New Report: Declaration of CrowdFunding

By John Berlau  CrowdFunding Beat News Wire November 18, 2014,

 Finance of the People, by the People, and for the People,

When John W. Anderson, a young attorney, learned of the crowdfunding project, he could not wait to tell his father about it. An acquaintance of Anderson’s, whom Anderson described to his father as “one of the best automobile mechanical experts in the U.S,” was prospecting for funds to “place on the market an automobile that is far and away ahead of anything that has yet come out.”

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To bring this disruptive technology to the market, the engineer wanted to bypass financing from what Anderson called “big capital.” Instead, he sought initial funding for the car from “friends and business associates.” Anderson was long on enthusiasm but short on cash. Convinced that the engineer’s project would be the next big thing, he asked his father to front him $5,000 to invest in it.

The venture was risky, but even though “not a machine has been put on the market,” Anderson argued to his father, “orders have begun to come in every day, so there is not the slightest doubt as to the market or the demand.” Anderson called this new company “one of the very most promising and surest industrial investments that could be made.”

What John W. Anderson described to his father sounds one of these wild-eyed projects on crowdfunding platforms like Kickstarter and IndieGogo—business plans that can stir the passions of young enthusiasts like Anderson, while they leave skeptics shaking their heads. Looking at Anderson’s description, these skeptics may ask, “Just who does this auto engineer think he is? Henry Ford?”

Actually, yes! Ford was the “inventive and mechanical genius” Anderson described in a lengthy letter to his father in 1903. Anderson was right about this being a “promising industrial investment.” The $5,000 Anderson invested turned into $12.5 million when he sold his shares back to the firm’s founding family 16 years later.

Welcome to the long and proud American tradition of crowdfunding—a tradition that predates the smartphone app, the computer, and even the telephone. It has built cars, railroads, and financial institutions that exist to this day.

By 1903, the 36-year-old Ford already had an impressive resume as chief engineer for Thomas Edison’s electricity company and designer of the car that became the Cadillac, and could have attracted financing from Wall Street. But instead, Ford tapped his own physical “social network.” Among the dozen original Ford funders were a bookkeeper, a clerk, and a building contractor.

However, about 30 years after Ford raised funds from Anderson and other acquaintances to launch the company that first made the automobile affordable to the masses, Washington put up regulatory roadblocks in the way of crowdfunding that remain in place to this day.

Technology did not create crowdfunding, but it has widely broadened the size of the crowds and increased the potential of both charitable and entrepreneurial ventures to find funding. But capital raising in the age of the app is being stalled by rules that came into place before most people had a telephone in their home. As a result, crowdfunding’s potential of creating jobs and increasing income mobility is being held back as the Henry Fords of today struggle with mounds of red tape from securities laws.


John Berlau.

CEI senior fellow and author of the report 

Full report

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