Crowdfunding’s rapid growth and future opportunity

1Executive Summary

The type of fund-raising known as crowdfunding has the potential to be a very highgrowth field: In the past two years it’s grown from a $33 million market to a $128 million market1.

In March 2012 crowdfunding became a hot topic as the White House debated crowdfunding legislature and as sites like Kickstarter and GoFundMe began breaking project and total-funding milestones. One month prior, in February, Daily Crowdsource completed the first in-depth research on the growing field for the year 2011, in order to provide quantifiable data and finally dispel any myths appearing around the field.

This report examines the results of this research, which was constructed from the top 14 crowdfunding platforms worldwide. The report will help individuals interested in running crowdfunding projects, investors and financial reporters.

Other than the viability of the fund-raising method causing crowdfunding to spread by word of mouth, there were three communities responsible for bringing crowdfunding into the limelight:

  • Big media covering multimillion-dollar Kickstarter projects in 2012
  • Investor and startup communities discussing and covering investment-based crowdfunding
  • President Obama and Congress passing a bill to legalize crowdfunding for equity, debt and other investment opportunities online through the JOBS Act

In 2011 the rewards-based crowdfunding market outperformed investment-based crowdfunding by five to one. This is in part because investment-based crowdfunding is illegal in the United States, and the idea of trading equity and other investment opportunities through crowdfunding is younger than rewards-based crowdfunding. This means that investment-based crowdfunding has a smaller audience than rewardsbased crowdfunding. Many would also argue that there are many benefits of rewardsbased crowdfunding over investment-based crowdfunding that will deter adoption of the model. A less-complex donor-to-funder relationship is one example.

After researching crowdfunding and looking deeper into the psychology and demographics of crowdfunding, Daily Crowdsource believes that crowdfunding, while being a powerful fund-raising method, is not a get-rich-quick option, and it will not replace traditional fund-raising methods. With rewards-based crowdfunding’s success rate on average being 35 percent per project, we expect to see a much larger adoption of users at a similar rate of success. Investment-based crowdfunding saw a success rate of only 3.9 percent. For this and other reasons, we expect investment-based crowdfunding to grow quickly but not at the levels predicted by some crowdfunding enthusiasts and by the press.

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