The concept of crowdfunding has been around for centuries, but the first successful online crowdfunding campaign was in 1997. A British rock band funded a reunion tour with the help of fans through online donations. In under 20 years, crowdfunding has exploded into a multibillion-dollar industry for artists, filmmakers, nonprofits, individuals and now, startups. The World Bank Report estimates that global investment through crowdfunding will reach $93 billion by 2025. Let's take a look at how crowdfunding might evolve to meet that target.
Rise of Niche Platforms
Although crowdfunding platforms started as niche platforms -- ArtistShare in 2000 was the first -- we'll likely see a return to those focused platforms in the coming years. With so many options for crowdfunding, platforms will find value in specializing their focus and drawing a specific crowd. Niches like gaming, education, music, nonprofits and charitable organizations, research, and local projects are forming their own platforms to better serve backers and get noticed.
"We see the rise of niche platforms, and with it, aggregation tools, like Property.com, and centralized marketplaces for liquidity, like CFX," said Jordan Fishfeld, CEO of PeerRealty. "We'll see a rise in investment grade product, like real estate, oil exploration, mining, viatical settlements, those assets that really were left for institutions finally finding their way to main street."
Investing in Startups
In the U.S. rewards-based platforms like Indiegogo and Kickstarter have gotten the early attention. Beginning this year, equity-based crowdfunding is a next big wave. Title III and Title IV of the JOBS Act have made it possible for unaccredited (e.g. not rich) investors to easily buy ownership stakes in startup companies they care about. Investing in the stock of a startup used to be reserved for the wealthy. Because of these new regulations, startups are looking to attract people who want to back the company as investors, as well as back a company's project or a dream.
Crowdfunding gives companies an additional option for raising capital, something different (and for many companies better) than venture capital or angel investors. The investing and thus decision-making power will be in the hands of the new investing class, a larger group made up of middle Americans. It's a whole new world of investing, crowdfunding and startups.
Early examples of startup crowdfunding include iConsumer. Robert Grosshandler, founder of iConsumer, tells us, "Equity crowdfunding gives us a chance to include all of our customers as owners. Even better, we're able to offer the 99% a chance to be part of the Wall Street world, without risking any cash. Our customers save money at great retailers and become investors in iConsumer. It wouldn't have been feasible without these new regulations."
Educating the Investors
These changes in investing and crowdfunding rules will lead to a greater need to educate participants. Crowdfunding platforms, thought leaders and startups looking for investments will find it worth their time to educate the new class of investors on equity, fundraising, investing and trends in crowdfunding in order to win their money. Sites like Shareholder Academy have sprung up to cater to these needs.
"In the end, education is key and we look forward to the success of Shareholder Academy to help grow all verticals within crowd finance," Fishfeld said.
Technology in Crowdfunding
With so many projects seeking funding and so many backers seeking projects, it's vital for crowdfunders to get in front of the right people. Now, many platforms are building data-driven targeting into their system to better meet the needs of those posting projects. Additionally, specific sites are offering influencer search options to locate those popular early adopters that will lead campaigns to a gold mine of backers. Equity crowdfunding has it own set of sites, like Crowdfunder and StartEngine.
Marketing companies are seeing the growth and value in crowdfunding, too. Now, whole teams and digital marketing companies are devoted to helping clients use crowdfunding effectively by promoting their campaign, targeting funders and following through with media coverage after the project is funded.
"Crowdfunding investments won't replace expertly managed investments funds any time soon," said Daniel Pianko, Managing Partner of University Ventures, which has approximately $300 million under management. "But it will be an exciting part of a new investing dynamic. Going forward, entrepreneurs will have to consider whether going to crowd markets first or instead of private investors and investors will have to figure out what early crowdfunding success means for a potential company. And what's most interesting is when professional investors start leading 'crowd' funding initiatives rather than raise their own small funds."