The Crowd Funding
By Michael R. Courtois
The Crowd Funding Ebook Download
(these are just my notes
The Infant Industry
The Real Birth Of
In the summer of 1885,
crowdfunding solved a crisis that threatened the completion of the Statue of
Liberty. The City of New York refused to pay for the completion of the base
foundation. The "World" donated, supported and saved the Statue of Liberty. This
action gave birth to crowdfunding in American politics. More than 100 years
after the construction of the Statue Of Liberty, micro-financing became popular
in the Political realm. Politicians and interest groups caught on to the amazing
potential crowdfunding had to offer and are still using it to further their
Rise Of Crowdfunding
In the 2008 Presidential Election, Barack
Obama made Political history by becoming the first African-American
president while revolutionizing campaign financing through a crowdfunding
"platform". Four years later, Obama used the same strategy to defeat Mitt
Romney. Another name for crowdfunding in Politics that you may recognize is
"RALLY" (campaign rally).
Obama had put together and signed
the crowdfunding JOBS Act into law that has legally opened the door to
crowdfunding for the "mom and pop" (the public) investors to support investments
for Startups, Charities, Foundations and Personal "Causes". Crowdfunding
donation and support programs became legal for everyone and not just for
The Jumpstart Our
Business Startups Act,
or JOBS Act, is a law intended to encourage funding of small businesses in the
United States by easing many of the country's securities regulations. It passed
with bipartisan support, and was signed into law by President Barack Obama on
April 5, 2012. Title III, also known as the Crowdfund Act, has drawn the most
public attention because it creates a way for companies to use crowdfunding to
issue securities, something that was not previously permitted. Title II went
into effect on September 23, 2013. On October 30, 2015, the SEC adopted final
rules allowing Title III equity crowdfunding. These rules went into effect on
May 16, 2016. Other titles of the Act had previously become effective in the
years since the Act’s passage.
idea of crowdfunding isn’t a new one. Back in the 18th and 19th centuries,
writers and philosophers would frequently secure investment, or the pledge of
investment, for their next work.
In time, the concept was applied well beyond the arts; the pedestal for the
Statue of Liberty was only completed after a public appeal and over 160,000
individual donations after government funding failed to come through. But it
wasn’t until the rise of the internet that projects in the creative and
entertainment industries were widely funded through direct grassroots campaigns.
The success of crowdfunding goes beyond the ability to raise
large amounts of money in a short amount of time. The real power lays in the way
it combines fundraising and campaigning into a single activity.
What Is Crowd Funding
Crowdfunding is the funding of a
project or venture by raising many small amounts of money from a large number of
people, typically by the magic of the Internet. Crowdfunding is a form of
crowdsourcing and of alternative finance. In 2015, it was estimated that
worldwide over $34 billion was raised this way. But this is basically, very
little in the world of finance and business since this is a new concept (only a
few years new) and far from the standard business and multi-level-marketing
Although similar concepts can also be executed through mail-order subscriptions,
benefit events, and other methods, the term crowdfunding refers to
Internet-mediated registries. This modern crowdfunding model is generally based
on three types of actors: the project initiator who proposes the idea and/or
project to be funded, individuals or groups who support the idea, and a
moderating organization (the "platform") that brings the parties together to
launch the idea, then it is promoted and not sold.
Crowdfunding has been used to fund a wide range of for-profit and non-profit,
entrepreneurial ventures such as artistic and creative projects, medical
expenses, travel, or community-oriented social entrepreneurship projects. Some
requests, such as those to pay for optional expenses such as vacations,
weddings, or cosmetic surgery, are widely described as internet begging or
cyberbegging (asking for support).
It’s taken a long time for
crowdfunding to reach the level of popularity that it now experiences since $2.7
billion dollars raised through crowdfunding in 2012 alone and exponentially
since. The popularity that crowdfunding has experienced has led to some
campaigns seeing phenomenal amounts donated for support to their projects and
huge numbers of people flocking to sites to get involved and donate.
Who uses crowdfunding sites?
Individuals: Those who
want to raise money for a special event, like a honeymoon, or need
financial assistance with an unexpected expense, such as a pet's
surgery, can do so on several crowdfunding platforms. Friends and family
can also set up projects that help a loved one with medical expenses or
accomplish a goal.
Those looking to raise money for a good
cause can use crowdfunding sites to solicit funds from like-minded
individuals. This group might include teachers raising money for their
classrooms, individuals and groups seeking donations for volunteer trips
and charities seeking new revenue streams. Some platforms allow groups
to have a permanent presence to continually generate revenue.
and/or existing businesses can use crowdfunding to get consumer
validation before they commit big money. No matter the size of the
company, crowdfunding is frequently used as an alternative avenue to
replace traditional venture capital money or unattainable bank loans.
original early adopters of crowdfunding, artists such as writers,
gamers, and filmmakers, continue to capitalize on this new source of
revenue. They are more likely to get support on certain crowdfunding
platforms than on others.
In 1997, the British rock
group Marillion, gathered $60,000 to finance their US tour using an Internet
campaign, the “Tour Fund.”(crowdfunding)
2010-2011 Equity based crowdfunding: GrowVC and CrowdCube
In 2010, the creators of the "Kickstarter" project, tapped into
these elements to successfully crowdfund their TikTok+LunaTik Multi-Touch Watch
Kits. In less than one month, between November and December 2010, 13,512
“backers” pledged $942,578 of their $15,000 goal, setting the world record for
the largest amount of money raised using crowdfunding to date.
On the 3rd of November 2011, the US House of Representatives passed the
crowdfunding bill H.R. 2930 (known as the “Entrepreneur Access to Capital Act”)
that could allow startups to offer and sell securities through crowdfunding
sites and social networks.
