Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of
crowdsourcing Crowdsourcing involves a large group of dispersed participants contributing or producing goods or services—including ideas, votes, micro-tasks, and finances—for payment or as volunteers. Contemporary crowdsourcing often involves digit ...
and alternative finance. In 2015, over was raised worldwide by crowdfunding. Although similar concepts can also be executed through mail-order subscriptions, benefit events, and other methods, the term crowdfunding refers to internet-mediated registries. This modern crowdfunding model is generally based on three types of actors – the
project A project is any undertaking, carried out individually or collaboratively and possibly involving research or design, that is carefully planned to achieve a particular goal. An alternative view sees a project managerially as a sequence of even ...
initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organization (the "platform") that brings the parties together to launch the idea. Crowdfunding has been used to fund a wide range of for-profit, entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, and community-oriented social entrepreneurship projects. Although crowdfunding has been suggested to be highly linked to sustainability, empirical validation has shown that sustainability plays only a fractional role in crowdfunding. Its use has also been criticized for funding
quackery Quackery, often synonymous with health fraud, is the promotion of fraudulent or ignorant medical practices. A quack is a "fraudulent or ignorant pretender to medical skill" or "a person who pretends, professionally or publicly, to have skill, ...
, especially costly and fraudulent cancer treatments.


Crowdfunding has a long history with many roots. Books have been crowdfunded for centuries; authors and publishers would advertise book projects in praenumeration or subscription schemes. The book would be written and published if enough subscribers signaled their readiness to buy the book once it was out. The
subscription business model The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, a ...
is not exactly crowdfunding, since the actual flow of money only begins with the arrival of the product. However, the list of subscribers has the power to create the necessary confidence among investors that is needed to risk the publication. War bonds are theoretically a form of crowdfunding military conflicts. London's mercantile community saved the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
in the 1730s when customers demanded their pounds to be converted into gold – they supported the currency until confidence in the pound was restored, thus crowdfunding their own money. A clearer case of modern crowdfunding is Auguste Comte's scheme to issue notes for the public support of his further work as a philosopher. The "Première Circulaire Annuelle adressée par l'auteur du ''Système de Philosophie Positive''" was published on March 14, 1850, and several of these notes, blank and with sums have survived. The cooperative movement of the 19th and 20th centuries is a broader precursor. It generated collective groups, such as community or interest-based groups, pooling subscribed funds to develop new concepts, products, and means of distribution and production, particularly in rural areas of Western Europe and North America. In 1885, when government sources failed to provide funding to build a monumental base for the
Statue of Liberty The Statue of Liberty (''Liberty Enlightening the World''; French: ''La Liberté éclairant le monde'') is a List of colossal sculpture in situ, colossal neoclassical sculpture on Liberty Island in New York Harbor in New York City, in the U ...
, a newspaper-led campaign attracted small donations from 160,000 donors. Crowdfunding on the internet first gained popular and mainstream use in the arts and music communities. The first noteworthy instance of online crowdfunding in the music industry was in 1997, when fans of the British rock band
Marillion Marillion are a British rock band, formed in Aylesbury, Buckinghamshire, in 1979. They emerged from the post-punk music scene in Britain and existed as a bridge between the styles of punk rock and classic progressive rock, becoming the mos ...
raised US$60,000 in donations through an Internet campaign to underwrite an entire U.S. tour. The band subsequently used this method to fund their studio albums. This built on the success of crowdfunding via magazines, such as the 1992 campaign by
the Vegan Society The Vegan Society is a registered charity and the oldest vegan organization in the world, founded in the United Kingdom in 1944 by Donald Watson, Elsie Shrigley, George Henderson and his wife Fay Henderson among others. History In November, ...
that crowdfunded the production of the ''Truth or Dairy'' video documentary. In the film industry, independent writer/director Mark Tapio Kines designed a website in 1997 for his then-unfinished first feature film '' Foreign Correspondents''. By early 1999, he had raised more than US$125,000 on the Internet from at least 25 fans, providing him with the funds to complete his film. In 2002, the "Free Blender" campaign was an early software crowdfunding precursor. The campaign aimed for open-sourcing the Blender
3D computer graphics software 3D computer graphics, or “3D graphics,” sometimes called CGI, 3D-CGI or three-dimensional computer graphics are graphics that use a three-dimensional representation of geometric data (often Cartesian) that is stored in the computer for t ...
by collecting €100,000 from the community, while offering additional benefits for donating members. The first company to engage in this business model was the U.S. website
ArtistShare ArtistShare is the internet's first commercial crowdfunding website.Crowd-Funding 101: What Every Musician Needs for a Successful Campaign It also operates as a record label and business model for artists which enables them to fund their proj ...
(2001). As the model matured, more crowdfunding sites started to appear on the web such as
Kiva A kiva is a space used by Puebloans for rites and political meetings, many of them associated with the kachina belief system. Among the modern Hopi and most other Pueblo peoples, "kiva" means a large room that is circular and underground, ...
(2005), The Point (2008, precursor to
Groupon Groupon is an American global e-commerce marketplace connecting subscribers with local merchants by offering activities, travel, goods and services in 13 countries. Based in Chicago, Groupon was launched there in November 2008, launching soon af ...
), Indiegogo (2008),
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
GoFundMe GoFundMe is an American for-profit crowdfunding platform that allows people to raise money for events ranging from life events such as celebrations and graduations to challenging circumstances like accidents and illnesses. From 2010 to the ...
(2010), Microventures (2010), and
YouCaring YouCaring was a crowdfunding website for personal, medical, and charitable causes. The company was a Certified B corporation based in San Francisco, California. YouCaring did not take a percentage of funds raised on its site, or charge those rais ...
(2011). The phenomenon of crowdfunding is older than the term "crowdfunding". The earliest recorded use of the word was in August 2006. Crowdfunding is a part of crowdsourcing, which is a much wider phenomenon itself.


