Top 4 Crowdfunding Developments and Predictions for Asia in 2015
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Unlike the U.S. and Europe where crowdfunding has grown into a massive industry that provides funding for a variety of “SPPICE” (Service, Product, Project, Investment, Cause and Experience), it is yet to gain a ton of traction in Asia.
Indeed, despite prospects for future growth identified in China, with a market forecasted to be worth $50 billion in the next decade, its potentials still remain largely untapped. Factors ranging from absence of a sound legal system backing its activities, lack of innovative projects, cultural influences and information asymmetry have constrained its growth.
Notwithstanding the slow pace of its growth in the region, here are the top four crowdfunding predictions for 2015 in Asian countries with high-growth prospects.
1. Increasing number of innovative projects
More and better innovative projects are continually being crowdfunded in Asia with China leading the charge.
There is a Hong Kong-based crowdfunding platform, like FringeBacker, which helps artists, game developers and inventors raise funds online. So far, it has crowdfunded 32 projects, which is very far from Kickstarter’s projects numbering over a million. But with China’s nearly 1.4 billion population with 25 percent of the population (about 350 million) comfortable with mobile payments, the dynamics of the crowdfunding market could change dramatically as the trend matures. Last year, mobile payment transactions in China totalled $1.6 trillion. This could go like wildfire if China enters debt and equity crowdfunding.
Platforms involved in real estate crowdfunding are also popping up in China, however with a different model from their American counterparts. Unlike in the US and Europe where equity crowdfunding is popular in real estate, the debt-based model is what is mostly used in Asia.
As a result, peer-to-peer (P2P) lending which is a form of debt crowdfunding is popular in the region. The P2P lending market in China alone in 2013 was placed at $16.8 billion, making it the largest P2P lending market in the world.
However, the absence of a strong intellectual property law that protects startup entrepreneurs and their innovation has negatively affected the motivation to source funds for innovative projects.
2. Increasing need for efficient regulations in equity crowdfunding
For equity crowdfunding to be operational, efficient laws and regulations are needed. In the U.S., equity crowdfunding in the JOBS Act won’t become a legal process by the SEC and FINRA until 2016. That is four years after Obama signed the JOBS Act into law. The problem is that current regulations are actually preventing equity crowdfunding to be done efficiently and clearly. Italy has the only passed and operational law on equity crowdfunding in the world today. Spain, Germany, and the UK are following Italy’s lead.
While Asia has a handful of donation-based crowdfunding platforms which don’t need any regulations, it still needs to catch up with its neighbors in terms of equity crowdfunding regulations.
In India, the Security and Exchange Board of India (SEBI) released new crowdfunding rules for business startups earlier this year. Although it currently restricts participation from players in real estate and financial business sector, the move has raised hopes for the development of crowdfunding in the region.
In Japan, a bill was passed by the National Diet (Japan’s bicameral legislature) in May this year to legalize crowdfunding in the country. The nascent crowdfunding market in Japan was placed at about $80 million according to a The Wall Street Journal reports.
Despite the developments of equity crowdfunding in India and Japan, China is still regarded as the country with the greatest prospect for growth in Asia. However, unlike in Japan and India where there are current regulations in place, China is yet to pass any regulation in equity crowdfunding and in peer-to-peer lending. This might however soon change as the China Securities Regulatory Commission (CSRC) earlier this year expressed its intentions of passing into law equity crowdfunding regulations similar to what is in the U.S. and Europe.
3. Large companies entering the crowdfunding industry
While equity crowdfunding is yet to gain traction in Asia, homegrown rewards- and donation-based platforms like Demohour and Dreamore (replicas of U.S.' Kickstarter and Indiegogo platforms) are sprouting in numbers. What makes this trend significant is the fact that large companies are also joining the game. In China for instance, Alibaba, the largest ecommerce company in the world started a crowdfunding platform earlier this year called Yu Le Bao, or “Entertainment Treasure,” that allows customers to invest in entertainment: film production, television programs and online gaming. In response,JD, the company’s biggest competitor has also launched its own crowdfunding platform called Coufenzi (or “whip-round”) with plans of facilitating 12 crowdfunding campaigns. In 2015, we predict more big players will enter the crowdfunding game.
4. Booming real estate and equity crowdfunding by broker dealers
Unlike in America and Europe where there are large crowdfunding platforms with huge assets under management (AUM), those in Asia still operate on a small scale and have only managed to facilitate small transactions. We don't expect the market to mature in 2015 for mergers and acquisitions (M&A) because valuations are still unknown but real estate and equity crowdfunding platforms by broker dealers will pop up significantly in the fourth quarter of 2015, and valuations will become easier. However, we wouldn’t see any significant M&A activity in this industry for a few more years.