Oxford describes it as "the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet."
Crowdfunding raised in popularity in 2013, when the economy of crowdfunding grew to over $5.1 billion, and thousands of entrepreneurs used its power and reach for increased development and growth. The majority of the growth has come from the world's developed economies because as demonstrated, crowdfunding has the most potential in emerging markets. A 2013 World Bank report has predicted that crowdfunding in China could reach $50 billion by 2025—and other emerging economies like Brazil may not be far behind.
Although crowdfunding may seem like a recent phenomenon, it has already been used in the US as a means to fund projects.The construction of the Statue of Liberty in 1884 was the biggest example of this. When resources were needed to complete the historical landmark, Joseph Pulitzer used his newspaper to persuade the public to give donations to help finish the project. This encouraged over 100,000 Americans to join the campaign, and gave as little or as much as they could. This totalled $100,000. Crowdfunding wasn't the term used then, but this demonstrates the key principles of the method by definition.
When examining successful crowdfunding, it can convey that two components make it work. Not only is crowd participation required to raise the funds, but a platform to engage with the audience is necessary. This might be the online community, newspapers or broadcasting networks. Social media is often used as a method to promote fundraising, such as sharing links to online sponsorship pages.
It is important to add that crowdfunding is not all about charities, but can be done on a business-to-business level. Websites like funding circle are the perfect example of this; businesses can get loans of up to £1 million, in a method to avoid banks. Funding circle is known to be very successful with "£330 million lent to 30,000 people to 5,500 businesses." In fact, there are three main types of crowdfunding including: credit-based, reward-based and equity based.
Credit-based crowdfunding can be demonstrated with organisations like funding circle, who are non-banks who lend to businesses and organisations. This type of crowdfunding became more prominent in the U.S. in 2012, when they launched the Lending Club. With similar aims and objectives to the british website, funding circle, prospective borrowers first submit their requirements, and are matched with investors who are willing to accept the credit terms. In recent times, you can understand how these platforms are gaining popularity, as banks are increasing their interest rates or reducing their level of lending.
Reward-based crowdfunding could be used more by charities as it can be used for a wide range of reasons, such as: free software development, inventions development and scientific research. Two types of reward-based crowdfunding can be identified: "keep-it-all" or "all-or-nothing". The KIA is where the entrepreneurial firm sets a fundraising target and keeps the entire amount raised, while the AON sets a goal, but keeps nothing if the goal isn't achieved.
Equity-based crowdfunding can be described as a collective effort by individuals to support efforts of others.
I still need to learn more about the popularity of crowdfunding, if you know of any popular online platforms that use crowdfunding successfully, please let me know!
Do you think crowdfunding has gone beyond online solicitation from the crowd/audience?
SOURCES:
Wikipedia: http://en.wikipedia.org/wiki/Crowdfunding#Types_of_crowdfunding
Forbes: http://www.forbes.com/sites/hsbc/2014/08/05/crowdfundings-untapped-potential-in-emerging-markets/
Crowdsourcing: http://www.crowdsourcing.org/editorial/crowdfunding-its-no-longer-a-buzzword/32268
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