This Autumn, our platform is readying itself to take the next leap and show the benefits that equity-based crowdfunding has to offer to investors and businesses. Investors, brace yourselves for your next crowdfunding journey - share finance projects are coming to the TFGcrowd platform very soon! Now you will be able to own a piece of the companies that you believe in and finance.
Let's take a look back at the exciting history of crowdfunding to see how equity-based crowdfunding came to life as the industry had matured enough to allow it.
The Evolution of Crowdfunding
It was donation-based crowdfunding that preceded all other types of crowdfunding. Joseph Pulitzer made the most notable and possibly the earliest traceable donation-based crowdfunding pitch to date. In 1885 he used his newspaper The New York World to raise funds from over 160'000 donors to finance the construction of the base of the Statue of Liberty.
Fast-forward to just over a century later (to 1997), and the foundation stone to modern crowdfunding was laid by the British rock band Marillion, whose followers successfully raised USD 60'000 to finance the band's North American reunion tour. Although the band themselves were against the crowdfunding idea in fear of being perceived as beggars, they quickly caught on once their followers had secured the first USD 25'000 and started planning the tour - the "reward" in this crowdfunding campaign. The first rewards-based crowdfunding platform - Artistshare, emerged shortly after that at the turn of the millennium.
Following the success of donation-based and rewards-based crowdfunding, businesses recognised an opportunity that would appeal to the general public and yield financial returns for the funders. Debt-based crowdfunding emerged as an investment vehicle in the UK in 2005 and a year later in the US. It wasn't until the onset of the 2008-2009 financial crisis across the world, though, that it genuinely gained momentum. As bank loans dried up, small and medium-sized enterprises turned to crowdfunding platforms to finance their business ventures en-masse.
And last but not least, equity crowdfunding came along in 2011, offering angel investors the chance to invest in a wide range of start-up projects by acquiring a smaller or larger share in the chosen businesses. Technological advances permitted to significantly decrease the time needed to pitch a business proposal to a large number of potential investors and to obtain financing from long months to mere hours.
The Evolution of Equity Crowdfunding
Equity crowdfunding is a method of raising funding for a business venture or project from the public. It is primarily done online through the use of crowdfunding platforms. Although the term equity crowdfunding is often used to refer to debt-based crowdfunding, the main difference between the two forms is that in equity-based crowdfunding in return for their investments, the investors acquire a share of ownership in the company that they finance.
Although riskier than other forms of crowdfunding, equity-based crowd-investing can yield significantly higher returns than any other investment options available on the market. The initial crowd-investors of the fintech giant Revolut, for example, boast a return of 1'900% on their investments.
New companies find it difficult to raise financing because banks are reluctant to fund businesses that lack a proven track record of financial viability and are unable to provide a collateral. Lack of funding suppresses the much-needed innovation and progress that start-ups offer to the economy. The emergence of equity-based crowdfunding solved this issue, allowing investors to choose the projects they believe in and invest an amount that they feel comfortable risking for any given project.
TFGcrowd is excitedly looking forward to introducing the first equity crowdfunding projects in the form of share finance very soon. Investors, prepare yourselves!