Through online systems like
"Kickstarter" and "Indiegogo", stars are campaigning and asking fans to make
donations toward their personal creative projects through the Internet. LeVar
Burton's Reading Rainbow revamp has raised nearly $3.5 million on "Kickstarter"
while Don Cheadle was well on his way to reaching the "Indiegogo" goal for his
Miles Davis biopic. The guys join the ranks of other celebrities who have turned
to such crowdfunding donation platforms, including James Franco and Kristen
Bell, who raked in a record-breaking $5.7 million for her "Kickstarter" campaign
for the Veronica Mars movie. Zach Braff has also followed suit, crediting
Kristen's success for his decision to utilize the site for his latest film
project, "Wish I Was Here". Many more stars have taken to online campaigning!
Then in 2013, around the time
that the peer-to-peer online currency bitcoin was first gaining mainstream
attention, the idea of crowdfunding was fused with the new technology of
blockchain. The result was the ICO or Initial Coin Offering: a turbocharged way
to raise money in the era of the Internet. An ICO is a blockchain-powered
crowdfunding campaign. It has much in common with conventional crowdfunding, but
also key differences.
As with traditional crowdfunding, an ICO seeks to
secure investment for a new project from an interested community. In this
instance, funding is most likely to come in the form of bitcoin or other crypto
currencies. The nature of these digital currencies means that they can be sent
from all over the world, quickly and with almost zero cost, outside of the
legacy banking system. Anyone who has tried moving money abroad will recognize
the benefits of this.
Since then, 1000's of
crowdfunding platforms had joined the movement for financing an abundance of
projects such as: Kickstarter, Indiegogo, RocketHub, GoFundMe, Razoo, Crowdrise,
PledgeMusic, AppBackr, Sellaband, Crowdfunder, DonorsChoice, Fundable, Circleup,
MicroVentures, YouCaring, Kiva, Plumfund, fundmycause, CryptoElevation, Zarfund,
etc. etc. etc.
The concept of crowdfunding gathering small
amounts of investments or donations from a large number of people to fund
support for a specific business or objective was seen as a slightly wacky
way to raise money. Much as many football clubs would have loved their fans
to donate to a fund to buy Lionel Messi. However, since the financial crash
in 2008, crowdfunding has moved from the alternative to the mainstream as a
route to funding businesses. As a result, many sports clubs, governing
bodies and sports people have seriously begun to consider and use
crowdfunding as a platform to generate commercial funding.
From high-profile examples such as the Caterham
F1 team, to clubs and fan-groups attempting to generate funds to pay
sportspeople, the growth in this innovation is set to continue and offer
Sports Governing Bodies (SGBs) an alternative method of revenue generation
The crowdfunding platforms used for
sport's are "reward and donation" based crowdfunding. Athletes are coming up
with alternative ideas as to how to reward people, e.g. a swimming lesson
with them or being able to get the gear in which they competed. Funding of
sport's, particularly those in which the athletes are not professionals, can
be tough. For many athletes and teams, the difficulty is that in order to
qualify for the funding you need to be at a very high level. However, being
able to dedicate enough time to reach that level requires support.
Crowdfunding is a way for less mainstream
sport's to raise money, as in situations where UK and Scottish level funding
isn't there to the extent required to allow the athletes to train?
Crowdfunding platforms have been established solely for the purpose of
funding athletes. One example is Rallyme, a US-based platform for individual
athletes, teams or organizations to raise funding for their sporting goals.
A number of crowdfunding campaigns started
to gain pace on the run up to the Sochi 2014 Winter Olympics. The British
Nordic ski team raised £7705 to assist them with their training and
competitions in the run up to the Games while the Jamaican bobsled team also
managed to raise over £100,000 in just two days to help them get to the
In the run up to the Glasgow Commonwealth
Games in 2014 there were a number of crowdfunding campaigns to help get
athletes, not only to the Games themselves but also to fund warm weather
training camps and expenses. One girl from Jersey managed to raise £1490 to
attend a warm weather training camp with the GB team. Although these are
small amounts, athletes are managing to appeal to their fan base and fellow
sports fans to allow them to better themselves as athletes.
Another example from October 2014 was a
Scottish surfing team raising £4605 on the "Crowdfunder" platform, after
seeking only £3000. Surfing only managed to obtain formal governing body
recognition in summer 2014 therefore the sport is still quite new and
looking for ways to fund athletes. The money was to assist with the team's
accommodation and contribute towards flight costs for the team to go to Peru
for the International Surfing Association World Games.
Equity crowdfunding is the more serious
side of the industry, where investors get a share of the business they are
funding. One area of sport where equity crowdfunding has already been used
is in relation to football clubs, particularly those which have found
themselves in financial distress.
Fans and supporters are willing to get
behind their failed club to assist them in getting back on their feet.
Darlington Football Club successfully raised 110.1% of their initial target
of £50,000 with "Squareknot" in order to secure financial stability. This is
an example of equity crowdfunding being used as they were offering up to 14%
equity in the club depending on the amount invested.
Another recent example of a sports team
crowdfunding their way out of financial difficulty is the Caterham F1 team,
which entered administration in October 2014 and commenced a crowdfunding
campaign with "Crowdcube". They managed to raise more than £2.35 million.
To diversify slightly from team/athlete
funding, there are other ways in which crowdfunding can apply to sport. "Crowdracing"
is a new crowdfunding donation platform which allows investors to purchase
shares in race horses. The return for investors is based upon any winnings
and any proceeds from a sale of the horse.
In 2013, "Freedom to Ride" organized a
crowdfunding campaign which sought funding to create a Bristol Cycling
Manifesto and Cycling strategy which was used to influence decision makers
in creating a comprehensive cycling network for Bristol. Crowdfunding is
being used for funding sporting events locally, nationally and even
internationally. A crowdfunding campaign helped fund Merseyside's own darts
tournament. In all sectors, including sport, crowdfunding is filling a hole
where funding has not been available in the past.
