A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.<\/p>\n
History<\/h3>\n
The first popular online crowdfunding platform, AristShare<\/a>, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors. After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people<\/a> have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful<\/a>, raising more than $1 billion from 11 million backers.<\/p>\n A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo\u2019s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge<\/a>, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo\u2019s history.<\/p>\n In 2015, Crowd Expert estimated that the crowdfunding industry\u00a0was worth approximately $17.25 billion<\/a>. In comparison, Venture Capital in 2015 was estimated at $58.8 billion<\/a>.<\/p>\n The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning<\/a>. \u201cCrowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,\u201d Mollick asserts. Kickstarter\u2019s records back up this claim. Kickstarter\u2019s success rate<\/a> is only 35.72 percent, meaning that only about one third of projects reach their goals.<\/p>\n Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate<\/a> for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, \u201cThere is a possibility of the existence of a hidden variable<\/a> that would help us classify better.\u201d<\/p>\n Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time<\/a>, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016<\/a>, selling its key assets and intellectual property to Fitbit<\/a>. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive<\/a> and the SONDORS Electric Bike<\/a>. Both of these startups have grown since their campaigns and expanded their product lines.<\/p>\n Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their\u00a0lifetimes.<\/p>\n A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market<\/a>. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual \u201cformation of clusters of expertise and capability,\u201d encouraging collaboration across the world. Adding to the \u201cefficiency and productivity in the community value chain,\u201d researchers also speculate that crowdfunding has the potential<\/a> to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.<\/p>\n Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.<\/p>\n In 2011 and 2012, mainstream media brought\u00a0attention to the Facebook Problem<\/a>. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC\u2019s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended\u00a0mainly to help companies like\u00a0Facebook, it inadvertently\u00a0affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.<\/p>\n In May 2016, another SEC regulation update<\/a> gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can\u00a0involve themselves in users\u2019 crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm\u2019s ability to raise follow-on funds later in the process.<\/p>\n Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in\u00a0certain cases of\u00a0issuers not keeping promises. They may also pay\u00a0too little attention<\/a> to the size of businesses\/individuals that use crowdfunding to raise funds.<\/p>\n Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.<\/p>\n","protected":false},"excerpt":{"rendered":" What is crowdfunding? Crowdfunding is constantly evolving and\u00a0hard to define. Elizabeth M. Gerber at Northwestern University defines\u00a0crowdfunding as \u201can open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.\u201d Due to the ease and availability of crowdfunding sites, crowdfunding has…<\/p>\n","protected":false},"author":10,"featured_media":1214,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[149,422,52],"tags":[20,223,73,118,104,26,181,40,32],"class_list":["post-1211","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government-policy","category-mcnair","category-small-business","tag-access-to-capital","tag-capital","tag-early-stage","tag-entrepreneurial-ecosystem","tag-entrepreneurs","tag-entrepreneurship","tag-startup","tag-vc","tag-venture-capital"],"featured_image_urls_v2":{"full":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1280,720,false],"thumbnail":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund-200x150.jpg",200,150,true],"medium":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund-400x225.jpg",400,225,true],"medium_large":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1280,720,false],"large":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund-1024x576.jpg",800,450,true],"1536x1536":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1280,720,false],"2048x2048":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1280,720,false],"post-thumbnail":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1200,675,false],"twentytwenty-fullscreen":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",1280,720,false],"yarpp-thumbnail":["https:\/\/www.edegan.com\/articles\/wp-content\/uploads\/2017\/03\/crowdfund.jpg",120,68,false]},"post_excerpt_stackable_v2":" What is crowdfunding? Crowdfunding is constantly evolving and\u00a0hard to define. Elizabeth M. Gerber at Northwestern University defines\u00a0crowdfunding as \u201can open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.\u201d Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds. A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea.…<\/p>\n","category_list_v2":"Government and Policy<\/a>, McNair Center<\/a>, Small Business<\/a>","author_info_v2":{"name":"Taylor Jacobe","url":"https:\/\/www.edegan.com\/articles\/author\/taylor-jacobe\/"},"comments_num_v2":"0 comments","yoast_head":"\n![\"http:\/\/i.vimeocdn.com\/video\/590376642_1280x720.jpg\"](\"http:\/\/mcnair.bakerinstitute.org\/blog\/wp-content\/uploads\/2017\/03\/crowdfund-400x225.jpg\")
<\/p>\nSuccesses and Failures<\/h3>\n
Economic Implications<\/h3>\n
Crowdfunding Policy<\/h3>\n
Conclusion<\/h3>\n