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Crowdfunding – A Fascinating History and its Key Success Takeaways

History of Crowdfunding - An Image of the Statue of Liberty, which was a Crowdfunded Project!

TABLE OF CONTENTS

  • Introduction
  • A Brief History Of Crowdfunding
  • 5 Key Success Takeaways From The History Of Crowdfunding

INTRODUCTION

In the world of fundraising, Crowdfunding simply cannot be beaten.

Where less than 6.5 percent of startups successfully raise funds with venture captalists, the success rate in Regulation Crowdfunding hovers around an impressive 60 percent (https://venturebeat.com/2019/01/30/regulation-crowdfunding-performed-solidly-in-2018-heres-the-data)

As far as platforms like Kickstarter are concerned, the first-time success rate stands at 39%, and doubles from there onwards for those who come back after a successful first round (https://www.kickstarter.com/blog/by-the-numbers-when-creators-return-to-kickstarter).

But that’s not all.

According to Wikipedia, in 2015, over US$34 billion was raised worldwide by crowdfunding and this industry is projected to reach US$1 trillion in 2025.

Here are some more fascinating stats:

  • By June 2018, Project EOS a Blockchain project raised $4 Billion without a live product.
  • Star Citizen, a video game project on Kickstarter surpassed its $2 Million target massively and raised $216 Million;
  • Zack Brown raised $55,000 from over 6900 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;
Zack Brown's'Potato Salad Party' Campaign on Kickstarter earned $55,000

Zack Brown’s ‘Potato Salad Party’ Campaign on Kickstarter earned $55,000

Source: Wikipedia

Be sure to check the list of many of the highest-funded projects here – https://en.wikipedia.org/wiki/List_of_highest-funded_crowdfunding_projects

I am sure I have got your attention with the above statistics. Well, you have to sit up and take notice. If you have previously ignored crowdfunding for just about any reason, it’s time to right this big wrong.

The crowd can do wonders in bringing your idea to life.

As you already know, the internet has brought the world closer. It’s time we made business inclusive and more accessible to the crowd, rather than restrict it behind glass walls and monotonous cubicles.

Time is ripe for your business idea to move out of the office cubicle and made more accessible to the crowd

Time is ripe for your business idea to move out of the office cubicle and made more accessible to the crowd

 

This is why, today, I decided to dive briefly into the history of Crowdfunding, the fascinating ideas and projects that came to life because of it, and some key takeaways from these campaigns.

Let’s dive into the history first –

A Brief History Of Crowdfunding

Earliest Instances –

The earliest example I could find was one of London’s mercantile community saving the Bank of England in the 1730s when customers demanded their pounds to be converted into gold – the merchants supported the currency until confidence in the pound was restored, thus crowdfunding their own money.

We could say, the merchant community came together with a common intent – to restore faith in their own currency, and ensure the continuance of their trade.

 

Later, in the early 1800s, it was Jonathan Swift, an Irish nationalist and author of Gulliver’s travels, who founded a £500 fund to lend to “poor industrious tradesmen”.

Jonathan Swift, author of Gulliver's Travels made use of Crowdfunding in early 1800s to fund the poor

Jonathan Swift, author of Gulliver’s Travels made use of Crowdfunding in early 1800s to fund the poor

 

Small sums of 5 to 10 pounds were loaned out and repaid in weekly installments of 2 to 4 shillings, without interest.

To overcome the problem of possible non-repayment, borrowers were required to have two neighbors guarantee the loan, both of whom would be notified in case of late-payments.

On top of that Swift took all three of them to court in case repayment was not made. Apparently this strategy worked very well since Swift is said not to have suffered any losses from this enterprise.

Soon after, other wealthy individuals and institutions followed and founded their own microloan funds.

 

Early 19th Century

By the early 19th Century, such micro-loan funds grew massively in number.

They were a way for the wealthy to give loans without interest to the poor, while retaining their money and getting an interest on their funds.

This part of the century also saw a rise in credit-unions, similar to modern-day version of credit unions, which are basically not-for-profit financial cooperatives.