Crowdfunding is certainly gaining
popularity as a way to obtain funding as a new business start-up, which is
reflected in the number of crowdfunding platforms being established. Many of
these are choosing to have a particular presence in Scotland including Crowdcube
- which has opened in Scotland - and Scottish platforms ShareIn and Squareknot.
Community Around A Story
The Obama campaign united their donors around the
message of Hope and Change in 2008. The American economy crashed, and the
fresh-faced African American Senator from Illinois represented a new kind of
politician and a new brand of politics. In 2012, the campaign continued that
story with the message “Moving Forward.”
Bryan Parker developed a similar message for his
mayoral campaign, adopting the hashtag #OaklandForward. Steve Hansen built a
community around his story as the underdog. Rep Joe Wilson used the power of
controversy to unite Obama-haters and compel them to donate.
The story a campaign tells is the hook that compels
people to donate. Posters, billboards, and campaign literature are limited in
their ability to communicate that story. But crowdfunding allows campaigns to
combine all of those mediums into one platform and update their supporters
regularly. This feature turns a campaign into a constantly evolving story that
people can take part in.
Large Groups Of
Financing a campaign with a large group of small donors
presents many advantages.
A donation is akin to an investment in the success of a
campaign. People who donate, small or large, will go to greater lengths to see a
return on their investment than those who don’t. As a result, they are more
likely to show up to the polls on election day.
But small donors are also more likely than large donors
to do crucial volunteer work, like making phone calls and handing out
literature. More small donors means more likely volunteers and more people
spreading the message of a campaign.
Small donors also provide a renewable resource of
donations. By September 2012, 51% of Mitt Romney’s contributors had donated the
legal maximum amount of $2,500, compared with just 16% of Obama’s supporters.
This allowed the campaign to go back to them for more money multiple times.
Campaigning is expensive. Delivering messages to voters
eats up about 80% of a campaigns budget, which is why money matters in politics.
Crowdfunding makes fundraising more convenient than ever before.
The primary reason crowdfunding sites are so convenient
is because of the connectivity they provide. People are no longer required to
travel to a fundraiser in order to donate to their candidate or cause. Nor must
they rely on sending cash and checks in the mail. Candidates can link a
crowdfunding campaign to their website and social platforms, which puts
potential donors just one click away from contribution.
This connectivity also makes it infinitely easier for
supporters to spread the message of a campaign. Supporters can share pictures,
videos, and updates with their social networks. Candidates can also use these
social networks to reach people directly, giving their campaign greater access
to elusive, tech-savvy younger voters.
Like any business, crowdfunding sites have to make
money. Rally takes 4.5% of each donation, which seems small but can eventually
add up to a great deal of money. Still, the reduction in overhead expenses, like
renting rooms for fundraisers and the traditional costs of financial
transactions, make it well worthwhile. According to Hansen, “There are more fees
for processing online donations, but the benefits outweigh the costs.”
Chapter 1: Nature of the industries
The evolution of the industry
Modern peer-to-peer lending and equity crowd-funding
are relatively young; they started in the UK in 2006,10spread to the US in
2007andtookoff in China in 2009.11They are also still small, amounting to
around $6 billion in capital origination. Nevertheless, these industries are
growing rapidly. There are two main factors contributing to the rapid rise
of FR crowd-funding: 1) technological innovation; and 2) the financial
Technological advancement makes crowd-funding
FR crowd-funding has been on the fringe of economic
activity for many years in various forms predicated on
convenience.12However, FR crowd-funding platforms only started to grow
substantively in 2006 in the UK after the technological innovation of
so-called Web 2.0 applications on the internet made it viable. Web 2.0
refers to a change in technology that allowed users of the internet to
participate in the creation of content hosted on stable websites. It
emphasizes the “wisdom of the crowds” in website design13and the development
of software to enable participation. Two examples of this type of technology
are Wikipedia and EBay, both of which allow multiple individuals to contribute
to the overall architecture of the website. This technological leap provided
the means to create peer-to-peer lending and equity crowd-funding
websites15making FR crowd-funding viable through reducing the cost of
transactions associated with providing these services. This style of website
architecture promotes user participation by allowing borrowers to set up a
profile; add pictures and describe how they will use the loan or
investment.16This provides the online platforms with a social-networking
aspect, with borrower/issuers voluntarily providing information to potential
investor/lenders. The online aspect cuts cost and is convenient for both the
borrower/issuer and lender/investor, in addition to increasing the potential
reach of this form of investment opportunity or capital raising facilities.
... Financial crisis and reduced business lending
by banks have left a gap in funding
The second factor explaining the evolution of FR
crowd-funding platforms is the financial crisis. The 2008 financial
crisis resulted in a number of bank failures and, consequently, the
implementation of new capital adequacy
regulations for banks, such as Basel III. As a result, credit
providers have become increasingly constrained in their ability to
lend money to the real economy. Figure 2 shows how the amount of
bank loans made in Western Europe and the USA dropped significantly
at the beginning of the crisis. While there have been some signs of
recovery in the US (although the growth rate is still below
pre-crisis levels), in Western Europe the growth rate in loans to the
non-financial corporate sector has been negative, especially to SMEs
in the EU.
In this funding vacuum, peer-to-peer lending is
growing in popularity as bank liquidity is reduced and new regulatory
requirements make obtaining loans for small and medium enterprises and
individuals difficult.17Lending to SMEs, as well as the financing of
personal loans fell during the crisis,18leaving a gap in the market in loans
to SMEs and personal loans. Additionally, as highlighted in IOSCO’s Risk
Outlook 2013-2014,19quantitative easing in many jurisdictions has driven
interest rates close to their zero lower bound (see Figure 3). This in turn
has driven a “search for yield” pushing investors towards alternative forms
of income generation. In this climate, peer-to-peer lending has developed as
a vehicle for borrowers to obtain a loan at a lower interest rate than through
using traditional avenues of credit provision such as banks.
