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Crowdfunding is “disruptive”, “good” and likely to be an important finance route for business

Crowdfunding is “disruptive”, “good” and likely to be an important finance route for business

Crowdfunding is “disruptive”, “good” and likely to be an important finance route for business. So said the panel at the Herald and Herald on Sunday Budget Briefing breakfast this morning. Whilst  we mulled over a budget announcement that was short on bright moments in either measure or outlook that stood out for me as a highlight, despite not being mentioned in the budget at all.

A panel of commentators which included Jeremy Peat of the David Hume Institute, Professor Colin Mason of the Adam Smith Business School gave us their take on the Chancellor’s statement and responded to a diverse set of questions from the room.

Amongst a general and somewhat downbeat assessment of “what can be done” to address the somewhat moribund situation we find ourselves in, some novel ideas came from the floor in the best tradition of a bit of crowd wisdom. These generally related to TAX adjustments that might help including freeing up access to R&D tax breaks.

But inevitably the conversation came to banks, and there was general agreement that a greater separation of retail and investment banking would be a good thing if for no other reason than to rebuild confidence in banks as service providers, something they have rather lost sight of.

It was in this context that Professor Mason, a specialist in access to finance, mentioned the emerging practice of crowdfunding. His endorsement of this as another and useful approach to raising funding, and a further contribution to making the sector more competitive was a ringing one, and he held out the idea that this will become increasingly important. Fraser Campbell joined in and was able to readily name some of the main Peer 2 Peer lending platforms. General nodding and agreement ensued around the panel and it was a rare moment of enthusiastic endorsement from a panel otherwise finding the whole budget predictably uninspiring.

What I find particularly interesting about this is that these are members of what one might refer to as the traditional business and economic fraternity,  not only knowing about crowdfunding but also seeing it as relevant, useful, credible and disruptive is most interesting and a significant development.

This progressive acknowledgement of crowdfunding as a sustainable and valuable addition to the funding environment by established commentators and government and civic bodies is clearly gaining momentum. For those in the industry itself this must be a welcome development. For those considering using it, this will build their confidence.

In an environment where we cast around for solutions to our current economic woes, it’s interesting to hear of novel approaches being taken seriously and that the new disruptive possibilities brought about by the advent of social and collaborative technologies hold a potential for change – to “redesign the garden” as Fraser Campbell put it.

As for the banks? Well Jeremy Peat argued for a return to relationship banking in order to compete and rebuild confidence. This is good advice but requires a culture shift as it was the cost cutting drive away from this practice that in large part led to a knowledge failure and the inevitable collapse in 2008. So they best be quick as it seems crowdfunding is becoming less of a “loopy” idea and more the finance model of choice. As Manuel Castells would argue, when trust in institutions breaks down we are increasingly empowered to simply by pass them. Is this a case in point?

Rewarding Trends

Rewarding Trends

Depending on which assessment you choose to agree with, there are between 500 and 700 active crowdfunding sites of one sort or another across the world and by the time you reach the end of this article the number is likely to have changed again! On top of this there is a huge diversity of model and format amongst the platforms, each with subtle and not so subtle distinctiveness in their proposition. It’s a competitive market and more and more platforms are launched aimed at attracting either your engagement, your cash or your projects.

As as result it can be tricky getting decent numbers and statistics from platforms that can be publicly shared, so identifying trends either platform by platform is tough and even harder across the entire sector.

But people are increasingly interested in trying to establish which platform should be their platform of choice and how can they maximize their chance of running a successful campaign based on trends and insight. We would say there is no panacea and each project will have a different choice to make. Last year at a couple of events we shared a few statistics that proved interesting and popular, so we have extended some of those a tad this year and offer them not as what you should use to  make your choices but merely as an interesting aside that might prompt some discussion.

Nevertheless  some sites present some fascinating one off single statistical insights – for example Indiegogo tell us that in 2012 14% of campaigns had a single contributor refer more people to the project than its wonder – a reminder of how important it is to work to ensure that  your contacts contact their contacts. It also seems campaigns are getting shorter dropping from 60 days to 49 days in 2011 – 2012 – with 39 being the average for successful campaigns. They also tell us (and it is common across all platforms)  that there is a clear statistical link between having a video and likelihood of success. Now this is no secret but it is intriguing that their insights would suggest that you are 25% more likely to be successful if your video is less that 5 minutes – apparently 3 Minutes 11 Seconds is optimal for success!

