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