Crowdfunding has been growing explosively, with over $2 billion raised via equity and reward crowdfunding in the United States in 2015 alone. But what is the secret sauce that makes crowdfunding unique? Crowdfunding connects creators and entrepreneurs directly with customers and funders, so an open more democratic fundraising is taking place online on a digital platform. Creators can instantly reach out customers and communities to refine ideas and gauge interest. Crowdfunding platforms, such as Pitchstor, are matching innovators with those who need innovation and thus is reshaping which ideas come to market.
So one major thing that crowdfunding does is that serves to validate demand and build communities of support (Build your online community) . One result of raising money over a platform is that it establishes a direct connection between the project creator and the funder. The community that supports the project often has a feeling of ownership for the projects that supports. This ownership is quite positive, as it can lead to communities, creating complimentary products (such as apps that use a new crowdfunded technology) and promotional support.
So, in a way, community creates a sense of obligation to the project owners and as a result they deliver their goal and failure is remarkably rare in crowdfunding. Only around 9%of projects fail to deliver.
But, the dynamic between project creators and backers goes beyond just an obligation. The fact that there are so many backers, means that crowdfunding platforms can create many more kinds of matches between project creators and backers, increasing the diversity of ideas that get funded. Most forms of traditional fundraising rely on personal networks and rules-of-thumb to assess the quality of a founder.
Consumer-oriented platforms are often associated with the “gig” economy – connecting customers to suppliers for short-term contracts. Crowdfunding, however, shows that platforms can also serve as the basis for lasting businesses and important innovations. Moving from an expert-centered process to a platform approach increases diversity, leads to high quality results, and generally results in successful outcomes.