Crowd funding: a fad or promising business model

By now I think everyone has heard about crowdfunding in some way, shape or form. Typically the first thought is that of KickStarter. The crowd funding platform (CFP) that literally started the category. In just 2014; over 3 300 000 (that’s 3,3 million people) pledged more than half a billion dollars (yip; with a ‘b’)…! That is roughly one thousand dollars every minute last year!

That is phenomenal for a single website that doesn’t actually sell any product of its own! All Kickstarter does is provide the marketplace for people with ideas and funders to come together and do business. But that’s just Kickstarter. As of April 2015, based on Crowdsourcing.org’s directory of sites; there were 1 250 crowd funding platforms active worldwide. (There were just 452 in 2012) According to Massolution’s  2015 CF–Crowdfunding Industry Survey report; global crowd funding may reach US$34.4 Billion in 2015. That’s 167% growth from 2014.

Looking at the world of crowdfunding today; there is a clear distinction between the developed and the developing world with the bulk of the world’s CFP’s being present in the developed world. Logic would dictate that this is primarily because of telecommunication infrastructure development as well as the internet adoption rates and the maturity of transacting online found as a norm in these developed countries.

CFP Worldwide

Types of Crowd Funding

When we investigate crowdfunding a little closer; we find that there are 4x major types of funding currently. Donation, equity, loan, reward.

  1. Equity-based crowd funding: Funders receive compensation in the form of fundraiser’s equity-based or revenue or profit share agreements (FlashFunders)
  2. Lending-based crowd funding: Funders receive fixed periodic income and expect repayment of the original principal investment (FundedByMe)
  3. Reward-based crowd funding: Funders primary objective for funding is to gain a non-financial reward such as a token or in the case of a product , a first edition release. (KickStarter)
  4. Donation-based crowd funding: Donations are made to a cause they wish to support with no expectation of compensation. (most charity websites)

Each model has its own incentive for funders and can be used to fund different causes; projects or companies.

The reward-based category is the largest crowd funding category in terms of number of CFP’s and also grew at a high rate of 79% CAGR. The lending-based category is the smallest in terms of the number of platforms. Donation-based and lending-based crowd funding are growing at a similar pace, significantly lower than that of the reward-based category. The equity-based category shows the fastest growth rate, at 114%, and is mostly driven by growth in the number of European platforms.

With CAGR’s like that and the rapid rate at which new CFPs are being successfully launched I think it is quite clear to see that this is definitely not a passing fad and that this is a business model that is definitely going to continually disrupt the way in which businesses and products are funded long into the future.

Where can crowd funding help you?

Whether you are an entrepreneur with a dream; a business looking at getting a product into development; or an organisation looking for the next big thing; there is a potential crowdfunding solution for you. The beauty of crowdfunding is that the options are so diverse that there is bound to be a solution that makes strategic sense for your immediate needs; from creating your own CFP through to joining one of the many success stories on KickStarter and the many other commercial platforms!

We would love to hear your thoughts and stories about your crowdfunding journey – please comment below or be in touch on any of our channels!

About Jonno

I am passionate about digital marketing and digital strategy. During the day, Jonathan fulfills the role as Head of Digital Marketing for HKLM. My work at HKLM includes strategy conceptualization, focusing on the alignment of digital marketing to business strategy as well as assisting HKLM's clients on fulfilling their digital objectives. I am also the author of Internet Marketing for Entrepreneurs, a 50 000 word body of work which touches on the subtleties of digital marketing which are often overlooked.