10/2016).
Howkins, J. (2013) 2nd Edition. The creative economy: How people make money from ideas. London: Penguin Global. Pages 65 – 67.
Marom, D., Swart, R. and Grell, K.B. (2015) Crowdfunding: The corporate era. United Kingdom: Elliott & Thompson. Pages 1-2.
Millard, C. (2016) A RETURN TO OUR ROOTS: A BRIEF HISTORY OF CROWDFUNDING. Available at: https://fundwise.me/en/blog/return-our-roots-brief-history-crowdfunding (Accessed: 10/10.16).
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