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What is Crowdfunding?

Credit Suite - Monday, August 01, 2016

Crowdfunding is the collection of finance from backers—the "crowd"—to fund an initiative and usually occurs on the Internet platforms, also known as crowd financing and crowd sourced capital. According to WordSpy.com, the earliest recorded use of the word "Crowdfunding" was by Michael Sullivan in fundavlog in August 2006.

Crowdfunding models involve a variety of participants including the people or organizations that propose the ideas and/or projects to be funded, and the crowd of people who support the proposals. Crowdfunding is then supported by an organization (the "platform") which brings together the project initiator and the crowd.

Crowdfunding uses nonprofit, political, charitable, and commercial financing for startups.

You can still take your idea to these Crowdfunding sites and have a chance at getting your concept funded.

Crowdfunding creates a strong network of support for your business, offers equity as part of your package, provides a powerful platform to raise awareness of your business, gives a newsworthy story to pitch to your local, and national press, and you get public support. Your investors become ambassadors for your brand.

Crowdfunding allows good ideas which do not fit the pattern required by conventional financiers to break through and attract cash through the wisdom of the crowd. If it does achieve "traction" in this way, not only can the enterprise secure seed funding to begin its project, but it may also secure evidence of backing from potential customers and benefit from word of mouth promotion in order to reach the fundraising goal.

Crowdfunding provides many benefits including that a compelling project can raise a producer's profile and provide a boost to their reputation. Plus, project initiators can show there is an audience and market for their project. In the case of an unsuccessful campaign, it provides good market feedback.

Crowdfunding also creates a forum where project initiators can engage with their audiences and those audiences can engage in the production process by following progress through updates from the creators and sharing feedback via comment features on the project's Crowdfunding page.

Feedback offering pre-release access to content or the opportunity to beta-test content to project backers as a part of the funding incentives provides the project initiators with instant access to good market testing feedback.

Crowdfunding also provides an exponential increase in available venture capital. If every American family gave one percent of their investable assets to Crowdfunding, $300 billion (a 10X increase) would come into venture capital. Another massive benefit of Crowdfunding is that owners retain control of their operations, as voting rights are not conveyed along with ownership when Crowdfunding.

Crowdfunding has its origins in the concept of crowdsourcing, which is the broader concept of an individual reaching a goal by receiving and leveraging small contributions from many parties. Crowdfunding is the application of this concept to the collection of funds through small contributions from many parties in order to finance a particular project or venture.

An early precursor of the Crowdfunding business model was praenumeration, a subscription business model, which was used in the 17th century to finance book prints. Similar to Crowdfunding, an additional benefit to donors was offered like a mention on the title page.

Then in 1884, the American Committee for the Statue of Liberty ran out of funds for the Statue’s pedestal. Newspaper publisher Joseph Pulitzer urged the American public to donate money toward the pedestal in his newspaper New York World. Pulitzer raised over $100,000 in six months and more than 125,000 people contributed to the cause, with most donations being $1 or less.

Crowdfunding websites helped companies and individuals worldwide raise $89 million from members of the public in 2010, $1.47 billion in 2011, $2.66 billion in 2012, and $1.6 billion of the 2012 amount was raised in North America. In 2012, more than one million individual campaigns were established globally and the industry was projected to grow to $5.1 billion in 2013.

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