The Crowdfunding market is expected to witness a growth at a CAGR of over 16% during the forecast period (2020-2025). The crowdfunding business initially emerged in the United Kingdom in 2007, and later rapidly spread in the United States and China. China gracefully adopted the business approach of raising money and is one of the major reasons behind its technology finance.
- In the crowdfunding business, over the years, the use of social media has drastically increased for promotion. Social medial platforms act as free of cost promotion resources and global reach to audiences. It has enabled the companies to make their pre-selling and marketing for products at more convenience. Hence, the active crowdfunding campaigns on social media are expected to further drive the growth of the crowdfunding market in the next five years.
- The UK based start-up - BuffaloGrid, which developed a mobile-phone charging hub for entrepreneurs in 2011 has mentioned raising money of around USD 683,000 through equity crowdfunding platform Crowdcube. The equity campaign has helped the company to bring the next iteration for its charging hub and commence mass production. Later BaffaloGrid partnered with Microsoft’s Affordable Access Initiative and launched live trials in India. Till January 2020, the company has closed a financing round of over USD 4.3 million led by a seed-stage venture capital firm and a grant from the European Union’s Horizon 2020 program.
- Amid the recent COVID-19 outbreak, the healthcare front liners are working globally. For these activities, countries are actively using crowdfunding platforms to raise money for them against the spread and impact of the pandemic. For instance, in April 2020, Malaysia Digital Economy Corporation (MDEC) announced a partnership with the crowdfunding platform for donation crowdfunding to support the front liners with the MKN20 protocol to distribute the items to hospitals nationwide.
Key Market Trends
Reward-based Crowdfunding is Expected to Grow Significantly
- Reward-based crowdfunding is where the company (typically a start-up) raise pre-seed and seed capital through an online platform and offers investors a gift or "perk" for their financial contribution. It is considered as pre-sales, in which individual or projects, or the companies raises funding form bankers, who then receive a non-monetary reward. This provides the companies to engage an build on an existing network and solicit than can be leveraged later. This kind of crowdfunding is usually suitable for early-stage companies or a specific project.
- Australia-based startup - Okra Solar, which has been piloting its "plug-and-play smart controller" to facilitates power-sharing by neighbors. The company has mentioned fo it launched a reward-based crowdfunding campaign to complete the small-scale pilot to prove the technology. With this campaign, the company raised over USD 45,000 in seed capital to build a prototype. Later the campaign won many grants from the UK’s Department of International Development, Swedish International Development Corporation Agency, and secured pre-seed financing through Energy Access Ventures Fund backed by Schneider Electric.
- According to the Global Entrepreneurship Monitor, the start-ups in the United States hold over significant as 17.4% share of the total total population in the country. This indicates the huge opportunity for the reward-based crowdfunding in the region. Also, with the huge market of crowdfunding in North America, this opportunity further expands.
Europe to Hold Significantly Larger Market Share
- The European crowdfunding market share and growth are expected to proliferate due to an increasing number of countries in the region, organizing regulations for the crowdfunding model. The European Union countries are also reportedly planning to set rules with an aim to enable crowdfunding platforms in the region to operate across other EU regions.
- Additionally, Turkey is one of the countries in Europe experiencing significant growth in the crowdfunding market with the presence of steady employment opportunities. According to the Global Entrepreneurship Monitor Report 2019, this is one of the key factors driving economic growth in the country, improving conditions for entrepreneurship by 10%, raising over USD 331 billion to the economy.
- Hence, the government actively encourages and supports entrepreneurship in the country. According to the Startups Watch 2019, The Turkish government funds have the dominance in market share by the funding volume followed by angel investments and VCs for funding early phase startups in the country.
- The European Investment Bank (EIB) has a venture-debt product which is aimed at SMEs looking for raising over EUR 7.5 to 50 million. With the help of the crowdfunding platform, the bank combined advantages of a long-term loan with a remuneration-model based on the borrower’s performance. With this model, the bank targeted companies with over 3,000 employees in the field of biotechnology and life sciences, software and information and communications technology (ICT), engineering and automation, and renewables and clean technology. To date, the bank lent over EUR 750 million in long-term venture debt financing and is expecting to create more than 6,500 jobs and EUR 7 billion in research and development investment.
The market for global crowdfunding is moderately consolidated due to the presence of a few companies dominating the market with the presence of many other companies competing between themselves. Also, these companies are extensively investing in offering a wide range of technologies to the customers for industry-specific end-user applications.
- May 2020 - BuildHer, a UK-based crowdfunding platform for women of black origin, has officially launched its service. Founded in 2018, BuildHer claims it equips disadvantaged young women in Kenya with accredited construction skills, leading to greater financial prosperity, changing male attitudes, and promoting gender equality within the construction industry.
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