According to “Crowdfunding: Strategies & Impacts for Technology Markets 2016-2020,” a new study conducted by Juniper, investments in crowdfunded technology are set to increase seven-fold from an estimated $1.1 billion in 2015 to $8.2 billion by 2020.
A report submitted by Massolution a few years back showed the total global crowdfunding amount to have reached $34.4Bn by the end of 2015. Today, the crowdfunding industry data reveals that it will surpass venture capitalism in volume by 2020. In contrast, the Venture Capital industry shows regular trends of investing $30Bn each year.
What is crowd-funding?
Crowdfunding may be explained as collecting small amounts of data from a large number of people/enterprises to fund a new business venture.
The best part about Crowdfunding is that it makes use of vast networks of people through social media and crowdfunding websites to draw investors and entrepreneurs together. What more, it has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.
Crowdfunding has made it easier for entrepreneurs to raise hundreds of thousands of dollars from anyone with money to invest. You may have a fundraising goal of $50 for your office-lunch project, but you have the potential to raise more $55,000 from 6,911 backers. Investors can also select from hundreds of projects and investing as less as $20. Crowdfunding sites generate huge revenue from a percentage of the funds raised.
Crowdfunding websites such as Kickstarter and Indiegogo have attracted hundreds of thousands of people with their product ideas.
Top Five trends in Crowdfunding
Equity Crowdfunding:
Crowdfunding platforms have for a long time relied on reward-based systems to incentivize backers for projects. While this works perfectly for projects that can return a product or a service directly to consumers, the platform is unsuitable for startups serving a niche segment.
Incentivization is fast growing as new crowdfunding trend that allows entrepreneurs to raise capital via equity rather than a physical reward, allowing for a myriad of industries to be able to now effectively use crowdfunding to get their ideas off the ground.
Investor Education:
Crowdfunding acted as a sort of wild west of business fundraising. Several projects that met or far exceeded their capital goals vanished with little that platforms of users could do about it. While the crowdfunding platforms were still able to collect their shares via fees, casual users and investors in these projects had barely any product or service to show for their investment, and in many cases, they were bereft of their initial investments too.
The new wave of startups has addressed the problem by conducting individual research into projects that exceed what a casual investor would be able to find on a fundraising site or the company’s website. By acting as rating agencies of sorts, these new startups are guiding both casual tech enthusiasts interested in a new innovation as well as investors interested in funding a promising project in deciding projects which can actually deliver on their promises.
Blockchain Technology:
Blockchain applications have gone beyond cryptocurrencies for news outlets and have created immense hype in investing communities. Though initially perceived as a way to democratize fundraising so that anyone could freely pursue innovation, the platforms turned out to be less promising. Excessive charges and lack of clarity regarding exclusionary policies made many platforms inaccessible or inefficient for entrepreneurs.
New startups like Acorn Collective are applying decentralized ledger technology to crowdfunding situations. Acorn Collective has already created a token system, called OAK that allows users on both sides of the platform to crowdfund free of fees. Fees as high as 10% for fundraisers have been effectively eliminated, making the platform much friendlier to up and coming companies.
Moreover, the Acorn Collective’s Blockchain-based platform allows any legal and non-harmful project from anywhere on the globe to easily fundraise, something that no other crowdfunding platform allows for. As the technology continues to develop and manifest itself into the fundraising industry, Blockchain will certainly be one of the game changers for the crowdfunding economy in 2018.
Non-profit Crowdfunding Campaigns:
Even though crowdfunding has traditionally been an individual investment, the rules are changing fast. Nowadays, more and more organizations, teams, businesses, schools, and other groups have been actively working towards a more democratized model for crowdfunding.
Nonprofit crowdfunding works are gaining importance. Charitable organizations select a short-term, specific project to raise money for events. These organizations may set up a crowdfunding page or incorporate peer-to-peer fundraising tools. This will enable their supporters to set up their own campaign pages.
With a number of popular crowdfunding sites specifically targeted towards non-profits, charitable organizations are finding better ways to meet their fundraising goals through crowdfunding.
Real-estate Crowdfunding:
Till some years back, real estate development was mainly by investing money straight into the development company or through REITs (real estate investment trusts).
Real Estate investment trusts, in turn, gave the investors an opportunity to buy stakes in real estate facilities. However, this happened to largely considerably restrains access to projects for individual investors.
Crowdfunding in real estate has made this better by green-lighting investors all around the world to take an active part in real estate investing via numerous online platforms.
Crowdfunding for real estate development differs very much from the other types in the means of investing, benefits and risks for investors. In real estate crowdfunding, the investors play the role of property shareholders (equity investment) or allocate funds in the loans backed by it (debt investments), unlike other industries.
The future of crowd-funding
According to the Global Crowdfunding Market 2016-2020 Report, crowdfunding market is expected to grow at CAGR (Compound Annual Growth Rate) of 26.87% during the period 2016-2020.
Just six years ago crowdfunding reported $880 million in 2010, showing a relatively small market with minimal growth potential. In 2013, the industry reported $6.1 billion and expanded by 167% to reach $16.2 billion in 2014. According to crowdfunding research firm Massolution, the industry earned more than double and reached $34.4 billion in 2015. If this trend of doubling continues, we’ll see $90 billion by 2017.
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