Additionally, peer-to-peer lending offers a higher rate of return than
through traditional investments, such as a savings account or government
bonds. Further, many savers have inflation adjusted deposit rates that are
often negative, impelling them to search for better returns on their savings.
Consequently, growth in the peer-to-peer lending market has been exponential,
particularly after 2010 when the industry self-imposed restrictions on
borrower creditworthiness in order to tackle high default rates, e.g. when
Prosper saw default rates of 30
% in 2009.20Figures obtained through data gathering
and market intelligence suggest a 100% year-on-year growth rate since 2010.
This is discussed further later in this paper.
The rise of Financial Return crowd-funding
Since its inception in the UK and USA in 2006,
peer-to-peer lending has emerged in many other jurisdictions, spreading to
China and South East Asia in 2009.22However, most of the peer-to-peer
platforms have only been set up in the last three years, with very small
fledgling platforms in Argentina, Italy, Estonia and India, amongst
others. Figure 4 shows the percentage of the overall amount of loans
originated through FR crowd-funding platforms by country. Collectively, the
US, UK and China make up 96% of the overall FR crowd-funding market: the US
market accounts for51% of the global market, with China
making up just over a quarter at 28%, and the UK
just behind at 17%. The size of the US and UK market makes up 68% of the
FR crowd-funding market, which amounts to just over $4.3 billion. They
are also the oldest markets, as these types of platforms were first
established in these jurisdictions. Figure 5 also shows that the size of
the FR crowd-funding market in South East Asia is quite large, making up
28% of the overall global market, according to the market data available.
The lowest estimated market value for China, based on data available at
the platform level, is half that of the US, at $1.8billion, though
market intelligence suggests this figure is much higher than the data
available. Current data shows that China and South Korea make up 95% of
the total Asian market
The regulation of equity crowd-funding
Three regulatory regimes can be identified in equity
crowd-funding. The first regime is where regulation bans
equity crowd-funding.In the second case, equity crowd-funding is legal but
regulation creates high barriers to entry; in these jurisdictions there is
no equity crowd-funding market. Under the last regime, regulation imposes
strict limits on who can invest in this form of equity, usually limiting
it to sophisticated investors, the number of investors allowed to invest, the
size of the company issuing the equity and other similar regulatory
requirements. As such, equity crowd-funding is a very small market. Recent
changes in legislation have been aimed at encouraging the equity
crowd-funding market to grow, as is the case, for example, with the JOBS Act in
the US. Equity crowd-funding has started to develop, boosted by the
introduction of the JOBS Act. It is currently limited to sophisticated
investors, as defined by US law. Platforms are required to check that
investors comply with SEC rules. These rules could include a limit of $2,000
or 5% of annual income on the amount an investor can invest, if his annual
income and net worth are less than $100,000,. This limit increases to10% if
the investor ́s annual income is over $100,000. However, the higher
threshold may be extended to retail investors after the SEC has finalized
the rules for the equity crowd-funding platforms and the issuers of the
Current regulatory trends
Many jurisdictions now consider peer-to-peer lending
and equity crowd-funding platforms as an efficient vehicle for funding
start-ups as well as small and medium enterprises. But many are seeking to
encourage the practice without compromising investor protection through
specific, targeted regulation of the industry. Given that the industry is
relatively young (or non-existent) in many countries, a number of
consultation papers have been issued on this topic balancing encouraging FR
crowd-funding and investor protection (see Box 3). None of the changes
proposed under these consultations have yet come into force.
Crowdfunding asks innumerable individuals to contribute
small amounts of money in support of a goal, project or new
organization—even if the ”funding applicants” are unincorporated,
experimental or short-term. Crowdfunding decreases the time required to
identify and vet solutions, helps mobilize donors and project backers
outside the network of the initiating organization, generates richer sources
of data from stakeholders, and allows for incremental program building while
funds are being collected.
Crowdfunding augments the annual donor campaign model and facilitates
deeper engagement between financial backers, the network, and the targets of
the program. while the concept of crowdfunding may give securities and tax
regulators pause, it presents a considerable opportunity for global solution
networks to overcome the limitations and challenges of obtaining funding
through traditional channels.
