Crowdfunding has become quite popular recently but this fund raising platform has been in existence since 1700s. The 18th century poet Alexander Pope wanted to fund his work of translating Greek poetry into English and he asked people for help in return of being acknowledged in his book. In late 1700s, the famous composer Mozart offered invitations and manuscripts to people who donated for funding his concert. In 1884, The New York World newspaper raised $101,091 in funds from 160,000 people for the base of Statue of Liberty with help of Joseph Pulitzer’s fund raising campaign.
The history of modern crowdfunding can be traced back to 1997 when the fans helped the British rock band Marillion by funding their US tour. The band managed to raise £39,000 with a crowdfunding internet business model. This was later followed by many crowdfunding platforms. In the US, crowdfunding gained popularity when a Boston musician and computer programmer launched ArtistShare. Brian Camelio had started a website in 2003 where musicians could ask their fans for donations for producing their digital recordings.
ArtistShare funded Maria Schneider’s album which won Grammy Award for the best large jazz ensemble album in 2005. The album was sold exclusively through ArtistShare’s website and the fans who contributed were rewarded as well. A fan who contributed $10,000 was even listed as Executive Producer of the album.
The progress of crowdfunding
Modern day crowdfunding has progressed to include social funding where people from the founder or business owner’s network participate in the funding process. This category of funding helps startups and small business generate funds. Mostly through people who they already know but never expected to have help from. Crowd funding has also evolved to include rewards instead of just equity.
The year 2008 saw Indiegogo come into existence. It follows the reward-based system of crowdfunding. The investors or donors receive a gift instead of equity or share in the company. Indiegogo charges 5% on contributions from people soliciting funds for their idea or start-up business. Another popular crowdfunding platform is Kickstarter, an American public-benefit corporation. They too charge 5% of the total amount of funds raised.
In April 2012, President Barack Obama signed the JOBS Act, Jumpstart Our Business Startups and introduced“the crowdfunding bill”. It has legalized crowdfunding and has helped small businesses by lessening the burden of regulations. Regulations change include lifting the ban on general solicitation for raising money.
Crowd funding gained popularity as it is way more efficient and less time consuming if you are an entrepreneur. It is hassle-free compared to traditional financing methods like banks, venture capital firms, and angel investors, etc. The right platform allows you to reach out to potential investors. You also get to tell them what you have to offer and what your financial requirements are. With equity crowdfunding, the people who show faith in your business idea/model stand to gain by becoming shareholders in your company. Numerous start-ups have benefitted from crowdfunding platforms. It is one place where you can get to know the shortcomings of your business plan as the would-be backers want to know what they are investing in.