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Crowdfunding Industry On Fire: Trends to Watch

Crowdfunding Industry On Fire: Trends to Watch
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The crowdfunding industry is already growing rapidly, and as that growth accelerates, several crowdfunding niches are expected to really take off.

Last year, 308 crowdfunding platforms across the world raised $2.7 billion, an 81 percent increase over the amount raised in 2011, according to the annual report released today from the Los Angeles based research firm, Massolution. The growth in 2012 represents an acceleration, up from 64 percent growth in 2011. Looking ahead, growth is expected to reach $5.1 billion raised in 2013, representing an expected 89 percent increase in the dollars raised, the report predicts.

While this data is global, crowdfunding is centered in North America and Europe. More than half of the funding raised last year, $1.6 billion, came from North America and $945 million was raised in Europe, the report says.

Related: JOBS Act, One Year Later: Hang Tight, Equity Crowdfunding Is Coming

As it exists, the majority of money raised with crowdfunding is still on donation or reward-based platforms, where an entrepreneur or artist raises small sums from a large group of people in exchange for a product sample or experience. Of the $2.7 billion raised in 2012, $1.4 billion was on these platforms, made popular by brands such as Kickstarter or Indiegogo. Lending-based crowdfunding, where campaign leaders have to repay their investors, equaled $1.2 billion.

Equity-based crowdfunding, where investors receive a share of the company in exchange for funds, was the smallest sector the market in 2012, totaling only $116 million. Startups in the U.S. are able to crowdfund from accredited investors. Also, in a handful of countries, like the United Kingdom, equity-based crowdfunding is already legal. In coming years, the distribution of funds raised from donation-based, lending-based and equity-based crowdfunding is likely to shift.

Related: Crowd-funding Platform Connects Entrepreneurs With Consumer-Product Giants

Part of what is expected to drive acceleration in the U.S. is the implementation of the forthcoming Securities and Exchange rules for allowing U.S. entrepreneurs to raise money by selling equity in their company more easily to non-accredited investors.

Crowdfunding is in its infancy. Here’s a look at three trends expected to emerge.

1. More groups use crowdfunding to support innovation challenges to solve complex, social problems. Communities will increasingly come together to raise a pot of money to award to an entrepreneur that solves a problem, says Chance Barnett, the co-founder of Crowdfunder, a Venice, Calif.-based crowdfunding platform. “That might be solving poverty in an area, it might be building a mobile solution for people in developing countries who don’t have the ability to do accounting in a very basic level,” Barnett says. “We will see a lot of innovation come out because of crowdfunding because people are willing to put dollars up to solve big problems.”

Related: Raising Money Through Crowdfunding? Consider These Best Practices for Success

2. Increased popularity of local, crowdfunding communities. Amateur investors often prefer to meet the entrepreneur they are backing face-to-face, says Barnett. That’s the idea behind his newest venture, CROWDFUNDx, which launched last week. It’s an online network that brings together leadership boards in 11 cities across the U.S. and in 12 cities in Mexico to run 120-day startup challenges culminating in a pitch contest. The local community then funds the winner through crowdfunding.

3. Women entrepreneurs stand to raise more investment dollars. Women get 5 percent of all investment capital, says Barnett, but they will have increased access to funding with crowdfunding. “Not only are women more active on social media, they are often more collaborative when they do invest, so it is going to be a really interesting space and it is going to be the perfect place for women to gain a lot of traction,” Barnett says.

Related: JOBS Act Expected to Increase Diversity in Funding

Do you contribute to crowdfunding campaigns with any regularity? If so, what kind and why? Leave a note below and let us know.

Catherine Clifford is a senior writer at Entrepreneur.com.

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