The evolution of crowdfunding: how community financing has changed

Today, crowdfunding is one of the most effective business concepts. It offers the opportunity for innovators to bring attention to their ideas and bring their dream projects to life. Meanwhile, it also brings you together with like-minded people and sponsors while giving you a chance to release new products into the market.

Crowdfunding is immensely popular today, but this wasn’t always the case. The version of crowdfunding that we are familiar with only appeared in the mid-2000s. In this article, we will take a closer look at the origins, features, and history of crowdfunding from its inception until today.

Crowdfunding: origins

The ‘community financing’ model first appeared in the music industry, where it was used to raise funding for album launches and tours. The first full-scale crowdfunding platform was launched in 2000. ArtistShare offered artists the opportunity to raise funds from fans to promote their projects in exchange for various types of rewards (autographs, exclusive tickets, etc.).

Since then, the crowdfunding idea and model have hardly changed – instead, they have simply been adapted for a larger audience. The crowdfunding concept gained global recognition thanks to sites like Kickstarter and Indiegogo. According to research from Fundly, projects have raised over $34 billion through crowdfunding.

Most crowdfunding projects are based on the pre-sales model, where project sponsors can get access to products or related gifts and material rewards. For example, the Kiva platform, created in 2005, popularized the concept of crowdfunded lending (crowdlending), which gave entrepreneurs the opportunity to get loans for small businesses and product development.

Crowdfunding: a history of highs and lows

The efficiency of crowdfunding can be confirmed by dozens of successful projects which have been implemented through this model.

One of the most famous products in the history of crowdfunding is the Pebble Time smart watch, which was released in 2015. The brand successfully raised over 20 million dollars from 78 sponsors. And the first million was raised less than 50 minutes after the project was launched on the platform. Today, athletes all around the globe wear these watches.

Oculus Rift is another notable success story, with a gaming VR headset. Oculus Rift was launched on Kickstarter, raising over 2 million dollars. The project was later acquired by Facebook for $2.3 million.

As with any other type of business, the history of crowdfunding also includes plenty of failures: some projects did not keep their promises to their investors and simply disappeared from the radar. One of the most memorable failures is linked with the Kobe Red campaign. Its creators promised to supply the market with high-quality jerky made from Japanese cows. The project successfully raised $120 000 before it was shut down as a scam.

The future of crowdfunding

Today, the crowdfunding industry is actively developing. According to a Fundly forecast, by 2025 the crowdfunding market will reach a size of 300 billion dollars.

But as the market grows, regulatory control will also increase. Even today, we can see higher levels of control to ensure that projects fulfill their promises and increasingly market interference from regulatory authorities. The iBackPack campaign serves as a precedent for higher regulation, after its creators pocketed over $800 000, which they had raised through the Indiegogo crowdfunding platform. Once this fact was discovered, the website of the US Federal Trade Commission was updated with a warning for potential crowdfunding investors.

We advise you to carefully review each project before deciding to pledge your support.

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