The behemoth of the reward sector, Kickstarter, have a stats section to their blog and whilst not entirely consistent in form year to year we pulled a few together here for a little fun.

Indiegogo suggest a that campaigns raised on average 20% more 2011 – 2012  that 2010 – 2011. This is a similar figure to what Kickstarter showed 2010 – 2011 But the growth in Kickstarter average campaign value for the last year is markedly higher, and even if you take into account the distorting effect of the extraordinary growth in Games as a category, as seen in the first graphic below, it is still a tremendous rise in average campaign value.

Kickstarter 2011-12

Up until 2011 the three most valuable categories on Kickstarter had been Film, Design and Music, but they have been leapfrogged by Games. We don’t have the value of the game category for the 2009-10 but it is apparent that whereas there has been steady and consistent growth in the three historically strong categories Games has jumped exponentially in 2012.

What is noticeable from some of the overarching figures for Kickstarter is the consistent success rate of projects hovering around the 43-46%

 

 

 

 

 

Of course Kickstarter is now available and operating in the UK ( from October of last year) and we have seen Peoplefund.it, Unbound, WeDidThis and  Crowdfunder come together in a series of consolidations and alliances that could be interpreted defensive move to create scale to their communities and so offer a strong alternative to Kickstarter. Of those we took a quick look at Crowdfunder’s published stats and whilst not entirely consistent in the categories used year to year, and not therefore directly comparable, it is interesting to note that Film and Music rank highly there too.

Now we would not suggest that significant conclusions can be drawn from any of these observations, but it can be moderately diverting over a cup of tea to muse on these things and a subject for conversation in a sector which, to now, is still very short on meaningful and comparable data.

But what do you think?

 

Europe Still a Leader in Equity Crowdfunding

Europe Still a Leader in Equity Crowdfunding

The expected enabling of equity based crowdfunding in the US is, for good reason, a focus of a great deal of attention and chatter. With the largest reward based platforms based there and a track record of entrepreneurialism we can reasonably expect that when it is finally permitted the scale and pace of growth equity based platforms in the US will both overshadow other countries efforts and develop awareness of its possibilities globally. But whilst the political machinations and wrangling delay the SEC enabling of that piece of the JOBS act in the USA, it is worth noting some of the developments closer to home that demonstrates how the UK and Europe remain among the leaders in equity based crowdfunding.

The news this week that Crowdcube had received FSA accreditation demonstrates a further and welcome maturing of the market place in the UK. Joining Seedrs as an equity based platform with that formal stamp of approval, it develops the choices to entrepreneurs that want to take the equity based route and I can’t help but wonder if it demonstrates that the FSA themselves are increasingly recognising that that the model has validity.

Previously it has expressed “concern” about crowdfunding and opined that crowdfunding “may not have adequate protection”. Whilst I would not suggest that they have in any way relaxed their rigorous demands perhaps they are recognising that it is capable of offering those protections and that they are overcoming their understandable caution and conservative approach that was heightened by the shocks to the financial systems of recent years. It’s a bit like the first time you encounter an escalator, if your sole experience has been the stairs it can be a bit disconcerting, but once you have got used to the idea you can see it can have its advantages!

We are also seeing companies like Righteous going through second rounds of equity crowdfunding. This is a hugely important step and it seems to me is a testament to both the efficacy and benefits of the method as crowd validation and relationship based models sustain entrepreneurs through more than one funding round.

Perhaps more exciting still is the exit model that saw a claimed 44% ROI for crowdfunding investors in the sale of ANTABIO which had been equity funded on the French WiSeed platform. This is both proof that and crowdfunding investment can make a return in the traditional sense, but perhaps more importantly that it can be a route for entrepreneurs to seed their ventures and move on to the traditional capital markets effectively.

In the South, Italy continues to progress its crowdfunding legislation and the success of the Crowdfuture event in October demonstrated the high levels of interest there. The CONSOB open hearings have been continuing but are now concluding, and our very own  Daniela Castrataro of twintangibles was invited to provide one of the opening contributions.  With an anticipated enablement of the Italian legislation by 19th March  I wonder if anyone is running a book on who will get there first Italy or USA. Given their weekend performance in the 6 Nations rugby who would bet against Rome!

