An eternal truth is the subject of one of my favorite songs from the hit musical (made into blockbuster movie) Cabaret is “Money Makes the World Go Around.” Yes it does, as is evidenced by the incredibly popular TV show Shark Tank. And, when it comes to technology, especially for getting started, it is always wise to do what that famous saying from another hit movie, All the Presidents Men, says in a popular sequence, “Follow the money!” On that score, the publication of two reports makes for an interesting coincidence.
The first report of note is that according NVCA and Thomson Reuters (News - Alert), U.S. venture capital firms raised $4.1 billion from 35 funds in the first quarter of 2013. The good news is that represents an increase of 22 percent over the previous quarter. However, there was a 14-percent decrease in the number of funds. The report does not go into where those funds are targeted for, but if history repeats itself, it is destined mostly for tech.
The second report was the release of a new survey from massolution, a research firm specializing in crowdsourcing and crowdfunding. It annual 2013CF - Crowdfunding Industry Report, collecting data from 308 active crowdfunding platforms (CFPs) worldwide, showed that CFPs raised $2.7 billion in 2012 - an 81-percent increase over 2011. Furthermore, the fundraising efforts ended up funding more than one million campaigns with North America and Europe, accounting for more than 95 percent of the total market.
While the increase in crowdsourcing and crowdfunding may not be cause for the decrease in the number of venture funds, the findings do make for an interesting juxtaposition. Given the explosive growth massolution found, the online friends and family funding approach, while likely more compliment than threat to the venture folks, is a “social phenomenon” that certainly is raising eyebrows along with money.
It is getting crowded
As CEO of massolution Carl Esposti stated, "Consistent with our 2012 forecast, total crowdfunding volume nearly doubled last year, and with regulatory bodies continuing to pave the way, we expect global crowdfunding volumes to exceed $5 billion in 2013," said. "While lending, donation, and reward-based crowdfunding have thus far been leading this global financial revolution, equity-based crowdfunding is about to take center stage in the U.S. The JOBS Act, which will allow non-accredited investors to make investments in exchange for equity, is expected to go into effect by the end of 2013."
His point is well taken, now you and I, aka “non-accredited investors,” can share in the fun and hopefully the profits.
Highlights in the massolutions report include: North America crowdfunding volumes grew 105 percent to $1.6 billion while Europe grew 65 percent to $945 million and all other markets grew 125 percent. Where it gets really interesting is in the growth by models. As the report summary states, “The growth in funding volumes was primarily driven by lending- and donation-based crowdfunding, and by SME adoption of reward-based crowdfunding. The growth in lending volumes mainly stemmed from crowdfunded micro-loans and community-driven loans to local small and medium enterprises (SMEs).”
- Donation and reward-based crowdfunding grew 85 percent to $1.4 billion
- Lending-based crowdfunding grew 111 percent to $1.2 billion
- Equity-based crowdfunding grew 30 percent to $116 million
The top categories for crowdfunding are intriguing. They are:
- Social causes (30 percent) of all crowdfunding activity
- Business and entrepreneurship (16.9 percent)
- Films and performing arts (11.9 percent)
- Music and recording arts (7.5 percent)
- Energy and environment (5.9 percent)
Crowdfunding, which started as an innovative way for to provide philanthropic and cause-based giving, has clearly spread its wings from its roots of leveraging the pockets of the crowd online to in small doses do well or feel well by doing good. However, the numbers so this is changing and that there is interesting not just in giving a buck but in making one as well.
This really is a case of the bottom line being the bottom line. So if you are having trouble getting the venture capital crowd to give you the time of day and a seed round, creating wisdom in the crowd and tapping what is now over the billion dollar mark in terms of being a funding source might just be your ticket. Plus, you have to like the opportunity of gaining brand advocates early on.
Edited by Rachel Ramsey