Small Business Access to Capital (Part V): Crowdfunding

About the Author

CED Program Interns & Students

This is the fifth in a series of blog posts on tools available to local governments to assist small businesses. Previous posts have covered revolving loan funds (parts I and II), loan loss reserves (III) and capital sources for loan funds (IV). The fifth topic in this series is crowdfunding.

The history of crowdfunding in the United States can be traced to 1885 with the construction of the Statue of Liberty. While the Statue was donated by the French government, the United States was responsible for paying for a granite plinth for the Statue. The American Committee of the Statue of Liberty was formed to raise $250,000 (or $6.5 million today), but was unsuccessful. To assist, Joseph Pulitzer released an ad in his newspaper, the New York World, requesting donations. More than 160,000 people responded to this request helping the Committee meet its goal.

As demonstrated in this story, crowdfunding is the collection of funds, primarily in small amounts, from many people in order to finance different types of projects including music albums, new gadgets such as the Pebble watch, and renovation of building for new office space. With the emergence of social media and crowdfunding platforms such as Kickstarter and Indiegogo, crowdfunding is becoming a popular tool for entrepreneurs to raise funds from their networks and strangers across the world.

Growth of Crowdfunding

As shown in the 2013 Crowdfunding Industry Report, crowdfunding is growing. From 2011 to 2012, the amount of money raised through crowdfunding grew by 89 percent to $2.3 billion. The two most popular categories of crowdfunding were social causes (30 percent) and business/ entrepreneurship (17 percent).

The $2.7 billion raised through crowdfunding in 2012 could be drastically increased in the near future. Currently, supporters of projects are only able to earn “rewards” as designated by the projects. For example, the Durham-based “Put the Pork In The Road food truck on the streets!” project currently on Kickstarter is offering a free voucher for item from the food truck for supporters that pledge $50 or more and free cooking lessons for supporters that pledge $250 or more.

In April 2012, President Obama signed the JOBS Act (Jumpstart Our Business Startups) that called for the Securities and Exchange Commission (SEC) to change its regulations on crowdfunding that would enable crowdsourcing investors to receive a financial return. As of May 2013, the SEC has not released any new regulations. Several states, including North Carolina, are considering new legislation that would permit crowdfunding to offer financial return to its investors. For more information on North Carolina’s JOBS Act, visit: http://www.jobsnc.blogspot.com/.

Crowdfunding for CED Projects

Crowdfunding is also being used to finance community economic development projects. Seed Chicago, an initiative of the City of Chicago’s economic development arm, partnered with Kickstarter in April 2013 to showcase 11 projects from selected small businesses and community organizations. By creating a curator page on Kickstarter, Seed Chicago was able to market these 11 projects to residents of Chicago thus increasing their visibility. Five of the projects met their fundraising goal in their 30 day campaign.

Fundrise, a crowdsourcing platform created by a D.C. developer, uses crowdfunding to raise funding to complete real estate projects that are unable to attract capital from traditional sources. To date, Fundrise has raised $2.5 million for three projects all located in urban DC neighborhoods. Its first project in November 2012 attracted 175 people, primarily residents of DC, who together invested $325,000.

A crowdsourcing platform dedicated to community development is ThrdPlace whose mission is to build stronger, more dynamic communities. Launched in January 2012 by two urban designers wanting to re-imagine community development, ThrdPlace uses crowdsources of funds, supplies, and volunteers to support businesses, individuals, government, and non-profit organizations in a community member’s neighborhood.

Jordan Jones, a UNC-Chapel Hill graduate student pursuing a joint master’s degree in Public Administration and City and Regional Planning, is a Community Revitalization Fellow at the School of Government.

Sources:

http://www.bbc.co.uk/news/magazine-21932675

http://www.forbes.com/sites/groupthink/2013/05/02/one-state-is-leading-in-investment-crowdfunding-guess-which-one/

http://www.forbes.com/sites/realspin/2012/08/21/crowdfunding-gives-tomorrows-innovators-a-meaningful-chance-to-succeed/?goback=.gde_4529000_member_169907636

http://articles.chicagotribune.com/2013-04-09/business/ct-biz-0409-chicago-kickstarter-20130409_1_world-business-chicago-kickstarter-food-truck

http://www.theatlanticcities.com/neighborhoods/2013/04/could-kickstarter-work-tool-local-economic-development/5238/

http://www.theatlanticcities.com/neighborhoods/2012/11/real-estate-deal-could-change-future-everything/3897/

Leave a Reply

We will read all comments submitted to us, but we will publish only those comments that serve to advance our readers’ understanding of a post and are consistent with our institutional commitment to non-advocacy.

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>