idea in Brief
Crowdfunding, the use of online platforms to gather small
amounts of money from a large and distributed network of individuals, has
become a multi-billion dollar industry since its inception less than a
decade ago. Entities ranging from start-ups to non-profits and individuals
to large multinational corporations, have utilized crowdfunding to
underwrite the development of products and services, support artistic
endeavors and finance a variety of non-profit initiatives. Among the early
adopters of crowdfunding are global solution networks (GSNs), which can be
defined as digitally-enabled multi-stakeholder networks that have
self-organized to address a global problem. Numerous GSNs are using
crowdfunding to diversify their capital base and develop innovative
products, services, and programs aimed at addressing issues ranging from
climate change to vaccination. Crowdfunding can enable GSNs to overcome the
obstacles posed by traditional funding sources, including the reduction in
available capital post-financial crisis, the slow decision making cycles of
traditional funders, and the inability or unwillingness of major donors to
fund risky or newly established and unincorporated entities. Successful
crowdfunding requires considerable skill, resources, knowledge about
regulatory constraints, and integrity on behalf of participants. despite
these potential obstacles, a growing number of success cases demonstrate
that GSNs can leverage the power of the crowd to create, sustain, and fund
networks organized around shared interest with shared investment in the
in 2012, a small team of passionate journalists and
development professionals hatched a new idea for empowering isolated and
disadvantaged communities in Africa and Asia to send out urgent news alerts
to the global media.1After serving as independent reporters in some of the
world’s toughest environments, Alice Klein and Libby Powell conceded that
even the most principled and persistent journalists could not make up for
the fact that the voices of women, minority groups, and people without
access to the internet or computers are largely excluded from mainstream
news reporting. in the search for solutions, the pair realized that the
growing ubiquity of mobile phones offered new opportunities for direct
engagement and could empower communities to share their own news and
perspectives via text messaging. However, individuals in these communities
would need access to the right tools and the right training, so together the
two women founded radar, a network of journalists dedicated to advancing
citizen journalism in communities that are too often neglected by global
The network has since provided training workshops in
Kenya, Sierra Leone, and india—supporting over 250
citizen mobile reporters who have shared more than 2,000 mobile reports.3As
the network grew, so too did the scope of radar’s
reporting. with increasingly sensitive subject
matter—including corruption, gender violence, and slavery—security became a
concern, both for their data and for their reporters. Klein and Powell
decided to develop a new digital platform that could better connect their
reporters, protect their data, and allow radar to work
with a greater number of reporters simultaneously. However, building a
platform required money and expertise that neither Klein nor Powell
possessed. in August 2013, radar launched a campaign to
raise the funds they required. But rather than turning to traditional
funding sources such as the uK’s department for international
development, the world Bank, or
the uN, radar turned to indiegogo, a crowdfunding
platform used by capital-seeking start-ups around the world. At the time,
Klein described crowdfunding as “a new and innovative way to raise funds
swiftly.”4i n deed, the campaign was ultimately
successful, raising £1000 in 24 hours and over £5000 in total. This was
enough funding for radar to complete development of a
prototype and initiate testing. Klein says that when the new platform will
enable radar to “set up new networks and ensure those
we’ve trained elsewhere have the tools they need to continue their great
work. it will also allow us to receive, verify and edit stories on the go
via a bespoke web app.”
Models of Crowdfunding
Crowdfunding has emerged globally in recent years, as
major platforms such as indiegogo and Kickstarter
launched in 2008 and 2009 respectively. As a model of fundraising,
crowdfunding has evolved quickly from an unregulated form of donating or
sponsoring a project (popular with artists and basement entrepreneurs) to a
well-recognized source for start-up and growth capital—even encouraged by
law as a solution to the global recession and now promoted by formal
associations of crowdfunding advocates. Kickstarter alone has been used to
raise over $1 billion uSd for 75,000 projects
initiated by more than 7.6 million people.12i n 2013,
the 3 million people who backed projects on Kickstarter that year came from
214 countries and territories on all seven continents, including
Antarctica.13Crowdfunding has skyrocketed in popularity since 2008 and this
success is largely attributed to its democratic nature, its ability to
foster engaging relationships between producer and consumer, and the desire
of all participants to become part of a mutually supportive community for
new ideas.14This popularity is translating into accelerated growth for the
industry, which crowdfunding pioneer ruth Hedges
predicts will be worth $3.2 trillion by 2020, creating 20 million jobs
during that time.
when used to test and launch new solutions, crowdfunding
may be a perfect test case for global problem solving. Crowdfunding can be
thought of as a petri dish that combines focus groups, testing of marketing
messaging, donor recruiting, partner recruiting, social media outreach, and
fundraising. Crowdfunding is a social process, driven by the feedback and
interaction from the crowd that has the potential to make capital allocation
more efficient and effective. in the case of GSNs and other fund-seekers,
crowdfunding makes it possible to see traction without the need for large
scale capital. Today, there are several models of crowdfunding that allow
varying levels of financial engagement and collaboration in everything from
non-profit projects to the financing of for-profit firms. depending
on their focus and organizational set-up, GSNs have the potential to use
different types and models of crowdfunding to support their goals and engage
their stakeholders and constituents in constructive new ways. Crowdfunding is
available to GSNs in three broad types: donation and rewards crowdfunding;
“pre-sale” crowdfunding; and debit and equity crowdfunding. donation and rewards
Crowdfunding donation crowdfunding is the oldest and easiest form of
crowdfunding to understand. in many ways, it is identical to the donation
drives that charities and non-profits have long used to raise funds via
special events (e.g., charity marathons and telethons). However, with the
rise of the internet and social networks, this process
of fundraising is moving from offline pools to online funding platforms. in
a typical donation crowdfunding effort, an individual or group solicits
donations for a project that a person wants to launch—a creative endeavor, a
community project, or a new product. in donation crowdfunding, the crowd
donates money to support the project with no expectation of a financial
return. we see donation crowdfunding being used by schools seeking to
purchase supplies, friends looking to raise funds for an injured family
member, and even non-profits seeking to host a regional peace conference in
the Middle East. The donation model quickly evolved into rewards
crowdfunding—where project backers or donors receive rewards tied to their
level of contribution. Some of these rewards are tangible objects; some of
the rewards allow and encourage the donor to participate in some way. Game
mechanics, in the form of “scarcity,” are usually an important part of
rewards crowdfunding. By making certain rewards scarce there is more of a
desire for backers to grab that reward before it is gone. However, the goal
with this type of crowdfunding is to both reward the donor for participating
and encourage further involvement in the project. There is a moral
obligation to provide the promised reward, but no contractual obligations
are established. for a variety of reasons, rewards crowdfunding is most
likely to suit the needs of GSNs. To begin with, rewards crowdfunding is
highly flexible and allows the campaign originator to create a series of
rewards that appeal to different donor demographics and income levels. Since
campaigns are organic, the sponsor can add new rewards, change messaging, or
change the videos during the campaign, a practice that is usually illegal in
equity transactions as explained below. By creating unique rewards, the
organization can align its mission with unique products or experiences that
appeal to targeted donor groups while reinforcing its brand messaging.
donation and rewards crowdfunding also avoids the steep compliance costs and
legal risks associated with equity-based crowdfunding.
