Crowdfunding, Crowdsourcing, Fintech

Crowdfunding Industry so Big, It’s Mainstream Now

Crowdfunding Industry so Big, It's Mainstream Now

Investors agree that scale is what determines how profitable a crowdfunding platform should be; and considering that many have recorded steady and even remarkable growth since the beginning of the concept in the early-to-mid 2000s – targeting multiple industries, implementing different types of funding models, new platforms launching across the globe each year – one would assume that the crowdfunding industry is very big. But exactly how big is this industry?

Crowdfunding-Industry-so-Big,-It's-Mainstream-Now

Figures and Estimates

There are a number of reasons why different companies have gained an interest in crowdfunding. Since the Great Recession, small and medium-sized enterprises (SMEs) have turned to crowdfunding as a way to raise capital and avoid high interest rates and barriers associated with conventional forms of funding. Other organisations view crowdfunding as a great way to jumpstart development in emerging nations.

The World Bank Crowdfunding Report

A study commissioned by the World Bank to investigate these and other related matters revealed somewhat surprising details. Some of the findings that were shared in a MediaShift post claimed that crowdfunding was going to be a disruptive global influence, but not in the way many people expect it to be. The report projected that the crowdfunding industry would hit the $93 billion mark by 2025.

Massolution Crowdfunding Industry Report

Other figures released from the Massolution Crowdfunding Industry Report pointed to very strong growth in recent years, and attributed it to the rise of Asia as a key crowdfunding region.

According to this report, the Asian crowdfunding sector raised $3.4 billion (320 percent growth in volume), which essentially put the region ahead of Europe’s $3.26 billion to become the second-largest region by crowdfunding volume. North America remained at the top in terms of crowdfunding volumes, growing by 145 percent to raise a total of $9.46 billion.

The Massolution report was based on data collected on 1250 active crowdfunding platforms (CFPs) around the globe, including high-quality data submitted to the Crowdfunding Industry Survey by 463 CFPs, before conducting further research and analysis to reach its results.

Previous Massolution reports indicated steady growth of the industry from 2011, with all platforms raising an estimated $2.7 billion and successfully raising funds for over one million campaigns in 2012. By 2013, the industry had grown by 81 percent to raise a collective sum of $5.1 billion, and it grew again by 320 percent in 2014 to raise over $16 billion.

If this trend continues, the World Bank predicts that the crowdfunding market could raise between $90 and $96 billion, which is approximately 1.8 times the size of the global venture capital industry today.

Crowdfunding Models

In 2014, lending-based crowdfunding models dominated the industry by raising $11.08 billion, which is more than two-thirds of the total. Regardless of these numbers, Massolution founder and CEO, Carl Esposti, argued that although lending-, reward-, and donation-based crowdfunding models have been at the forefront of this global financial revolution, it is equity-based campaigns that seem to be gaining the most interest in the US. Carl said this in anticipation of the passing of the Title III of the JOBS Act in October 2015, which should help loosen most of the crowdfunding restrictions on smaller ventures, enabling non-accredited investors to participate.

Still, equity-based crowdfunding platforms, like Fundrise, have capitalised on state laws to give non-accredited investors an opportunity to participate in online equity real estate investments – a means that was previously unavailable to them.

Crowd Valley’s report on the third-quarter of 2014 provided more recent data on trends in the crowdfunding markets. According to the data, the greatest demand (54 percent) is for equity funding; followed by lending (26 percent); and reward platforms that only accounted for 1 percent. Peer-to-peer investments, real estate, and private companies were the main assets being offered on the platform.

In this regard, the most popular funding categories based on 2014 data are:

$6.7

billion

Business and entrepreneurship – collected $6.7 billion (41.3 percent)

$3.06

billion

Social causes – $3.06 billion

$1.97

billion

Films and performing arts

$1.01

billion

Real estate

$736

million

Music and recording arts

 

Implications of the data

These figures and estimates go to show just how huge crowdfunding will potentially get. Still, there are other trends that were not captured in the two reports hinting at the future of the industry. For instance, the increasing number of established investors, like angel investors and venture capitalists in crowdfunding help make the practice credible and encourage other people to give it a try.

In fact, investors are not only taking part in the campaigns posted on these platforms, but also in the funding platforms themselves. Seemingly small platforms, like Indiegogo, Patreon, and Crowdtilt are doing amazingly well at getting investments for their own growth. Indiegogo, for instance, raised $40 million in a Series B at the beginning of the year. A couple of months earlier, Crowdtilt had raised $23 million in its own Series B, while arts-based Patreon managed to raise $2.1 million in summer 2014. Other platforms also raised additional capital.

There are a number of reasons why investors are willing to support these platforms:

  • First, investors see the potential for crowdfunding platforms to reach emerging and untapped markets. There is money to be made; either through commissions from facilitating transactions amongst campaigner and their backers or investors, or by getting the first opportunity to invest in brilliant projects.
  • Second, investors are exploring the potential in debt- and equity-based crowdfunding with regard to early-stage financing. The more the platforms successfully get projects funded, the more popular they become, leading to more growth.
  • Third, many people see a correlation between the crowdfunding and the rise of social media – which made it possible for millions of people to connect to each other. Just like there are many big social networks besides Facebook, the crowdfunding industry cannot be dominated by one or two big players, as long as other platforms offer something unique.

The question of scale

Part of the appeal of crowdfunding is their unique P&Ls – profit and loss statements – since a platform’s sales and marketing spending can be essentially zero as the users/campaigners do the selling for them when looking for backers.

Still, the profitability of a platform depends on how well it scales. While some, like Indiegogo get over 200,000 successful campaigns resulting in good margins, not all 1,000+ platforms are doing this well.

So, many people believe that the crowdfunding industry is big, and will keep getting bigger, especially since it appeals to millennials and the social network-based economy. Crowdfunding is likely to become more mainstream in regards to how people approach raising funds and putting their money to work – whether to pre-purchase a unique product or to gain equity in a profitable venture.

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