The earliest known citation of crowdfunding was made in 2006 and since then it has exploded onto the startup scene as the best way for fledgling ideas, products, creative projects, and causes to attain investment when banks, venture capitalists, and angel investors may otherwise reject them.
Crowdfunding affords an individual to pursue an interest, hobby or dream without the stress of creating a successful business from the funds. This has given rise to the age of philanthropic crowdfunding. From sites such as Kiva, 33needs, and Start Some Good, people are funding socially responsible ideas and causes that would otherwise lack the traction to see the light of day. Crowdfunding platforms were even used to help the devastating natural disaster, Superstorm Sandy. The rise in this type of crowdfunding has changed the face philanthropy around the country.
The average U.S. household donates 4.7% of their total income to charitable institutions, so the money is there and it is flowing. Some charities have even started implementing crowdsourcing platforms to increase their web virality with JustGiving being a prime example by allowing anyone to create a crowdsourcing page for their favorite charity or organization.
But this new age of philanthropy not only creates a wider and more involved audience of contributors, it also has the potential to create a new breed of socially responsible investment companies such as Mosaic. These companies are spearheaded by a new type of visionary known as the social entrepreneur and can help revolutionize entire sectors such as clean energy and finance.
Currently, crowdfunding can only be utilized in very specific ways, such as supporting non-profit organizations that crowdfund specific causes, but soon that will all change. In 2013, nearly anyone will be able to use crowdfunding to gain equity in a company. This can be viewed as a hybrid between traditional venture capitalism and buying shares on the stock market. It is becoming possible because of the Startup Exemption in the JOBS Act. Put in place by the Obama administration and approved by Congress earlier this year, the JOBS Act allows people to support startups or other crowdfunding ventures in ways previously impossible.
This could mean a few things as 2013 shapes up to be the “Year of the Entrepreneur.” Firstly, people may feel more inclined to donate to emerging organizations that are more specialized or innovative than an equivalent large charity. Additionally, the net good for the donor finally has a financial element as well. Donors knowing that their donation would not only help a cause of their choice, but also may produce a financial return for them, is something the charity industry has never experienced before.
Secondly, this could change how Americans view small investment. Instead of putting a couple thousand dollars into the stock market, you could crowdfund with emerging impact investment companies; making you not only an equity shareholder, but also putting your money into a company focused on social responsibility.
Having an added monetary benefit not only helps many entrepreneurs pursue a business that benefits the community, but also educates countless others by including them on the ground floor. What does this mean for the years to come? You can expect to see more transparency in investment as well as more opportunities for investment, ultimately creating more jobs throughout the country. Now that customers are able to become investors as well, they adopt a new role: brand evangelists and shareholders, thus promoting social causes further into the public view and garnering support through the crowd.
Original Article on Mosaic
Crowdfunding: Savior to Hurricane Sandy