“Pre-sale” Crowdfunding Models
A variation of rewards crowdfunding is a model in which an
organization or entrepreneur offers a product for sale, before its
manufacture, through a pre-sale crowdfunding campaign. The entrepreneur
tests the market—“if i build it, will you buy
it?”—without committing the upfront marketing, production, and distribution
costs required to fully commercialize a new product. Some of the most
successful pre-sale projects use campaigns to solicit not only capital but
also feedback from the contributors that can be incorporated into product
design and marketing. Some recent campaigns, like the “pebble smartwatch,”
raised millions of dollars, essentially funding the process of taking a
prototype into production.16Entrepreneurs running successful pre-sales
campaigns gain a stronger hand when negotiating with investors, while
investors can lower their risks by making investments in products that have
been validated by customers. Pre-sale models can be leveraged by GSNs in two
ways. first, GSNs with a technology focus could use
the equivalent of a pre-sale model to turn novel technological prototypes
into solutions that can implemented at scale. for example, a GSN could
partner with a university or business accelerator to develop a viable
prototype and then rally constituents to support the individual or group
creating the solution through a coordinated crowdfunding campaign. in this
way, the GSN can validate the concept before funds are spent on production,
while the actual cost of moving the technology from prototype to production
is financed by outside supporters and end users. Second, GSN models focusing
on job creation or the economic empowerment of local entrepreneurs and
business owners could adopt pre-sale crowdfunding for access to non-diluted
capital—actual revenue from sales before initiating production.
Manufacturing and distribution can then be scaled to meet the demonstrated
demand and, if the GSN has larger stakeholders involved, then they may be
able to contribute iT resources, shipping, financial clearing, and other
business infrastructure that a start-up may otherwise lack. debt and Equity
Crowdfund investing while many GSNs may adopt a
non-profit structure due to their multi-stakeholder nature, the growing
importance of social enterprises in global problem solving makes it worth a
brief look at two additional forms of crowdfunding: debt and equity
crowdfund investing. These are distinct from donation/rewards/pre-sale
models in that entities are legally allowed to issue shares or debt
instruments, while participants have the opportunity to profit from their
investments rather than simply provide financial support for the project,
organization and firm seeking funding.Equity Crowdfunding with the collapse
of the global markets in 2008 and the tightening of the bank lending and
early stage finance, crowdfund investing has emerged as a robust alternative
to other forms of traditional finance for start-ups and small enterprises.
Now allowed by law in both the uS and Canada, this model involves the sale
of a securities instrument (stock) in a company through a regulated, online
platform. whether financing an individual company, or
financing a larger mediating organization, crowdfund investing can rapidly
raise millions of dollars from a distributed base of investors. unlike
donation or rewards crowdfunding, the purchaser of the security is expecting
some kind of financial gain from the transaction. for early stage ventures,
equity crowdfunding is the equivalent of moving the “friends and family”
round of financing online and including not just friends and family, but
and fans.” it can also be a substitute or complement to
angel investing. for entrepreneurs and small enterprises, crowdfunding
platforms lower the barriers required to offer equity shares in their
companies and thereby enhance their access to capital. Taking the process of
raising funds online increases the pool of investors, encourages the use of
common platforms and standardized disclosures, speeds the funding lifecycle,
and creates shared repositories of information that can be accessed at any
time by investors or entrepreneurs. for GSNs, equity crowdfunding raises the
prospect that aspects of their global problem solving work could be
accomplished through social enterprises that access capital from
crowdfunding platforms. There are specific crowdfunding platforms that have
been created for this purpose. recently established sites such as Seedups
Canada and return on Change specifically connect
entrepreneurs to investors for equity crowdsourcing within securities
regulations.17Therefore, for-profit spin-offs could be created by GSNs to
generate new revenue streams that support the networks’ non-profit
activities. Equity-based crowdfunding also has an important role to play in
supporting entrepreneurship and employment creation in developing countries.
report on crowdfunding by the world
Bank acknowledges this idea: Crowdfunding is still largely a developed-world
phenomenon but its potential to stimulate innovation and create jobs in the
developing world has not gone unnoticed. Substantial reservoirs of
entrepreneurial talent, activity, and capital lay dormant in many emerging
economies, even as traditional attitudes toward risk, entrepreneurship, and
finance stifle potential economic growth and innovation. developing
economies have the potential to drive growth by employing crowdfunding to
leapfrog the traditional capital market structures and financial regulatory
regimes of the developed world.18data collected by Crowdfund Capital
Advisors shows that crowdfunding by microenterprises leads to rapid
increases in revenue and creates employment—an average of 2.2 new employees
the year following a successful campaign.19Early data also shows that women
and men are equally effective at meeting their goals on crowdfunding
projects.20This suggests that crowdfunding by and for women can be a key
mechanism for channeling funds to women-run/owned enterprises—especially in
areas of the world where women may be locked out of capital markets.
GSNs fostering entrepreneurship or focusing on economic
opportunity should be aware that these new models may allow them to attract
investors from outside their country/region, recruit those investors to
promote the opportunity, and help recruit new investors. This social
financing was either not possible or even illegal until recent regulatory
changes opened the door to equity-based crowdfunding in many countries
around the world.
where does a small manufacturer or entrepreneur in a
developing or emerging nation turn for debt finance after exhausting
micro-enterprise lending facilities? in most cases, banks and other
institutions will not loan to microenterprises until they have a
multiple-year track record of positive earnings—in other words, after the
need for growth capital is over. debt crowdfunding is
emerging as a mechanism for small enterprises to receive debt capital for
growth, inventory, or cash reserves and could evolve as an important part of
the funding cycle for innovation in emerging markets. in debt-based
crowdfunding, individuals loan money to other individuals (peer-to-peer or
P2P) or to small businesses (peer-to-business or P2B) funding. The debt
platforms screen the applicants, underwrite the loans, assign an interest
rate, and then essentially create an auction market where individuals are
able to see available opportunities and loan parts of the total loan amount
to the individuals or businesses. one example of these types of platforms,
Lending Club, has coordinated over $6 billion uSd in
loans and paid over $590 million uSd in interest to
investors since 2007.21 According to Charles Muldow of foundation
Capital, this could be a $1 trillion market within 10 years.22The takeaway
for GSNs is that projects which may once have required a banking partner or
grant from a large foundation may now be able to use crowdfunding and social
networks to raise similar amounts of capital in a shorter period of time.
