Overview and evolution of crowdfunding
In recent times, crowdfunding has emerged as a popular business model for managing the funds to run their business. Crowdfunding refers to the usage of digital platforms to raise small amounts of money from an extensive number of individuals to manage the required funds to establish a new business venture. By leveraging the wider reach of the fundraising platforms and social media, this process is accountable for connecting the entrepreneurs and the investors, which leads to promoting entrepreneurship. In exchange for facilitating the entrepreneurs to connect with a substantial number of investors, the crowdfunding sites charge a certain fee which ranges from 5 per cent to 12 per cent.
On the other side, Investors agree to donate money to the needy either for philanthropic efforts or to obtain rewards like equity in the firm. As of 2023, the estimated value of the global crowdfunding market is around 1.17 billion US dollars. It is forecasted that the transaction value in the respective sector worldwide will increase by approximately 1.48 per cent between the years 2024 and 2028, which will lead to the attainment of a market size of around 1.27 billion US dollars in 2028. The market size of the respective sector in India is approximately 5.77 million US dollars as of 2024.
| Year | Transaction value of global crowdfunding (In billion US dollars) |
| 2017 | 1.2 |
| 2018 | 1.21 |
| 2019 | 1.23 |
| 2020 | 1.15 |
| 2021 | 1.2 |
| 2022 | 1.15 |
| 2023 | 1.17 |
The first incident of crowdfunding is found to have appeared in 1997, in which a music group belonging to the United Kingdom has been observed to collect online money from fans for a concert tour. Taking inspiration from this procedure of financing, ArtistShare emerged as the first devoted fundraising platform which was established in 2000. Later, the popularity of crowdfunding considerably increased by the 2008 financial crisis. After the recession, due to the enforcement of strict lending rules by the banks, many small businesses were found to be struggling to get loans, which encouraged them to find alternative funding methods, which led to the growing acceptance of crowdfunding.
Leading platforms of crowdfunding
GoFundMe
GoFundMe is regarded as one of the largest fundraising platforms which was founded in 2010. Since its establishment, more than 30 billion dollars has been raised by the site, where around 150 million people either sent or received money. It is most efficient among the individuals who seek to navigate the disasters including unexpected emergency expenses, natural disasters as well as huge medical expenses. GoFundMe is eligible to send funds to 20 countries across the world with respect to the withdrawal requirement of those countries. For example, fundraising activities in the US are regulated by the JOBS (Jumpstart Our Business Startups) Act.
However, in its origin country, which is the US, some territories are excluded from creating the fundraiser, including American Samoa, U.S. Virgin Islands, Northern Mariana Islands, and Guam. GoFundMe used to leverage a transaction fee of 2.9 per cent along with 0.30 dollars per donation in the fundraising campaigns.
Kickstarter
Kickstarter is one of the most popular choices among start-up organisations for the purpose of fundraising. As of 2024, 265894 projects have been funded by this platform while around 8.25 dollars has been pledged in all the projects. The respective is suitable for aspiring businesses which seek to gather funds to gain visibility among wider audiences. However, unlike GoFundMe, only shareable projects are created on Kickstarter. There is no usage of Kickstarter for the purpose of donations or charity or for projects which are not accountable for offering rewards like revenue sharing, equity or investment opportunities.
Moreover, the projects which seek capital for political agenda, medical expenses, any form of contests, gambling or involving drugs or alcohol are not supported by this platform. A fee of 5 per cent is charged by Kickstarter on the total raised funds, along with an additional 3 to 5 per cent payment processing fees. One of the major reasons behind the increasing acceptance of Kickstarter among start-up companies is its high success rate, as approximately 38 per cent of its campaigns have been reported to be fully funded.
Indiegogo
Though initially established in 2008 only to support independent films by fundraising, after one year of its establishment, Indiegogo started to support diversified projects. The Indiegogo platform offers more flexibility and imposes less complicated rules to the campaigners in comparison to Kickstarter. While Kickstarter is found to be releasing funds only if the funding goal of the campaign is achieved, the campaigners are allowed to withdraw their funds in Indiegogo after fulfilment of the funding target as well as partially receive funds which have been raised before the full achievement.
In simple words, Indiegogo allows the campaigners to get access to a fixed funding model as well as a flexible one. The respective platform offers its services in 223 countries and territories across the world. In total, the platform has raised more than 1 billion dollars across all the projects starting from dance to design. The fee structure of Indiegogo includes a charge of 5 per cent on the overall funds collected as well as an additional 2.9 per cent to 3.5 per cent payment processing fees.
