Carl Esposti is CEO of crowdsourcing advisory firm massolution.
If you think that participating in crowdfunding simply means investing in smaller companies that launch games and devices on Kickstarter, think again. With crowdfunding volumes reaching $2.7 billion in 2012, it has emerged as a viable, scalable alternative to public and private finance across the globe.
After surveying more than 350 active crowdfunding platforms, including IndieGoGo, CrowdCube, Symbid, and Gambitious (full site directory at crowdsourcing.org), and completing an in-depth analysis of market trends, research firm Massolution has identified five major crowdfunding developments for 2013 and beyond.
1. Niche platforms
As crowdfunding platforms try to benefit from market differentiation, niche-, industry-, and sector-specific platforms are emerging.
Platforms offering reward-based crowdfunding see an especially high value in serving a common niche or industry. Examples include platforms focusing on video games, recording art, performing art, real estate, food and beverage, fashion, journalism, and more.
While it’s smart for a new platform to choose a specific niche simply to differentiate its service, there is another big reason why this trend is likely to prevail—it helps build a repeated crowd on the platform. Having crowdfunders visit a platform, not just because they have been invited onto a specific campaign, but because the campaigns appeal to their tastes, is extremely valuable.
In her 2011 book, Locavesting, business and finance journalist Amy Cortese describes how “a revolution in local investing” is emerging and that crowfunding is boosting it. This year, we are going to see increased momentum in this revolution because many new crowdfunding platforms will actually specialize in locavesting.
It’s been over a year since President Obama signed the JOBS Act, but legislation is stymied in the hands of the SEC.
However, at least four states – Louisiana, North Carolina, Georgia and Kansas – have taken the initiative to allow crowdfunding for business loans. Crowdfunding platform Rebirth Financial is specializing in locavesting and offers intrastate, lending-based crowdfunding. Although Rebirth’s offerings are open to anyone within state borders, successful campaigns have so far been driven by very local support – all the way down to the customer-base level.
#3. Enterprise crowdfunding
Large enterprises and associations have begun to look into crowdfunding and how this tool carries new potential for their companies, including raising social profiles, market testing, and spin-ins of entrepreneurial ventures. The perceived benefit is not the additional funding itself, but the democratization of specific decisions that would otherwise be made internally in the company.
The American Institute of Architects (AIA) represents the interests of more than 85,000 member architects across the U.S., a sector that has been hit particularly hard by the recent financial crisis. Recently, the AIA published a report examining crowdfunding’s potential as a new source of capital for residential, commercial, and industrial infrastructure projects.
Crowdfunding shows significant promise for attracting investors to smaller projects and getting them off the architect’s drawing board. In this case, crowdfunding will be used to spur community support and financing for an assortment of infrastructure ventures that would ordinarily have difficulty finding money due to their smaller size.
#4. Crowdfunding economic development
Major development banks and similar institutions — including The World Bank and The Inter-American Development Bank — are seeking to leverage crowdfunding for economic development. Crowdfunding’s social profile and its strong connection to micro-finance are the main drivers.
Crowdfunding has historically been embraced by philanthropic ventures, especially for donation-based crowdfunding and interest-free lending. The models naturally merge with micro-finance because the funding needs are very small, and individual donations or loans are likely triggers of funding success. The next step for crowdfunding in this particular space is the evolution and scaling up to economic development at the macro level.
The Multilateral Investment Fund (MIF) of the Inter-American Development Bank is currently exploring the potential of crowdfunding in Latin America, and how crowdfunding can be used to improve small businesses and bring financing to entrepreneurs who have less access to it. In Latin America, crowdfunding is just gathering momentum with about 40 online platforms, including Crowdfunder.mx and Idea.me, established over the last couple of years.
Platforms in the areas of solar energy, education, and urban development are expected to be the most promising in this region.
5. LIVE crowdfunding
The final trend that we see emerging in the crowdfunding space are launch-party events at the initiation of campaigns or LIVE crowdfunding expos. Besides creating media attention and offering a great marketing opportunity, LIVE Crowdfunding taps into an investor need that is hard to come by through the web: exclusivity.
Exclusivity in access to new products or deal flow can be a triggering factor in itself, and LIVE crowdfunding augments online crowdfunding with exactly that.
This October, the CrowdfundingRoadmap is hosting its second Global Crowdfunding Convention and Bootcamp, this year with its first ever LIVE Crowdfunding Expo, where anyone will be able to participate in donations- and rewards-based crowdfunding campaigns right on the spot.
All attendees will need to do is simply walk up to the booth!
In addition, if entrepreneurs are unable to attend the event or are launching their projects after October, CrowdfundingRoadmap is offering them the opportunity to showcase their crowdfunding pitch videos on the big screen at the expo, with a designated QR code, to help them get in front of potential investors and industry influencers.
Crowdfunding represents a breakthrough in how businesses and local projects are funded and disrupts centuries-old financial flows. While 2012 was the year of acceleration for the crowdfunding markets, these new developments above will fuel its growth for years to come.
Image credit: Shutterstock/Hands with dollars