As the ground underneath the global economy continues to crumble, new markets and ecosystems are emerging to fill the gaps. The crowdfunding ecosystem, in particular, is evolving at a rapid pace – and we have only just begun. Far from a fad, crowdfunding is reshaping the global financial landscape, which is why today we are going to talk about the evolution of the crowdfunding ecosystem and what it means for the everyday entrepreneur.
The modern day crowdfunding era began in 2009 when Kickstarter launched their platform to allow the public to ‘Fund and Follow Creativity.’ It wasn’t the first official platform ever invented, but it was the first to demonstrate real traction and create some buzz. It hit our radar for the first time in August 2010 (see link below), a little over a year after it launched, and since that time an entire new market has spawned.
The crowdfunding ecosystem is fully global – platforms are sprouting up in every part of the world, from off-the-beat countries such as Cuba (ex. Yagruba), to emerging economies in Africa. What’s amazing to watch is the way the ecosystem evolves, as a plethora of platforms are born to serve specific regions, fill niches and create new communities.
We were on the road at the beginning of the year to study crowdfunding in Latin America, where we believed (and still do), that crowdfunding would operate in its purest form. Following that trip, we made stops in London and Toronto, all in an effort to piece together one of the most rapidly developing ecosystems in human history.
So let’s start from the top down and see how the platforms are evolving to create this globally integrated ecosystem:
Global – Indie Gogo
‘An International Crowdfunding Platform to Raise Money’
Indie GoGo, who actually launched before Kickstarter, has been successful at establishing itself as the ‘go-to’ global crowdfunding platform. The main reason they have been able to achieve this, ahead of Kickstarter for example, is because you do not need an American Amazon account (as you do with Kickstarter) to register a project, and there is no waiting process to launch a project. Projects on the platform can be seen from countries around the world.
Regional – Idea.me (Latin America)
‘The platform in Latin America for Collective Financing’
Idea.me, which came to fruition in mid 2011, is working to become the regional crowdfunding platform for Latin America – Joel visited the company during My Crowdfunding Study in Buenos Aires earlier this year. They started off in Argentina, Chile and Mexico, but now are spreading their reach into other Latin countries, especially Brazil, where they made a big splash by acquiring the number two ranked crowdfunding platform Movere. Idea.me is continuing to gain traction in LatAm, but the growth curve is vastly different from one country to the next, so it will be interesting to see how the platform evolves to meet the different needs of each country.
National – Goteo (Spain) + Catarse (Brazil)
‘Crowdfunding the Commons’
‘The premiere platform for collaborative financing of creative projects in Brazil’
We are breaking the one-example rule here because both these platforms are world class, much to the benefit of their respective countries. Both are mission driven, subscribe to open-source principles, and curate all projects launched on the platform to ensure they meet a specific social and cultural mandate; therefore, it is no surprise that the best projects in the world (in our opinion) are being launched on these platforms. They have both been very effective bringing projects to life that meets the needs of their respective countries. Catarse, in particular, is pushing the limits on social innovation like no other platform.
CrowdInvestment – Seedrs (UK)
‘Invest in Startups’
Seedrs is the first regulator-approved crowdinvestment (the equity-based model of crowdfunding, where shares of the company are received) in the world. Companies can launch their pitch on Seedrs and raise up to £150,000 in equity capital. At the moment of writing this, four companies had successfully been funded, not bad considering the platform just launched in July. Look for Seedrs to grow rapidly as the economy continues to deteriorate and more entrepreneurs turn to this brilliantly-designed platform to get off the ground.
Local – Neighbor.ly (Kansas City)
‘Invest in civic projects you care about’
We came across this little gem last week, and think it perfectly represents the power of crowdfunding in communities. There is a lot of action on this little site, as citizens of Kansas City collaborate to bring important projects to life. This site shows the power crowdfunding has to transform the urban experience for its citizens and bring important projects to life that municipal governments can no longer afford.
Niche – Credibles (Cali and NYC)
‘Prepaid crowdfunding for local food businesses’
We are really excited about crowdfunding for two reasons:
- because we love food (see post A New Era of Food)
- they bring another element to the crowdfunding process, a local currency
The crowdfunding part of the Credibles model is straightforward, as the idea is to contribute funds to help local food businesses launch. But rather than just a straight prebuy, or demand-testing function (see post Building Blocks – TEST – demand via crowdfunding), Credibles has created a currency system, whereby the dollars donated to each local food business can be redeemed using a custom currency (called Credibles) at any of the food vendors who are funded on the platform. In other words, if you donate $10 to a local baker to start his bakery, you can redeem $10 worth of Credibles at his bakery (when launched) or any of the other food businesses in the Credibles system. The idea is to create a new food ecosystem, rather than a crowdfunding platform for food businesses. The project is currently in private Beta mode in San Francisco and New York, but look for similar models to emerge globally in the near future.
So that gives an overview of the platforms that have emerged to fill various roles in the global crowdfunding ecosystem. Now the question is, what does this all mean?
While it is fascinating to observe how crowdfunding is evolving, there are three core takeaways for any entrepreneur or organization who is looking at crowdfunding as a potential funding option:
Business model innovation
The big platforms will generate their revenues off of volume, and likely only one or two platforms will achieve long-term profitability in each of the major categories; therefore, business model innovation is required. We wrote about this in our original Business Model Breakdown post (see below), but what needs to happen is that local and niche platforms will have to offer a suite of customized services in order to survive. While the bigger crowdfunding platforms focus on creating volume to generate their commission (4 – 7.5% average), the smaller platforms need to offer services to increase that percentage (ie. video, campaign strategy, etc.) and find ways to leverage their niche focus. This will have big implications if you are an entrepreneur or organization looking to launch a campaign, as the service level from platform to platform will differ greatly
One of the biggest problems for failed crowdfunding campaigns is valuation. Many organizations and project creators simply ask for an unreasonable amount given the context of their project. Now, with so many platforms covering so many different areas, entrepreneurs can look around at what similar projects in other markets are asking for and how successful they are at reaching their goal. It gives instant context and offers a quick comparison for how to price a campaign at the outset, very valuable information for new project creators.
New Network Demographics
With so many options, and a limited attention span, people and organizations will start to become loyal to certain platforms. While it may make sense for an ambitious entrepreneur to launch a new product on Indie GoGo or Kickstarter, it wouldn’t make sense for a small community organization to do the same if there is strong niche/local alternative. The success of crowdfunding campaigns is contingent on bringing together enough people from a specific network/market/demographic to fund the project. With so many platforms coming online, entrepreneurs and organizations need to be strategic about which platform they launch on and how they target their networks.
Overall, the crowdfunding ecosystem continues to evolve at a rapid pace in sync with the creation of a new economy. A whole new era of creativity and innovation is upon us thanks to the democratization of the financial landscape. Never have entrepreneurs and organizations had so much power at their fingertips to get their projects off the ground. The story will keep developing as the ecosystem continues growing, so stay tuned for much more about the new era of finance. If you are interested in seeing examples of amazing projects from the sites listed above, check out our new Crowded Judgment blog series.Tweet