Although grants are obviously preferable to loans, debt crowdfunding could
play a role in funding more speculative investments or projects that would
not be entertained by more conservative donors in foundations and government
The use of Crowdfunding with in the four Pillars of
Crowdfunding has gained momentum within the four pillars
of society: government, business, civil society, and individuals. Each of
these uses and interacts with crowdfunding in a variety of interesting ways,
providing insight and opportunity for GSNs.
Elected officials throughout the world are studying how to
leverage crowdfunding and crowdfund investing to help their small and medium
enterprise sector, spur innovation, and fill funding gaps in their early
stage capital markets. Crowdfund investing, whether via debt or equity,
while nascent, exists in some form on every continent. while
developed economies are currently leading, models in Africa and South
America are emerging that allow diaspora investing in local enterprises.
Several nations have passed enabling legislation and more than a dozen
others are considering legalization of equity or debt crowdfunding. The
European Commission released a report in April 2014 strongly endorsing the
potential of crowdfunding citing its “high potential benefits for
innovation, research and development, and [its potential to] contribute to
growth, community development and job creation.”23The world
Bank is also experimenting with the concept. it has recently partnered with
local stakeholders in developing countries to explore the role of
crowdfunding to support a network of business accelerators with the capacity
to transform local development of climate change mitigation technologies.
The first of these centers—The Kenya Climate innovation
Center (KCiC)—recently launched in Nairobi, Kenya. The
KCiC and its sponsors are promoting the use of
crowdfunding by its member companies to secure reliable funding by providing
training, engaging the Nairobi community, engaging donors and investors from
the Kenyan diaspora, and working with regulatory stakeholders to create the
necessary legal framework.
entrepreneurs and new enterprises have been using crowdfunding to gain
start-up capital and project financing since its formal inception in 2008.
However, large and well established businesses have also recognized the
potential of crowdfunding to build their brand amongst new demographics.
Crowdfunding is not just a funding mechanism—even for smaller companies. The
money is oftentimes the least important benefit and in any case less
important than increasing social reach with the opportunity to listen to
conversations about your brand or products in ways that are almost
unimaginable using a traditional facebook or Twitter
campaign.25Examples of companies using crowdfunding to amplify their “social
good” messaging are increasing. in 2013, dodge
partnered with rocketHub to launch the “dodge dart registry”
which allowed individuals and community groups to raise funds to purchase a
new car that would help solve a community problem or meet a community need.
in the end, 50 cars were financed through crowdfunding and the campaign
generated over one million social media impressions.
foundations and non-profit organizations are also adopting crowdfunding to
reshape the way they raise and disperse funds. According to the “2013
Crowdfunding industry report” by
Crowdsourcing.org, “social causes” raised more money via crowdfunding than
any other sector.
one example, the uK’s royal
Society for the encouragement of Arts, Manufacturers and Commerce (rSA)
is more than 250 years old and now operates as a think-tank addressing human
fulfillment and social progress. until 2013, the rSA awarded cash grants to
fellows through a competitive program called “Catalyst.” At this time, the
organization changed to place crowdfunding via Kickstarter at the heart of
its effort to support social innovators in the uK.28To support its Catalyst
fellows, the rSA now provides a combination of crowdfunding training,
mentorship, and a small initial donation (£1,000-2,000) to signal its
institutional commitment to the broader community.29Leveraging crowdfunding
allows the rSA to spread its funding over a larger number of projects. This
means more fellows and more projects get support and there is now less
internal frustration over the large number of worthy projects the rSA was
routinely turning down. individuals Crowdfunding has been called “the
democratization of philanthropy.”30According to ritu
Sharma, CEo of Social Media for Nonprofits: once upon a time, fundraising was
a pastime of the wealthy. Buttoned-up men and women in pearls hosted
elaborate galas, aimed at honoring just the right person in order to boost
attendance and support for their cause. Anyone who was anyone was invited,
expected to attend, and donate generously—because they could afford to....
The dawn of social fundraising has democratized fundraising so that deep
pockets are no longer required. Anyone with five dollars and a smartphone
can be a philanthropist. welcome, to the age of social
media—the great equalizer.31Crowdfunding offers a sense of community to
otherwise unconnected individuals, by leveraging existing communities and/or
creating entirely new ones. observations of successful
projects around the world show a similar pattern—a community forms around
the project/initiative, with strong social ties and sense of shared purpose.
Social cohesion starts to form around the project and the company or
organization. Sara Bannerman goes further, saying, “To the extent that
crowdfunding creates a sense of community and connectedness, it may also be
generative of a sense of public responsibility toward the project and the
creators involved for funders, and a sense of responsibility toward
investors on the part of creators.”32No other model of fundraising can be so
effective in creating an ad-hoc community around a project or program that
can then become part of the broader GSN.
Looking at the
participation by and opportunities for women in Crowdfunding.
Amy Dunn Moscoso –
Take a look
at the world of high tech entrepreneurs. Only about 10% of startup founders are
women, according to Compass, a startup research firm. Furthermore, only 5% of IT
investment goes to firms founded by women, according to PitchBook, another
though, women have rattled the old boys’ club and smashed through some
significant glass ceilings.
Marissa Mayer, pregnant, becomes CEO of Yahoo
Yellen is named Federal Reserve Chair by President Obama
- Millennial woman,
from 18 to 24, close the income gap for the first time in a decade, earning
93 cents for every dollar made by a man. (In 2012, women’s hourly wages were
just 84% of what men made according to a
national study on work by the Pew Research Center.