Successful case studies of crowdfunding
Case Study 1: Oculus VR
A prominent example of an organisation to effectively uses the idea of a crowdfunding business model to establish and grow the business is Oculus VR, which is an American firm that is popular for offering virtual reality software and hardware products. In 2012, the founder of Oculus VR, Palmer Luckey, started a fundraising campaign on Kickstarter for the development of a virtual reality headset which is known as Oculus Rift.
The initial funding target which was set in this campaign was 250000 dollars. However, the commitment towards offering an immersive and accessible gaming experience attracted a substantial number of investors, resulting in the collection of total funding of around 2.4 million, which is approximately ten times the actual funding goal.
The huge success of the campaign reflects the increasing demand for their VR products, helping Oculus VR to come into the spotlight of high-level investors. This led to the acquisition of Oculus VR by Facebook (Now Meta) for 2 billion dollars in 2014 which was a huge achievement for a startup company which was founded in 2012. Nowadays, Oculus Rift and Oculus Quest have become one of the most prominent VR headsets on the market, reflecting the power of crowdfunding for establishing new technology ventures.
Case Study 2: Axent Wear
Victoria Hu and Wenqing Yan, the founder of Axent Wear, created a fundraising campaign on Indiegogo in 2014, with a target to raise capital of 250000 dollars to design and produce impressive cat-ear-shaped headphones which will have awesome LED lights and external cat-ear speakers along with many attractive features. Axent Wear is an organisation that started with the idea to make innovative headphones with the intersection of art or fashion and creative technology.
The objective of creating the fundraising campaign was to arrange the required funds to manufacture these Axent Wear Cat Ear Headphones, which are needed for the purpose of funding the casting, molding, and production, along with packaging and logistics of the product. The creative and eye-catching design of the headphones gained the attention of a thousand backers, allowing the campaign to gather an extensive fund of 3.4 million dollars. The success of the campaign allows the makers to collaborate with Brookstone for manufacturing and delivering the headphones to the customers and thrive in the market.
Case study 3: Code.org
Code.org, a leading non-profit company and educational website committed to ensuring equal accessibility to computer science among students, especially among females and underrepresented youth, have leveraged the potential of crowdfunding through GoFundMe to achieve its ambition. For the purpose of minimising the digital divide, the company asked for capital from the people so that they can be engaged in the continuous development of the best quality and valuable programming resources accessible to everyone. Their purpose captivated the attention of a large number of people, which provided an opportunity for the company to raise more than 5 million dollars on GoFundMe.
The company has set an example of the effectiveness of crowdfunding in supporting non-profit initiatives emphasizing digital transformation in education. Microsoft, Google, Amazon, Coinbase, Spiegel and many others are found to be donating to promote these non-profit initiatives of the company. Nowadays, around 92 million students and 2.7 million teachers are associated with Code.org. Among all the students of Code.org, around 39 million students are young women. The organization has also successfully created more than 317 million projects till now. The company is also accountable for organizing the annual Hour of Code campaign, which leads to the engagement of over 15 per cent of all students across the world.
Case Study 4: Pebble Technology
Among the most successful campaigns on Kickstarter, the fundraising campaign of Pebble Technology for the development of the Pebble Watch is one of the prominent ones. Pebble Technology intended to build a smartwatch called Pebble Time that is accountable for connecting to Android smartphones as well as iPhones. For this purpose, they introduced their fundraising campaign on Kickstarter in the year of 2012, initially seeking the help of 100000 dollars. However, the campaign was able to accumulate a record breaking of more than 20 million dollars as the unique features of Pebble Time to be supported in both Android devices and iOS has attracted a large number of people.
For the promotion of this campaign, the company uploaded a number of videos outlining the videos in which they explained attractive features of their watch, such as long battery life, water-resistant capability and many others. More than 78000 people supported this campaign of Pebble Technology on Kickstarter which allowed the company to obtain such type of humongous success. This led the company to gain a comprehensive understanding of the market demand for their smartwatches and encourage them to start mass production.
Case study 5: M3D
M3D is another leading example of a company which achieved business growth through Kickstarter campaigns. M3D is regarded as an American organisation established by two friends, Michael Armani and David Jones, and is a manufacturer of 3D printers. In 2014, the founders of the company registered a campaign on Kickstarter for manufacturing “The Micro”, a consumer 3D printer. The campaign was found to be successfully raising more than 3.4 million dollars against the goal of 50000 dollars, which supported the company in the mass production of their Micro 3D printer. 11855 backers participated in that campaign to make it successful.
