Crowdfunding appears to be at a tipping point.
Last year crowdfunding raised $1.2 billion, according to crowdsourcing.org. That number is expected to double in 2012. Forty-nine percent of those funds were donated to non-profits; eleven percent went to projects where there was profit-sharing or equity involved. Half the funds, curiously, were raised in North America last year. It should be noted, however, that equity-based funding is growing fastest in Europe. Further, Indiegogo has found that nearly 40% of active campaigns now receive money from multiple countries. Crowdfunding, in short, is going international.
The pace of peer funding is accelerating. Kickstarter alone received $100 million in pledges over the last year. And only last month the electronic paper watch Smartwatch—the fifth Kickstarter project to raise over $1 million—broke the record for crowdsourced funding. The JOBS Act was passed with rare showing of bipartisan support in April—a major game-changing moment, by the way—making it easier for startups to seek funding from online investors. Crowdfunding platforms like Indiegogo have become far more sophisticated, developing algorithms—the “gogofactor,” in their case—that can actually track how much traction a campaign is making within the website based on factors such as number of comments, the rate at which funds are coming in, and number of updates.
Kickstarter, the largest and most well-known of the crowdfunding sites, is up to 23,000 successfully funded projects, with more than 2 million backers.
“We are on the cusp of a big economic shift,” Om Malik, the founder of Giga Omni Media, dramatically writes. “I believe that the industrial era is coming to an end and Kickstarter just might be the most visible representation of that. When I look at Kickstarter, I see small businesses that have been funded by their customers. I see the acceleration of this shift away from the industrial manufacturing ideology to more of a maker economy. And I also see an idea so powerful that the company name has become a verb.”
Om Malik is not exaggerating: whole industries are being transformed in interesting ways by crowdfunding. Twelve percent of the films at Sundance, for example, were financed by Kickstarter. And look no further than the music industry. According to a recent story in The New York Times, Kickstarter has raised over $38 million in the last three years for music-related projects. More than seven thousand music-related projects have successfully raised $5,140 on average.
Crowdfunding also changes lives, opening doors of opportunity to people and ideas left out in the cold during the so-called “industrial era.” The poignant redemption story of saxophonist Giussepi Logan, a free jazz contemporary of John Coltrane, was recounted in Rolling Stone’s Culture Blog. Logan, reduced to playing for change in Tompkins Square Park in New York with a saxophone given to him by a generous friend, was “discovered’ by producer Ed Petterson. After being told by several record labels that an album would be considered too risky, Petterson turned to crowdfunding to get financing for the project. [See video below]
“[Previously] crowdfunding had a tinge of begging, and the recording industry is humiliating enough,” he says. “But when it was pointed out to me that, in essence, we were simply preselling our wares to fans we already had and potentially new ones, I realized that my prejudice was silly.” The result is The Giuseppi Logan Jazz Project, which has successfully raised 203% of its goal capital.
The old “industrial era”—as Om Malik calls it—was not particularly good to big, esoteric ideas like free jazz. As a result, those ideas were never compensated in a manner commensurate to their value in society. But this is a new era, an era of “user democracy,” where passion campaigns like the Tiger Lawyer comic book (“Tiger Lawyer is an original comic book series about a tiger… who is also a high-profile criminal defense lawyer”) can get a fair hearing in the marketplace. And that’s a good thing, because if passion campaigns—if small businesses that never stood a chance in the old economy—can get a fair hearing now, then we all win.
Finally, crowdfunding, of course, is more than just artistic projects and esoteric, big ideas. Crowdfunding is every bit about business as well. And new crowdfunding platforms like Fundable and CircleUp—a bit different than the more democratic and idealistic Kickstarter and Indiegogo—are geared towards accredited investors seeking to invest directly in up-and-coming nonpublic companies for an equity stake. The diversity of crowdfunding options now available—from the community around Indiegogo’s Tiger Lawyer comic book to CircleUp, a company aimed at people with incomes of over $200,000 a year or a net worth of $1 million—is a testament to the fundamental goodness of the JOBS Act, legislation that was passed, one cannot fail to note once again, with bipartisan support. And if that’s what bipartisanship is capable of accomplishing when push comes to shove, then we should have more of it.
Register for our FREE Resource Center and Newsletter to access our growing library of valuable Guide Books, Tip Sheets, and more!