Once idealistic, crowdfunding is now an unholy hybrid of retail, investment, and risk


 
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In recent years, raising money online from crowds of individuals has become an increasingly common avenue for successful upstarts, helped along by big hits like Oculus Rift (acquired by Facebook) and Pebble Watch, which has raised more than $30 million on various Kickstarter campaigns.  Now some startups forgo angel or seed money in favor of what venture capitalist Matt Turck refers to as a pre-Series A “crowdfunding” round.

For its part, Kickstarter says the definition of crowdfunding is still evolving. “Investment, commerce, and philanthropy are three very different types of transaction we’re all familiar with and it’s tempting to frame the Kickstarter experience within those existing boxes. But, ultimately, it’s an entirely new kind of value exchange, and deserves its own set of expectations,” spokesman Justin Kazmark tells Quartz.

Worldwide crowdfunding reached $16.2 billion in 2014, up from just $6.1 billion the year before, according to research and advisory firm Massolution. (The figures include various types of crowdfunding including models based on donations, rewards, lending, royalties, equity, or a hybrid version.)

In its early days, crowdfunding was often viewed as an idealist endeavor, allowing people to get music or film projects off the ground by tapping into a broad pool of small donors. (In 2009, the New York Times described Kickstarter as “a start-up based in Brooklyn that uses the web to match aspiring da Vincis and Spielbergs with mini-Medicis who are willing to chip in a few dollars toward their projects.”)

Today crowdfunding has morphed into a much more transactional mashup of commerce, finance, and investing. And the questions surrounding the industry—is it charity? retail? investment?—will likely only get more murky as a new generation of crowdfunding models and websites come online, many specifically designed to secure equity investments for new or growing companies.

New laws in the US and around the world are making it possible for more individuals to put their money into flavors of crowdfunding that are more like investments than donations. And regulators in the US, UK, China, and Germany are making it easier for people without millions of dollars to invest in startups in exchange for shares in early-stage companies—opening the way for a further evolution of crowdfunding in that direction.

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