This examination has led me to the basic conclusion that most of these “crowdfunding sites” are not actually crowdfunding. And that is ok. There still can be significant “funding” value in them. But there are some fundamental and significantly different aspects to these sites that both investors and entrepreneurs must understand to be successful when using them. Just as a sedan, a sports car and a truck are all transportation vehicles but each has a specialized purpose these sites are good for some funding and investment goals and inappropriate for others. Here is my dissection in summary.
- Crowdfunding platform
- Crowdfunding marketplace
- Charity crowdfunding
- Reward crowdfunding
- Debt crowdfunding
- Equity crowdfunding
Yes, I am introducing a new term. iFunding is internet assisted traditional funding. In other words, the funding model has existed for years if not ages but now it is easier or extended. A good example of this is private placement. Investopedia defines private placement as, “The sale of securities to a relatively small number of select investors as a way of raising capital.” I think we can agree that this definition is not crowdfunding.
However, Title II of the JOBS Act of 2012 opens private placement investments up for public solicitation to accredited investors (a bigger selection investors) and Title IV raises the number of accredited investors to 2000. These changes have led to iFunding for private placement. Examples are AngelList, Circleup, Crowdfunder, Early Shares, EquityNet.com, Funders Club and Wefunder. I’ll dedicate a whole post to this category next time.
Another iFunding scenario is raising money from friends and family for personal reasons or causes. We have been raising money from friends and family for a long time now. The internet may have made it easier (if you are willing to shell out 5-8% cost of funds raised) but it certainly is not new or groundbreaking. Examples are Fundable, GoFundMe, Kapipal and Tilt.com
Crowdfunding involves large numbers of people collectively raising large sums of money through small individual contributions to support a particular opportunity. This is a common and general definition. But taking it to more specificity in the spirit of crowdfunding’s innovation and potential the definition is more accurately stated as; a thousand or more people from the general populace (with no pre-existing relationship) rally to collectively raise tens of thousands of dollars or more (using the internet) through individual contributions less than a thousand dollars but realistically less than a hundred dollars.
I fully realize that there are many who would disagree and prefer a much more general and widely encompassing definition. But if we want to herald crowdfunding as “The Next Big Thing” with the potential to disrupt the financial industry then we must admit that using a web site where my friends can pool birthday gift money to collectively buy me a new set of golf clubs really doesn’t cut it. Convenient, yes. Disruptive to capitalism’s financial system, no. iFunding, yes. Crowdfunding, no.
Crowdfunding sites can come in two forms; platforms and marketplaces.
Crowdfunding platforms are sites where people can build their own crowdfunding site or construct their own experience but then are expected to draw their own crowd often via email or social media. This does not seem to be a thriving sector of crowdfunding. Examples are clickstartme.com, CreateAFund, fundly.com and invested.in.
Marketplaces are much more prevalent. A marketplace has a crowd of funders and a good set of funding opportunities and brings them together via a mostly common experience. If you want to raise funds you need to build a profile but not your own site experience. You join other people with funding opportunities and you benefit from an existing crowd vs. needing to draw your own.
And there are four types of marketplaces (though some will try to blend more than one type in a single marketplace); charity, reward, debt and equity.
- Charity Crowdfunding: With charity crowdfunding sites you donate money to cause with no expectation to receive anything back except the warm feeling of giving. Examples are Crowdrise, Experiment, justgiving.com, Razoo and youcaring.com.
- Reward Crowdfunding: With reward crowdfunding you expect to receive some good, service or trinket from your contribution. Examples are Bloom, CrowdBnk, fundageek.com, indiegogo.com, KickStarter.com and RocketHub.
- Debt Crowdfunding: with debt crowdfunding you expect to receive interest payments on your investment. Examples are Lending Club and Prosper.
- Equity Crowdfunding: with equity crowdfunding investments you expect to own a stake in the enterprise.
One lone site, Bolstr, has a revenue sharing investment model. I’ll position them as the exception to the rule.
So there you have it, my take on the breakdown of the space (at least as represented by the 50 sites I examined).
Here are the stats.
- 52% of the 50 are iFunding and 48% are crowdfunding.
- 29% of the crowdfunding sites are platforms and 71% are marketplaces
- 26% of the crowdfunding marketplaces are charity
- 47% of the crowdfunding marketplaces are reward
- 21% of the crowdfunding marketplaces are debt
- 0% of the crowdfunding marketplaces are equity
- 14% of the 50 are defunct
In future posts I’ll dive into the specifics of this framework and explore the current state and future potential of each. I’ll give you what I think works and what needs to change for crowdfunding to really disrupt and transform.Comments welcome.
As promised, here are the 50 sites. If I missed any really cool ones let me know. I will continue to add to the list.
AngelList, banktothefuture.com, Bloom, Bolstr, Circleup, clickstartme.com, CreateAFund, Crowdbank, CrowdBnk, crowdequity.com, Crowdfunder, crowdfundingbank.com, Crowdrise, dreambank.org, Early Shares, EquityNet.com, Experiment, Fundable, fundageek.com, Funders Club, fundingcircle.com, fundly.com, fundrise.com, giveforward.com, GoFundMe.com. indiegogo.com, invested.in, jumpstartcity.com, JumpStartFund, justgiving.com, Kapipal. KickStarter.com, Laraghfinance.com, Lending Club, MicroVentures.com, Petridish, Prosper, Razoo, realtymogul.com, Rock the post, RocketHub, Seedinvest, somolend.com, techmoola.com, Tilt.com, uinvest.com.ua, venturehealth.com, Vunded, Wefunder, and youcaring.com.
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