The Evolution of Crowdfunding

The Evolution of Crowdfunding

The Evolution of Crowdfunding

The concept of online crowdfunding is not new. It almost mirrors fundraising in the physical world. In simple terms, Modern-Day Online Crowdfunding is an adaptation of the age-old concept of collection buckets, managed through one online platform. The concept of tin rattling at street corners has revolutionised into a sophisticated means of fundraising on the world wide web.

There are many moments in history where public funding or crowdfunding was used to finance projects or ideas.

One of the first and widely known crowdfunded projects was for a part of the Statue of Liberty. In 1885, France gifted this magnificent statue as a diplomatic gift to the United States. However, the US needed $250,000 USD (now about $6.3 m) for a granite plinth for the base of the statue. When city funds were rejected for being used, and the US had run out of all other options to raise funds, Joseph Pultizer launched a fundraising campaign in his newspaper “New York World”. The campaign raised over $160,000 USD with more than three quarters of the donations amounting to less than a dollar from children, businessmen, street cleaners and politicians.

Similar situations occurred when Nehru, the first president of India encouraged people to donate through videos appeals to contribute to the war effort. Crowdfunding was adopted in 1996 for the first time over the internet when fans came together and contributed $60,000 USD to Marillion, a British rock band for their US tour.

Inspired by this, Brian Camelio, an American music producer developed a fan-funding website in 2003 called ArtistShare for artists. By raising funds for 10 Grammy-winning music records, this platform gained worldwide recognition.

In 2008, during the economic crisis, big banks began to cut back on lending to small businesses. Crowd sourcing then became a common means for start-ups in America to generate funding. Entrepreneurs turned to friends and families on online social media platforms to raise funds for commercial ventures.

Danae Ringermann, Slava Rubin and Eric Schell used the funding format created by ArtistShare and social media to democratize the funding process. They founded Indiegogo Inc. in 2008 for creative and artistic projects and to empower innovation by involving the audience/ consumer directly in the artist’s work.

Kickstarter was then founded in 2009. The rise of these two platforms established that online crowdfunding was a simpler and cheaper option for entrepreneurs to validate their ideas, gain exposure and gain funding.

Today, there are many ways to crowdfund online. A project creator can work towards raising their target fundraising goals using the web, different social media platforms and online channels. Over time, online crowdfunding has replicated the three basic forms of fundraising – through donations, rewards and investments, also known as equity crowdfunding.

While crowdfunding is a relatively recent phenomenon in Australia, there are several factors that enhance the success of an online crowdfunding project. Donors can support a cause they are passionate about and participate in the journey of realizing the venture with the fundraiser.

While donation-based crowdfunding and reward based crowdfunding follow state based fundraising regulations, a campaign to Federalise these fundraising regulations is underway. In March 2018, the Australian Federal Parliament passed the Equity Crowdfunding Legislation and issued equity based crowdfunding licenses to seven Australian sites.

The picture is adapted from the design by Freepik
What is crowdfunding

What is crowdfunding

Crowdfunding… What is it?

Crowdfunding is a method of raising funds from many people for a specific cause or venture. Using the collective effort of friends, family, various networks and even strangers, online crowdfunding mirrors the traditional concept of fundraising in a streamlined process. On a crowdfunding platform, the plans and ideas for a fundraising venture can be crafted in the form of a post, that can be shared and marketed across various online platforms. All the funds raised can be received through the post itself!

Why move to online crowdfunding?

With the digital revolution consuming everyday activities, this slow, yet inescapable metamorphoses of our lives into the virtual world has caused the internet to become an increasingly important part of life. As most activities are now carried out by digital tools, transitioning an important activity such as fundraising, especially for causes or projects that matter, to an online environment is inevitable.

Benefits of crowdfunding online

By crowdfunding online, the process of fundraising and its management is streamlined through one platform. This means that a fundraiser or project creator can create and design a campaign on the crowdfunding platform, describe the idea, share it directly across social media platforms and other online networks. People can then donate to the venture or share it within their own individual networks to gather and receive further support.

The benefits of crowdfunding online extend well beyond the dollars and cents raised, it helps communicate issues, drive awareness and empowers researchers and communities. Crowdfunding online arguably yields better results than traditional forms of funding. It is also a means of validating a venture.

Types of crowdfunding

There are three basic forms of crowdfunding:

‘Donation based crowdfunding’ is the least complicated form of fundraising, where donors donate to a cause without expecting anything in return. Generally, not-for-profits or individuals use this form of fundraising for charitable causes or for causes that positively impact society.

Rewards based crowdfunding is based on supporters donating to a venture in exchange for some sort of perk or reward. Often, a donor is promised a product or is given credit in research etc in exchange for their donation.

Equity based crowdfunding is where a donor makes a donation as an investment in a venture, in exchange for equity in the project. Equity based crowdfunding has increasingly been used by the real estate industry and is becoming popular amongst other industries as well. This has helped drive the multi-billion-dollar, crowdfunding industry across the world.

Funding models

“Keep it all” and “All or Nothing” are the two funding models that most crowdfunding websites adopt. The keep it all model allows the creator to keep every donation received, even if the funding target goal has not been met. On the other hand, the all or nothing model allows the fundraiser to keep all the funds raised only if the target amount is met.

Although online crowdfunding is a means of traditional fundraising on an online platform, it transcends traditional fundraising and can often be more effective. Campaigning online via social media helps transcend borders faced in the physical world and allows a greater reach of the venture, creating greater opportunities for donations.