Source: http://wiki.p2pfoundation.net/Irish_Loan_Funds

 

Exactly around this time, Auguste Comte, set a modern day example with his use of crowd funding.  He was a French philosopher and writer who formulated the doctrine of positivism and is sometimes regarded as the first philosopher of science.

Auguste Comte - Literally a Father of Modern Day Crowdfunding!

Auguste Comte – Literally a Father of Modern Day Crowdfunding!

 

He would issue notes to the public support of his further work as a philosopher through the “Première Circulaire Annuelle adressée par l’auteur du Système de Philosophie Positive” (…phew…) and it worked! Several of his notes arrived back with sums.

 

The Statue Of Liberty

The copper statue, a gift from the people of France to the people of the United States, was designed by French sculptor Frédéric Auguste Bartholdi and its metal framework was built by Gustave Eiffel. The statue was dedicated on October 28, 1886.

It has a rather interesting story behind how it was built.

In 1875, Édouard René de Laboulaye proposed that the French finance the statue and the U.S. provide the site and build the pedestal.

Head of the Statue of Liberty on display in a park in Paris

Head of the Statue of Liberty on display in a park in Paris

 

Fundraising proved difficult, especially for the Americans, and by 1885, work on the pedestal was threatened by lack of funds. Publisher Joseph Pulitzer, of the New York World, a New York newspaper, announced a drive to raise $100,000—the equivalent of $2.3 million today. Pulitzer pledged to print the name of every contributor, no matter how small the amount given.

The drive captured the imagination of New Yorkers, especially when Pulitzer began publishing the notes he received from contributors.

“A young girl alone in the world” donated “60 cents, the result of self denial.”

A group of children sent a dollar as “the money we saved to go to the circus with.

Another dollar was given by a “lonely and very aged woman.”

The drive attracted more than 120,000 contributors, most of whom gave less than a dollar.

As the donations flooded in, the committee resumed work on the pedestal.

The statue was built in France, shipped overseas in crates, and assembled on the completed pedestal on what was then called Bedloe’s Island. The statue’s completion was marked by New York’s first ticker-tape parade.

 

20th Century

War Bonds

War Bond Poster for World War I

War Bond Poster for World War I

 

During both World Wars, the governments of all participatory countries relied heavily on War Bonds to “Crowdfund” military conflicts.

The United States government issued Liberty Bonds in World War I and War Bonds during World War II to raise money for its involvement, with an aggressive campaign using patriotic appeals to popularize the bonds.

The government used popular culture, posters with famous artists, and rallies with movie stars to raise money and promote sale of these bonds.

Howard Miller's poster, used to encourage women to take wartime jobs in defense industries, it became one of the most famous icons of World War II

Howard Miller’s poster, used to encourage women to take wartime jobs in defense industries, became one of the most famous icons of World War II

 

Charlie Chaplin also made a short film, The Bond, at his own expense for the drive to sell Liberty Bonds for World War I.

Charlie Chaplin - The Bond (1918) Poster

Charlie Chaplin – The Bond (1918) Poster

 

These campaigns spurred community efforts across the country to sell the bonds and was a great success resulting in over-subscriptions to the second, third and fourth bond issues.

Grameen Bank (Translated as Rural Bank)

Muhammad Yunus was inspired during the Bangladesh famine of 1974, to make a small loan of US$27 to a group of 42 families as start-up money so that they could make items for sale, without the burdens of high interest under predatory lending.

Yunus believed that making such loans available to a larger population could stimulate businesses and reduce the widespread rural poverty in Bangladesh.

He began to expand microcredit as a research project to test his method for providing credit and banking services to the rural poor.

You are likely wondering, ‘How is it related to crowdfunding?’

My response would be, although Micro-finance and Crowdfunding share the same core concept, they are not related. We can get away by calling them distant cousins.

The Grameen bank’s success continued and its services were extended to other districts of Bangladesh.

By the beginning of 2005, the bank had loaned over US$4.7 billion, and by the end of 2008, US$7.6 billion to the poor.

