Facts of the Matter: Crowdfunding

Posted by Steve Lettau

on Sep 04, 2014

THE BRITISH ROCK BAND Marillion is credited with inventing crowdfunding, the process of soliciting small donations from a large number of people through the Internet. In 1997, fans contributed $60,000 to an online fundraising drive so the group could go on a U.S. tour. But the idea for a system of giving money to people outside traditional bank loans dates back to the 1700s, when author Jonathan Swift founded the Irish Loan Fund, which provided small amounts to Dubliners.

Did you know that crowdfunding raised an estimated $5.1 billion in 2013?

ARTISTSHARE, the first website dedicated solely to crowdfunding, launched its first project in 2003. Musicians who wanted fans to finance their albums could initiate campaigns on the site. According to Massolutions, a firm that studies crowdfunding, by 2012 there were 452 crowdfunding websites.

THE MOST POPULAR crowdfunding site is Kickstarter, which has processed pledges totaling over $1 billion since it was founded in 2009. Projects funded through Kickstarter must “create something to share with others”; the site does not allow campaigns intended only to fundraise for charities or social causes. Its biggest competitor, Indiegogo, does. Some websites, such as Fundly, Causes, FirstGiving, and Razoo, cater exclusively to nonprofits or social causes. All crowdfunding platforms charge fees, for everything from setting up the campaign to processing pledge payments. The fees can reach up to 11 percent of the total donations.