BY BORIS WERTZ ,
Crowdfunding is taking the entrepreneurial financing world by storm, changing the way everything from startups to art projects get funded. When traditional bank and VC financing leaves many entrepreneurs and projects high and dry, crowdfunding can bring in much-needed cash.
The majority of crowdfunding money raised today is on rewards-based platforms like Kickstarter and Indiegogo (a Version One portfolio company). With these sites, fans of a project typically get some kind of incentive, from a t-shirt to an early prototype, in return for their donation. In addition to rewards-based, the equity crowdfunding market is beginning to hit its stride with platforms like AngelList andCircleUp. Here investors receive a share of the company in exchange for funds.
By the end of this year, crowdfunding is projected to add more than $65 billion into the global economy, yet in many ways the market is still in its infancy.
As the space matures over the next few years, I expect three important trends to emerge:
Trend #1: Vertical platforms will focus on specialized market
Trend #2: Project-based models will make way for longer-term support
Today’s standard crowdfunding model involves a one-time fund drive for a particular project, milestone, or cut-off point. This approach works well in certain situations, such as a hardware startup looking for seed money to build a prototype and demonstrate market interest. Then successful crowd-funded hardware projects often go on to receive VC funding to build their business.
However, the one-and-done model doesn’t work for everyone.
Crowdfunding campaigns are expensive to organize and promote, and not all projects are designed to be self-sustaining when complete. New crowdfunding sites provide an ongoing pipeline of support. For example, Patreon lets people support their favorite artists, rather than backing a single film or art installment.