Crowdfunding's Growth Spurt Going Strong
Crowdfunding is global and growing. Quickly.
There are approximately 600 crowdfunding platforms, which help users raise small sums of money from a group, throughout the world, according to Los Angeles-based crowdfunding and crowdsourcing research firm Massolution.
By the end of 2013, crowdfunding is expected to reach $5.1 billion in funds raised, Massolution reports. Of the $2.7 billion raised in 2012 from crowdfunding sites, more than half, $1.6 billion, came from sites based in North America. Another $950 million came from Europe.
The most well-known type of crowdfunding is the Kickstarter variety, where a project leader requests a donation in exchange for a reward, such as participating in the project or receiving a product. A less well-known variety of crowdfunding is where an investor seeks financial return from his or her contribution to a campaign. Financial return can be equity, lending or royalty-based. In equity-based crowdfunding, an entrepreneur gives away a portion of his or her company for money. Lending-based crowdfunding requires repayment. Royalty-based crowdfunding is where the investors receive a share of earned revenue from an investment in a campaign.
While donation-based crowdfunding has blossomed on the public stage for getting arts and music projects funded, the majority of crowdfunding campaigns back social causes or startups.
Equity crowdfunding is already legal in the United Kingdom, the Netherlands, France, Austria, Germany, Australia and Hong Kong, among others. Currently in the U.S., only accredited investors can participate in equity crowdfunding. When the Securities and Exchange Commission writes final rules for the laws that were passed last year in the Jumpstart Our Business Startups Act, or JOBS Act, equity crowdfunding among non-professional investors will be legal in the U.S., too.
Geographically, North America and Europe are expected to extend their lead as the dominant home to crowdfunding portals, according to Massolution. More than half of the crowdfunding portals in various stages of pre-launch are in North America, including about 100 in the U.S., the company reports.
Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.