The crowdfunding industry is already growing rapidly, and as that growth accelerates, several crowdfunding niches are expected to really take off.
Last year, 308 active crowdfunding platforms (CFPs) across the world raised $2.7 billion, an 81 percent increase over the amount raised in 2011, according to the annual report released today from the Los Angeles based research firm, Massolution.
The growth in 2012 represents an acceleration, up from 64 percent growth in 2011. Looking ahead, growth is expected to reach $5.1 billion raised in 2013, representing an expected 89 percent increase in the dollars raised, the report predicts.
While this data is global, crowdfunding is centered in North America and Europe. More than half of the funding raised last year, $1.6 billion, came from North America and $945 million was raised in Europe, the report says.
As it exists, the majority of money raised with crowdfunding is still on donation or reward-based platforms, where an entrepreneur or artist raises small sums from a large group of people in exchange for a product sample or experience. Of the $2.7 billion raised in 2012, $1.4 billion was on donation or reward-based platforms, made popular by brands such as Kickstarter or Indiegogo. Lending-based crowdfunding, where campaign leaders have to repay their investors, equaled $1.2 billion.
Equity-based crowdfunding, where investors receive a share of the company in exchange for funds, was the smallest sector the market in 2012, totaling only $116 million. Startups in the U.S. are able to crowdfund from accredited investors. Also, in a handful of countries, like the United Kingdom, equity-based crowdfunding is already legal. In coming years, the distribution of funds raised from donation-based, lending-based and equity-based crowdfunding is likely to shift.
Part of what is expected to drive acceleration in the U.S. is the implementation of the forthcoming Securities and Exchange rules for allowing U.S. entrepreneurs to raise money by selling equity in their company more easily to non-accredited investors.
Crowdfunding is in its infancy. Here’s a look at three trends expected to emerge.
- More groups use crowdfunding to support innovation challenges to solve complex, social problems. Communities will increasingly come together to raise a pot of money to award to an entrepreneur that solves a problem, says Chance Barnett, the co-founder of Crowdfunder, a Venice, Calif.-based crowdfunding platform. “That might be solving poverty in an area, it might be building a mobile solution for people in developing countries who don’t have the ability to do accounting in a very basic level,” Barnett says. “We will see a lot of innovation come out because of crowdfunding because people are willing to put dollars up to solve big problems.”
- Increased popularity of local, crowdfunding communities. Amateur investors often prefer to meet the entrepreneur they are backing face-to-face, says Barnett. That’s the idea behind his newest venture, CROWDFUNDx, which launched last week. It’s an online network that brings together leadership boards in 11 cities across the U.S. and in 12 cities in Mexico to run 120-day startup challenges culminating in a pitch contest. The local community then funds the winner through crowdfunding.
- Women entrepreneurs stand to raise more investment dollars. Women get 5 percent of all investment capital, says Barnett, but they will have increased access to funding with crowdfunding. “Not only are women more active on social media, they are often more collaborative when they do invest, so it is going to be a really interesting space and it is going to be the perfect place for women to gain a lot of traction,” Barnett says.
COMMENTARY: Crowdfunding is getting so much bigger than Kickstarter. Last year alone, it generated 1 million successful campaigns and $2.7 billion across the globe.
Crowdfunding World Map - Massolutions - 2012 (Click Image To Enlarge)
Research firm Massolution gathered that data from 308 active crowdfunding platforms (CFPs) worldwide via the website for its 2013 Crowdfunding Industry Report. Crowdfunding nearly doubled last year, with an 81 percent increase over 2011. North America and Europe, taking second, dominate the market, with a more than 95 percent stake.
Massolution, which specializes in the crowdsourcing and crowdfunding industries, is predicting these figures will reach $5.1 billion this year, with North America contributing 72 percent.
Last year saw significant milestones for crowdfunding. In January, the Elevation Dock became the first to pass $1 million. Then in April, the Pebble smartwatch beat this achievement in only 28 hours, going on to raise $10 million total.
Massolution chief executive Carl Esposti said in a press release.
“While lending-, donation-, and reward-based crowdfunding have thus far been leading this global financial revolution, equity-based crowdfunding is about to take center stage in the U.S.”
It’s expected to reach $166 million in 2013, up from $116 million this year.
Esposti said.
“The JOBS Act, which will allow non-accredited investors to make investments in exchange for equity, is expected to go into effect by the end of 2013.”
President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law a little over one year ago. It gives regular people the chance to become investors.
This is an “untapped funding source” that will help entrepreneurs who need funding, Massolution analyst and research director Kevin Berg Kartaszewicz-Grell told VentureBeat.
He said.
“Crowdfunding offers a great opportunity for everyone to leverage their social networks and transform social capital into financial support. Clearly, companies that already make use of distributed networks — such as software developers, media companies, Internet companies, etc. — are in positions of relative strength because the communication networks have already been established, and reaching out via crowdfunding campaigns is thus a natural extension of their networking activities.“
Massolution found that crowdfunding volumes grew 105 percent to $1.6 billion in North America and 65 percent to $945 million in Europe. All other markets expanded close to 125 percent. Most of this growth came from donations (680,000 campaigns) and lending (about 250,000), the latter stemming mainly from crowdfunded microloans and community-driven loans to local small- and medium-sized entities (SMEs), along with the adoption of reward-based campaigns, like those on Kickstarter.
Crowdfunding Financings - Successful and Unsuccessful - By Platform Type of Financing and By Geography Locality - Massolution - 2012 (Click Image To Enlarge)
Social causes drive 30 percent of all activity, which Massolution expects to change as more startups and SMEs begin leveraging the platform. The graphic below shows the 10 most active categories by percentage.
Video games were also huge beneficiaries of crowdfunding last year, raising $83 million on Kickstarter alone.
Kartaszewicz-Grell said.
"Most game developers would fall under Software and Smart Apps, which is an emerging category I personally expect to see growing rapidly. Software development — especially video games — is a perfect match for crowdfunding because this space has a relatively high portion of its transactions done online and because developers are more used to communicating their state of development via social media.”
Massolution composed its report from survey responses received in the first six weeks of 2013. It was unable to reveal which participating crowdfunding platforms were the most active.
Crowdfunding Platform Activity Across The Top 10 Categories - Massolution - 2012 (Click Image To Enlarge)
Courtesy of an article dated April 8, 2013 appeared in Entrepreneur and an article dated April 8, 2013 appearing in VentureBeat
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