Crowdfunding is the 21st Century Version of E-Commerce


Remember when you’d sit in front of the computer as your dial-up modem took 10 minutes to load a website? In the early days of the internet, online chatting and a few emails here and there were about the extent of what people thought was cool. In 1994, the thought of e-commerce was as foreign to the average consumer as crowdfunding is to the Wall Street world today.

Amazon changed that in 1995. In the last two decades, it has proved that e-commerce has been embraced by the world. Their projected online sales are expected to reach $1.47 trillion by the end of the year.

Crowdfunding Faces the Same Hurdles

It’s widely reported that 7 out of 10 backers use the internet for financial-related reasons on a regular basis. There has been an explosion of peer-to-peer lending so that banks and credit unions are taken out of the equation. Who wants to spend 25 hours on paperwork at the bank to get a loan when it can be completed online in just minutes?

Many industries were bulky and slow-moving enterprises because of all the restrictions on lending. With crowdfunding and marketplace lending, not only is capital moving more quickly, but it is also more affordable for the average opportunity. Instead of the financial institutions getting the profits, it is the average backer. That’s why crowdfunding stands on the brink of something truly incredible.

It’s an $870 Billion Industry and Growing

Here’s why Wall Street is struggling with crowdfunding right now: they need cash on hand. After the problems of 2008-2009, financial institutions are more than ever making sure they have enough money on hand in case a loan goes into default. To them, this is the only way for consumers to keep confidence in their business model. Crowdfunding doesn’t have this requirement.

Crowdfunding provides the money up front as an investment. Risk is limited because the involvement for each backer is limited. Instead of forking out the entire $100k loan like a financial institution would, 10 backers could contribute $10,000 each. Maybe 100 backers could contribute $1,000 each. In return, everyone has the chance to experience a better return without the risk of eating $100k like the bank would.

Crowdfunding is still growing and evolving, just as e-commerce has over the last 20 years. By the time crowdfunding hits the same age a decade from now, it may be the dominant alternative for backers who don’t like what Wall Street is about.