Crowdfunding is considered to be “the practice of funding a project or venture by raising many small amounts of money from a large group of people, typically via the Internet”. Here, we will explore the explosion of crowdfunding and how it is changing the way that we do business in the technology age.
The explosion of crowdfunding is staggering. It has become a global phenomenon that raised $6.1 billion in contributions in 2013, expanded by 165 percent in 2014 to $16.2 billion and 2015 is forecast to be another bumper year with anticpiated volumes of $34.4 billion.
The strong growth in 2014 was due in part to the rise of Asia as a major crowdfunding region. Asian crowdfunding volumes grew by 320 percent, to $3.4 billion raised. That puts the region slightly ahead of Europe ($3.26 billion) as the second-biggest region by crowdfunding volume. North America continued to lead the world in crowdfunding volumes, growing by 145 percent and raising a total of $9.46 billion.
Yet, crowdfunding isn’t solely a product of the Internet age. It stems from microfinance, which is a process that involves lending funds to low-income individuals who are often unable to take advantage of the financial mechanisms of the wealthy. Delving into the misty depths of history brings up many examples of microfinance. For example, in the eighteenth century, Jonathon Swift created the Irish Loan Fund and lent money to considerable numbers of poor families in rural Ireland.
Back to the future…the four main forms of crowdfunding that are and will revolutionise investing are:
Donation-based crowdfunding – For example…Shareagift! This strand involves contributing to something you desire or a cause you believe in, be that a wedding gift for a friend, a charity fundraising project or a group vacation.
Reward-based crowdfunding – An example of this would be Kickstarter who fund creative projects. Here, contributors are rewarded for funding business projects with diverse gifts, such as tickets to a party or having their name included on an album sleeve.
Equity-based crowdfunding – Investors in a start-up receive shares in the business in return for their funds.
Lending-based crowdfunding – Also known as peer-to-peer lending, this process enables investors to receive interest at a later date from the business they invest in. Investors spread their risk by investing small amounts in a range of companies.
But why has crowdfunding grown monumentally? Well, the principal cause is technology. The Internet has made it possible to transfer funds to disparate individuals easily and social networking has granted crowdfunding a powerful virality. Nonetheless, the explosion of crowdfunding has also come at a time when there is widespread hostility towards the traditional financial mechanisms because the 2008 Financial Crash condemned corporate banks in the eyes of a significant proportion of the world’s population. Crowdfunding has, thus, materialised as a true alternative because it offers personable interactions, grassroots support and an incomparable network of willing investors who can enable businesses and campaigners to access funds that they may have been denied by traditional financial institutions. Now crowdfunding is here to stay and investors can ill-afford to ignore it!
Try it for yourself. Group fund any gift, cause or experience with Shareagift at www.shareagift.com