Funded by the people, for the people
When the term crowdfunding first appeared in 2006, who could have predicted the fury of activity that this very simple concept would spark. The creative and tech industries have since embraced this emerging form of funding whole heartedly, and as a result we are witnessing a re-think of the traditional finance model. This enthusiasm for crowdfunding has also spilled into other realms, prompting its inclusion into the recent US JOBS bill.
So what is crowdfunding exactly? According to Wikipedia, crowdfunding is described as “ the collective cooperation … by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organizations.” Put another way, you ask people within your network of friends, partners and customers to help you fund the creation of a work/company/product. In return you offer rewards such as shares in the company, special gifts or the finished product.
But the concept of crowdfunding is not particularly new. It is a long standing strategy for charity organizations to offer small rewards (such as gifts or tax refunds) to encourage many donators to contribute funds towards a central cause. Also in some sense, the stock market is a form of crowd financing.
So why the excitement?
Mainly it’s due to the incredible opportunities that emerge when crowdfunding is coupled with a highly connected network of users. If you can tap into your audience before production, then you can remove the need for a 3rd party investor at the beginning of the process. Previously unprofitable projects have all of the sudden become viable. Furthermore, since we are more connected online than ever before, there is an enormous and growing volume of potential participants. The time is right to start re-thinking finance and fundraising.
And why are so many in business paying attention? To be blunt: there is also money to be made.
The first online crowdfunding platforms was Artist Share in 2000. But since 2008, we have witnessed an explosion of new crowdfunding platforms.
Some of the best known are:
- Kickstarter (2009)- the largest funding platform for creative projects in the US, and potentially the best known of all the platforms.
- Indiegogo (2008)- the best known international funding platform, includes non-creative projects such as social campaigns and product development
- Sponsume (2010) – the biggest crowdfunding platform for creative projects in the UK & Europe”
- Rockethub (2010)- funding platform for creative projects, partnered with many larger Media companies.
- Peer backers – a popular crowd-fund “for entrepreneur, innovators and trailblazers”
- Sellaband - music website that allows artists to raise the money from their fans and the SellaBand community in order to record a professional album.
For a full list, take a look at the answers to this quora question.
These platforms are in essence bridging the gap between the creator of a product and the consumer of the product.
As a result, anyone can be a micro-investor or mini-philanthropist and anyone can be a creator or an entrepreneur. The barriers-to-entry have been lowered profoundly.
But crowdfunding is only one small aspect of the movement towards a crowd-centric marketplace. The crowd is gaining momentum, and in turn is slowly eroding the power of the financial gatekeepers, such as investment groups, financial institutes, governments and funding foundations.
For better or worse, the crowd is increasingly shaping our world and our future.