Michael Seaton, a crowdfunding expert
If you have any interest in crowdfunding your own project, this outline
will help answer some of the following questions:
What is Crowdfunding?
When did Crowdfunding start becoming an international phenomenon and
what’s its orgins?
What is the difference between Rewards Crowdfunding and Equity Crowdfunding?
What are the top Crowdfunding companies?
What are the different types of Crowdfunding Projects?
What are the main things to consider when launching a crowdfunding project?
What are the major differences between the various crowdfunding platforms?
What are the risks and benefits of launching a Crowdfunding project?
What are the most successful Crowdfunding Projects?
Crowdfunding(s) Nascent Industry Beginnings:
Crowdfunding is the practice of funding a venture by raising monetary
contributions up-front, typically via the internet, in exchange for
REWARDS/PRODUCTS (Rewards Crowdfunding) or COMPANY EQUITY (Equity
Crowdfunding) after the project funding has been finalized.
The crowdfunding model theoretically requires three essential parties:
1. Entrepreneur – The entrepreneur is the person, company, or
organization responsible for initiating, designing, and launching the
crowdfunding project to be funded while also the primary entity held
accountable for delivering results in line with stated expectations.
2. Crowdfunder – The (Crowd) Funder(s) are the individuals or
groups who financially support the crowdfunding project and monetarily
pay in exchange for either rewards (in the form of products or
services) or equity (pre-defined ownership stake).
3. Platform – The crowdfunding (Platform) organization bridges
the gap between the two parties and serves as the face of the
crowdfunding project while also moderating a basic framework for
governance. The platform provides central funding networks, credit
card processing services, and other value-added crowdfunding community
resources.
History of Crowdfunding:
While Crowdfunding may seem to have only recently caught the world by
storm after receiving global recognition following the bi-partisan
passing of the 2012 JOBS ACT (Jumpstart Our Business Startups Act), in
actuality the concept of crowdfunding has early roots dating back
100’s of years. One distinct predecessor to our more formal concept of
crowdfunding were the many collective fundraising or praenumeration
subscription models, used in the early 17th century to finance
publications that were planned, however not yet fully financed or
printed.
Praenumeration was a very popular practice used in Germany during the
18th century for the book trade business. The process allowed the
publisher to sell a discounted book that was planned but not printed,
thus ultimately reducing financial risk by allowing publishers to
cover their costs up-front. Magazines were the best fit for the early
practice, since beyond serving as a source of financing the
praenumeration process also predicted in advance the broader level of
reader interest and subscription demand.
Early documented examples of crowds funding projects incrementally are:
John Taylor – John Taylor entered the book trade in 1612 and regularly
maintained publications of published works such his 1618 travel book
titled The Penniless Pilgrimage. It is believed that part of the
agreement to write the book required that Taylor conclude his journey
only relying on unprompted hospitality offers, while funding
publishing costs through consumer subscriptions.
Joseph Pulitzer – Joseph Pulitzer was a famous newspaper publisher who
urged the American public to participate in the completion of the
pedestal on the Statue of Liberty in 1884. Through his newspaper
column Pulitzer raised over $100,000 in six months. More than 125,000
people contributed to the cause in small amounts, with the
overwhelming majority of donations coming from working class Americans
in small amount of less than $1.
Johann Heinrich Zedler – Johann Heinrich Zedler decided to issue a
collection of works by Martin Luther. He subsequnetly advertised that
the book would be for sale through Praenumeration at the Leipzig
Easter Fair in 1728, with the first volume to be available at the
following Michaelmas Fair in early October. When the eleventh and
final volume was issued in 1733, Zedler found himself in difficulty.
He had been using Praenumeration payments for the future volumes to
pay the bills for previous volumes, and now the last bills were due
with no future payments available to cover them.
Crowdfunding Progression:
The next progression of Crowdfunding is the cooperative movement of
the 19th and 20th centuries. This grass-roots movement saw collective
groups, such as community or interest-based groups pooling their
subscribed funds to develop new concepts, products, and means of
distribution and industrial production, particularly in rural areas of
North America.
Crowdfunding Genesis:
The formal geneses of crowdfunding as a nascent industry began shortly
after the bursting of the Dot.Com bubble with the development of the
first dedicated crowdfunding platforms. However, it is widely believed
that the first modern day of Crowdfunding project success story
occurred in 1997 after the rock band Marillion were unable to afford
their touring expenses following the release of their seventh album.
Thus, their loyal American fans used the internet to raise $60,000 so
they could play in the US. Although the band wasn’t involved in the
first round of fundraising, they have since used the same techniques
to successfully fund the production of their following three albums.
Since then the music industry in particular has probably done more to
promote the inherent virtues of crowdfunding than any other specific
group.