As of 2017, the Bank had about 2,600 branches and nine million borrowers, with a repayment rate of 99.6%.

Even cooler is the fact that 97% of the borrowers were women!

This Bank is currently active in 97% of the villages of Bangladesh.

History of Crowdfunding - Muhammad Yunus of Grameen Bank | Courtesy of ABC

History of Crowdfunding – Muhammad Yunus of Grameen Bank | Courtesy of ABC

 

Its success has inspired similar projects in more than 64 countries around the world, including a World Bank initiative to finance Grameen-type schemes.

Grameen Bank is now expanding into wealthy countries, as well. As of 2017, Grameen America had 19 branches in eleven US cities. Its nearly 100,000 borrowers were all women!

 

The Age Of Internet

Crowdfunding on the internet was first used by the ‘arts and music’ communities.

The British rock band Marillion, something of a cult band at that time, first raised money for tours and albums on the internet and pioneered the concept of online crowdfunding.

The first notable instance of online crowdfunding was in 1997, when fans raised US$60,000 in donations by means of a fan-based Internet campaign for their U.S. tour.

First Notable Instance of Online Crowdfunding - British Rock Band Marillion

First Notable Instance of Online Crowdfunding – British Rock Band Marillion

 

Here is what their keyboardist, Mark Kelly has to say about it –

“It was 1997, in the fairly early days of the Internet. The Marillion mailing list had about 1000 people, and I told these people that we didn’t have a record contract and it cost a lot of money to go to the States. Back then we had some fans who were keen for us to come, and we said we would lose about $60,000 if we came to the States to tour. They said, ‘Why don’t we raise the money?’ Then it got organized. That was the beginning of crowdfunding for us — and for every band, really.”

When it came time for the recording and release of the followup to the 1999 marillion.com record, Marillion simply didn’t want yet another standard record deal.

“That’s when I thought of the idea of asking the fans, just as had happened a few years previously,” Kelly says. “Quite a few people copied what we did, and Kickstarter came along, and it sort of came full circle with Pledge Music that just does music crowdfunding. They told us that they took our idea and turned it into a company, and they said they wanted to work with us, which is how we did this new album, [Fuck Everyone and Run] — with Pledge.”

Source: http://www.westword.com/music/progressive-rock-band-marillion-pioneered-crowdfunding-8425775

The first company to engage in this business model was the U.S. website ArtistShare (2001).

ArtistShare launched in 2003 as the Internet's first fan-funding (referred to today as'crowdfunding') platform for creative artists.

ArtistShare launched in 2003 as the Internet’s first fan-funding (referred to today as ‘crowdfunding’) platform for creative artists.

 

As the model matured, more crowdfunding sites started to appear on the web such as Kiva (2005), IndieGoGo (2008), Kickstarter (2009), GoFundMe (2010), Microventures(2010), and YouCaring (2011).

On April 28, 2009, Kickstarter was launched to the public

On April 28, 2009, Kickstarter was launched to the public

 

(Oh, and they just turned 10 – https://www.kickstarter.com/10)

Indiegogo (2008) - A Crowdfunding Platform

Indiegogo (2008) – Another Great Crowdfunding Platform

 

GoFundMe (2010) is a for-profit crowdfunding platform that allows people to raise money for just about anything

GoFundMe (2010) – Raise money for just about anything!

 

The CrowdFunding Scene explodes

After the inception of crowdfunding platforms such as Kickstarter, the Crowdfunding scene has grown and grown.

Right now, the crowdfunding volume in North America alone stands at $17.2 Billion in 2017 with 400K projects launched as of April 2019 on Kickstarter alone.

Source: Statista

This industry is projected to reach US$1 trillion in 2025.

So, what are you really waiting for? Start working on your world-changing idea today!

 

5 Key Success Takeaways From The History Of Crowdfunding

When it comes to success with Crowfunding, knowing its journey throughout time and what really worked then will give you an advantage over all others who don’t.