- Female angel
investing rises nearly 10% in one year to 21.8% in 2012, up from 12.2% in
2011, according to the
annual report of the Center for Venture Research at the University of
significant strides, yes. But what about the future?
Millennial women are
pessimistic. In spite of Marissa Mayer, young women fear the effects that
motherhood will have on their earnings. With
54% of millennials wanting to start a business, where will the
money for women come from?
Crowdfunding: A viable
fundraising platform for women?
2012, musician and artist
Amanda Palmer went on Kickstarter, a
website that helps people raise money for creative projects. Amanda asked for
$100,000 to fund an album and a tour. Instead, she raised
1.2 million with pledges from 24, 883 people.
This money empowered Amanda and her band, The Grand Theft Orchestra, to do a
book, an album and a world tour.
Kickstarter is one of the
most well-known crowdfunding sites. Crowdfunding involves using a platform to
raise funds for a project, business or cause. Instead of asking for a large
amount of money from a bank or investors, founders ask for small amounts of
money from a large pool of investors or donors on the Internet.
there are hundreds of crowdfunding sites. New niche platforms are popping up
everywhere to raise funds for movies, start-ups and causes.
these sites are led by women.
Top crowdfunding sites
with female leaders
Crowdfunding has several women leaders who are founders, executives or both.
Indiegogo. One the most popular sites, Indiegogo was founded at the
Sundance festival to finance independent films. It now covers many
categories. Danae Ringelmann was one of three founding members who launched
the site in 2007. Today, she is the Chief Customer Officer. Indiegogo claims
that 42% of funded campaigns are led by women. [https://blog.indiegogo.com/2010/12/indiegogo-vs-venture-capital-women-34-more-successful.html]
Alley. Deborah Jackson is Founder and CEO. She added crowdfunding
to her e-commerce site in 2013. The site focuses solely on products
developed by women.
Crowdfunder. Rita Ravindra is the Chief Operations Officer
here. This site serves small businesses, start-ups and social enterprises.
crowdfunding sites have women at the helm, a look through executive teams of
several top sites, including Kickstarter, shows that many are still 100%
founded, led and managed by men.
Best and worst
crowdfunding categories for women:
crowdfunding categories do women do well? Kickstarter stats shed some insight.
categories, $958 million dollars raised and 55,486 funded projects, the category
breakdowns still show that men and companies dominate both raising the
greatest amount of money and in popularity.
perform differently, however,
- Publishing. This
category has 15,786 projects, a 32% success rate and 36.66 million
successfully raised. Two of the most funded and five of the most popular
campaigns in this category are women led.
- Music. This one of
the most popular categories on Kickstarter with 27, 100 projects and a 55%
success rate. While Amanda Palmer’s project has raised the
most funds, her campaign is the only women led campaign in the top 10
most funded projects. Two women led campaigns appear in the top 10 most
- Film and Video. With
32,548 projects, a 40% success rate and 1.59 million successful dollars
raised there are no women led campaigns in the top 10 most funded or most
- Technology. At 3,599
projects, a 35% success rate, 95 million successful dollars raised, the top
10 most funded campaigns are led by eight companies and two men.
For all campaigns,
companies dominate the top 10 projects for funding, along with two men. Only one
women led campaign appears in the top 10 for popularity. Hello Ruby is
led by Linda Liukas and falls under the publishing category.
Female Factors in
might not be raising the greatest amounts of money, or be leading the most
popular campaigns, they are experiencing greater success than men on Indiegogo.
documents female success. Women led campaigns:
1.3 more contributors than male led campaigns
an average at 10.75% more money
of advantages and skills equal success for women crowdfunders?
- Social Media Skills.
Amanda Palmer’s savvy command of social media and her extremely loyal
following helped drive mass support. With 74% of women active on social
media, according to The Pew Research Center, women can reach a vast
- Team Work. Indiegogo
states on their website that those with “teams raise 80% more funds than
those run by an individual”. Creative projects benefit from a team that
works collaboratively, a style employed by women [http://www.magazine.utoronto.ca/leading-edge/teamwork-men-vs-women-jennifer-berdahl-cameron-anderson/],
according to a study from the University of Toronto.
- Networking. Women
are good at forming relationships. A forthcoming book called Business
Networking and Sex [http://www.amazon.com/Business-Networking-Sex-Ivan-Misner/dp/1599184249]
states that women use networking to build relationships. That tends to
translate on crowdfunding sites.
“Get started as early
as you can, and don’t try to boil the entire ocean at once. Many people get
paralysis from analysis, where they design their perfect business plan, or
their perfect non-profit, or their perfect album, and when this analysis
keeps you from taking action, that’s no good.” – Danae
Ringlemann, Founder, Indiegogo (Source: Financial
Post – Indiegogo founder advises startups not to wait for perfect)
What holds women back
from raising funds?
are many reasons that women tend not to make as much money as men, it’s often
touted that women negotiate less than men do. In crowdfunding, not asking for
large amounts of money, or for enough funding, may lead women to raise fewer
funds than men.
Is crowdfunding a
democratizing force in funding for women?
What it may
democratize is who gets to invest.
That may be
the truly democratizing force. When women invest in women, money equality may
What do you
think? Share your opinion. Is crowdfunding the best way for women to raise
“Most ideas in the
world are funded because they have the ability to make someone else’s money.
That’s what investment is, what lending is,” the co-founder of Kickstarter,
Yancey Strickler said. “Ninety-nine percent of ideas have no ambition to
create money whatsoever. The extent of the dream is, ‘I wanna make this.’ ”
– Yancey Strickler,
Kickstarter (Source: The
Wrap – Kickstarter Co-Founder Yancey Strickler: ‘We Don’t Care About Money’)