The Crowdfunding Centre's May 2014 report identified two primary types of crowdfunding: # Rewards crowdfunding, in which entrepreneurs pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares. # Equity crowdfunding, in which the backer receives shares of a company, usually in its early stages, in exchange for the money pledged.


Reward-based crowdfunding has been used for a wide range of purposes, including album recording and motion-picture promotion,
free software Free software or libre software is computer software distributed under terms that allow users to run the software for any purpose as well as to study, change, and distribute it and any adapted versions. Free software is a matter of liberty, no ...
development, inventions development, scientific research, and civic projects. Many characteristics of rewards-based crowdfunding, also called non-equity crowdfunding, have been identified by research studies. In rewards-based crowdfunding, funding does not rely on location. The distance between creators and investors on Sellaband was about 3,000 miles when the platform introduced royalty sharing. The funding for these projects is distributed unevenly, with a few projects accounting for the majority of overall funding. Additionally, funding increases as a project nears its goal, encouraging what is called "herding behavior". Research also shows that friends and family account for a large, or even majority, portion of early fundraising. This capital may encourage subsequent funders to invest in the project. While funding does not depend on location, observation shows that funding is largely tied to the locations of traditional financing options. In reward-based crowdfunding, funders are often too hopeful about project returns and must revise expectations when returns are not met.


Equity crowdfunding is the collective effort of individuals to support efforts initiated by other people or organizations through the provision of finance in the form of equity. In the United States, legislation that is mentioned in the 2012
JOBS Act The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It passed with bipartisan support, and was signed into ...
will allow for a wider pool of small investors with fewer restrictions following the implementation of the act. Unlike non-equity crowdfunding, equity crowdfunding contains heightened "information asymmetries." The creator must not only produce the product for which they are raising capital, but also create equity through the construction of a company. Equity crowdfunding, unlike donation and rewards-based crowdfunding, involves the offer of securities which include the potential for a return on investment. Syndicates, which involve many investors following the strategy of a single lead investor, can be effective in reducing information asymmetry and in avoiding the outcome of market failure associated with equity crowdfunding.

Digital security

Another kind of crowdfunding is to raise funds for a project where a digital security is offered as a reward to funders which is known as Initial coin offering (abbreviated to ICO). Value tokens are endogenously created by particular open decentralized networks that are used to incentivize client computers of the network to expend scarce computer resources on maintaining the protocol network. These value tokens may or may not exist at the time of the crowdsale, and may require substantial development effort and eventual software release before the token is live and establishes a market value. Although funds may be raised simply for the value token itself, funds raised on
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
-based crowdfunding can also represent equity, bonds, or even " market-maker seats of
governance Governance is the process of interactions through the laws, norms, power or language of an organized society over a social system (family, tribe, formal or informal organization, a territory or across territories). It is done by the govern ...
" for the entity being funded. Examples of such crowdsales are
Augur An augur was a priest and official in the classical Roman world. His main role was the practice of augury, the interpretation of the will of the gods by studying the flight of birds. Determinations were based upon whether they were flying i ...
decentralized, distributed
prediction market Prediction markets (also known as betting markets, information markets, decision markets, idea futures or event derivatives) are open markets where specific outcomes can be predicted using financial incentives. Essentially, they are exchange-trad ...
software which raised from more than 3500 participants; Ethereum
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
; and " the Decentralized Autonomous Organization".


Debt-based crowdfunding, (also known as "peer-to-peer", "P2P", "marketplace lending", or "crowdlending") arose with the founding of
Zopa Zopa is a British financial services company which offers deposit accounts and credit cards. It began as the world's first peer-to-peer lending company in 2005 and gained a full banking licence in 2020. The peer-to-peer side of its business cl ...
in the UK in 2005Ian Fraser for Unquoted. May 1, 201
Crowdfunding Part 3: The P2P lenders
and in the US in 2006, with the launches of Lending Club and Prosper.com.David M. Freedman and Matthew R. Nutting
A Brief History of Crowdfunding
. Updated June 22, 2015
Borrowers apply online, generally for free, and their application is reviewed and verified by an automated system, which also determines the borrower's credit risk and interest rate. Investors buy securities in a fund that makes the loans to individual borrowers or bundles of borrowers. Investors make money from interest on the unsecured loans; the system operators make money by taking a percentage of the loan and a loan servicing fee. In 2009, institutional investors entered the P2P lending arena; for example in 2013, Google invested $125 million in Lending Club. In 2014 in the US, P2P lending totaled about $5 billion.Bill Payne for Gust. May 4, 201
US Crowdfunding in 2014
/ref> In 2014 in the UK, P2P platforms lent businesses £749 million, a growth of 250% from 2012 to 2014, and lent retail customers £547 million, a growth of 108% from 2012 to 2014. In both countries in 2014, about 75% of all the money transferred through crowdfunding went through P2P platforms. Lending Club went public in December 2014 at a valuation around $9 billion.


Litigation crowdfunding allows plaintiffs or defendants to reach out to hundreds of their peers simultaneously in a semi-private and confidential manner to obtain funding, either seeking donations or providing a reward in return for funding. It also allows investors to purchase a stake in a claim they have funded, which may allow them to get back more than their investment if the case succeeds (the reward is based on the compensation received by the litigant at the end of his or her case, known as a contingent fee in the United States, a success fee in the United Kingdom, or a ''pactum de quota litis'' in many civil law systems). LexShares is a platform that allows accredited investors to invest in lawsuits.


