Crowdfunding
Crowdfunding is a fundraising method where individuals or groups gather financial support for projects, causes, or businesses through small donations from a large number of people, often facilitated by the Internet. Originally popular among artists and creatives, crowdfunding has expanded to include philanthropic efforts and investment opportunities for startups. There are three main types of crowdfunding: rewards-based, equity, and donation-based. In rewards-based crowdfunding, backers receive gifts or products in return for their contributions, while equity crowdfunding allows investors to acquire shares in a business, sharing in potential profits. Donation-based crowdfunding focuses primarily on charitable causes, such as medical expenses or disaster relief.
Platforms like Kickstarter, Indiegogo, and GoFundMe have become popular venues for these campaigns, each with distinct rules regarding fundraising goals and deadlines. The crowdfunding sector has grown significantly, generating approximately $17.2 billion annually as of 2023, with notable spikes during events like the COVID-19 pandemic, which saw substantial fundraising for related needs. As crowdfunding continues to evolve, it is increasingly intertwined with social media and various industries, prompting discussions around securing transactions and regulating the field. The future of crowdfunding appears promising, with projections indicating ongoing growth.
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Crowdfunding
Crowdfunding is a method by which an individual or group raises money for a project, cause, or business by receiving donations from a large group of individuals, often using many small donations from people who have no relationship to each other beyond interest in the project. It began largely as a way for musicians, artists, and other creative people to gain support for their projects and relies heavily on the Internet to reach potential funders. Crowdfunding is also used to raise money for philanthropic causes and raise investment capital for new businesses.
Overview
There are three primary models for crowdfunding: rewards-based crowdfunding, equity crowdfunding, and donation-based crowdfunding. In rewards-based crowdfunding, donors contribute money for a project, such as the creation of a film or book, and in turn receive gifts such as a personal note from the author, a coffee mug or t-shirt advertising the project, or a copy of the product created (e.g., a copy of the book or film). This model is similar to the fundraising method used on National Public Radio (NPR) and PBS television, where people make a charitable contribution to their local station or to a particular program they enjoy and may elect to receive some branded item in return. In equity crowdfunding, businesses sell debt or equity stakes to investors, and those investors will share in the company’s profits if there are any. Donation-based crowdfunding focuses on fundraising for medical expenses, disaster relief, and other charitable causes. Popular crowdfunding sites include Indiegogo, founded in 2008, which allows fundraising for any purpose other than business investment, including charity; Kickstarter, founded in 2009, which focuses on creative projects; and GoFundMe, founded in 2010, which allows for any kind of project, creative, business, charitable, or otherwise, as well as allowing people to fundraise for personal needs such as medical expenses.
Despite explosive growth in the Internet era, crowdfunding is not a new concept. For centuries, artists and publishers have sought subscriptions to finance creative projects. In the United States, notable examples include the public solicitation of contributions to pay for the pedestal for the Statue of Liberty in 1884 and the 1933 public contributions to build a swimming pool in the White House so that President Franklin Roosevelt, who had physical disabilities as the result of polio, could enjoy water therapy. Crowdfunding in the twenty-first century is primarily conducted over the Internet, often through websites such as the aforementioned Kickstarter, Indiegogo, and AngelList. There are over 1,000 such sites in existence. Each site has its own set of rules; for instance, Kickstarter requires that project creators set a goal (amount of money to be raised) and a deadline; if the goal is not met by the deadline, no money is collected from the donors who pledged it. Other sites, such as Indiegogo, allow campaign creators to keep the donations from a partially funded campaign.
The field of crowdfunding has grown rapidly since its increase in popularity in the twenty-first century. According to a 2023 report from Fundera, a subsidiary of NerdWallet, crowdfunding generates $17.2 billion yearly, and revenue raised through crowdfunding increased 33.7 percent between 2022 and 2023. The average amount raised for crowdfunding campaigns differed widely over various platforms and categories of campaigns.
The COVID-19 pandemic, which began in 2020, caused many to turn to crowdfunding. A 2021 study published in Social Science & Medicine analyzed COVID-19-related crowdfunding campaigns created on GoFundMe during the first seven months of the pandemic and determined that $416 million was raised over 175,000 COVID-19-related crowdfunding campaigns in the US. The study attributes this phenomenon to medical bills, lost wages, food assistance, and other needs that resulted from the COVID-19 crisis.
As the twenty-first century progressed, crowdfunding continued to evolve. Trends in the mid-2020s included the rise of social media to support crowdfunding campaigns and the expansion of crowdfunding to industries such as gaming and real estate. Issues, such as ensuring secure transactions and increased regulation and oversight, became focus points. Inflation and interest rate increases in the mid-2020s also led to an increase in crowdfunding campaigns. The crowdfunding market was forecast to have continued growth.
Bibliography
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