Crowdfunding: Funding Support from Everyone, Everywhere

An industry taking on a life of its own


Did you ever wonder what it would be like to start a business, but since you didn't have any money, you took up a collection from hundreds, or even thousands to get the needed capital? That's the idea of crowdfunding, perhaps the newest and quickest method of raising capital for a business ever created.

Crowdfunding is largely a product of the Internet, and with its exposure and access to literally countless sources of cash, it has grown to become a nearly $5.1 billion worldwide industry.

Where, When, and How Did it Start?

The earliest mention of the concept of crowdfunding was in 2006 by Michael Sullivan, the founder of fundavlog. Despite the fact that Sullivan's venture didn't succeed, others were soon thriving. Soon crowdfunding websites were popping up all over the Internet to the point that they were funding companies to the tune of more than $89 million in 2010, $1.47 billion in 2011, and $2.66 billion in 2012. In North America alone, crowdfunding websites raised an estimated $1.6 billion in 2012. The 2012 amount was raised by the combined efforts of more than 1 million individual campaigns. Experts estimate that the global industry will increase to about $5.1 billion by the end of 2015.

Types of Crowdfunding

There are generally two types of crowdfunding, rewards crowdfunding and equity crowdfunding. These are explained, along with several other types, below:

Rewards Crowdfunding. This involves the entrepreneur pre-selling his or her product to launch a business.

This method allows the entrepreneur to raise capital without incurring debt or sacrificing their equity in their business.

Equity Crowdfunding. This type of crowdfunding offers backers equity in the company being funded, especially in the early stages of the effort. Equity in the company is given depending on the amount that is pledged.

Since the idea of crowdfunding was created, the entire industry has taken on a life of its own. Crowdfunding has been used to create a vast number of different products and services by funding companies and individuals that strive to produce them. This is not only good for the companies that raise this money to produce products and services, but it also gives individuals of ordinarily modest means the opportunity to invest in what can become outrageously successful enterprises.

On literally any crowdfunding website, thousands of individuals are attempting to raise money for the purpose of capitalizing their dreams. These projects include efforts to publish books, fund theater and arts programs, produce games, photography, and more. With crowdfunding, virtually anyone can raise money in order to produce anything from a business to a scientific advancement. The key to success with crowdfunding has been proven to be proving the viability of an effort.

Crowdfunding--Deceptively Simple?

To be successful at crowdfunding, all you need to do is to place your pitch on a crowdfunding website and sit back for the money to roll in, right? As simple as that might sound, it's not true, especially when it comes to the success of a funding campaign.

Instead, successful crowdfunding is a part of an overall program that seeks to create momentum in the funding effort. This is easy to see since even after you put your project on a website, there might be thousands of other projects competing for the same dollars. Instead, the successful crowdfunding effort should be part of a comprehensive publicity campaign that motivates investors to seek out and find your project.

Remember Karen Klein? If the name isn't familiar to you, the incident certainly would be. Two years ago, a cell phone video emerged of Klein, then 68 and a grandmother, who worked as a school bus monitor, being bullied by a group seventh grade students. The video went viral and ended up being seen by millions of sympathetic strangers who donated to a crowdfunding campaign. Within a matter of days, more than $600,000 was contributed to her retirement fund.

Crowdfunding can be a powerful option for raising the funds you need. It all starts with getting support from initial backers so you can potentially gain funding support from everyone, everywhere.