How Did Equity Crowdfunding Come About?

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Over the last few years, more and more people have turned to equity crowdfunding as a way to invest their money outside of traditional methods. Equity crowdfunding’s rise in popularity is a recent phenomenon, but it may be surprising to learn that the origins of equity crowdfunding might be older than you think.

The genesis of equity crowdfunding lies in the birth of original online donations/rewards based crowdfunding, the first platforms of which emerged back in 2003. It all started with ArtistShare, a Boston website that wanted to give struggling musicians a chance in a cut-throat industry. ArtistShare’s platform allowed musicians to fund the digital production of their albums with contributions from fans and enthusiasts, offering tier-based rewards to each contributor based on how much money they donated – small donations got a copy of the album, larger donations got a mention in the album booklet, and so on.

From there crowdfunding evolved and expanded out of the music world. Sites like Kickstarter (launched out of New York in 2009) began helping people pool funds for any creative project in almost any field – the idea was so popular that Kickstarter gained an estimated $10 million in funding from their backers. Between 2009 and 2015 Kickstarter hosted more than 250,000 campaigns, and their success has led them to being named as one of the “Best websites” by Time magazine in 2011.

One thing that had a big impact on the crowdfunding revolution was the financial crisis of 2008. This is where equity crowdfunding comes in. With distrust in the banks and large financial institutions at an all-time high, people were looking for new ways to invest their money; entrepreneurs responded, and in the US the first equity crowdfunding platform launched in 2010 under the name ProFounder, but immediately ran into regulatory problems and had to end operations. ProFounder was followed by European contenders such as CrowdCube (2011) and Seedrs (2012), Seedrs being the first equity crowdfunding platform to receive FCA approval.

The US continued to have regulatory problems surrounding equity crowdfunding, which set its development in the states back by a year or two. But in 2012 the JOBS act began to open the doors for the American equity crowdfunding market; this was followed by Title III of the JOBS act in 2015, which allowed non-accredited investors to enter into equity crowdfunding arrangements, thus helping to establish the democratized version of investment that crowdfunding was trying to promote.

And now here we are, with equity crowdfunding accounting for 15% of the overall crowdfunding market, a market that’s worth an estimated 30 billion as of 2015, more than double the figures for 2014. Equity crowdfunding has now extended into the real estate realm, with sites such as Bricksave allowing people to invest in luxury properties that would have been previously out of their reach.

With more and more industries adopting the equity crowdfunding model as a way to raise funds, who knows where the market will go next.

 

by Bricksave CEO, Tom de Lucy

May 18, 2016

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