Crowdfunding

Based on Wikipedia: Crowdfunding

The Bank Run That Invented Modern Finance

In the 1730s, panicked Londoners stormed the Bank of England, demanding that their paper pounds be converted into gold. The bank was on the verge of collapse. What saved it wasn't government intervention or a bailout from wealthy aristocrats. It was the mercantile community—ordinary merchants and traders—who rallied together to support the currency until confidence was restored.

They crowdfunded their own money.

This remarkable episode hints at something fundamental about human behavior: when institutions fail us, we turn to each other. Nearly three centuries later, that same impulse has been supercharged by the internet, transforming how we fund everything from indie films to medical treatments to entire startups.

What Crowdfunding Actually Is

At its core, crowdfunding is beautifully simple. Instead of convincing one wealthy investor or a skeptical bank to give you a large sum, you persuade many people to each give you a small amount. The internet makes this practical by connecting you to potential supporters around the world and handling the mechanics of collecting all those small contributions.

The model typically involves three players: someone with an idea who needs money, a crowd of people willing to contribute, and a platform that brings them together. Kickstarter, Indiegogo, GoFundMe—these are the matchmakers of modern finance.

By 2015, this approach was raising over thirty-four billion dollars annually worldwide. That's not spare change rattling in a jar. That's a genuine alternative to the traditional financial system.

A Practice Older Than Its Name

The word "crowdfunding" was coined in 2006 by an entrepreneur named Michael Sullivan, but the practice itself stretches back centuries. Books, for instance, were often funded this way long before Amazon existed. Authors and publishers would advertise upcoming works and collect subscriptions—essentially pre-orders. If enough people signed up, the book got written and printed. If not, the project died.

This subscription model wasn't quite crowdfunding as we know it today, since money only changed hands when the book was actually delivered. But the crucial element was there: a list of committed supporters created the confidence needed to take the risk.

The philosopher Auguste Comte took this further in 1850. He issued notes soliciting public support for his philosophical work—essentially asking strangers to fund his thinking. Some of these notes, both blank and filled in with donation amounts, have survived to this day.

Perhaps the most stirring historical example is the Statue of Liberty's pedestal. When government funding fell through in 1885, a newspaper campaign attracted donations from 160,000 people to build the base for France's gift to America. The average contribution was small. The collective result was monumental.

The Internet Changes Everything

Music fans fired the first shots of the internet crowdfunding revolution. In 1997, supporters of the British rock band Marillion raised sixty thousand dollars online to fund an American tour. Interestingly, the band hadn't asked for this—fans organized it themselves, and the musicians only reluctantly accepted. But having stumbled onto something powerful, Marillion later used the same approach to fund their studio albums.

That same year, an independent filmmaker named Mark Tapio Kines built a website for his unfinished drama, Foreign Correspondents. By early 1999, he'd raised over $125,000 from fans and investors he'd never met. His film got made without a studio, without traditional investors, without the usual gatekeepers.

The first dedicated crowdfunding platform, ArtistShare, launched in 2001. Then came Kiva in 2005, focusing on microloans to entrepreneurs in developing countries. Indiegogo appeared in 2008. Kickstarter followed in 2009 and quickly became synonymous with reward-based crowdfunding. GoFundMe launched in 2010, specializing in personal causes and charitable giving.

Each platform carved out its niche, but together they proved that the internet could do for fundraising what it had done for so many other industries: remove the middlemen and connect people directly.

The Four Flavors of Crowdfunding

Not all crowdfunding works the same way. The differences matter enormously, both for people raising money and for those contributing it.

Rewards: Getting Something Back

The classic Kickstarter model. You back a project, and in return, you receive something—perhaps the product itself, often before it's available to the general public, sometimes with exclusive features or bonuses. A musician might offer early access to an album. A gadget inventor might ship you the first production run.

This model has funded albums, films, video games, inventions, scientific research, and countless other creative endeavors. Research has uncovered some fascinating patterns. Geography barely matters—on one music platform, the average distance between creators and their supporters was about three thousand miles. Friends and family contribute heavily in the early stages, which then attracts strangers to pile on. And as projects approach their funding goals, contributions accelerate, a phenomenon researchers call "herding behavior."

There's a catch, though. Backers tend to be optimistic—perhaps overly so. When projects run late or deliver less than promised, expectations require painful adjustment.

Equity: Becoming an Owner

Instead of getting a product, you get a piece of the company. This is startup investing democratized—or at least, that's the promise. Before regulations changed, only wealthy "accredited investors" could participate in early-stage company investments. The Jumpstart Our Business Startups Act, passed in 2012, opened this up in the United States, allowing ordinary people to buy shares in young companies.

Equity crowdfunding is more complicated than the rewards model. When you back a Kickstarter project, you're essentially pre-ordering a thing. When you invest in a company, you're making a bet on a team, a market, and an execution plan. The potential upside is real ownership in something that might become valuable. The downside is that most startups fail, and your shares become worthless.

To manage this complexity, some platforms use syndicates, where many small investors follow the strategy of a single experienced lead investor. This helps bridge the knowledge gap between professional venture capitalists and newcomers.

Debt: Lending Without Banks

Peer-to-peer lending platforms like Lending Club and Prosper connect people who want to borrow money with people who want to lend it. The borrower gets a loan, often at a better rate than a bank would offer. The lender earns interest, often at a better rate than a savings account would pay. The platform takes a percentage for making the match.

