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The History of Crowdfunding

In 1958, Harvard economist John Kenneth Galbraith published The Affluent Society, in which he outlined his belief that the US had reached the pinnacle of affluence – that American standards of living had risen as high as they ever would. Most families owned a car, their own 1,100 ft2 (on average) home, and even had refrigerators and telephones in those homes. This, Galbraith said, was as high as affluence in the US would rise. But we know that his assumption was wrong. Look at where we are today – smartphones and PCs and bigger houses and 3-car families, all concepts that Galbraith couldn’t predict. Society did not stagnate in the 1950s, it only continued to grow, and not just in the US, but around the globe.

In 1946 George Doriot founded American Research and Development Corporation (ARDC), raising money from friends and associates. Prior to then start-up companies relied on angel investing or bootstrapping to get going. ARDC made a $70,000 investment in a small computer company, Digital Equipment Company (DEC). When DEC came public that investment was worth $35 million. Venture capital was born.

The statistics of venture capitalism are staggering: in 2007 alone, US companies founded by entrepreneurs and backed by venture capitalism represented 10.4 million jobs, and those companies generated $2.3 trillion in revenues, 18% of US GDP. Silicon Valley alone is worth $3 trillion in 2016. And I believe it is these companies that are driving the current supercycle with their innovative and disruptive technology.

Whether you like President Obama or not, I believe that in the longer-term what his administration will most be credited with will not be healthcare, but the JOBS Act passed in 2012. Jump Start Our Business Start-ups (JOBS) authorized Crowdfunding. Venture capital has grown to the point it funds the big start-ups but leaves behind many of the small ones. Crowdfunding allows companies to source funds from a large number of people. The source of funds can be worldwide and in smaller amounts. But through 2015 estimates are that $34 Billion was raised worldwide through crowdfunding.

I believe we entered a supercycle (Wonder what a supercycle is? Check it out in this blog post.) The funding of the new companies that will drive growth for the next several decades will be the start-ups and many of those start-ups will be capitalized by crowdfunding. Just as venture capital furnished the start-up monies for the second supercycle, so will crowdfunding furnish the capital for the third supercycle we are in today.

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