Gone are the days when small businesses and startups could get bank funding relatively easily. Even though we’re six years beyond the 2008 financial crisis, banks are still less willing to provide loans.
In today’s environment, small business and startups are looking at a popular alternative method of financing — crowdfunding. Entrepreneur magazine recently published their predictions of where crowdfunding is headed. Here’s what they had to say.
- Crowdfunding will continue to grow. It’s here to stay. Online crowdfunding platforms raised $2.7 billion in capital in 2012. And the World Bank commissioned a study and estimated that by 2025, the global crowdfunding market potential could be between $90 billion and $96 billion.
- More industries will cut out the middleman. Crowdfunding allows startup companies to connect easily with investors without going through expensive middlemen.
- There will be a larger emphasis on social-media-driven marketing. Because entrepreneurs are reaching out to people beyond their network, they’re taking advantage of social networks to help them get connected. New platforms, such as FundRazr, a social-media crowdfunding website, have emerged to help generate traffic for an entrepreneur’s crowdfunding campaign.
- More money will be invested in crowdfunding opportunities. Crowdfunding is attractive to investors. Large financial institutions, VCs ,and angel investors are moving assets into the equity crowdfunding wave. The participation of these large brokerage firms has helped to validate crowdfunding as a new financial model.
- Niche platforms will increase. Although major crowdfunding platforms like Kickstarter and Indiegogo that cover various markets, there are niche platforms popping up for specific areas and industries. By utilizing these platforms, startups now have a better chance at reaching their targeted audience.
- Regulation A will become more significant. Regulation A may serve as an alternative to equity crowdfunding provisions in 2014 and beyond. Regulation A allows smaller ventures (under $5 million) to avoid some of the more onerous financial reporting requirements until they amass greater profits. For example, Fundrise, a real-estate crowdfunding platform, is is leveraging state laws which enable it to give non-accredited investors the opportunity of investing as little as $100 into projects listed on its platform.
It will be interesting to see how the crowdfunding landscape develops as new opportunities arise for both businesses and investors.