The emergence of the Internet connects people all over the world. Crowdfunding feeds on that interconnectivity. In its most basic form, crowdfunding consists of a group of people pooling money together to fund an idea, a project, or a business. Crowdfunding has seen immense growth since its inception and has since been molded to work in various industries.
Massolution’s 2015 Crowdfunding Industry Report found that the industry more than doubled in the last year, bringing in in 34.4 billion in 2015 compared to 16.2 billion in 2014. The crowd is driving the growth of alternative forms of financing as more and more people choose to participate in the sharing economy.
The Evolution of the Crowdfunding Industry
The roots of modern crowdfunding stem from the art industry. In 2003 ArtistShare became the first fundraising platform, acting as a virtual space for fans to help musicians raise money to produce records. This type of donation-based financing inspired others to seek help from the crowd.
Michael Sullivan is said to have first coined the term crowdfunding in 2006, when he reached out to the Internet to raise funds for a video blog. Even though his attempt was unsuccessful, the name stuck.
Around 2008 other platforms launched that focused on various realms, including the arts, entrepreneurial initiatives, and social change. About the same time, social media integration began to take hold, dissolving the lines between traditional websites and social networks. This brought a more social aspect to crowdfunding, where platforms began to implement profiles facilitating transparency and communication between the organizer and supporters.
In 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act, which permitted equity crowdfunding. Due to delayed rulings, it took until 2015 for non-accredited investors to be permitted to participate in this type of crowdfunding.
Types of Crowdfunding
- Equity Crowdfunding
This involves someone seeking funds to start a new business concept. Donors usually receive shares in the company in exchange for their support. Because this type of crowdfunding involves the sale of securities, it is regulated by the Securities and Exchange Commission.
- Debt Crowdfunding
Debt Crowdfunding was developed as an alternative to bank loans, and is sometimes referred to as micro lending. After borrowing small amounts of money from multiple donors, people are expected to pay back their supporters over time, plus interest.
- Rewards-Based Crowdfunding
This type of crowdsourcing allows anyone to seek funds for a project by promising an eventual reward to supporters. Rewards vary from a small part in a motion picture to sponsor rights to the actual product that the donations went towards producing.
- Donation-Based Crowdfunding
Nonprofits were familiar with collecting donations online before crowdfunding surfaced as a trend, but when donation-based crowdfunding platforms emerged around 2010 it gave individuals the power to raise funds on behalf of their favorite charities. Then, platforms like YouCaring took it a step farther by allowing people to solicit donations for personal causes ranging from 11different categories.
Crowdfunding for Compassion
Massolution’s report indicates that crowdfunding for social causes raised 3.06 billion in 2014, which is more than what films, music, performing arts, and recording arts rose combined. As a prominent player in the industry, donation-based crowdfunding allows users to direct social change and supporters to invest in social good.
Starting Your Own Crowdfunding Campaign
With crowdfunding the possibilities are endless. YouCaring is tailor made for compassionate people with humanitarian plans. Launch your free fundraiser today.