Crowdfunding has long since become famous all over the world, because it’s the only service that allows startups to achieve their funding goals for free.
For new entrepreneurs, crowdfunding not only provides a source of funding, but also public support and promotion even before the company is officially launched. No wonder the demand for this funding method is so high! Crowdfunding is particularly well-developed in the United States, where it originated. In this article, you will learn the history of the development of American crowdfunding, its current trends and position in the world.
How it started: the first crowdfunding platforms
Although crowdfunding first emerged back in 1997, when fans of the rock band Marillion started a fundraiser to sponsor their US tour, crowdfunding did not take off until a decade later. In 2008, the now world-famous Indiegogo platform was first launched. Its co-founder and part-time producer, Danae Ringelman, started thinking about creating her own crowdfunding platform after her play was denied funding. Then she developed a passion for ”democratizing investments.” Later, in 2009, a second platform was created in New York – Kickstarter, which is famous around the world today.
The first to invest in crowdfunding, namely in the creation and development of Indiegogo, was the investment fund Boldstart Ventures. The number of Indiegogo investors increased each year: if in 2011 the platform raised $1.5 million, then in 2012 the total volume of its funding was already $15 million. In 2014, the figure even reached $40 million, a record at the time. The Indiegogo investor group was joined by Virgin Group CEO Richard Branson and PayPal creator Max Levchin.
Kickstarter went hand in hand with Indiegogo during this time, so they experienced parallel development that propelled the entire American crowdfunding industry forward. In 2010, more than $10 million was invested in Kickstarter, with investments from a venture fund, as well as such legends as Twitter founder Jack Dorsey and Zach Klein.
In 2012, crowdfunding in the United States received a new incentive for development, as president Barack Obama passed the so-called JOBS Act (the Jumpstart Our Business Startups Act). This allowed all companies (not just individuals) to raise investments through crowdfunding platforms, which significantly simplified the investment and corporate governance processes, while expanding the range of potential investors.
The ‘loudest’ American crowdfunding projects
Over the ten years of their existence, Kickstarter and Indiegogo have helped execute more than 1.5 million projects, raising more than $5 billion in total. Thanks to them, the world witnessed many incredible projects, including:
- Pebble, a futuristic smartwatch with an e-paper screen and a week-long battery – the project raised more than $ 43 million.
- Portable Travel Refrigerator – $13.3 million raised
- OUYA Android console that connects your smartphone or tablet to a TV – the project raised $8.5 million.
- The Form 1 professional 3D printer, which made at-home 3D printing affordable at low prices, raised $ 3 million.
- The Brake Free LED signal, which allows all road users to see the movements of motorcyclists, – the project raised $114,429.
- The Explosive Kittens board game, which can be purchased anywhere in the world today, has raised nearly $9 million.
- Skinners sock shoes that protect against moisture and cold – the project raised almost $2 million.
What is the current situation for crowdfunding in the USA?
The adoption of the 2012 law predetermined the further development of the crowdfunding market in the United States. It has become not only convenient, but also profitable for startups to turn to crowdfunding platforms for funding, which, in turn, has increased the volume of investments in technology and innovation. Today crowdfunding is not just an alternative to traditional financing, but one of the main sources of funding for new businesses and a source of support for large organizations.
The conditions for launching your project on a crowdfunding platform in the United States are not much different from the conditions in other countries. You must be of legal age and reside in one of the countries listed on the platform (these lists may vary). Your crowdfunding project must also comply with US law and the rules of the specific service where you intend to launch. Each platform has its own conditions for raising and withdrawing funds.
For example, Indiegogo provides a choice in the event that the financial goal set by the project has not been 100% met. The creator of the project can either refuse all funds and return them to sponsors (the “all or nothing” approach), or confirm that this amount will be sufficient to fulfill their promises (claiming all the funds that were raised on the platform).
The most popular crowdfunding segments for attracting investments are finance, mobile and computer applications, and innovations (including space). In total, the development of software, games, and the latest technologies, has attracted an all-time total of approximately $530 million. One of the most striking examples of recent projects is the fintech startup Stash, which offers personalized investment portfolios that “reflects the values and beliefs of a particular investor.” Another impressive project in this field is After School, a social network for high school students that raised almost $18 million.
According to statistics, most crowdfunding projects are located in California, New York, Florida, Texas, and Illinois. Their concentration is especially high in Silicon Valley, due to the number of tech startups in this region. Many of these startups also don’t hesitate to resort to crowdfunding and often manage to execute their projects thanks to people who have expressed a desire to bring interesting ideas to life.
Crowdfunding in the USA is a developed network of platforms of various types and orientations, which provide a wide choice for financing completely different types of businesses, including large and established organizations. In the United States, crowdfunding is widespread and has received, perhaps, the most extensive development compared to other countries in Europe and around the world. Crowdfunding has supported the implementation of many famous (and even legendary!) projects, offering products that we are lucky to use in our everyday lives today.