A Brief History Of Crowdfunding [Infographic]

We look at some of the historical movements that led to the development of crowdfunding, as well as events over the past two decades that have shaped modern crowdfunding.

May 21st, 2018   |    By: The Startups Team    |    Tags: Funding

Crowdfunding may seem like a new idea, but it actually has a long and rich history with roots going back to the 1700’s.

However, modern day crowdfunding — where people and businesses raise small amounts of money from a large group of people, usually online — has its origins in 1997.

In this infographic, we look at some of the historical movements that led to the development of crowdfunding as we know it, as well as major events over the past two decades that have shaped modern day crowdfunding.

History of Crowdfunding Infographic

Infographic text transcript:

1700’s: The Irish Loan Fund

The Irish Loan Fund was established by author and Irish nationalist Jonathon Swift in the early 1700’s as a way to provide loans to poor but creditworthy people in Dublin.

The Fund was successful and sparked a wave of imitations, as well as an official Loan Fund Board in 1837.

By 1843, there were approximately 300 loan funds in Ireland.

The “crowd” part of the funding for Ireland’s loan funds was in the form of donations from wealthier citizens, who saw it as a way to charitably help the poor.

The funds were also aided by retained earnings, interest-free loans, and deposits that earned interest.

1852: The Creation of Credit Unions

A credit union is a non-profit bank that gets their loaning money from members, who also get a part ownership and voting power in the credit union.

In 1846, Herman Schulze-Delitzsch created a cooperatively owned bakery and mill in response to a crop failure and famine in Germany.

Six years alter, Schulze-Delitzsch and Friedrich Raiffeisen took that idea of cooperative ownership and turned it on finance, creating the first credit union.

German credit unions had democratic governance, a member-elected board of directors, were volunteer run, and gave each member an equal vote, regardless of how much money they contributed.

Modern credit unions still adhere fairly closely to that original model.

The “crowd” in credit unions are the members, who contribute by depositing their money with the bank and paying a (lower than average) interest on loans.

1976: The Grameen Bank and Microfinance

In 1976, Professor Muhammad Yunus launched a research project, where he loaned $27 to 42 poor women in Jobra, Bangladesh.

The project was so successful that it led to the development of the Grameen Bank Project, which is widely credited as being the first example of modern microfinance.

Like the Irish Loan Fund, microfinance provides loans to people living in poverty who do not have access to traditional forms of credit.

Unlike the Irish Loan Fund, the money in microfinance institutions may come either from members (as it does in credit unions) or from donations or they be look more like traditional banking institutions, but with lower deposit amounts, loan amounts, and (ideally) interest rates.

1997: The Inception of Modern Day Crowdfunding

The first recorded successful instance of crowdfunding occurred in 1997, when a British rock band called Marillon funded their reunion tour through online donations from fans, who were eager for them to come on tour in the United States.

Keyboardist Mark Kelly sent out an email to his 1,000 person mailing list, telling them that the band would lose about $60k if they went on tour.

The fans said: So why don’t we raise the money?

One fan even volunteered to put the money in escrow in his bank account in North Carolina, to be returned if not enough was raised.

The campaign ended up raising the money and the band went on tour. But the impact of that email resonated far beyond one music tour.

Inspired by this innovative method of financing, ArtistShare became the first dedicated crowdfunding platform — focusing on musicians who wanted to raise money either to produce albums or go on tour — in 2001.

Shortly thereafter, more crowdfunding platforms based on the Marillon model began to emerge, including IndieGoGo in 2007 and Kickstarter in 2009.

2006: First Use of the Term “Crowdfunding”

The first recorded use of the term “crowdfunding” was in August 2006, by entrepreneur Michael Sullivan.

Sullivan used it in the launch of his company fundavlog, which was a (failed) attempt to create an incubator for videoblog projects.

2008: The Great Recession

The collapse of the housing market and the financial industry in 2008 led to people being forced to seek funding by alternative means.

As traditional banking institutions were no longer able or willing to provide the same loans as they were in the past, people turned to the internet — and to each other.

2009 – 2015 : Crowdfunding Emerges as a Major Funding Source

The launch of Kickstarter and IndieGoGo led to an explosion of niche crowdfunding platforms.

The crowdfunding industry has quickly emerged as a popular option for entrepreneurs to validate their ideas, gain exposure, and gain funding.

Crowdfunding revenue tripled from $530 million in 2009 to $1.5 billion in 2011.

By 2012, there were more than 450 crowdfunding platforms, which raised more than $2.7 billion worldwide.

By 2015, that number had jumped to $24.4 billion.

2012: Crowdfunding Gains Washington’s Support

In April of 2012, President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law.

Also known as “the crowdfunding bill,” the JOBS Act aimed to lessen regulation burdens on small businesses and legalized equity crowdfunding.

This includes removing the ban on general solicitation that prevents entrepreneurs from publicizing that they’re raising money.

2012: Fundable Launches the First Business Crowdfunding Platform

The Fundable platform launched in 2012 to help entrepreneurs fund and grow their business through rewards and equity crowdfunding.

Fundable was founded by serial entrepreneurs Wil Schroter and Eric Corl.

2017: Highest Funded Crowdfunding Campaign

As of September 2017, the highest funded crowdfunding campaign is Filecoin, a decentralized data storage application, which raised $257 million over a month of activity.

The company ran its campaign on Ethereum, which is a not a traditional crowdfunding platform but actually an “open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality.”

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The Startups Team

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