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Business Comment

Jim Armitage: The crowdfunding throng is growing fast

Global Outlook

Subscribers to the showbiz news website Popbitch this week learnt more than the usual celebrity gossip. Alongside the truth behind those stories about Chris Huhne's Twix bars in Wandsworth Prison were details of Popbitch's plans to raise expansion money through a crowdfunding effort run by Kickstarter.

That's nothing new in the media world. Kickstarter has raised $500m for creative projects like this since launching in 2009. People with ideas for movie productions, theatre shows or fashion designs use the site in their thousands in search of investors to move their dreams from drawing board to reality.

Essentially, investors view a beauty parade of project ideas to which they can donate in exchange for some kind of a return. In Popbitch's case, you get a load of free content, tickets to parties and other goodies.

But Silicon Valley is abuzz this weekend with news from a younger crowdfunding website: Crowdtilt. It only launched last year, and is basically like Kickstarter – but for absolutely any kind of cause or project. Thanks to its wider range (and lower fees), it has rapidly become hugely popular in the US, with users raising $3m in its first three months alone.

There has been something of a bubble in the crowdfunding market since US legislation last year relaxed the consumer protection regulations around them.

More than 500 sites are currently operating across the world. That is absurdly unsustainable, of course, and the next year or two will see massive consolidation and closures. But the winners – led by Kickstarter – are rapidly beginning to look like real businesses. So tech investors have been desperately trying to work out which horses to back.

Hence the excitement when it emerged yesterday that Napster co-founder Sean Parker had backed a $12m investment in Crowdtilt to expand its mobile technology. Small beer now, but don't be surprised if crowdfunding soon comes under the gaze of the bigger boys with cash for acquisitions.

Mr Parker and his fellow investors figure that the likes of Amazon or Facebook could always create their own Crowdtilt from scratch, but why bother when they could snap one up off the peg for a few hundred million? Ker-ching.