Running alongside reward-based crowdfunding, donation-based is second another popular form of crowdfunding. Donation-based crowdfunding is the collective effort of individuals to help charitable causes. In donation-based crowdfunding, funds are raised for religious, social environmental, or other purposes. Donors come together to create an online community around a common cause to help fund services and programs to combat a variety of issues including healthcare and community development. The major aspect of donor-based crowdfunding is that there is no reward for donating; rather, it is based on the donor's altruistic reasoning. Ethical concerns have been raised to the increasing popularity of donation-based crowdfunding, which can be affected by fraudulent campaigns and privacy issues.


The inputs of the individuals in the crowd trigger the crowdfunding process and influence the ultimate value of the offerings or outcomes of the process. Individuals act as agents of the offering, selecting, and promoting of the projects in which they believe. They sometimes play a donor role oriented towards providing help on social projects. In some cases, they become shareholders and contribute to the development and growth of the offering. Individuals disseminate information about projects they support in their online communities, generating further support (promoters). The motivation for consumer participation stems from the feeling of being at least partly responsible for the success of others people's initiatives (desire for patronage), striving to be a part of a communal social initiative (desire for social participation), and seeking a payoff from monetary contributions (desire for investment). Additionally, individuals participate in crowdfunding to see new products before the public. Early access often allows funders to participate more directly in the development of the product. Crowdfunding is also particularly attractive to funders who are family and friends of a creator. It helps to mediate the terms of their financial agreement and manage each group's expectations for the project. An individual who takes part in crowdfunding initiatives tends to have several distinct traits – innovative orientation, which stimulates the desire to try new modes of interacting with firms and other consumers; social identification with the content, cause, or project selected for funding, which sparks the desire to be a part of the initiative; and (monetary) exploitation, which motivates the individual to participate by expecting a payoff. Crowdfunding platforms are motivated to generate income by drawing worthwhile projects and generous funders. These sites also seek widespread public attention for their projects and platform. Crowdfunding websites helped companies and individuals worldwide raise US$89 million from members of the public in 2010, $1.47 billion in 2011, and $2.66 billion in 2012 — $1.6 billion of the 2012 amount was raised in North America.Global Crowdfunding Volumes Rise 81% In 2012
August 4, 2013, ''The Huffington Post'', Retrieved at September 7, 2013
Crowdfunding is expected to reach US$1 trillion in 2025.The Rise of Crowdfunding
October 28, 2015, MyPrivateBanking Research
A May 2014 report, released by the United Kingdom-based The Crowdfunding Centre and titled "The State of the Crowdfunding Nation", presented data showing that during March 2014, more than US$60,000 were raised on an hourly basis via global crowdfunding initiatives. Also during this period, 442 crowdfunding campaigns were launched globally on a daily basis. The future growth potential of crowdfunding platforms also depends on their financing volume with venture capital. Between January 2017 and April 2020 globally 99 venture capital financing rounds for crowdfunding platforms took place with more than half a billion USD of total money raised. The median amount per venture capital financing rounds for crowdfunding was $5 million in the U.S. and $1.5 million in Europe between January 2017 and April 2020.


In 2015, it was predicted that over 2,000 crowdfunding sites would be available to choose from 2016. As of 2021, there are 1,478 crowdfunding organizations in the US ( Crunchbase, 2021). Currently, the three largest crowdfunding platforms are
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
, Indiegogo, and Crowd Supply. As of January 2021, Kickstarter has raised more than $5.6 billion spread over 197,425 projects. Crowdfunding platforms have differences in the services they provide and the type of projects they support. Curated crowdfunding platforms serve as "network orchestrators" by curating the offerings that are allowed on the platform. They create the necessary organizational systems and conditions for resource integration among other players to take place. Relational mediators act as an intermediary between supply and demand. They replace traditional intermediaries (such as traditional record companies, venture capitalists). These platforms link new artists, designers, project initiators with committed supporters who believe in the persons behind the projects strongly enough to provide monetary support. Growth engines focus on the strong inclusion of investors. They "disintermediate" by eliminating the activity of a service provider previously involved in the network. The platforms that use crowdfunding to seek stakes from a community of high net-worth private investors and match them directly with project initiators.

Significant campaigns

Crowdfunding for Statue of Liberty

In the summer of 1885, crowdfunding averted a crisis that threatened the completion of the Statue of Liberty. Construction of the statue's
pedestal A pedestal (from French ''piédestal'', Italian ''piedistallo'' 'foot of a stall') or plinth is a support at the bottom of a statue, vase, column, or certain altars. Smaller pedestals, especially if round in shape, may be called socles. In c ...
stalled due to a lack of financing. Fundraising efforts for the project fell short of the necessary amount by more than a third. New York Governor
Grover Cleveland Stephen Grover Cleveland (March 18, 1837June 24, 1908) was an American lawyer and politician who served as the 22nd and 24th president of the United States from 1885 to 1889 and from 1893 to 1897. Cleveland is the only president in American ...
refused to appropriate city funds for the project, and Congress could not agree on a funding package. Recognizing the social and symbolic significance of the statue, publisher
Joseph Pulitzer Joseph Pulitzer ( ; born Pulitzer József, ; April 10, 1847 – October 29, 1911) was a Hungarian-American politician and newspaper publisher of the '' St. Louis Post-Dispatch'' and the ''New York World''. He became a leading national figure in ...
came to the rescue by launching a five-month fundraising campaign in his newspaper '' The World''. The paper solicited contributions by publishing articles that appealed to the emotions of New Yorkers. Donations of all sizes poured in, ranging from $0.15 to $250. More than 160,000 people across America gave, including businessmen, waiters, children, and politicians. The paper chronicled each donation, published letters from contributors on the front page, and kept a running tally of funds raised. The campaign raised over $100,000 (roughly $2 million today) allowing the city to complete construction of the pedestal. Pulitzer and ''The World'' simultaneously saved the Statue of Liberty and gave birth to crowdfunding in American politics.