The volume, the nature of crowdfunding, the technology, its applications, all of the surface level stuff may change, but people are inherently the same, smarter maybe, but their inherent attitudes are pretty much the same.

And, since I’ve lifted back the curtain and shared a brief history of Crowdfunding, why don’t I show you some of the common patterns in its above shared journey?

Here are the 5 Key Takeaways from the Journey of Crowdfunding:

I) Crowdfunding has a strong “emotional” aspect to it.

If you don’t connect emotionally with your backers, you might as well just give up your hopes of succeeding with crowdfunding.

Connecting emotionally is a very important aspect of crowdfunding as we saw in every case, be it with the War Bonds (Patriotism and Fight for Freedom), the Statue of Liberty (Getting their name printed in a newspaper), the rock band Marillion (their cult-like status and the love of their fans), and so on. Make your story so appealing, your backers can’t help but want to back you.

(In our previous article, we talked about how to get your backers thrilled to back you using a great story. We also go into the 7 Key Factors To Achieve Crowdfunding Success demonstrated using past success stories. Check it out here: https://www.morphomfg.com/7-key-factors-for-crowdfunding-success/)

II) People need to be pushed to back you.

Give them a push with relentless follow up… and by follow up, we mean a consistent use of all the communication channels at your disposal – Blogging, Social Media, Ads, PR, and so on.

The Statue of Liberty (relentless newspaper campaign), War Bonds (Mass Rallies and Community Efforts with Celebrities, War Heroes, and so on), all of them consistently followed up in order to hammer their message and get more and more people onboard, which paid hugely in the end.

Stick at it!

III) A Reward is the biggest push you can offer.

In every case, there was a certain reward for ever participant involved in every project that turned into a raging crowdfunding success.

The Statue of Liberty (getting their names and notes printed in a newspaper), War Bonds (Sense of Patriotism, Contributing to Winning the War, Payback on Bond Maturity), Bank of England (Saving the currency and ensuring the continuance of their trade), and so on.

What is the reward you are going to offer your backers?

IV) Minimize their perceived losses

If you take out the risk of being scammed and taken advantage of, or even the risk of your backers giving away something for “nothing” in return (at least nothing tangible and concrete, if we consider the emotional satisfaction of supporting a good cause as intangible), you can get your backers more and more thrilled about backing you.

This is a big reason why the noblest charities in the world are not getting a cash windfall everyday. There’s no reason why they shouldn’t be, isn’t it?

Soi Dog Foundation | Ending The Suffering Of Animals In Asia

Soi Dog Foundation | Ending The Brutal Suffering Of Animals In Asia

 

You can minimize the losses for your backers or even cut them entirely by assuring your backers their money will be in safe hands, will be used for a good cause, and that they don’t really need to “lose out” on something for nothing tangible in return for having supported you (exactly like Jonathan Swift’s micro-loan fund where the funders kept their money and still got to support the poor with an interest-free loan).

Even in the case of War Bonds, a Government automatically brought authenticity and the massive rallies with popular celebrities further reduced the buyers’ resistance. The Payback on War Bond Maturity meant the buyers could cut their losses and still get to support their country.

Find a way so your backers don’t feel they are giving up something for nothing tangible in return.

V) Use the Herd Mentality to your advantage

Crowdfunding has a certain herd appeal to it. If you can get a small group thrilled to back you, this group will influence a larger group, and before you know, you have a crowd cheering you on to reach for your dream.

The success of Grameen Bank has inspired similar projects in more than 64 countries around the world, including wealthy countries such as the US as well as a World Bank initiative to finance Grameen-type schemes all over the world.

Let the enthusiasm of your backers get the rest of the world to sit up and take notice!

Here are the 5 Key Success Takeaways again –

I) Crowdfunding has a strong “emotional” aspect to it.

II) People need to be pushed to back you.

III) A Reward is the biggest push you can offer.

IV) Minimize their perceived losses

V) Use the Herd Mentality to your advantage

 

If you find this article helpful, be sure to share it with friends, family, or colleagues, who are Kickstart-ing. They will thank you!

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