The Future of Crowdfunding?
Kickstarter and Indiegogo are still the most popular crowdfunding platforms, helping businesses from a range of industry sectors bring their products to market. As of February 2018 there have been over 385,000 Kickstarter projects and right now there are nearly 3000 live projects. Over 3.5 billion dollars have been pledged enabling over a third of these projects to succeed. These numbers are going to grow in the coming years; the amount of benefit that borrowers and investors are receiving is unprecedented in financial history.
Critics argue that it is a temporary fad born by the rise in social media. However, crowdfunding isn’t a new concept; for example, hedge funding is a form of crowfunding (albeit with a different kind of investor). We are only in the nascent stages of crowfunding and 2019 is likely to see an expansion of this very successful idea.
Algorithm-Driven Rating Mechanisms
The process of investing into businesses – especially the relatively unknown businesses commonly found on crowfunding platforms – will be assisted by the use of new algorithm-driven rating mechanisms. Currently, it is difficult for investors (you) to know what companies will succeed and whether similar companies have had success. Investment is all about minimising risk and looking for a big return on your investment. These rating mechanism, bought to us by data analytic companies, will help online investors to see whether a specific idea will succeed based upon trends, revenue, geography, and previous targets. In essence, in 2019 it is likely we will be able to make better and more informed investment decisions when crowdfunding.
The founder of iConsumer, Robert Grosshandler, said that “Equity crowdfunding gives us a chance to include all of our consumers as owners.” As these consumers become shareholders in the business they will have access to a share of the company’s profits should that company perform well.
Crowdcube is one such example of an equity-based crowdfunding site. In February 2013, Crowdcube was authorised by the Financial Services Authority to operate in the UK. On the site, individuals’ investments are pooled allowing entrepreneurs to secure funding directly from the general public, bypassing business angels and banks. In the third quarter of 2017 the company generated £1 million in revenue and this is expected to rise in 2018.
As previously mentioned, Kickstarter and Indiegogo currently dominate the crowdfunding market. These sites enable a wide spectrum of companies to raise funds, meaning many brilliant products are lost in the sea of products uploaded every day. To counteract this, 2019 will see the rise of niche platforms that cater to particular industries and bring together a community of individuals interested in those areas. As Jordan Fishfield, CEO of PeerRealty noted, “we’ll see a rise of investment grade product, like real estate, oil exploration, and mining, viatical settlements” finally finding their way into the mainstream. Other niche platforms that have come about in recent months are AppStori for app development and MedStartr for healthcare. However, those niche platforms current have under 100 crowdfunding opportunities available for investment.
Where swarms of people come together you can almost guarantee there will be a big business or two sniffing around the edges. Crowdfunding’s popularity has led to larger businesses, such as Kia and Kimberly-Clark, undertaking their own campaigns to generate investments online. Often they disguise themselves as subsidiaries of the main brand as many people would be put off by the idea of investing in an already successful company. For example, Sony ran a crowdfunding campaign for an E-Ink concept watch operating as a separate entity on a Japanese platform. This helps to boost their online exposure and boost social engagement, which is often difficult when launching a product through traditional means.