Early campaigns

Marillion Marillion are a British rock band, formed in Aylesbury, Buckinghamshire, in 1979. They emerged from the post-punk music scene in Britain and existed as a bridge between the styles of punk rock and classic progressive rock, becoming the mos ...
started crowdfunding in 1997. Fans of the British rock band raised $60,000 (£39,000) via the internet to help finance a North American tour. The Professional Contractors Group, a trade body representing freelancers in the UK, raised £100,000 over a two-week period in 1999 from some 2000 freelancers threatened by a government measure known as IR35. In 2003, jazz composer
Maria Schneider (musician) Maria Lynn Schneider (born November 27, 1960) is an American composer and jazz orchestra leader who has won multiple Grammy Awards. Biography Born in Windom, Minnesota, Schneider studied music theory and composition at the University of Minn ...
launched the first crowdfunding campaign on
ArtistShare ArtistShare is the internet's first commercial crowdfunding website.Crowd-Funding 101: What Every Musician Needs for a Successful Campaign It also operates as a record label and business model for artists which enables them to fund their proj ...
for a new recording. The recording was funded by her fans and became the first recording in history to win a
Grammy Award The Grammy Awards (stylized as GRAMMY), or simply known as the Grammys, are awards presented by the Recording Academy of the United States to recognize "outstanding" achievements in the music industry. They are regarded by many as the most pr ...
without being available in retail stores. ''Oliver Twisted'' (Erik Estrada, Karen Black) was an early crowdfunded film. Subscribers of The Blue Sheet formed The Florida Film Investment Co (FFI) in January 1995, and started selling shares of stock at $10 a share to fund the $80,000 – $100,000 film. The Movie was filmed in Oct 1996. The film was distributed by RGH/Lion's Shares Pictures. In 2004, Electric Eel Shock, a Japanese rock band, raised £10,000 from 100 fans (the Samurai 100) by offering them a lifetime membership on the band's guestlist. Two years later, they became the fastest band to raise a US$50,000 budget on SellaBand. Franny Armstrong later created a donation system for her feature film '' The Age of Stupid''. Over five years, from June 2004 to June 2009 (release date), she raised £1,500,000.

Highest-grossing campaigns

As of late 2022, the highest reported funding by a crowdfunded project to date is '' Star Citizen'', an online space trading and combat video game being developed by Chris Roberts and
Cloud Imperium Games Logo Cloud Imperium Games ''Star Citizen'' is an in-development multiplayer, space trading and combat simulation game. The game is being developed and published by Cloud Imperium Games for Microsoft Windows. An extended retry of unrealized pla ...
; it has raised over $500M to date, and while it has a devoted fan base, criticism has arisen for being a potential scam.

Kickstarter campaigns

On April 17, 2014, ''The Guardian'' media outlet published a list of "20 of the most significant projects" launched on the Kickstarter platform prior to the date of publication, including: Musician
Amanda Palmer Amanda MacKinnon Gaiman Palmer (born April 30, 1976) is an American singer, songwriter, musician, and performance artist who is the lead vocalist, pianist, and lyricist of the duo The Dresden Dolls. She performs as a solo artist and was also a ...
raised US$1.2 million from 24,883 backers in June 2012 to make a new album and art book. Other campaigns include: *The " Coolest Cooler" raised a total of $13,285,226 from 62,642 backers in July 2014 in a campaign run by Funded Today. The cooler features a blender, waterproof Bluetooth speakers and an LED light. *Zack Brown raised $55,000 from over 6,900 backers in September 2014 to make a bowl of potato salad. Noteworthy is that his initial goal was only $10, but his campaign went viral and got a lot of attention. Brown ended up throwing a potato salad party with over 3,000 pounds of potatoes. *Actor and director Zach Braff raised more than $3 million via a Kickstarter campaign to fund his 2014 movie Wish I Was Here Kickstarter has been used to successfully revive or launch television and film projects that could not get funding elsewhere. These are the current record holders for projects in the "film" category: #
Critical Role ''Critical Role'' is an American web series in which a group of professional voice actors play '' Dungeons & Dragons''. The show started streaming partway through the cast's first campaign in March 2015. Campaign one ended in October 2017 afte ...
raised a total of $11,385,449 with 88,887 backers in April 2019 to make an animated TV show based on their Twitch live-streamed
Dungeons & Dragons ''Dungeons & Dragons'' (commonly abbreviated as ''D&D'' or ''DnD'') is a fantasy tabletop role-playing game (RPG) originally designed by Gary Gygax and Dave Arneson. The game was first published in 1974 by Tactical Studies Rules, Inc. (TSR). ...
game. Not only did the campaign exceed the $750,000 goal, but the campaign also broke the Kickstarter record for most money raised for projects in the "film" category. # ''
Mystery Science Theater 3000 ''Mystery Science Theater 3000'' (abbreviated as ''MST3K'') is an American science fiction comedy film review television series created by Joel Hodgson. The show premiered on KTMA-TV (now WUCW) in Minneapolis, Minnesota, on November 24, 19 ...
'' raised a total of $5,764,229 with 48,270 backers in December 2015 to create 14 episodes of the new series, including a holiday special. # ''
Veronica Mars ''Veronica Mars'' is an American teen noir mystery drama television series created by screenwriter Rob Thomas. The series is set in the fictional town of Neptune, California, and stars Kristen Bell as the eponymous character. The series ...
'' raised a total of $5,702,153 with 91,585 backers in March 2013 to create a film set 9 years after the end of the
TV show A television show – or simply TV show – is any content produced for viewing on a television set which can be broadcast via over-the-air, satellite, or cable, excluding breaking news, advertisements, or trailers that are typically placed ...
. In the campaign's first 12 hours of existence, it became the fastest Kickstarter campaign to reach both $1 million and $2 million and it held onto the record of highest in the "film" category until ''Mystery Science Theater 3000'' beat it in 2015.

