Crowdfunding, coming of age
In the sequence of the story about crowdfunding I published a couple of days ago here, I wanted to follow-up with a few numbers, just to draw your attention to the magnitude of growth the industry is experiencing (most of the statistics I refer to are from www.crowdsurfer.com, unless otherwise stated).
The industry practically did not exist until roughly five years ago. Since then, it has experienced an hockey stick shaped growth of the kind most venture capital investors salivate about.
From the very beginning of its existence until the end of 2015 the numbers do not look that impressive, $24.0Bi of amounts pledged globally on 554 platforms accounted for by Crowdsurfer (not the full monty of the industry, but certainly a big majority of it, especially considering amounts pledged) is easily dwarfed by the trillion order of magnitude of the private markets asset classes.
However, if we consider that only in 2015 crowdfunding raised $13.6Bi, meaning more that 1/2 the industry did as a whole since its inception (growing at a whopping 100% a year), then a few eyebrows might start to raise…
If I add that a considerable part of the investors is yet to enter the market after 30th of April when the Title III of the Jobs Act in the USA become effective and a company can raise money from anyone, including those earning less than $100,000 per year (until now only qualified investors could access these offerings and only since late 2015).
In addition, suppose that in certain countries where crowdfunding is fiscally highly supported, will have increased incentives to the sector (in the UK the EIS and the SEIS programmes that give tax breaks for equity investors in seed and startup companies will be extended to debt like instruments).
You guessed it… the numbers are bound to keep increasing! At a fast pace!
[Just as a side note, it is important to highlight that the UK has been pretty successful in countering the normal hegemony of the USA in the financial services industries. This is a phenomenon not restricted to crowdfunding. In fact the UK is pretty much on even terms with the USA in fintech in general. The openness and pro-innovation stance of the market regulators (most notably the FCA) contributed significantly to this equilibrium. The government tax incentives as well, obviously.]
The industry is largely dominated by the P2P loan platforms (the biggest being Lending Club), commanding roughly 80% of the market. There has been a big argument if they maintain the true spirit of P2P or if they are more like P2HedgeFunds, but that does not change the significant headway that they have as an instrument (I will get back to this argument at a later post…).
Rewards based (think Kickstarter and Indiegogo) still command spotlights (and numbers of transactions), and they are indeed placed second in terms of amounts raised with a still respectable $1.1Bi (8% of the total).
However, it is the equity based transactions that has been gaining recent accolades. After a very small base of only $66M of deals in 2013, it managed to reach $290M in 2014 and an already respectful $890M in 2015! And remember that these numbers are very skewed towards the UK (the US are still getting their motors running on this front). I am predicting that in 2016, the amounts pledged for equity platforms will easily surpass the rewards based platforms to conquer a comfortable second place behind the P2P Loans platforms.
Below the podium there are an infinite number of platforms for different instruments that have been popping up, according to the breezes of the imagination of its founders. Donation, Invoice Trading, Micro Loans, Bonds, Debentures, Community Shares, Revenue Sharing, Micro Donation, etc., etc.
A special reference should be made to the donations based platforms. Ranked 4th, but also enjoying significant growth, leaving up to the promises of the original concepts of crowdfunding: to leverage the crowd in order to give opportunities to the “lesser” and to make the world a better place for everyone!
As a final note, I would like to point out that more than a quarter of the global P2P loans are financed by banks and hedge funds and that in the UK, according to a recent study released by Nesta, 12% of new business lending for small businesses and 15,6% of the total UK seed and venture stage equity investment where raised through crowdfunding; that corresponds to circa 20.000 SMEs!
Crowdfunding is no longer some sort of insignificant arcane financial gadgetry, conducted somewhere in “the cloud” and away from most of our wallets… It is just like Everett Dirksen used to say: “ A billion here, a billion there, and pretty soon you’re talking about real money.”
