Crowdfunding gets more crowded

Fancy investing in some early stage wearable technology? How about pooling funds to support the creation of a national park? What if as a business owner you could gauge customer interest during the product development phase to ensure sales? Or place a large order for stock, but only once the required level of pre-sales have been generated?

All this is happening just a few clicks away with crowdfunding.

A simple search using Google Trends (which for me is a fascinating insight into the search habits of the world) reveals that people are looking for information on crowdfunding in larger numbers than ever before – eclipsing searches for other methods of funding, such as venture capital.

Venture capital versus Crowdfunding as a search term in Google 

Crowdfunding has grown into a worldwide $5.1B industry. It involves the mass-collection of (usually small amounts) of money to commercialise a project, concept or start-up. The practice has been around for centuries, indeed one of the first great successes of crowdfunding was the completion of the base to hold the ‘Statue of Liberty’ in New York.

However, the recent explosion in crowdfunding is in large part due to the available technology platforms and the social web (Facebook, Twitter, YouTube). This combination of a ‘low barrier to entry’ and ‘worldwide connectivity’ has resulted in a huge growth for crowdfunding.

Not long ago, social networking, (Myspace, Facebook and Twitter) seemed niche and somewhat obscure. Now social media is becoming a mainstream activity, forever changing the way the world communicates. But organisations who are backing crowdfunding see a similar trajectory for this industry.

Social networking and crowdfunding reflect a change in behaviour, with seemingly easy accessibility to funding and the ability for anyone to invest in a project.

Crowdfunding platforms, with plenty of pictures, interviews and videos of the proposed product combined with the immediacy and connectivity of social media engenders trust. Highly visible, they provide the missing piece that historically hampered investors in handing over money without reading and understanding a detailed prospectus or having physically met the project owners.

The other alluring aspect to crowdfunding is the approachability of the information and the emotional engagement social networking brings. A much simpler platform than complex prospectus documents and seemingly unachievable ‘deals’ that the average person would read about in media business sections.

The Murray Review will next week examine, among many other issues, the role of technology in Australia’s financial system in the years ahead. But crowd-funding, using social media, is a here and now method which is having a major impact on finance-raising for investment projects.

People have never before experienced such accessibility to invest or be involved in ideas or businesses that they are passionate about, on such a large scale and at such speed. But at the same time, crowdfunding is testing and stretching the boundaries of current regulations and established norms around risk and investing. This is certainly the case when investors are receiving equity in return for money, often in high risk early stage ideas, leading to governments around the world having to re-think what modern investing looks like.

However, the ultimate value for many involved with crowdfunding is the opportunity to support a company in its early stages, and hope that it will eventually generate a significant return on their initial investment. The ubiquity of social media makes crowdfunding a global ‘online’ concept generating ‘real world’ outcomes.

Feature Image © kristijanzontar / 123RF Stock Photo
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