Yatan Blumenthal is the new COO of StartupCamp Berlin and wrote a thesis on the crowdfunding phenomenon. StartupCamp will be hosting a panel discussion on crowdfunding as part of its 2013 programme. Here he explains the main reasons why 2013 will see peer-powered investing disrupting the traditional finance world even more…
The crowdfunding Industry has grown from $500 million in 2007 to an estimated $2.8bn for 2012. Compared to Venture Capital and Angel investment which together amount to $150bn in the USA it seems little. But the growth it has enjoyed over the last few years makes it likely to become a big player in the funding world.
Here’s the four reasons why 2013 will be the year of crowdfunding:
The Why: It’s not about the money
Why people fund companies and projects using crowdfunding is completely different from other funding sources.
Research has shown that enjoyment of a product or project or the moral support for the causes matters much more to crowdfunders than the return on investment. Crowdfunding is much more about engaging a crowd by showing the process of what you’re doing and involving people in your progress. In short, making them a part of your (very personal) story.
The How: All kinds of rewards are available
Unlike any other funding source, crowdfunding is multifaceted in its methods. You can engage the crowd into providing you a loan which you’ll pay back with interest. You can sell a part of your company to the crowd in exchange for their investment. A popular method is offering a reward such as a T-shirt or a first product.
UFOStart in San Francisco is taking it a step further. Companies that use their platform offer a part of their company by providing your expertise. Or finally, you can offer your funders nothing in exchange for their buck, except the feeling that they did something meaningful.
The What: Funding for any market
Politics? Obama crowdfunded a large part of his election campaign. Sport? Myfootballclub rallied all their supporters to community-own the Ebbsfleet United in the UK. Education? Alvaro Salas raised $150,000 through crowdfunding to do an MPA at Cornell University through the promise of coming back to Costa Rica to make a difference.
Many technology firms have crowdfunded their seed and further stage capital. A few months ago I crowdfunded my sister’s honeymoon… In short, it’s all in the cards, and as long as you can communicate it and make it matter to people, you can crowdfund it.
The When: Filling a gap not met by anyone else
When looking at company funding, there is a time and place for each funding source. And there is also a gap, called the Funding or Equity Gap. Crowdfunding holds a promise to fill the gap that exists between how far angel investors are willing to go and the minimum amount that venture capitalists invest.
Crowdfunding Reach In the Funding Gap. Source: Nesta (2012)
Obama’s JOBS Act has come into effect in the USA and happening elsewhere as well. It means that companies can finally offer equity in exchange for investment and it’s the beginning of a beautiful story that I expect will change the landscape of finance forever, slowly but surely.
The 16 and 17 of March 2013 I’m organizing Startup Camp Berlin with Entrepreneurs Club Berlin.
Crowdfunding will be discussed and successful campaigns presented from people who have first-hand experience and are at the forefront of the industry. Super Early Bird Tickets are already available.
Main image: flickr user crsan