April 24th, 2017
Is Crowdfunding Turning Contagious?
Huffpost Business | Ian Khan | Feb 26, 2016
With so much innovation going on around us, funding the cause is one of the top priorities of any entrepreneur. With popular crowdfunding websites like Kickstarter, Indiegogo and many others, entrepreneurs, inventors, designers and fanatical believers of their products have created a new niche of raising funds to make their dreams a reality. As opposed to traditional financing and even newer financial models that include Venture capital, this is the world of crowdfunding.
On Kickstarter alone, over $2 Billion worth of pledges have been received for over 100,000 successfully funded projects. On Indiegogo, another popular crowdfunding platform, more than $800 million has been raised. One of their most popular campaigns includes Flow Hive that raised more than $12 Million from 37.000 backers in more than 15 countries.
Let's take a step back and think about the real success of the crowdfunding industry. It has its own challenges. While we can speak about the glory and the wins, keep in perspective that these successful campaigns form less than 10 percent of the total campaigns on some of these platforms. The "democratization of crowdfunding" is definitely a phenomenon that is happening right now, but whether it is a good or a bad thing needs to be decided. Maybe this will help!
Crowdfunding is really the model that has existed for years and has been utilized by the likes of charities and nonprofits for decades. Dependent on the collection of funds form a large number of people to fund an initiative or a goal, now the industry has reached a stage where full blown products have been launched using the concept. Crowdfunders are most of the times a recipient of some kind of a return such as a mention on the website, a thank you note or an acknowledgment. Many times the level of return increases to being able to receive a product or multiple products with incentives as the stakes get higher.
My most favorite part about crowdfunding is the pure level of innovation it is fueling. By eliminating the need to go through a complicated financial cycle to make a product or an idea come to life, it has opened the doors to everyone that really believes in the value they can offer. Some of the most successful crowdfunding campaigns has raised amounts as high as $109 Million. Check out this list of some popular campaigns.
Despite the success and opportunity presented by crowdfunding, the industry still faces multiple challenges. These are at regulatory, process, and industry level. Crowdfunding is a massive disruptor and can dramatically change the banking industry as it hits the mainstream. How will that affect how Banks operate and manage their relationship switch businesses this can also have global impacts as banks work across borders and in multiple countries and regions. There are also risks associated with default and business failure. According to IOSCO Market Intelligence, start up businesses in some circumstances have 50% chance of failing within the first 5 years. The industry also needs governance and thought leadership and many venues for this are opening up.
In the next week, Canadian crowdfunding experts will converge at the National Crowdfunding Association of Canada conference, one of the few dedicated crowdfunding events in the region, to discuss how the industry functions, the challenges and opportunities. What will be interesting to see are the levels of discussions that will take place and how regulators, providers and experts discuss and tackle the challenge of the industry at large. Is crowdfunding becoming a phenomenon more than just a financing scheme ? It definitely is !
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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit www.ncfacanada.org.