These tiny 3D printers, which consist of a wider range of durable 3D inks and involve Micro Motion Technology for ensuring consistency, reliability and accessibility, have become the preferences of many people over time. The effectiveness of the campaign enabled the Micro 3D printer of M3D to be widely available in the market, including in Amazon, Staples, and Brookstone. Later, the company was also found to be placing requests for financing on Kickstarter for their many different products like M3D Pro.
Advantages of crowdfunding
Fulfil the capital requirement
The foremost benefit of crowdfunding is that it provides the capability of individuals or start-up companies to gain the accessibility to an extensive and diverse group of supporters or investors. Along with the wider reach of social media platforms, businesses can leverage the potential of fundraising to both increase their audiences as well as access the financial support they require to grow their business. For example, during the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, through fundraising on Kickstarter, a number of fishermen in Louisiana saved their lives from the disaster of the oil spill. By collecting more than 2 million dollars, they purchased new boats and equipment to support their family.
Market validation
The fundraising campaigns are not only accountable for getting the required capital for a business but also can support to development of a comprehensive understanding of the market demand for a product or service for which they require capital to develop. Through the analysis of the level of support and interest of the potential customers towards the products listed on the crowdfunding portals, the company can validate the reliability of their business model. For example, the fundraising campaign for the Coolest Cooler has encouraged the manufacturers to boost their production of the respective product, considering the immense support from 62642 backers worth more than 13 million dollars.
Brand publicity
A well-organised crowdfunding campaign has the potential to grab the attention of a large number of diverse stakeholders, which may include industry leaders, media news, and the general public, which can lead to the enhancement of brand exposure and publicity without additional significant marketing efforts. For example, the brand publicity gained by Oculus VR due to crowdfunding has created an opportunity for the company to become a part of a large technology company, Meta, through acquisition.
Case study of crowdfunding failures
While the successful campaigns of crowdfunding reflect the effectiveness and importance of this business model, there were several examples which represent its adverse sides as well as challenges.
Peachy Printer
One of the major concerns which is related to fundraising is the occurrence of cheating activities. In 2013, on the Kickstarter platform, a crowdfunding campaign was created by Rylan Grayston to fund their product named Peachy Printer, which is promoted as an affordable 3D printer and scanner. The total fund which was achieved in this campaign was 651091 dollars against the target of 50000 dollars that came from 4420 backers.
However, it has been seen that one of the business partners of the project has used a major portion of the collected money, which is around 320000 US dollars, for building a new personal home. It led to an adverse impact on the reputation of the company and questions arose regarding the regulation of crowdfunding.
Franko 2
Another inefficient example of a fundraising campaign is seen for the Franko 2 project which is related to the development of a computer on the basis of Franko: The Crazy Revenge from 1994. The developer of the project has raised more than 112 per cent of their funding goal. The game was supposed to be launched in the market in 2013.
However, a delay was seen in the launch of the game while the programming team associated with the project was found to be changed. The problem is that till now the game has not been released yet, even though the campaign was proven to be highly successful. There is no progress in this project, even after filing several reports at the police station.
FAQ
What is crowdfunding?
Crowdfunding refers to the usage of digital platforms to raise small amounts of money from an extensive number of individuals to manage the required funds to establish a new business venture.
What is the market size of the global crowdfunding sector?
As of 2023, the estimated value of the global crowdfunding market is around 1.17 billion US dollars. It is forecasted that the transaction value in the respective sector worldwide will increase by approximately 1.48 per cent between the years 2024 and 2028, which will lead to the attainment of a market size of around 1.27 billion US dollars in 2028.
What are some popular crowdfunding platforms?
GoFundMe, Kickstarter, and Indiegogo are some leading crowdfunding platforms.
What are the examples of a few successful companies related to crowdfunding campaigns?
Some prominent examples of organisations to effectively use the idea of a crowdfunding business model to establish and grow the business are Oculus VR, Axent Wear, Pebble Technology, and M3D.
Is there any fee structure to use the fundraising platforms?
Yes. For example, A fee of 5 per cent is charged by Kickstarter on the total raised funds, along with an additional 3 to 5 per cent payment processing fees. GoFundMe used to leverage a transaction fee of 2.9 per cent along with 0.30 dollars per donation in the fundraising campaigns.
