Crowdfunding is like crowdsourcing. It describes the collective cooperation, attention and trust by people who network and pool their money together in order to support efforts, initiated by other people or organizations. The basic idea of crowdfunding is the use of small amounts of capital from a large number of individuals to finance common service, project, product, investment, cause, and experience.
The crowdfunding model is led by three types of actionists. One actionist is a project initiator who proposes the idea. The second person is individuals or groups who assist the idea. And the third party is the moderating organization which brings the parties together to launch the idea. Thanks to the revolution of modern technology, crowdfunding will become easier, more widespread, and successful.
Usually crowdfunding is done via the Internet. The Internet allows for information to flow around the world, increasing awareness of the crowdfunding system. This gives the chance to access vast networks of families, friends and colleagues through websites and social media websites like Twitter, Facebook and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.
Crowdfunding is based on several principles. Your friends are your capital in crowdfunding, because social network friends and contacts can help you to raise capital. Another principle is, your friends make your dreams come true. Any of your contacts can make a contribution, no matter how small it is. Together they will help in achieving your every wish, project, and dream. Your capital depends on the number of friends is another principle of crowdfunding.
Many contributions can build big capital. Because the more contacts you have, the greater your chances of reaching the amount you need. In crowdfunding, your capital depends on trust. Contribution doesn’t happen automatically. Even if you contact a large number of people, you must still gain their trust, especially if you don’t know them personally. So trustworthiness is one of the major points of crowdfunding. Your capital growing by word of mouth is another principle. Your friends can contribute by giving money, but also by spreading the word. This will help your social network grow, and increase the probability of reaching your goal.
You may like to know about the first crowdfunding platform. ArtistShare was the first crowdfunding webisite and was launched in October, 2003. It claims to be ‘the Internet’s first fan-funding platform for artists’ which basically is a crowdfunding platform.
After the start of ArtistShare, other many more sites were established on web for crowdfunding, such as EquityNet (2005), Pledgie (2006), Sellaband (2006), IndieGoGo (2008), GiveForward (2008), FundRazr (2009), Kickstarter (2009), RocketHub (2009), Fundly (2009), GoFundMe (2010), Microventures(2010), YouCaring (2011), SeedInvest (2011) and Fundageek (2011). Among these crowdfunding sites, top five sites are, GoFundMe, Kickstarter, IndieGoGo, Teespring, and Patreon.
Crowdfunding websites helped companies and individuals worldwide raise US$89 million from members of the public in 2010, US$1.47 billion in 2011 and US$2.66 billion in 2012. US$1.6 billion of the 2012 amount was raised in North America. In 2012, more than one million individual campaigns were established globally and the industry was projected to grow to US$5.1 billion in 2013.
A May 2014 report, released by the United Kingdom-based The Crowdfunding Center and titled ‘The State of the Crowdfunding Nation’, presented data showing that during the month of March 2014, more than US$60,000 dollars were raised on an hourly basis via global crowdfunding initiatives. Also during this time period, 442 crowdfunding campaigns were launched globally on a daily basis.
Crowdfunding campaigns provide producers with a number of benefits, beyond the strict financial gains. A compelling project can raise a producer’s profile and provide a boost to their reputation. Project initiators can show there is an audience and market for their project. In the case of an unsuccessful campaign, it provides good market feedback.
Crowdfunding creates a forum where project initiators can engage with their audiences. But there is a risk as well. If they fail to meet campaign goals or to generate interest results caused to have bad reputation.