- June 1, 2019: Vol. 6, Number 6

A short history of crowdfunding

by Kate Gasparro

While crowdfunding platforms got their start prior to 2009, they became popular in the aftermath of the recession as small and medium enterprises struggled to secure funding from professional investors. Since then, more than 1,000 crowdfunding platforms have been created for entrepreneurs, artists, innovators and community leaders to bring ideas to life. Among these platforms, there are a growing number dedicated to directing resources to infrastructure projects.

Crowdfunding, although popularized with online technologies, is not a new idea. Like crowdfunding, municipal bonds democratize investment for infrastructure. The first municipal bond was issued by New York City in 1812 to finance a canal project. For centuries, selling bonds to constituents has provided a financial lifeline for local governments to pay for capital projects and day-to-day operations. When projects could not benefit from bonds, project sponsors sought out philanthropy. When the New York City government could not raise money for the Statue of Liberty’s granite plinth, the publisher of the New York World newspaper ran an advertisement asking readers to donate to the project. The campaign raised more than $100,000 from 160,000 donors.

Since the 1800s, crowdfunding has become its own market force, leveraging expansive online payment technologies and social networking sites. In 2009, launched the first crowdfunding platform dedicated to infrastructure projects, including bike lanes, parks and community centers. Over the past 10 years, project sponsors have eagerly sought community support for civic infrastructure via these platforms. Some 344 crowdfunders raised 44,000 British pounds to turn a concrete flyover into an urban park in Liverpool. More than 3,000 crowdfunders raised $273,114 for the construction of a “plus pool” on the Hudson in New York City. And 513 crowdfunders raised $68,928 for a protected bicycle lane in Memphis.

Project sponsors who manage donation crowdfunding campaigns raise modest amounts of project capital, often less than 5 percent of total project costs. Because of this small amount, the project sponsor relies on the social support highlighted through crowdfunding to attract political will, and other sources of funding, for moving projects forward.

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