Third parties

A number of private companies thrive off of crowdfunding and offer services related to a number of platforms. Examples include large companies like Backerkit that principally offer data analysis of campaigns, or
Y Combinator Y Combinator (YC) is an American technology startup accelerator launched in March 2005. It has been used to launch more than 3,000 companies, including Airbnb, Coinbase, Cruise, DoorDash, Dropbox, Instacart, Quora, PagerDuty, Reddit, ...
, which acts as a startup accelerator and receives a significant number of its applicants from platforms such as Kickstarter and Indiegogo. The Italian-American company Atellani USA was originally founded with the intent to market, accelerate, and invest in startups wanting to publicize their ideas via crowdfunding platforms like Kickstarter, often designing the startup's campaign and online material.


Crowdfunding is being explored as a potential funding mechanism for creative work such as blogging and journalism, music,
independent film An independent film, independent movie, indie film, or indie movie is a feature film or short film that is produced outside the major film studio system, in addition to being produced and distributed by independent entertainment companies (or, ...
(see crowdfunded film), and for funding startup companies.Crowdfunding Rules Could Create Mini-Disclosure Regime
WSJ/CFO Journal, October 24, 2013, Emily Chasan
Community music labels are usually for-profit organizations where "fans assume the traditional financier role of a record label for artists they believe in by funding the recording process". Since pioneering crowdfunding in the film industry, Spanner Films has published a "how-to" guide. A ''Financial'' article published in mid-September 2013 stated that "the niche for crowdfunding exists in financing films with budgets in the S1 to $10 million range" and crowdfunding campaigns are "much more likely to be successful if they tap into a significant pre-existing fan base and fulfill an existing gap in the market." Innovative new platforms, such as RocketHub, have emerged that combine traditional funding for creative work with branded crowdsourcing—helping artists and entrepreneurs unite with brands "without the need for a middle man."

Philanthropy and civic projects

A variety of crowdfunding platforms have emerged to allow ordinary web users to support specific philanthropic projects without the need for large amounts of money. GlobalGiving allows individuals to browse through a selection of small projects proposed by nonprofit organizations worldwide, donating funds to projects of their choice.
Microcredit :''This article is specific to small loans, often provided in a pooled manner. For direct payments to individuals for specific projects, see Micropatronage. For financial services to the poor, see Microfinance. For small payments, see Micropaym ...
crowdfunding platforms such as
Kiva (organization) Kiva (commonly known by its domain name, Kiva.org) is a 501(c)(3) non-profit organization headquartered in San Francisco, California, that claims to allow people to lend money via the Internet to low-income entrepreneurs and students in 77 c ...
facilitate crowdfunding of loans managed by microcredit organizations in developing countries. The US-based nonprofit Zidisha applies a direct person-to-person lending model to microcredit lending for low-income small business owners in developing countries. In 2017, Facebook initiated "Fundraisers", an internal plug-in function that allows its users to raise money for nonprofits. DonorsChoose.org, founded in 2000, allows public school teachers in the United States to request materials for their classrooms. Individuals can lend money to teacher-proposed projects, and the organization fulfills and delivers supplies to schools. There are also a number of own-branded university crowdfunding websites, which enable students and staff to create projects and receive funding from alumni of the university or the general public. Several dedicated civic crowdfunding platforms have emerged in the US and the UK, some of which have led to the first direct involvement of governments in crowdfunding. In the UK, Spacehive is used by the
Mayor of London The mayor of London is the chief executive of the Greater London Authority. The role was created in 2000 after the Greater London devolution referendum in 1998, and was the first directly elected mayor in the United Kingdom. The current ...
Manchester City Council Manchester City Council is the local authority for Manchester, a city and metropolitan borough in Greater Manchester, England. Manchester is the sixth largest city in England by population. Its city council is composed of 96 councillors, three ...
to co-fund civic projects created by citizens. Similarly, dedicated Humanitarian Crowdfunding initiatives are emerging, involving humanitarian organizations, volunteers, and supporters in solving and modeling how to build innovative crowdfunding solutions for the humanitarian community. Likewise, international organizations like the Office for the Coordination of Humanitarian Affairs (OCHA) have been researching and publishing about the topic. One crowdfunding project, iCancer, was used to support a Phase 1 trial of AdVince, an anti-cancer drug in 2016. Research into the suitability of crowdfunding for civic investment in the UK highlights that the public sector has not fully realized the benefits of a crowdfunding approach.

Real estate

Real estate crowdfunding is the online pooling of capital from investors to fund mortgages secured by real estate, such as " fix and flip" redevelopment of distressed or abandoned properties, equity for commercial and residential projects, acquisition of pools of distressed mortgages, home buyer down payments, and similar real estate related outlets. Investment, via specialized online platforms in the US, is generally completed under Title II of the
JOBS Act The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It passed with bipartisan support, and was signed into ...
and is limited to accredited investors. The platforms offer low minimum investments, often $100 – $10,000. There are over 75 real estate crowdfunding platforms in the United States. The growth of real estate crowdfunding is a global trend. During 2014 and 2015, more than 150 platforms have been created throughout the world, such as in China, the Middle East, or France. In Europe, some compare this growing industry to that of e-commerce ten years ago. Examples of real estate crowdfunding platforms are EquityMultiple, Fundrise, Yieldstreet, and RealtyMogul. In Europe, the requirements towards investors are not as high as in the United States, lowering the entry barrier into the real estate investments in general. Real estate crowdfunding can include various project types from commercial to residential developments, planning gain opportunities, build to hold (such as social housing), and many more. The report from Cambridge Centre for Alternative Finance addresses both real estate crowdfunding and ''peer 2 peer'' lending (property) in the UK.

