PART 1 - What is crowdfunding?

Blog post   •   Feb 06, 2013 16:02 GMT

Crowdfunding is an increasingly accepted concept. In a series of five parts I shall describe the advantages of starting a crowdfunding project, why people contribute money, how you become successful as well as tips about crowdfunding websites. In the first part I shall start by reporting on what crowdfunding means and implies.

Crowdfunding (also called crowd funding, crowd financing, equity crowdfunding or hyper funding) is a method for financing projects, ideas and enterprises through turning to many small financial contributors for support or donations, most frequently via the Internet and special crowdfunding platforms. This financing method is particularly appropriate for those ideas that otherwise are not suited for obtaining support from traditional financing sources.

The phenomenon has been around for a long time. For example, the Statue of Liberty was built through many small-scale contributors coming together for a shared purpose. The difference today is that we are able to exploit the web’s potential, above all via social media and globalisation in order to reach ever more people. The term “crowdfunding” was coined in the year 2006 and achieved a breakthrough in a big way in the USA when the crowdfunding platforms Indiegogo and Kickstarter started to get successful projects.

Possible areas for crowdfunding

Crowdfunding is used in a host of different areas. It may be a journalistic project, a charity venture or cultural projects (e.g. a film or artists seeking support from their fans) or to raise start-up capital for a new enterprise (startups).

Crowdfunding may also be seen in terms of a company that sells small amounts of its equity to numerous investors. This form of crowdfunding has recently attracted attention from decision-makers in the USA with direct reference to the JOBS (Jumpstart our Business Startups) Act; legislation that removes obstacles for a broader group of small investors. The JOBS Act was signed into law by President Obama on 5 April 2012. The U.S. Securities and Exchange Commission has had 270 days to put in place special regulations and guidelines to implement this legislation, as well as to guarantee protection for the investors.

You are welcome to read part 2 in this series on crowdfunding - 6 reasons why people contribute to crowdfunding projects.

Many thanks for reading the article!

@ThessanW, Therese Walve
 Online Marketing Manager, ComAround