Equity Crowdfunding History – What We Know So Far
Equity crowdfunding history is short and sweet and still unfolding at a frenetic pace. That’s because equity crowdfunding exploded in popularity as one of the most viable ways of collecting funds for a company, and the global crowdfunding market was valued at more than 1.6 Billion USD in 2022. It is expected to grow even further with a Compound Annual Growth Rate (CAGR)of 16.7% from 2023 to 2030.
How is equity crowdfunding different?
Most people think that reward-based or donation-based crowdfunding is the same as equity crowdfunding, but they are poles apart. Equity Crowdfunding means using online platforms and social media to raise capital or investment for a business and give the investor equity in the business in return for his investment. In contrast, donation or reward-based crowdfunding means raising money for a business or project by putting it on online platforms and asking people to donate or contribute to it for a perk or reward.
Business owners add their pitches, financial statements, and other important information on online platforms and equity crowdfunding websites, and after evaluating their business, investors invest in them. Equity crowdfunding brings business owners a lot of benefits; It’s much easier to raise funds with equity crowdfunding as business owners can reach a vast group of investors, which also helps them in promoting their business and getting valuable feedback from them.
History of equity crowdfunding
Many people are curious about equity crowdfunding history and think it is a modern-day concept, but they will be surprised to know that it has been there for a while and has benefited many people. There is an endless debate regarding the roots of equity crowdfunding, but we are sharing with you the most famous chronology.
The great recession (2008)
People have different answers regarding the roots of equity crowdfunding, but the most popular one is the great recession. During the great recession of 2008, banks were not giving loans and investments to businesses, especially new business owners. Some small business owners got investment offers from banks, but their regulations were extremely complicated, and it was impossible for small business owners to fulfill them. In order to gain funding and investment, business owners used the internet to target a large group of investors and gain funds from there.
Creation of reward-based crowdfunding platforms (2009)
Crowdfunding became popular during the great recession, and companies like Kickstarter and Indiegogo were launched as dedicated crowdfunding platforms predominantly catering to up and coming musical talent (solo artists, bands, etc.) who need money for studio time to record their new/next/first album or go on tour. Shortly thereafter, crowdfunding went mainstream to the masses to help backers (investors) and business owners. That was the reward-based funding era, where investors used to get rewards and perks for their investments. Reward crowdfunding is still alive and well today albeit not quite as popular as it once was.
The soaring popularity of crowdfunding (2009-2012)
After the launch of Kickstarter and Indiegogo, Crowdfunding became extremely popular, and there were more than 450 crowdfunding platforms in 2012, and those platforms raised more than $2.7 Billion across the globe. The revenue of the funding market was more than $500 Million in 2009 and soared to $1.5 Billion in 2011.
Equity crowdfunding became legal through The JOBS Act (2017)
After seeing the immense popularity of crowdfunding among business owners and investors alike, the US government decided to step in to legalize equity crowdfunding and reduce the regulations on small business owners through the JOBS (Jumpstart Our Business Startups) Act. Because of the JOBS act, business owners can publicly tell investors through social media and online platforms that they are raising funds for their business which was banned before.
JOBS acts also opened doors for equity crowdfunding as now investors can get equity in the company instead of perks and rewards. A new chapter in equity crowdfunding history begins.
First Business Equity Crowdfunding platform (2012)
After the JOBS Act, crowdfunding became more popular, and Fundable launched a dedicated reward and equity-based crowdfunding platform, but there is some debate about it as some people think it was EquityNet. These pioneers wrote the first chapter of equity crowdfunding history in America.It should be noted that most of the popular platforms today operate quite differently than these early entrants.
Crowdfunding platforms raised around $24 Billion (2015)
By 2015, the crowdfunding platform raised more than 24 Billion across the globe, and at this time, businesses of all sizes started showing interest in crowdfunding which was initially considered a fundraising method for small businesses.
Blockchain-based crowdfunding platform (2017)
In 2017, Flipcoin ran a Crowdfunding campaign on Ethereum, which was the highest-funded crowdfunding campaign. This campaign was launched on a Blockchain-based computing system and created a lot of buzz among the public. A whole chapter in equity crowdfunding history was written. It would turn out to be a very short one.
Some noteworthy mentions of equity crowdfunding history
First-ever guideline proposal for equity crowdfunding
The first ever known guideline of equity crowdfunding was designed in Russia in 2000. The system would have a computer database that would store all the business plans and offer additional services to investors, like professional risk-assessment services to help them invest in the best business. The platform suggested a policymaker create policies for all the funding activities and agreements. This idea was not implemented then, but after 13 years, in 2013, YCombinator made it a standard called SAFE Notes.
VC Group and UK-Based Platform
The debate about who was the first equity crowdfunding platform is endless, and according to some research, the first ever known equity crowdfunding was launched by Grow VC group as a private platform in 2009, and later it was launched commercially in 2010.
ASSOB or Enable Funding
According to some research and records, the first ever equity-based crowdfunding was launched way before the JOBS Act in 2007. It was launched in Australia with the name Australian Small Scale Offerings Board (ASSOB), now known as Enable Funding. It was a licensed equity crowdfunding platform that raised over $150 million for more than 170 businesses, and more than 75% of those businesses were profitable even after a decade.
A US-based company called ProFounder also started equity crowdfunding in 2011, but since the JOBS act was not announced until then and raising funds was still banned, that’s why that company had to shut its operations. They made the wrong kind of equity crowdfunding history.They made equity crowdfunding history
Over the years, equity crowdfunding history reveals the many transformations and processes for the industry to reach where it is now. In a footnote to this history, collaborations came and went such as Indiegogo teaming up with MicroVentures. Entire platforms came and went like Cowdfunder and Razitall. Crowdfunder collapsed despite respectable deal flow while Razitall never got off the ground and cratered because of a clueless management team. It benefitted many businesses and came across as a sign of hope when small businesses had nowhere to go. It has been amazing and impactful in every form and helped business owners reach many investors and generate massive profits. People who initially thought that the popularity of equity crowdfunding was short-lived now wholeheartedly agree that it is the economic future and its popularity will only soar with time.