When undertaking an ambitious project, there can’t be a lack of necessary funding. Crowdfunding is increasing in popularity as a financing model. If you haven’t heard of it by now, you are bound to hear about it this year.
Crowdfunding originated in the USA in 2000. In the same year the Internet platform ArtistShare.com was founded in an effort to curb illegal downloading. This site has allowed artists to secure private funding through advertising their respective projects. Artists then used these funds in order to implement their projects. This already illustrates the core principle of Crowdfunding.
It has taken many years to fully realize the potential of such platforms. Through the increase in Internet usage and the worldwide growth of social networks, the term became quite common by 2006. With other successful projects, such as Diaspora, the trend has spread to Europe. The project Diaspora was created as a counterpart to Facebook with increased data protection precautions and later even gained support from the Facebook founder Mark Zuckerberg.
In Germany, the Crowdfunding’s course of success began in 2011. Platforms like Inkubato, pling or startnext have steadily increased in popularity and Crowdfunding truly solidified its presence after the Cologne production company called Brainpool launched the biggest campaign in Germany so far. The aim of this campaign was to finance a movie about Stromberg.
The success rates are a main factor in the popularity of Crowdfunding. For example, the goal of raising one million euro for the production of Stromberg by the end of May 2012 was already reached within just one week. It is said that on average Germany’s Crowdfunding platforms show a 39 % success rate – a trend that is increasing.
There are many reasons the public has such a positive outlook on investing in new concepts. First of all, the personal contribution of a Crowdfunder in comparison to the targeted minimum capital is a miniscule fraction. Another aspect that attracts support is the possible, and seemingly strong, monetary return on investment that differs from project to project. Lastly, the ideal value seems to be important: Knowing that you’re contributing to something in a group… that you are a part of something that could otherwise never have been made possible evokes a sense of doing something good together when using such a platform.
Crowdfunding can also contribute to the areas of market research and promotions. The entrepreneur can already foresee through the support from the Crowdfunder in the starting phase the possible public reception of certain projects and even receive valuable information regarding target groups and key demographics. Since Crowdfunding is done online and often through social media networks the company may get additional attention at no additional cost.
Bottom line: The larger the network of a project, the greater the chances of success.