Early Crowdfunding Success Stories:
Other creative projects soon followed suit, and the first crowdfunding
website platform officially went LIVE in 2001. Crowdfunding gradually
gained traction in the U.S as ArtistShare became the first online
fully dedicated crowdfunding platform. Subsequently, crowdfunding
platforms like as ChipIn (2005), EquityNet (2005), Pledgie (2006),
Sellaband (2006), IndieGoGo (2008), GiveForward (2008), FundRazr
(2009), Kickstarter (2009), RocketHub (2009), Fundly (2009), GoFundMe
(2010), Microventures (2010), SeedInvest (2011) and Fundageek (2011)
followed suit, along with another 1,000+ other crowdfunding websites
presently in existence.
Other notable examples of early modern day crowdfunding success stories include:
In the film industry, independent writer/director Mark Tapio Kines
designed a website in 1997 for his then-unfinished first feature film
Foreign Correspondents. By early 1999, he had raised more than
US$125,000 on the Internet from at least 25 fans, providing him with
the funds to complete his film.
In 2002 the “Free Blender” campaign was an early software crowdfunding
precursor. The campaign aimed at open-sourcing the Blender raytracer
software by collecting $100,000 from the community while offering
additional benefits for donating members.
Electric Eel Shock, a Japanese rock band in 2004 raised £10,000 from
100 fans (coined as the Samurai 100) by offering them a lifetime
membership on the band’s VIP guest-list. Two years later, they became
the fastest band to raise $50,000 utilizing SellaBand.Com.
Franny Armstrong created a donation system for her feature film The
Age of Stupid.Over five years, from June 2004 to June 2009 (release
date), she raised £1,500,000.
In December 2004, French entrepreneurs and producers Benjamin
Pommeraud and Guillaume Colboc, launched a public Internet donation
campaign to fund their short science fiction film, Demain la Veille
(Waiting for Yesterday). Within a month, they managed to raise €17,000
online, allowing them to shoot their film.
The highest reported funding by a crowdfunded project to date is Star
Citizen, an online space trading and combat video game being developed
by Chris Roberts and Cloud Imperium Games. As of 19 November 2014—the
group claimed to have raised $61,000,000, beating the previous record
of $10,266,844 set by Pebble Watch.
Another highly successful campaign was initiated by the Tile App
Company that raised US$2.6 million by July 2013 on the Selfstarter
crowdfunding platform. The startup was only looking for $20,000 to add
to the $200,000 support it had received from Silicon Valley
accelerator Tandem Capital. The Tile product is a small device that
can be attached to items such as keychains, bags and bikes while
assisting users to locate lost items through the APP interface.
One of the most well-known crowdfunding success stories is Oculus VR
which launched on Kickstarter. Shortly after finalizing their rewards
based crowdfunding project Oculus VR was snatched up by Facebook for
with an insane $2 billion valuation.
Crowdfunding Industry Size and Projections:
In 2013, the crowdfunding industry grew to exceed $5.1 billion
worldwide. In all, crowdfunding platforms successfully funded over 1
million projects to the accord of $2.7 billion in 2012. This figure
more than doubled in 2013 to $5.1 billion expected for 2013. While it
is widely believed that by 2025, the global crowdfunding market could
reach nearly $100 billion. This past year Kickstarter alone surpassed
over $1 billion in pledges made through their rewards crowdfunding
website. A May 2014 report, titled “The State of the Crowdfunding
Nation”, claims that during the month of March 2014 alone, more than
US$60,000 dollars were raised on an hourly basis via global
crowdfunding initiatives. With over 442 crowdfunding campaigns being
launched globally on a daily basis during this same time frame.
Crowdfunding Classifications:
Given the increasing popularity of so many diverse crowdfunding
projects the limits on its taxonomy of uses are rapidly being pushed
to the very far extremes. Initially the most popular form of
crowdfunding projects where related to artistic projects and other
social cause-based ventures. However, the scene was rapidly overtaken
by start-up companies launching unique products, as now even the most
main stream companies and ideas are entering the fray. The overall
success of crowdfunding has recently led to an explosion of projects
and dedicated platforms ranging from crowdfunding for New Breasts
Implants and Funeral Expenses, to “CrowdFund You” which funds people
instead of just projects, in return for pre-determined portion of the
project initiators future income back to investors for 5-10 years down
the road.
The plethora of crowdfunding websites has led to a natural outgrowth
of platforms spawning into entirely distinct entities while targeting
divergent niche markets. Crowdfunding is being experimented with as a
primary financing mechanism for creative work like blogging,
journalism, music, independent film, and for early-stage startup
company funding.
Crowd Funding Central 