Move Aside Kickstarter and Silicon Valley VCs Blockchains Disrupt Project Financing
As online crowdfunding leaped in recent years, taking a cut from the expansive activities of venture capitals which peaked at US$148 bln as invested through 8,381 deals in 2015 according to EY, Blockchain technology has been making inroads into the world of project financing with a prospect that could take it to another level.
EY, the global transaction and advisory firm, says in Back to reality that 2015 saw the highest venture capital (VC) activity in nearly two decades globally with a projection that the move will continue through 2016 as the focus shifts to companies’ proven ability to execute. It also notes that the US dominated global VC activity by deals and value.
This corresponds with the PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA)’s MoneyTree Report which cites that VCs in the US deployed $58.8 bln within the same period. Based on data from Thomson Reuters, the report says the deployed amount made 2015 the second second highest full year total in the last two decades.
Online crowdfunding, on the other hand, climbed from a reported $880 mln in 2010 to $16 bln by 2014 and was estimated to grow to over $34 billion by 2015.
The Massolution Crowdfunding Industry 2015 Report confirmed the target with a break down that estimated the total global crowdfunding volume of $34 bln in 2015 as mainly going to P2P lending ($25 bln), reward and donation crowdfunding ($5.5 bln) and equity crowdfunding $2.5 bln.
The report points out that North America has the lionshare of the total sum with $17 bln followed by Asia $10.54 bln and Europe $6.48 bln.
Types of online crowdfunding
Though key among the platforms that dominated the online crowdfunding landscape are KickStarter and Indiegogo – the world’s first crowdfunding platform, the advent of the Blockchain technology has opened up new grounds for startups seeking to raise capital.
Examples are Ethereum’s TheDAO and WINGS DAO, which recently took in about $1 million in donations, that have given the world a glimpse of what blockchains can achieve in the organization of scattered strangers to share a common purpose. With its smart contract features, which uses a programming language to make legal binding between parties, the concept of the crypto-enabled DAO – or Decentralized Autonomous Organization – has gained popularity particularly in 2016 after it was used to raise over $150 mln on the Ethereum platform though it later had a flaw.
One thing is clear about the crypto-enabled platform, together with the donation-based and equity-based crowdfunding platforms such as Kickstarter and Indiegogo (which recently launched equity crowdfunding that allows anyone to invest in startups and growing companies): they have all established the level of believability that people of all differences could share when they are inspired by a good idea.
Donations, Coins & Equity: The Differences
However, despite their commonality, the three types of crowdfunding platforms operate based on different models – with differing results.
Everyone is familiar with the donation based models pioneers by companies like Kickstarter that depends on charity, but where donors take a hands-off role.
Unlike donation-based crowdfunding like Kickstarter in which backers get perks in exchange for their investment, interested investors using the equity crowdfunding model receive shares or other forms of financial stakes in the company they back.
The introduction of cryptocurrency-backed crowdfunding as a new innovation brought about much differences. It can use a DAO, an organizational model that implements self-determining and independent governance, management and operations using immutable blockchains and smart contracts execution, to allow a large group of people to function as contributors and decision-makers for a project with or without any form of central leadership.
Blockchain in project financing
In the wake of Ethereum’s recent inactivity, the new DAO-powered crowdfunding platform, WINGS, emerged as an embodiment of what TheDAO represented with added features that protect and reward donors or project supporters. This is in addition to its enabling donation crowdfunding like Kickstarter and Indiegogo but in a crypto-enabled format.
The platform creates an incentive-based system that encourages participation by rewarding participants submitting new proposals and those who forecast a DAO project’s ability to raise funds or meet certain milestones.
This will allows the interests of project supporters and startups to be clearly aligned to ensure the success of their business and the satisfaction of its donors through a governance structure and a milestones control that make it a dependable decentralized platform for DAOs which are embodied by smart contracts running on various blockchains supporting the Ethereum Virtual Machine.
One of the platform’s benefits for startups seeking to raise capital for their decentralized app ideas in a new era of organizational collaboration and governance is the transparency of its funding system based on regulatory requirements.
Like KickStarter and Indiegogo give people and creative projects the opportunity to raise money via online donations or pre-purchasing of products or experiences, WINGS could be used for project-based endeavors that are on a one-off basis like an art or film project, a new product or the funding of a life event.
WINGS will be the first project governance and backing social platform to use new technologies including swarm intelligence through decentralized forecasting markets, smart contracts generators, DAO contracts accessibility and engagement solutions, and flexible governance and participation models which presents an open opportunity for all to pursue ideas of interests and values without any restriction like, for example, Kickstarter on whose platform donors can only choose from given categories and only users from the United States, Canada or the United Kingdom are allowed to create projects though anyone may donate.
The Blockchain has been touted to be the greatest innovation that would revolutionize our existence as the web did in the 90s. Its future outlook – as well as for cryptocurrencies – looks promising. This forward-looking prospect blends with the World Bank’s projection that crowdfunding would reach $90 billion by 2020 – or $90 billion by 2017 if the trend of doubling year over year continues.
Coupled with the plethora of ideas that are springing forth every day, seeking supporters that would bring their conception into reality, the Blockchain seems the go-to technology that would transform various sectors including project financing.