Crowdfunding: A Guide to Raising Capital on the Internet

CHAPTER 1

Crowdfunding: A Historical Perspective

Jason Best and Sherwood Neiss

Crowdfund Capital Advisors

Crowdfunding, simply put, is pooling the financial resources of many individuals to convert an idea into a project or business. Instead of relying on a few large donors, it requires many small ones. This chapter steps back in time to understand what happened to this form of financing, why it's “new all over again,” and why it's emerging as one of the hottest topics in global business financing. It reviews the risks that led to changes in U.S. financial laws in the early twentieth century and how these laws had the unintended consequence of shutting off capital markets to many startups and small businesses. It discusses how advances in the Internet and technology have allowed us to safely go back to where we started. Today's crowdfunding enables anyone to use the Internet to gauge the value of people's ideas and use online reputations and their own judgment and experience to make their own decisions about which ideas have the best chance for success.

Crowdfunding Isn't New

Crowdfunding is a new way to do something old. It uses the Internet to facilitate capital formation in much the same way that communities financed transactions as far back as 3000 B.c. Prior to the advent of banks and other financial institutions, wealthy families and rulers provided loans to individuals in communities to finance everything from businesses to infrastructure. Financial instruments not unlike ...