March 28th, 2017
2013 Crowdfunding Predictions Revisited
Last December, I ventured out onto that proverbial limb and made a few predictions about what 2014 was likely to hold for crowdfunding. Now that the New Year is almost upon us, it’s time to revisit these predictions. Let’s see how accurately my crystal ball viewed the future.
“The implementation of the JOBS Act will not lead to an explosion of equity crowdfunding.”
Equity crowdfunding, by almost any measures, has grown dramatically. But the JOBS Act wasn’t the driver. Though many thought that the finalization of the JOBS (or Jumpstart Our Business Startups) Act—which directed the SEC to both simplify IPOs and corporate fundraising, and also allowed individuals to invest in crowdfunded equity campaigns for startups—would serve as what the Harvard Business Review described as a “big bang moment” in equity crowdfunding. So far in 2013, this has not been a key driver for growth.
Why not? It’s complicated. Timing is a big part of it. Title II of the JOBS Act, which allows for general solicitation, didn’t go live until September 23—long after most people thought—so we’re just starting to see its initial effects. For instance, CircleUp just closed our first deal using Title II. While companies, and their attorneys, work to understand the rules related to Title III, the growth will take time. In the long run we still believe Title II will be a big driver for private capital raises.
Title III is a different story. This section of the JOBS Act allows unaccredited investors to invest, but it stilll has not been implemented. Nonetheless, the rules have been proposed by the SEC, and those rules don’t look attractive. It’s extremely hard for us to imagine any attractive company raising money using Title III. Its restrictions are simply too significant.
“Donation-based crowdfunding sites will differentiate or die.”
When I say donation, I’m including rewards sites. I was too early about this one, but I think it’s still correct. Just as in so many other web industries—social media, flash sale sites, etc.—I believe this consolidation will play out over time. Successful donation sites are already differentiating based on industry or other factors, such as an integrated API (See Crowdtilt’s very interesting API). Of course, the main exception to this rule is Kickstarter, which is gaining scale rapidly.
To grab market share from Kickstarter, I believe donation/rewards sites will have to discover a powerful niche, or risk dying a slow death—or a quick death, depending upon their funding.