Why crowdfunding hasn’t caught on in Asia

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CNNMoney by Kurt Wagner | Posted on July 9, 2013

crowdfunding in asia

The popular fundraising method hasn't stuck yet. It's only a matter of time.

FORTUNE -- The crowdfunding industry made it clear it isn't going anywhere last year. Popular crowdfunding platforms like Kickstarter and Indiegogo made it simple for entrepreneurs to fund their creative projects by soliciting donations from the general public. With more than 600 platforms worldwide, crowdfunding has grown from a $530 million industry in 2009 to nearly $2.7 billion last year, according to a recent study by Massolution, a research firm specializing in crowdsourcing businesses.

The relatively new funding strategy -- in which entrepreneurs receive donations often in exchange for small perks or gifts -- is predicted to eclipse $5 billion in total funding in 2013, according to the study.
But not everyone has fully adopted crowdfunding. Platforms in Asia, home to more than half of the world's population, were responsible for only $33 million in funding last year -- just over 1% of the total raised, according to the study. With so many entrepreneurs relying on the masses to jumpstart their projects, it's noticeable that the largest concentration of people on the globe appears to be uninterested.

There are a number of reasons crowdfunding hasn't gained traction in Asia like it has in North America ($1.6 billion in 2012) or Europe ($945 million), says Leo Shimada, founder of Singapore-based platform Crowdonomic. The most obvious is that Asia doesn't have the high-profile, reliable platforms that have helped push the industry forward elsewhere, he argues. Tom Russell, CEO of equity-based platform SeedAsia in China, agrees. "I don't know if you've had a platform quite like Kickstarter anywhere else in the world yet," he says.

Too many crowdfunding providers in Asia are taking a "cookie-cutter approach," explains Shimada, simply throwing up a website without providing the services or reliability donors have come to expect in other parts of the world. "They look at Indiegogo or Kickstarter and replicate the website and expect money to come in," he says.

Local culture is another thing. For example, the public perception of failure is different in Asia than it is in the United States, says Shimada, and funding an idea online is risky in that it opens the entrepreneur to criticism and the potential to fail publicly. "Wherever you are in the world, no one wants to be a loser," says Shimada, "but especially in a region like Asia where there's this thing about saving face and a pronounced fear of failure." In China, Russell pointed to the importance of guanxi, the process of maintaining relationships and influential networks, as a possible crowdfunding deterrent. "[In China] people like to invest in their local community," he says. "They're often very willing to get behind projects where they know the founders, or they have an understanding of what the person is doing. But the idea of investing on the Internet, I feel that's just very unfamiliar to them." It is because of this that SeedAsia works to connect investors with entrepreneurs offline.

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