Intellectual property exposure

One of the challenges of posting new ideas on crowdfunding sites is there may be little or no intellectual property (IP) protection provided by the sites themselves. Once an idea is posted, it can be copied. As Slava Rubin, founder of IndieGoGo, said: "We get asked that all the time, 'How do you protect me from someone stealing my idea?' We're not liable for any of that stuff." Inventor advocates, such as Simon Brown, founder of the UK-based United Innovation Association, counsel that ideas can be protected on crowdfunding sites through early filing of patent applications, use of
copyright A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, education ...
and trademark protection as well as a new form of idea protection supported by the
World Intellectual Property Organization The World Intellectual Property Organization (WIPO; french: link=no, Organisation mondiale de la propriété intellectuelle (OMPI)) is one of the 15 specialized agencies of the United Nations (UN). Pursuant to the 1967 Convention Establishin ...
called Creative Barcode.


A number of platforms have also emerged that specialize in the crowdfunding of scientific projects, such as experiment.com, and The Open Source Science Project. In the scientific community, these new options for research funding are seen ambivalently. Advocates of crowdfunding for science emphasize that it allows early-career scientists to apply for their own projects early on, that it forces scientists to communicate clearly and comprehensively to a broader public, that it may alleviate problems of the established funding systems which are seen to fund conventional, mainstream projects, and that it gives the public a say in science funding. In turn, critics are worried about quality control on crowdfunding platforms. If non-scientists were allowed to make funding decisions, it would be more likely that "panda bear science" is funded, i.e. research with broad appeal but lacking scientific substance. Initial studies found that crowdfunding is used within science, mostly by young researchers to fund small parts of their projects, and with high success rates. At the same time, funding success seems to be strongly influenced by non-scientific factors like humor, visualizations, or the ease and security of payment.


In order to fund online and print publications, journalists are enlisting the help of crowdfunding. Crowdfunding allows for small start-ups and individual journalists to fund their work without the institutional help of major public broadcasters. Stories are publicly pitched using crowdfunding platforms such as
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
, Indiegogo, or
Spot.us Spot.Us was a non-profit organization designed to bring citizens, journalists, and news publishers together in an online marketplace based on crowdsourcing and crowdfunding methods and principles. It was founded in 2008 by David Cohn, who recei ...
. The funds collected from crowdsourcing may be put toward travel expenses or purchasing equipment. Crowdfunding in journalism may also be viewed as a way to allow audiences to participate in news production and in creating a participatory culture. Though deciding which stories are published is a role that traditionally belongs to editors at more established publications, crowdfunding can give the public an opportunity to provide input in deciding which stories are reported. This is done by funding certain reporters and their pitches. Donating can be seen as an act that "bonds" reporters and their readers. This is because readers are expressing interest for their work, which can be "personally motivating" or "gratifying" for reporters.
Spot.us Spot.Us was a non-profit organization designed to bring citizens, journalists, and news publishers together in an online marketplace based on crowdsourcing and crowdfunding methods and principles. It was founded in 2008 by David Cohn, who recei ...
, which was closed in February 2015, was a crowdfunding platform that was specifically meant for journalism. The website allowed for readers, individual donors, registered
Spot.us Spot.Us was a non-profit organization designed to bring citizens, journalists, and news publishers together in an online marketplace based on crowdsourcing and crowdfunding methods and principles. It was founded in 2008 by David Cohn, who recei ...
reporters, or news organizations to fund or donate talent toward a pitch of their choosing. While funders are not normally involved in editorial control,
Spot.us Spot.Us was a non-profit organization designed to bring citizens, journalists, and news publishers together in an online marketplace based on crowdsourcing and crowdfunding methods and principles. It was founded in 2008 by David Cohn, who recei ...
allowed for donors or "community members" to become involved with the co-creation of a story. This gave them the ability to edit articles, submit photographs, or share leads and information. According to an analysis by Public Insight Network,
Spot.us Spot.Us was a non-profit organization designed to bring citizens, journalists, and news publishers together in an online marketplace based on crowdsourcing and crowdfunding methods and principles. It was founded in 2008 by David Cohn, who recei ...
was not sustainable for various reasons. Many contributors were not returning donors and often, projects were funded by family and friends. The overall market for crowdfunding journalism may also be a factor; donations for journalism projects accounted for .13 percent of the $2.8 billion that was raised in 2013. Larger crowdfunding platforms such as Indiegogo or
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
, both of which are not journalism-specific, may garner more success for projects. This is because these large-scale platforms can allow journalists to reach new audiences. In 2017, 2.3 million out of
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
's 7.9 million users had donated toward more than one project. Traditionally, journalists are not involved in advertising and marketing. Crowdfunding means that journalists are attracting funders while trying to remain independent, which may pose a conflict. Therefore, being directly involved with financial aspects can call journalistic integrity and journalistic objectivity into question. This is also due to the fact that journalists may feel some pressure or "a sense of responsibility" toward funders who support a particular project. Crowdfunding can also allow for a blurred line between professional and non-professional journalism because if enough interest is generated, anyone may have their work published. Crowdfunding enables freelance journalists to travel to the sites to find the new sources.

