Crowdfunding is the utilization of modest sums of money from a large number of people to support a new business initiative. Crowdfunding leverages the easy accessibility of vast networks of people via social media and crowdfunding websites to connect investors and entrepreneurs, with the potential to increase entrepreneurship by broadening the pool of investors beyond the conventional circle of stockholders, relatives, and venture capitalists. Crowdfunding has enabled businesses to raise hundreds of thousands or even millions of dollars from anyone willing to invest. Crowdfunding allows anyone who has an idea to pitch it to eager investors.
The global crowdfunding market is divided into type and application. Based on type, it is subdivided into reward-based, equity, donation, and others. Based on application, it is subdivided into the cultural sector, technology sector, product sector, and healthcare sector.
Key Market Trends
According to OMR Research, the global crowdfunding market is projected to grow at a CAGR of 16% during the forecast period (2023–2029). The growth is attributed to various factors, such as the increasing use of social media, the internet, smart devices, and others. For instance, YouTube offers a fundraiser option to its creators. Eligible channels can generate funds for charities by including a "contribute" button in their films and live streams. Donations can be made directly on the video watch page or via live chat. Additionally, in response to the unexpected COVID-19 outbreak, various non-profit groups are raising funds through crowdfunding campaigns, mostly on social media platforms. These campaigns provide simple access to large networks of individuals and assist an entity in generating cash in a shorter period of time.
The market is primarily dominated by the business and entrepreneurship segment with 40% of the market share, followed by social causes with approximately 19% of the market share. Businesses or startups benefit from more crowdfunding as a result of tech-enthusiast investors. Startups sought like-minded investors, early adopters, and tech enthusiasts who were passionate about supporting fledgling concepts. Along with providing financial support for the product's development, the crowd also provides something equally valuable—an opportunity for the product's early market validation and for the entrepreneur to establish their name and credibility. Further, as reported by CCA (Crowdfund Capital Advisors), capital commitments to Reg CF (Regulation Crowdfunding) issuers increased by 77.6% in 2020, from $134.8 million in 2019 to $239.4 million in 2020 in the US. In 2020, the average rise climbed to $308,978 from $298,331 in 2019.
Another factor that is assisting in the market’s growth is the increasing number of market players and their new funding policies, which allow issuers to raise capital even more. For instance, new laws went into effect in March 2021, allowing businesses to raise up to $5 million in equity crowdfunding annually, up from the previous $1.07 million ceiling. This is a 194% increase in possible funding. Analysts expect that this legislative reform will increase the number of investors to 800,000, expand crowdfunding offers by 40%, and help businesses raise $1.2 billion in the first year of the legislation. Further, equity crowdfunding companies can issue a variety of securities, including common and preferred stock, debt offerings, convertible notes, revenue shares, and simple agreements for future equity (SAFEs). Common stock was the most popular kind of crowdfunded instrument as of December 2020, followed by debt offerings and SAFEs. All such factors support the growth and demand of crowdfunding companies among end-users.
Recent Developments
Kickstarter PBC, Indiegogo Inc., GoFundMe Inc., Fundable LLC, Crowdcube, Fundly, RealCrowd, Wefunder, SeedInvest Technology LLC, RM Technologies, Inc., Gust, RocketHub, FirstGiving, Teespring, and other market players are assisting in the market’s growth through various mergers and acquisitions, collaborations, new investment plans, and marketing strategies. Some of the recent developments in the market include:
• In January 2023, the Japanese government-affiliated group JETRO (Japan External Trade Organization) announced that the Japanese animation industry will be supported by a number of crowdfunding projects. The goal of this initiative, a partnership with Kickstarter, is to make Japanese animation available worldwide.
• In January 2023, Nextkidney, a medtech company located in Bussum, the Netherlands, that created the first portable hemodialysis equipment in the world, announced that it had raised $4.4 million through crowdfunding on the OnePlanetCrowd platform. The fundraising was co-led by Generous Minds. The company's product introduction will be made easier due to the crowdfunding, which has already taken place.
• In January 2023, a decentralized finance (DeFi) system called xToken introduced Origination, an on-chain funding platform. With the help of Origination, DeFi and NFT projects can quickly and securely setup and implement a range of capital markets use cases, such as specialized token offers and crowdsourcing initiatives. On Origination, launching a token program or crowdsale takes less than five minutes and involves no development or integrations.
• In July 2022, Untold.io launched an SEC-regulated equity investment platform and digital community that unites filmmakers, investors, and distributors to curate and support mass content. Untold.io, created to democratize the production of a range of entertainment content, beginning with film, provides both eligible and non-eligible investors with a first-of-its-kind investment opportunity for a $1,000 minimum investment. While traditional media crowdfunding models allow participants to donate to film production, Untold.io is the first SEC-registered financing platform that allows anybody to invest through both Reg CF and Reg D.