Another busy day at Haggerston Times HQ, including an exciting intro we’ll be telling you about shortly. The playing field in Tech City really is being blown wide open. Just time to debate the virtues of crowdfunding by looking at its origins. We’re no experts, but hope you enjoy the debate and feel free to contribute!
Like so many of the best new ideas, crowdfunding is not really a new idea at all. And like so many of the best ideas, crowdfunding originated in the US. And like so many of the best new ideas from the US, crowdfunding was in fact invented by the Irish.
It all began with humanitarian and author Jonathan Swift, a man famous for only having laughed twice in his entire life; once at a joke someone made over dinner, and once when he saw a juggler on the beach. Crowdfunding is a serious business, then. In the 18th Century Swift founded the Irish Loan fund, which made short term loans available to low-income families in rural Ireland. Over 300 programs were launched, and by the 1800’s it was reported that some 20% of all Irish households were participating in one program or another.
At the same time, writers and musicians, who had tended to rely on patronage from the well-to-do cultural elite, saw the potential of crowdfunding to help fund larger scale projects and bodies of work. The business model at that time was known as praenumeration, and like modern day crowdfunding, prestige was accorded to backers via a mention on the title page of a new work, or perhaps a dedication in verse or song.
Put a penny in the slot?
Fast forward 2 and a half centuries, and the bohemians were still at it; in 1997 British rock group Marillion successfully raised 60 thousand dollars after fans pledged to underwrite a US tour, by making donations over the internet. In fact it is interesting to note that artists and musicians have effectively pioneered modern day crowdfunding, partly due to their naturally entrepreneurial spirit, and perhaps also due to their naturally, ahem, carefree attitude towards the realities of funding and financial responsibility. ArtistShare became the first ever Crowdfunding site for music projects in 2001.
Indeed, artist and musician Palmer, who raised over one million dollars via crowdfunding to produce albums and tour with her band, was one of the first people accused of abusing the system, after she declined to pay local musicians for accompanying her on stage, instead offering to “feed you beer, hug/high-five you up and down (pick your poison), give you merch, and thank you mightily.” The million dollars had already been spent on studio time for the next album, apparently.
Fasttracking aid donation
In August 2008 crowdfunding was used for charitable purposes for the first time, as GiveForward was launched, to provide for families affected by the fallout from Hurricane Katrina. Since that time, crowdfunding has tended to favour socially responsible projects that have the potential to give something back to the community. A good example of this being www.crowdfunder.co.uk, which encourages businesses to place the community at the heart of their project manifesto.
Entrepreneurs, by their own standards, came to the party relatively late, although again force of circumstance was a major contributor, the collapse of the global markets in 2008 making it necessary to come directly to the public for funding, rather than dealing exclusively with Investment banks and Venture Capital. Power to the people, at last!
Kickstarter was the first to launch in April 2009, and the scale of funding raised defied the wildest expectations of analysts, as 89 million dollars was pledged worldwide in 2010, 2.66 billion in 2012, and a projection of 5.1 billion made for 2013. Phenomenal growth by any standard, across any business sector. A report released by UK based The Crowdfunding Centre recently estimated that 60 thousand dollars are raised every hour by global crowdfunding sites, such as these http://marketingmoxie.biz/the-big-list-of-crowdfunding-sites/
Where next? The good, the bad and the ugly
Ever since the dotcom era of the early 1990’s, we have become accustomed to bubbles bursting. Be it property, financial services, or the web, industries have a tendency to grow uncontrollably, before the inevitable plateau. There are several business reasons which suggest crowdfunding can continue to go from strength to strength, and some powerful counter-arguments. Firstly, crowdfunding has a localised feel to it; people are often voicing ideas that speak directly to the community, offering better local services, protection from threats both perceived and real, and new opportunities for growth and development.
If a project piques a commonly held interest, or can be termed “social entrepreneurship”, it has a better chance of succeeding in raising funds. A good example of this is the community in Tecoma who raised funds, via Indiegogo, to fund a campaign against a plan to build a McDonalds opposite a kindergarten school. But therein also lies the problem. If crowdfunding is forever associated with smaller scale, socially helpful projects, it may not appeal to the kind of powerbrokers who are increasingly turning back to the banking sector to get the billion dollar plus loans they require, without the inconvenience of placating the consciences of a millions individuals with 1 million different takes on the project.
Secondly, crowdfunding, as I have hopefully shown by briefly discussing its history, has always represented to an extent a lender of last resort. Somewhere you take your more outlandish ideas, after the bank manager has said no, if you are ideologically opposed to using a bank manager in the first place, or if the path to funding, as with Hurricane Katrina, was not immediately obvious. After all, a crowdfunder is rather like a shareholder, and, for better or worse, there is a reason the stock market has grown up as it has. Blame capitalism if you like; blame Reagan, Thatcher and the Neo cons, but in the end, crowdfunder, shareholder, or conscientious objector, we all have to dance with the devil if we want to get things done. If that surprises you, you are probably best off blaming yourself.