International development

There is some hope that crowdfunding has potential as a tool open for use by groups of people traditionally more marginalized. The World Bank published a report titled "Crowdfunding's Potential for the Developing World" which states that "While crowdfunding is still largely a developed world phenomenon, with the support of governments and development organizations it could become a useful tool in the developing world as well. Substantial reservoirs of entrepreneurial talent, activity, and capital lay dormant in many emerging economies ... Crowdfunding and crowdfund investing have several important roles to play in the developing world's entrepreneurial and venture finance ecosystem."

Legal developments

As the popularity of crowdfunding expanded, the SEC, state governments, and Congress responded by enacting and refining many capital-raising exemptions to allow easier access to alternative funding sources. Initially, the
Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and aft ...
banned companies from soliciting capital from the general public for private offerings. However, "President Obama signed the Jumpstart Our Small Businesses Act ('JOBS Act') into law on April 5, 2012, which removed the ban on general solicitation activities for issuers qualifying under a new exemption called 'Rule 506(c). A company can now broadly solicit and generally advertise an offering and still be compliant with the exemption's requirements if: * The investors in the offering are all accredited investors; and * The company takes reasonable steps to verify that the investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like. Another change was the amendment of SEC Rule 147. Section 3(a)(11) of the Securities Act allows for unlimited capital raising from investors in a single state through an intrastate exemption. However, the SEC created Rule 147 with a number of requirements to ensure compliance. For example, the intrastate solicitation was allowed, but a single out-of-state offer could destroy the exemption. Additionally, the issuer was required to be incorporated and do business in the same state of the intrastate offering. With the expansion of interstate business activities because of the internet, it became difficult for businesses to comply with the exemption. Therefore, on October 26, 2016, the SEC adopted Rule 147(a) which removed many of the restrictions to modernize the Rules. For example, companies would have to do business and have its principal place of business in the state where the offering is sold, and not necessarily where ''offered'' per the prior rule.

Benefits and risks

Benefits for the creator

Crowdfunding campaigns provide producers with several benefits, beyond the strict financial gains. The following are the non-financial benefits of crowdfunding. * Profile – a compelling project can raise a producer's profile and provide a boost to their reputation. * Marketing – 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. It also has a signal value: observing consumers, consumers who are not involved with original crowdfunding campaign, show a strong preference for crowdfunded products compared to those funded with alternative means * Audience engagement – crowdfunding creates a forum where project initiators can engage with their audiences. An audience can engage in the production process by the 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. There are also financial benefits to the creator. For one, crowdfunding allows creators to attain low-cost capital. Traditionally, a creator would need to look at "personal savings, home equity loans, personal credit cards, friends and family members, angel investors, and venture capitalists." With crowdfunding, creators can find funders from around the world, sell both their product and equity, and benefit from increased information flow. Additionally, crowdfunding that supports pre-buying allows creators to obtain early feedback on the product. Another potential positive effect is the propensity of groups to "produce an accurate aggregate prediction" about market outcomes as identified by the author James Surowiecki in his book '' The Wisdom of Crowds'', thereby placing financial backing behind ventures likely to succeed. Proponents also identify a potential outcome of crowdfunding as an exponential increase in available venture capital. One report claims that if every American family gave one percent of their investable assets to crowdfunding, $300 billion (a 10X increase) would come into venture capital. Proponents also cite that a benefit for companies receiving crowdfunding support is that they retain control of their operations, as voting rights are not conveyed along with ownership when crowdfunding. As part of his response to the Amanda Palmer Kickstarter controversy, Steve Albini expressed his supportive views of crowdfunding for musicians, explaining: "I've said many times that I think they're part of the new way bands and their audience interact and they can be a fantastic resource, enabling bands to do things essentially in cooperation with their audience." Albini described the concept of crowdfunding as "pretty amazing".

Risks and barriers for the creator

Crowdfunding, while gaining popularity, also comes with a number of potential risks or barriers. For the creator, as well as the investor, studies show that crowdfunding contains "high levels of risk, uncertainty, and information asymmetry." * Reputation – failure to meet campaign goals or to generate interest results in a public failure. Reaching financial goals and successfully gathering substantial public support but being unable to deliver on a project for some reason can severely negatively impact one's reputation. * Intellectual property (IP) protection – many Interactive Digital Media developers and content producers are reluctant to publicly announce the details of a project before production due to concerns about idea theft and protecting their IP from plagiarism. Creators who engage in crowdfunding are required to release their product to the public in early stages of funding and development, exposing themselves to the risk of copy by competitors. * Donor exhaustion – there is a risk that if the same network of supporters is reached out to multiple times, that network will eventually cease to supply necessary support. * Public fear of abuse – concern among supporters that without a regulatory framework, the likelihood of a scam or an abuse of funds is high. The concern may become a barrier to public engagement. * Lack of participation – It is seen that some stories are more likely to get picked up than others based on the story. It is easy to get support if you "just tell a story." For crowdfunding of equity stock purchases, there is some research in social psychology that indicates that, like in all investments, people don't always do their due diligence to determine if it is a sound investment before investing, which leads to making investment decisions based on emotion rather than financial logic. By using crowdfunding, creators also forgo potential support and value that a single angel investor or venture capitalist might offer. Likewise, crowdfunding requires that creators manage their investors. This can be time-consuming and financially burdensome as the number of investors in the crowd rises. Crowdfunding draws a crowd: investors and other interested observers who follow the progress, or lack of progress, of a project. Sometimes it proves easier to raise the money for a project than to make the project a success. Managing communications with many possibly disappointed investors and supporters can be a substantial, and potentially diverting, task. Some of the most popular fundraising drives are for commercial companies that use the process to reach customers and at the same time market their products and services. This favors companies like microbreweries and specialist restaurants – in effect creating a "club" of people who are customers as well as investors. In the US in 2015, new rules from the SEC to regulate equity crowdfunding will mean that larger businesses with more than 500 investors and more than $25 million in assets will have to file reports like a public company. ''
The Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' commented: "It is all the pain of an IPO without the benefits of the IPO." These two trends may mean crowdfunding is most suited to small consumer-facing companies rather than tech start-ups.