This form of crowdfunding grew explosively. By 2014, peer-to-peer platforms in the United States were moving about five billion dollars annually. In the United Kingdom, they lent nearly 750 million pounds to businesses and over 500 million pounds to individual consumers. In both countries, roughly three-quarters of all money flowing through crowdfunding channels was moving through these lending platforms.

When Lending Club went public in December 2014, it was valued at approximately nine billion dollars. The banking industry had noticed.

Donation: Pure Giving

Sometimes there's no reward, no equity, no repayment—just the desire to help. Donation-based crowdfunding funds medical expenses, disaster relief, community projects, and charitable causes of all kinds. GoFundMe built its empire largely on this model.

The motivation here is straightforward altruism: people see a need and want to address it. But this model has also attracted concerns about fraud and privacy. Without the accountability mechanisms built into commercial transactions, donors must trust that their money goes where claimed.

Why People Participate

Understanding crowdfunding requires understanding motivation. Why do people give money to strangers on the internet?

Research suggests several distinct drives. Some people want to feel responsible for others' success—call it the patronage impulse. They enjoy the role of benefactor, of making things happen that wouldn't happen without them.

Others are drawn by community. Contributing to a crowdfunding campaign feels like joining a movement, becoming part of something larger than yourself. You're not just buying a product; you're supporting a vision alongside thousands of like-minded people.

Early access matters too. Backers often get to see and influence products before the general public. This creates a sense of insider status and genuine participation in the creative process.

And yes, some people are simply looking for good investments. Equity crowdfunding explicitly promises potential financial returns. Even reward-based crowdfunding can feel like a smart purchase when you're getting a product at a discount before it exists in stores.

Family and friends are a special category. Crowdfunding platforms provide a structured way for loved ones to support someone's project without the awkwardness of informal loans or gifts. The platform mediates expectations and keeps the relationship clean.

The Darker Corners

Not everything about crowdfunding is inspiring. The same openness that empowers legitimate creators also enables fraud and exploitation.

Medical crowdfunding has become particularly controversial. Desperate patients and their families turn to platforms like GoFundMe to fund treatments that insurance won't cover. Sometimes these are legitimate cutting-edge therapies. Sometimes they're expensive quackery—unproven cancer treatments, for instance, that drain savings while providing false hope.

The success rate of crowdfunding campaigns can be brutal. One study of Kickstarter projects from 2009 to 2012 found that only three percent of campaigns raised even half their goal. Those that succeed tend to do so by relatively small margins. For every headline-making success, many more projects fail to reach their targets.

Donation campaigns can be outright scams. Without proper verification, people have solicited funds for fake emergencies, fabricated illnesses, and nonexistent causes. The platforms struggle to police millions of campaigns with limited resources.

A New Financial Infrastructure

Crowdfunding represents something larger than a clever way to fund movies or gadgets. It's the emergence of a parallel financial system, one that operates outside traditional intermediaries.

Consider what it bypasses. Banks, with their credit checks and collateral requirements. Venture capitalists, with their focus on high-growth, high-return opportunities. Record labels and film studios, with their gatekeeping over what gets made. Even traditional philanthropy, with its institutional overhead and grant applications.

The implications are profound. Ideas that traditional finance would never touch can now find their audience directly. A niche product that no bank would fund might attract enough passionate supporters to reach production. A cause that no foundation would prioritize might resonate with thousands of small donors.

This democratization has its costs. Traditional intermediaries, for all their flaws, provide expertise and due diligence. Banks evaluate creditworthiness. Venture capitalists assess business viability. Studios and labels—sometimes—develop talent. When these gatekeepers are removed, the crowd must perform these functions, often without the same knowledge or experience.

The Future Is Already Here

Crowdfunding continues to evolve. Initial coin offerings—abbreviated as ICO—emerged in the cryptocurrency world, allowing projects to raise funds by issuing digital tokens. Some of these tokens represent ownership; others provide access to services; still others are purely speculative. The decentralized prediction market Augur raised four million dollars this way from over 3,500 participants.

Litigation crowdfunding has created a market for legal claims. Plaintiffs can now raise money to pursue lawsuits, with investors taking a cut of any eventual settlement or judgment. This raises fascinating questions about justice, access, and the commodification of legal disputes.

The regulatory environment keeps shifting. The Securities and Exchange Commission updated its rules in 2021, allowing companies to raise up to five million dollars annually from non-accredited investors and permitting those investors to contribute more. Other countries have their own evolving frameworks, with some—like India—prohibiting equity crowdfunding entirely.

What It Means

The London merchants who saved the Bank of England couldn't have imagined Kickstarter. Auguste Comte, issuing his subscription notes for philosophical work, couldn't have conceived of GoFundMe. The 160,000 people who funded the Statue of Liberty's pedestal did it through a newspaper campaign, not an app.

But they would recognize the impulse. When traditional systems fail to fund what people care about, those people find ways to fund it themselves. The internet didn't create this impulse. It amplified it beyond anything previously possible.

Crowdfunding has become what dating sites became for relationships—a way of finding matches that would have been impossible through traditional channels. About a quarter of real-world relationships now start online. Similarly, many projects that exist today would never have found funding through banks or investors or traditional philanthropy.

The thirty-four billion dollars flowing through these platforms annually represents millions of individual decisions to support something—an idea, a cause, a person, a dream. Sometimes those decisions are wise. Sometimes they're foolish. But they're being made by the crowd, not by institutions.

That's either democracy in action or chaos without accountability, depending on your perspective. Probably it's both.