Participatory Financing: State of play of the US market

The story of crowdfunding in the United States

The story of crowdfunding in the United States

Crowdfunding is a form of collaborative economy that makes it possible to obtain funds without going through traditional intermediaries. He was born in the United States in 1875: the first public fundraising campaign took place to finance the construction of the Statue of Liberty in New York! The US Congress refused to allocate funds for the construction of the pedestal, so Joseph Pulitzer, the founder of the “New York World” newspaper, launched a crowdfunding campaign for wealthy American classes to finance the book.

It is the Internet that really launched the concept of crowdfunding by allowing the creation of linking web platforms. The first crowdfunding site , ArtistShare, also a music label, appeared in 2003. It is indeed in the cultural field that crowdfunding first developed, around the simple idea that fans of an artist would finance his album. In 2005, a new type of platform emerged with the birth of EquityNet, enabling start-ups and companies to raise capital from investors. The platforms then multiplied, the best known, IndieGoGo and Kickstarter, having respectively emerged in 2008 and 2009.


The crowdfunding market took off after the US subprime crisis in the fall of 2008. US financial institutions have lost the equivalent of $ 90 billion according to an OECD report, the conditions of access to the loan and investment has become considerably harder . The years 2008 and 2009 saw the creation of numerous crowdfunding platforms, allowing entrepreneurs, start-ups and small businesses to raise funds more easily.

The American legal framework around participatory finance

The American legal framework around participatory finance

In the United States, crowdfunding platforms must be registered with the Securities and Exchange Commission , better known by its acronym, the SEC. This commission is responsible for guaranteeing the safe transfer of money on such platforms. In general, they are considered legal if the Howey Test can be applied to them : that is, if investors contribute to a project for potential profits solely related to the recipient’s work (find out more about Howey’s test).

Three years ago, the third title of the “JOBS act” voted by the US Congress democratized equity crowfunding by allowing all citizens to invest in start-ups and small businesses. This type of practice was previously reserved for certified investors.

Both types of actors in the US crowdfunding market

Both types of actors in the US crowdfunding market

  Loan platforms (” lending “) and equity platforms (” equity “) are distinguished. In the first case, individuals lend money to a company and make profits with interest (this is the case of Wolf Lending for example). In the second case, investors take shares in the start-up that seeks to raise funds.

 Equity-based platforms include EquityNet, which has been used by more than 45,000 entrepreneurs and investors. It has raised more than $ 240 million in the United States, allowing investors to earn royalties on their investments.

 The AngelList platform makes it possible to invest specifically in start-ups during their very first steps, in exchange for shares. It also makes it possible to recruit and apply to incubators. On this platform, start-ups raise on average $ 10 million from investors who can be as important as Google Ventures or Andreessen Horowitz.

Crowdlending platforms are more likely to be used by already established companies that want to develop their products or services, purchase equipment or start a new business. They are generally for individuals who lend money and receive interest rather than investors.
 The best-known lending platform, the Lending Club, has already circulated $ 7 billion. Businesses can borrow up to $ 300,000 at interest rates starting at 5.9% and repayable in one to five years.  

Crowdfunding for SMEs

Contrary to what one might think at first glance, crowdfunding is not only for individual project promoters and artists . Companies, and especially small and medium-sized enterprises, are numerous to use them to raise funds that they struggle to obtain through the usual intermediaries. The effect of the subprime crisis is still felt: according to the Federal Reserve’s Terms of Business Lending study, banks have tightened their lending standards, making it more difficult for small businesses to access credit. The number of banks has also declined, leaving fewer options for small businesses to obtain credit. It is therefore natural that they turn to crowdfunding.

The loan to small and medium enterprises via crowdfunding platforms is also sought by individuals, since they often benefit from advantageous interest rates. Funding Circle for example, 8,000 companies have already received loans of up to $ 500,000 at a rate starting at 5%, from 40,000 investors. For an individual, this is a good way to invest your money.

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Lending to small businesses allows them to grow their business and hire more. The specialized crowdlending sites have understood this well and have played on this aspect with the legislators. They have invested in the implementation of the JOBS Act so that individuals have the right to participate in financing.

In 2012, $ 1.6 billion was raised in the United States . Video games and technology attract the largest amounts: more than 900 video games have been created for a total of 83 million surveys, and more than 300 technological projects for 29 million surveys. The United States is a leader in the field of crowdfunding with 59% of the amounts raised worldwide , and it is a real social phenomenon since even President Barack Obama talks about it regularly. His last campaign was financed by 150 million dollars by crowdfunding.

Janet Williams

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