Crowdfunding – the next big thing?

From the release of the first crowdfunding site, ArtistShare in 2003, to present day crowdfunding has grown in to a noticeable way of funding and launching various kinds of projects. In 2013, the crowdfunding industry grew to over USD 13 billion worldwide. But what is crowdfunding? ‘’Simply put, crowdfunding is the process of asking the general public for donations that provide startup capital for new ventures (Steinberg & DeMaria 2012, 2.) Crowdfunding has been used to finance, market and to gauge public interest. Ventures like Pebble E-paper watches, Oculus Rift and the space combat and trading simulator Star Citizen, which became the highest rising crowd-funding project ever, have all started as crowdfunding project. As of September 2014 Star Citizen has rais2228832-2203520_kickstarter_badge_fundeded over USD 55 million in public donations.

The best known and used site for crowdfunding ventures is Kickstarter. After its release in 2009 Kickstarter has raised over USD 1 billion in donations from 5.7 million donors to fund 135,000 projects ranging from films and video games to food-related projects.

One of the weirdest yet a successful Kickstarter project was created by Zac ‘Danger’ Brown from Ohio, United States. Brown wanted make himself some potato salad, but he didn’t have the ingredients. So he created a Kickstarter project to fund them. The project quickly blasted off and became an instant Internet legend. The original goal was to raise 10 dollars, but ultimately the project raised over 50,000 dollars and it was backed by over 6000 donators. As a response for the backers Brown rented a dining hall and invited the whole internet and especially all the pledgers to come and eat his potato salad.

Crowdfunding has had a big impact on the financial world, since it has helped vast numbers of small ventures and innovative projects rise to success. The financial model gives the ventures an opportunity to estimate theirs products public interest. Also the funding model has other benefits over the traditional investor model. A project funded through crowdfunding keeps all of its equity on the hands of its creator, and also the creator has the control over everything in the project. Other benefits include the ability to test the project’s popularity using as little as a prototype or preproduction materials, raising more money than as the goal and having an almost risk free environment to create and publish your projects.

On the other hand crowdfunding isn’t for everybody. It is very stressful to run a campaign, you and your project is out directly in front of the public and potentially in the line of fire. There is a lot competition nowadays, and you and your project may not be successful.

Crowdfunding could be the next big thing in financing, more and more companies and small ventures have started using it. In my opinion the financial model has not yet reached its peak. It offers a relatively safe alternative to the traditional investor-based funding model.

List of references:

Steinberg, Scott & DeMaria, Rusel 2012. The Crowdfunding bible. How to raise money for any startup, video game or project. Overload Entertainment LLC, St. Louis.

This entry was posted in Investing. Bookmark the permalink.

One Response to Crowdfunding – the next big thing?

  1. student57 says:

    This post is very well written!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s