Dr. Richard Swart, Crowdfund Capital Advisor Research Director, discussed who uses crowdfunding, where they are located, where the industry is headed, and even uncovered a few myths that have persisted.
More people are starting to take crowdfunding seriously, and when they see the projections their interest will accelerate. By 2025, global individual crowdfund investment will be worth $93 billion per year, he predicts. As more groups and institutions join the pool, that number more than triples to nearly $300 billion.
The biggest player is China, who can account for as much as half of all global investment. As a nation, Dr. Swart finds their peer-to-peer and peer-to-business participation already growing at a rapid pace. Other significant participants in the next decade will be Canada, Western Europe, the United Kingdom, the U.S. and Israel, with Korea a significant player already at a rate of $100 million for equity crowdfunding alone in 2013, Swart said.
What does the typical crowdfunding company look like? At the initial stages of a campaign, the average company has two employees. Following a successful crowdfunding campaign, they hired an additional 2.2 employees, proof that crowdfunding will help create employment, Swart found. If the company is a sole-proprietorship, they tend to not hire, preferring to invest those funds into promotion and infrastructure. Swart discovered five percent hired more than 10 employees which seems to signify they were using the campaign for market validation.
When looking at annual revenue, it is easy to see that most campaigns are started by companies in their infancy. The theory of crowdfunding as market validation continues, as 44 percent of all companies did not exist before their campaign and an additional 31% had annual revenues under $25,000. Of the remaining quarter of companies, 13 percent had revenues below $100,000 and only 11 percent exceeded $100,000.
Swart showed findings from fellow researchers Ethan Mollick and Venkat Kuppuswamy that successful campaigns have an immediate influence on a company’s balance sheet. Compared to the pre-launch figure of 75 percent that either did not exist or had revenues under $25,000, post-launch that number is nearly cut in half to 38 percent. Twenty-five percent saw revenue between $25,000 and $100,000, double the pre-campaign percentage, and 32 percent enjoyed revenues greater than $100,000, triple the pre-campaign percentage.
Swart then provided some interesting data about who initiates campaigns. Ninety-five percent of campaign initiators have at least some college education. Six out of seven are male. Females are more successful in reaching their goals, which tend to be more conservative in nature. The average age is 35. Campaigns tend to be concentrated on both coasts with minimal penetration in the Midwest.
There are some interesting facts when equity and traditional crowdfunding campaigns are compared. The average successful Kickstarter campaign is more of a team effort, with 440 contributors. Successful equity asks in Europe and the U.K. attract less backers, with an average total of 96. The mean total raised across all methods was $40,300 but the average was significant greater at $107,810 which is reflective of the large numbers attracted by video game developers and other top generators that skewer the results.
The average equity raise is $178,790. Combined with the earlier statistics that says equity campaigns see fewer average investors, that means the typical investor contributes a greater sum of money in an equity-based campaign.
The effects of equity campaigns are immediate. The average revenue growth for these companies is 351 percent, according to data from Corwdfund Capital Advisors.
By simply generating a minimum of $5,000 from a crowdfunding campaign, companies have an excellent chance of seeing some initial success. Ninety percent of companies raising that amount go on to be successful. Within a half year, more than 10 percent obtain institutional bank loans and 28 percent successfully close funding rounds with venture capitalists or angel investors.
Swart suggests American startups looking to get mean and lean should look east to Europe for tips on running a streamlined but successful crowdfunding ask. The average non-equity campaign in Europe only cost $490. That number mutates more than seven times to $3,790 stateside. The average equity campaign sports a tab of $1,050.
Even though crowdfunding is a new method, the top reasons campaigns fail are as old as the hills. Companies fail to properly design marketing campaigns and they do not know their target market well enough, Swart said.
Dr. Swart’s data blows up a myth that many in the industry hold as a truism: The budding entrepreneur is told to tap friends and family for their initial funds, yet 70 percent of successful pitches felt friends and family had little to do with their success.
Expect 2014 to see significant changes in crowdfunding, Dr. Swart posits, for this is the year Madison Avenue and Wall Street pay attention, with a probable result being some larger and well-known firms get purchased by larger players from both inside and outside the industries. Look for mergers as well.
Title III will take a while to gain speed and not unlike the initial stages of similar movements we will see numerous cases of failure and undercapitalization. The biggest growth will be in P2P and P2B which will see ten times the influx of equity platforms, Swart said. Real Estate Crowdfunding is poised for growth and the commercialization of technology has only begun.