The concept of crowd funding has been around for ages, however only recently has it evolved to its present crucial form as a very effective non-conventional method for raising funds. Crowdfunding is the process of funding a project or venture by raising contributions from a large number of people instead of the traditional banks or financial institutions. This method is increasing in popularity and it is estimated that about $34 billion was raised worldwide through crowdfunding in 2015 alone.
Raising funds from a wide section of the population can be initiated in many forms. Two common types are mail-order subscriptions and benefit events. However, after the digital revolution in modern times it is now performed through Internet-mediated registries.
A typical example of crowd funding runs in this form. A start-up or any other new venture is initially funded to an extent of about 25 ton 40 percent by the promoters. This could be self acquired savings or loans and borrowings from friends, family and acquaintances. Once the venture is found to be stable and worthy of investing in, unrelated consumers start taking an interest in it depending on their specific fields of interest and start supporting the project with their contributions.
There are three levels in a crowdfunding model. The first is the initiator or the brain behind the venture who proposes the idea and the venture to be funded. The next is to get on board individuals or groups who are interested in the idea and support such a project. The final layer is a moderating or mediating organisation or a platform that will bring together all the interested parties to launch the venture. It can be anything from travel or community-oriented social entrepreneurship ventures or any other artistic or creative projects.
The history of crowdfunding in its basic elementary form goes back several centuries. Authors and publishers would publicize their books under a subscription scheme whereby the book would be written and published only if sizeable subscribers contributed to this scheme. However, if the modern concept of crowdfunding is matched with it, there is a basic difference. In the model of yore, money would start flowing in once the product – book – was out after publication. In the modern era, a substantial part of the funds is raised when a project is still at the “work in progress” stage.
The popularity of crowdfunding took an upturn with the growth of the co-operative movement in the 19th and 20th centuries. Specific communities and common interest groups got together, pooled funds and began to support and develop new concepts, products and methods of distribution and production. It was particularly beneficial for the rural sectors of Europe and North America. Few people know that when the USA Government failed to build a base for the Statue of Liberty in 1885, a newspaper led campaign attracted donations from around 160,000 donors.
However, creating a successful crowdfunding movement is definitely not a simple operation. It does not go viral on its own and effective strategies have to be conceived to make it appealing to the common man interested in that particular niche. While it is true that many brands have managed to raise huge amounts simply by advertising the launch through word of mouth information, in most cases an extra effort has to be made by the initiator of the project. These include devising campaign plans for email marketing, social media marketing and involving the local media.
The fundamental part of the crowdfunding concept is that the project creator does not ask for a handout. It is more of a matter of getting likeminded people together to believe in a cause and contribute to making it successful.