Benefits for the investor

There are several ways in which a well-regulated crowdfunding platform may provide the possibility of attractive returns for investors: * Crowdfunding reduces costs – The platforms reduce search costs and transaction costs, which allows higher participation in the market. Many individual investors would otherwise have a hard time investing in early-stage companies because of the difficulty of identifying a company directly and the high costs of joining an Angel Group or doing it through a professional venture capital firm. * Current early-stage investing is not efficient – Venture capital firms often neglect the consumer sector and focus mainly on high-tech companies. Crowdfunding opens up some of these neglected markets to individual investors. Crowdfunding doesn't make sense in every industry, but for some, like retail and consumer, it does. * Value of new investors – Investors can add value to companies when they act as brand advocates and they can even be used as a
focus group A focus group is a group interview involving a small number of demographically similar people or participants who have other common traits/experiences. Their reactions to specific researcher/evaluator-posed questions are studied. Focus groups are ...
. Crowdfunding allows individual investors to be a part of the company they invest in.

Risks for the investor

On crowdfunding platforms, the problem of information asymmetry is exacerbated due to the reduced ability of the investor to conduct due diligence. Early-stage investing is typically localized, as the costs of conducting due diligence before making investment decisions and the costs of monitoring after investing both rise with distance. However, this trend is not observed on crowdfunding platforms – these platforms are not geographically constrained and bring in investors from near and far. On non-equity or reward-based platforms, investors try to mitigate this risk by using the amount of capital raised as a signal of performance or quality. On equity-based platforms, crowdfunding syndicates reduce information asymmetry through dual channels – through portfolio diversification and better due diligence as in the case of offline early-stage investing, but also by allowing ''lead investors'' with more information and better networks to lead ''crowds'' of backers to make investment decisions. Crowdfunding platforms also carry the risk of money laundering.

Issues in medical crowdfunding

The rise of crowdfunding for medical expenses is considered, in large part, a symptom of an inadequate and failing healthcare system in countries such as the United States. Healthcare through crowdfunding relies on perceived deservingness and worth, which reproduces unequal outcomes in access. Rob Solomon, the CEO of
GoFundMe GoFundMe is an American for-profit crowdfunding platform that allows people to raise money for events ranging from life events such as celebrations and graduations to challenging circumstances like accidents and illnesses. From 2010 to the ...
, has commented on this: "The system is terrible. It needs to be rethought and retooled. Politicians are failing us. Health care companies are failing us. Those are realities. I don't want to mince words here. We are facing a huge potential tragedy. We provide relief for a lot of people. But there are people who are not getting relief from us or from the institutions that are supposed to be there. We shouldn't be the solution to a complex set of systemic problems." There are ethical issues in medical crowdfunding. There is a loss of patient privacy, as crowdfunding campaigns that disclose extensive personal information are generally more financially successful. The oversight regarding the veracity of claims is generally limited. For instance, physicians are obliged to uphold the ethics of the medical profession, such as patient confidentiality, but this runs in conflict with dishonest crowdfunding efforts. Medical crowdfunding perpetuates inequalities—associated with variables such as gender, class, and race—in access to healthcare. For example, the most successful campaigns raise funds for patients who are well connected in large social networks and are able to navigate the technological landscape. Finally, the use of medical crowdfunding might reduce the impetus to reform failing infrastructures to healthcare.

See also

Angel investor An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital for a business or businesses start-up, usually in exchange for convertible debt or owne ...
* Assurance contract * Business models for open-source software * Comparison of crowdfunding services * Crowdfunding in video games *
Cooperative banking Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world. Cooperative banking, as discussed here, includes retail banking carr ...
Fan-funded music Fan-funded music is crowdfunding for music. Often, fan-funded music occurs in conjunction with direct-to-fan marketing. Fans of music have the option to donate and collectively raise money with the goal of jump-starting the career of a given music ...
Internet begging Internet begging, cyber-begging, e-begging or Internet panhandling is the online version of traditional begging, asking strangers for money to meet basic needs such as food and shelter. Internet begging among strangers differs from street beggin ...
* List of highest-funded crowdfunding projects * List of highest-funded equity crowdfunding projects * Microfinance * One Spark * Platform cooperative *
Private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a typ ...
* Revenue-based financing *
Seed money Seed money, sometimes known as seed funding or seed capital, is a form of securities offering in which an investor invests capital in a startup company in exchange for an equity stake or convertible note stake in the company. The term ''seed'' ...
* Threshold pledge system *
Kickstarter Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...


Further reading

"Crowdfunding and Civic Society in Europe: A Profitable Partnership?"
''Open Citizenship'', vol. 4, no. 1. (2013).
Crowdfunding for Emergencies
by the United Nations Office for the Coordination of Humanitarian Affairs, 2015.
Dynamics of Crowdfunding: Determinants of Success and Failure
by Ethan Mollick, examines what causes individual projects to succeed or fail.
"Is There an eBay for Ideas?"
'' European Management Review'', 2011
The Geography of Crowdfunding
NET Institute Working Paper No. 10-08, Oct 2010
Ex Ante Crowdfunding and the Recording Industry: A Model for the U.S.?

Crowdfunding and the Federal Securities Laws
by C. Steven Bradford

External links

* {{DEFAULTSORT:Crowd Funding 2000s neologisms Collaborative finance Entrepreneurship Financial technology Internet terminology Payment systems Technology in society