Crowdfunding Goes Mainstream: Why Donald Trump and Google Are Supporting Grassroots Financing
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A mélange of high-profile brands and personalities are trying to ride the coattails of the recent explosion in the popularity of crowdfunding.
A few short years ago, crowdfunding, or raising large sums of money by soliciting many small donations, was an off-the-beaten-path grassroots movement largely relegated to artists. Not anymore. Crowdfunding has captured the attention of cable TV producers at CNBC and A&E, real-estate mogul Donald Trump and tech behemoth Google. Here's a look at some of their recently announced high-profile projects:
• A&E, home of the wildly popular show Duck Dynasty about an entrepreneurial family in Louisiana, partnered with crowdfunding platform RocketHub last month to share the stories of entrepreneurs raising money.
• Tech giant Google said last week that it led a deal to buy a $125 million stake in the online, peer-to-peer lending platform Lending Club, valuing the crowd-financing site at more than $1.5 billion.
• Billionaire real estate mogul Donald Trump co-founded a crowdfunding website, FundAnything.com, where anybody can raise money for any reason.
Crowdfunding is becoming big business. When Brian Meece founded crowdfunding platform RocketHub in 2009, he says the model was still on the "fringe." But given crowdfunding's increasing popularity, Meece predicts that within the next five to 10 years, 90 percent of all seed-stage funding could be crowdfunded -- including projects, organizations and new business ventures.
Meece decided to partner with A&E because it solves the two biggest problems for campaign-leaders on RocketHub: it provides additional money and helps get the word out to a wider audience. Selected entrepreneurs looking to raise money on RocketHub are featured by A&E either through on-air promotions or on the website of the program, called Project Startup.
While crowdfunding is gaining steam, it needs the megaphone of a larger media company like A&E to bring the eyeballs and the dollars, Meece says. In addition to giving exposure to the featured entrepreneurs, the partnership has also inspired entrepreneurship. RocketHub has seen a 300 percent increase in the number of entrepreneurs who have launched projects on the platform since the A&E partnership was announced last month.
For purists, turning crowdfunding into entertainment is a thinly veiled attempt to piggyback on a hot trend. "True crowdfunding is not a competition or a contest in the way that Donald Trump or reality TV is suggesting," Brad Damphousse, CEO of crowdfunding platform GoFundMe, says in an email. "Rather, these creative spinoffs are attempts to capitalize on the massive growth the crowdfunding space is currently experiencing."
One factor contributing to the popularity of crowdfunding is that it inherently appeals to the masses, says Kevin Berg Kartaszewicz-Grell, the director of research at crowdfunding industry-research firm massolution. People are "intrigued by empowerment," says Kartaszewicz-Grell. "Everybody likes to have their hands on the green button." Not only does it empower individuals to raise money, it's also attractive to supporters who want to be a part of something larger than themselves, he says.
Another primary factor driving crowdfunding's appeal is that technology and social culture are primed for it, says Kartaszewicz-Grell. Consumers have never before been so plugged in to online networks or spent so much time connecting digitally with each other, a critical social behavior for crowdfunding to be able to catch on.
"If you want to explain the popularity of a TV program that piggybacks on the popularity of online crowdfunding, you can explain the timing by technology," says Kartaszewicz-Grell. Crowdfunding depends on consumers being online to reach each other quickly and easily. "There has been sort of a social transition," he says.