In “Crowdfunding Diplomacy: The Next Frontier for Government,” I recommended three ways that government can tap into the wisdom of the crowd and help spur innovation through crowdfunding. Heralded as the disruptive innovation that will democratize finance, crowdfunding enables entrepreneurs, innovators, creative artists—and anyone with an idea worth funding—to raise money online from friends, family, extended networks, and investors through a crowdfunding platform.
With over 800 crowdfunding websites to choose from (and rapidly growing), raising funds for businesses, projects, creative masterpieces, or causes has never been easier—or more ubiquitous. This alternative form of financing is also attracting attention from investors, startups, and small businesses as the budding field expands into equity deals. The use of crowdfunding platforms to enable a broader array of investors to fund startups and small businesses in return for an ownership stake (equity) in the business, is redefining what it means to be an investor. Opening up the field to new investors means you no longer have to be a millionaire (a minimum net worth of one million is required for all accredited investors in the U.S.) to invest in startups and small businesses.
In recognition of Global Crowdfunding Day, an annual April celebration of the crowdfunding movement, here are three trends to watch that are already shaping 2014:
1) Government gets in: Global Crowdfunding Day, the world’s largest celebration of crowdfunding, encouraged supporters of the movement to get out and take action on April 5th. Whether funding a project or small business, or launching their own campaign, participants have used this day to catalyze crowdfunding efforts. Most notably (and least expected), was the announcement of the first-ever U.S. Government crowdfunding initiative, a pilot to accelerate successful social impact projects globally. In partnership with RocketHub, a global crowdfunding platform, a dedicated channel will be set up on the platform to test-drive the utility of using crowdfunding for diplomacy and social impact projects.
With state and local governments interested in reaching their constituents to engage them in decision making and funding priorities, we will likely see a swell in government use, and interpretation, of crowdfunding. Look for other government entities to pilot and adopt platforms to engage the crowd.
2) Equity reigns…in due time: The drive towards equity crowdfunding will sputter, but not stall. This year’s U.S. Securities and Exchange Commission (SEC) guidance on equity crowdfunding raised a cautionary flag for equity seeking platforms, drawing concern from platforms and funders that new rules surrounding equity crowdfunding make it too time-consuming and complicated for investors and businesses to undertake. Despite this speed bump on the road to test-driving equity crowdfunding, finance and tech gurus are working to develop sophisticated platforms that will serve as electronic marketplaces for thoroughly vetted deals. If these platforms succeed in mitigating concerns about risky deal flow, they will help cut through the red tape that has slowed down progress.
Look for a slow, but steady, rise of equity crowdfunding platforms that focus on vetting deals, shepherding new investors through the process, and offering global projects and deals. The potential for equity crowdfunding may well be realized abroad, where the regulations are less defined, and possibly more nimble.
3) It will go global, but look local: The proliferation of crowdfunding platforms will not be limited to the U.S. While the majority of funders and backers of the crowdfunding movement are from the U.S., Europe, and Australia, regional crowdfunding sites are taking root across the globe. As the market for crowdfunding rallies, global audiences are watching and taking note, extracting the best that crowdfunding has to offer and making it their own. Local platforms are already taking off in Brazil, India, Singapore, and South Africa. And their success is largely due to a targeted, and regionalized approach. They have been able to tap into the core premise of crowdfunding: authenticity and trust in the wisdom of the crowd. With a focused geographic region to rally around, localized platforms have been able to deliver the authentic connections to individuals and projects that fuel the crowdfunding economy.
In the year ahead, localized platforms tailored to the needs and unique environments of various countries and regions will become the norm. Expect to see crowdfunders turn to the international market to pilot and source deals. Ambitious crowdfunders looking to quickly pilot the equity model may find themselves working across platforms—and borders—to collaborate on deals sourced abroad.
Whether you launch a crowdfunding campaign, fund a project, invest in a business, or even just tweet about one, you are likely to find that no matter where you turn in 2014, crowdfunding, and the crowd that powers it, will rule.
Daniella Foster is Co-founder and CEO of the Emergent Leaders Network and Director of Public-Private Partnerships at the State Department.