The Evolution of Crowdfunding

Back in 2009, Kickstarter introduced a revolutionary way for creative projects to raise funding. Though many consider Kickstarter the beginning of modern crowdfunding, the portal merely mainstreamed a pre-existing model.
A primitive form of crowdfunding can be traced back centuries in terms of charity and micro-financing, especially after the .com boom in the new millennium. Consider Jonathan Swift in the 1700s, who created the Irish Loan Fund for low-income families. At this program’s peak, Swift provided alternative means of funding for nearly 20% of his community. This money was used by small merchants and farmers to improve business and provide for their families. While that is an excellent historical example of early micro-funding, there have also been many acts of donation-based crowdfunding in the past. In 1884, for instance, Joseph Pulitzer of the New York World newspaper assembled over 125,000 contributors at $1 or less to fund the Statue of Liberty’s pedestal.

Moving into the late-20th-early-21st century, however, crowdfunding began to evolve into the model we know and love today. Dr. Muhammad Yunus’ Grameen Bank is often thought of as the pioneer of modern micro-financing and peer-to-peer lending. At over 8-million borrowers, 97% of which women, Yunus earned himself a Nobel Peace Prize by 2006 for his efforts in supporting underprivileged women in developing countries. It wasn’t until 2005 that such a model was introduced online. Kiva.org operated similarly to a social media website, in which users could create profiles with pictures and updates so that backers could follow their spending habits. At an impressive ROI of 98.83%, it is no wonder this sparked an age of peer-to-peer portals. Prosper.com (2006) and LendingClub.com (2007) took Dr. Yunus’ idea but applied it to US-based entrepreneurs looking for funding. With low interest rates, this became a viable bank-loan alternative for many individuals. By the time IndieGoGo appeared on to the market in 2008, Kickstarter 2009, and myriad other portals in years following, artists and professionals were no longer optionless when a bank rejected their application. In fact, for creative projects specifically, artists soon discovered that crowdfunding’s close connection with social media could improve their online presence, thus earning new fans and followers from around the world.

One of the biggest factors to encourage the evolution of  crowdfunding was the recent recession. During this turbulent time, many businesses struggled to survive, relying on crowdfunding as their last chance of success before joining so many other failed projects. But by 2010, the idea of equity-based crowdfunding entered the picture, changing the game for struggling businesses. Obama’s JOBS Act (still under review by the SEC) entertained this method of crowdfunding as well, and in 2011, the US House of Representatives passed bill H.R.2930, allowing entrepreneurs to sell and offer securities to accredited investors via crowdfunding sites. Though websites like GrowVC and and CrowdCube faced difficult legislative issues when sprouting in 2010-11, the future evolution of equity-based crowdfunding looks much brighter. Over the course of a decade, crowdfunding has evolved into its own highly successful system of finance, and will continue to do so for years to come,