What is Crowdfunding?

In today’s lending environment, sometimes it takes a “crowd,” and this is the idea that guides the art of crowd funding ventures. When a company seeks investment in a new project, for expansion purposes, or to help with budget shortfalls, the traditional route has been through venture capitalists willing to put significant capital into the project or through a traditional loan at a bank. Crowdfunding throws that idea out the window and asks a crowd of people to each put in a small amount into the pot.

History of Crowdfunding

Although it’s a hot-button topic today, the concept of crowdfunding, or crowd financing, has been around for centuries. In addition, the purpose of crowdfunding hasn’t always been to give money to ideas and startup ventures. Crowdfunding for the purposes of disaster relief and raising money for emergencies has been around for many years.

One of the first recorded instances of crowdfunding occurred in the seventeenth century by a book publisher. In exchange for helping to fund the printing of a book, the crowd members would get their name printed on the title page. Further crowdfunding techniques often utilized a reward system rather than the profit-sharing system common in today’s crowdfunding ventures.

Venture Capitalists Versus the Crowd

Presenting a business plan to a venture capitalist group is difficult for startup ventures and small businesses. It can take months to get an interview with a venture capitalist and a business owner might have just a few minutes to convince that investor that a project is worthy of funding.

Crowdfunding, on the other hand, is a process less wrought with appointments, live presentations, and nervous meetings. Also, crowdfunding usually takes place on the internet, which allows people who fund ideas the opportunity to do so from anywhere in the world.

Growth of Online Crowdfunding Opportunities

Although the 1990s and early 2000s saw a few major crowdfunding efforts, the concept didn’t become wildly popular until 2009 and 2010, when several websites were designed that allowed anyone to create an account and ask for funding from the public.

In the past few years, there have been some incredible successes from crowdfunding efforts including over $36 million dollars raised by a game developer for the development of a video game as well as $10 million raised by a company named Pebble Technology, which used crowdfunding to develop its smartwatches.

The Future of Crowdfunding

There is no doubt that crowdfunding will continue to grow in popularity and offer businesses, individuals, and groups the opportunity to fund ideas and ventures. Popular crowdfunding site Kickstarter revealed some surprising numbers which suggested 3 million people pledged money to campaigns in 2013.

What’s even more impressive is that the donations came from 214 countries, which even included donations from people in Antarctica. The global appeal of crowdfunding gives it even more potential to help small businesses, and individuals fund their dreams. An idea that might not have significant appeal in a person’s home country could be just want the citizens of a nation halfway across the world would love.

Anyone with an idea that they’re passionate about, but who is worried about presenting a topic to a bank for traditional funding, would benefit from taking a look at crowdfunding options. Business owners and idea makers can still proceed along the route of applying for standard venture capitalist funds, but the ingenious opportunities offered through crowdfunding should be considered as an alternative.