Guest Post by Derek Whitney
Crowdfunding represents a unique form of fundraising that would only become truly effective with the help of the Internet and the ability to connect with thousands of people at the same time with an investment idea. The effect is simple and similar to how ants work. A single ant can’t do much; it can only carry its own body weight and a bit more. However, thousands of ants working together simultaneously can produce some amazing results. The same idea is how crowdfunding works, and it is growing exponentially as a source of capital raising.
In 2011 crowdfunding as an investment tool generated $2.7 billion, a sizeable amount of financial support by any measurement. Now experts are expecting that same support to almost double in the current calendar year through December 2013.
At first, crowdfunding was relegated to entertaining software ideas for apps, games, and Internet websites. The alternative options included charity drives or non-profit projects. However, now, crowdfunding works for all kinds of business projects, big and small. The trick is in the pitch and marketing of the project to those who want to assist.
The interesting thing to note with this activity is that it has grown since 2008, during a time of economic constraint and less spending. That means not only do people find a way to invest and support, the amount of funding involved is likely to increase as the economy improves. The numbers confirm this conclusion; U.S. support grew to $1.6 billion, incorporating a 105 percent increase over 2011. Europe was almost as much. Further, almost 9 out of $10 involved was provided as donation or gift, which makes the money tax-free in most jurisdictions, a double-bonus.
Given the large amount of money available and growing by the month, businesses are now actively pursuing a share of crowdfunding support which, up to now, has been dominated by non-profit and social goals primarily. Crowdfunding for businesses is also evolving, creating aggregate equity holding and investments, similar to how peer lending website have operated for years now. In short, everybody who puts up money gets a share in the returns proportionate to the amount of money invested. The bigger the investment, of course, the bigger the share is for those involved. This new version adds to the total pot of money in crowdfunding potential support, which is expected to crack $2 billion in 2013.
Many expect the evolution of aggregate funding via the Internet to continue to change, creating new niches and methods of focus. The bread and butter, of course, is multiple players putting their money to work, so the more variance involved the more there will be a need for incentives. Charity alone can only go so far. That said, it’s a pretty good day for someone trying to start a project or business when numerous websites exist aggregating lots of well-wishers.
Derek is currently blogging for Startup Valley, a crowdsourced investing site that helps connect technology startups and investors. When he is not blogging, he enjoys relaxing with his family and watching the best show on television, Game of Thrones.