So whilst we may celebrate the global impact of crowdfunding,  let’s not forget to laud the more local success.

An overview of crowdfunding in Italy

An overview of crowdfunding in Italy

[written in collaboration with Ivana Pais, Cattolica University, Milan]

“From 10 years to 10 months”. This, according to Alessandro Fusacchia, is how much he would accelerate the implementation of the crowdfunding provisions of the the Decreto Sviluppo and so get Italian legislation in step with US developments under the JOBS Act. For once, it looks like Italy is keeping up with times. But this haste is not without its critics their fear being that the Italian crowdfunding market is not mature enough.

So what is the state of crowdfunding in Italy?

According to a brand new report, Analysis of Italian Crowdfunding Platforms, there are 16 active crowdfunding platforms, and 5 more are in their launch phase.  Eight platforms are reward-based and five are donation-based; two are social lending platforms and only one platform can be included in the equity-based model. Twelve of these platforms took part in the survey that led to the report.

The longest established platform is ProduzioniDalBasso (launched in January 2005), followed by Smartika in 2008 (which launched as Zopa Italy), Kapipal in 2009 and Prestiamoci in 2010. However the boom year so far for Italian crowdfunding was 2011 with the launch of Shinynote, Eppela, Cineama.it, Retedeldono and SiamoSoci, followed by Musicraiser, Starteed and Crowdfunding-Italia in 2012. The platforms are based mainly in Northern Italy, with only one platform based in Rome and one is based abroad, in London. The target market is national, with the exception of two platforms that position themselves on the European market.

Since their launch, Italian platforms received a total of 30,000 projects, of which 75% have been on social lending platforms. Approved/published projects number 9,000 (of which over 5,000 were on social lending platforms); and almost 2,500 projects were funded.

Success rate, on average equal to 28%, varies from 7% in equity-based crowdfunding to 16% in reward-based crowdfunding to 35% in social lending. As for donation-based crowdfunding, platforms report an average 74% success rate, however for many platforms collected funds go to projects holders regardless of target achievement, that is to say they operate a “keep it all model”.

The overall value of funded projects is 13 millions Euros, collected mainly on social lending platforms (78%) and equity-based platforms (15%). Only 7% of the total value of projects can be attributed to reward-based/donation-based crowdfunding.

Suggestions that the market is still immature may be right: with more than half of Italian crowdfunding platforms were founded after 2011 and the sums raised still relatively small in comparison to the billion and a half dollars raised via crowdfunding at a global level.

But first movers have gathered significant expertise, and the dynamism over the last months could lead to rapid changes. Reward-based platforms are growing at the fastest pace, in contrast with the global trend, where the equity-based category shows the fastest growth rate.

The general wish of the founders of reward-based platforms is for the introduction of guidelines  particularly in relation to legal and fiscal aspects, as well as tax relief on donations to private individuals.

The complete report has significantly more detail and is available here.

Crowdfuture – A gateway to the future of Italian crowdfunding.

Porta MaggioreFor the past few days I have been in Rome enjoying the sights and sounds of the “eternal city” and helping out with the organisation of Italy’s first Crowdfunding Conference called Crowdfuture. twintangibles co-curated this along with Nois3lab and it is another example of how we live out the Anglo Italian nature of the firm.

The event was a great success, completely sold out and covered widely in the Italian media. Some fantastic speakers allowed the 300 delegates explore all sorts of aspects of crowdfunding and the impact of the recent legislation Crescita 2.0 which proposes to permit limited equity based crowdfunding. Dan Marom provided, as usual, a fantastically thought provoking keynote to draw the speaker led part of the day to a close before a series of workshops completed a demanding schedule.

Dan made the point that often government lags behind industry but in Italy it seems that the government has almost preempted the rise of crowdfunding and has begun the process of putting in a legislative framework. In a subsequent conversation with Dan we reflected on the role of legislative frameworks and how different groups react to them. In some cases the absence of specific legislation dealing with or permitting crowdfunding, as in the UK, means that crowdfunders see this as a challenge to be overcome and to create an approach to satisfying existing demands and make it possible to crowdfund. In other environments like the USA legislation effectively outlawed equity based approaches and the JOBS act is a mechanism to enable or permit it. In Italy they have almost preempted it . Dan and I wondered if there was a cultural or psychological aspect to this in that different business and social cultures and traditions respond to legislation or lack of it in different ways. So do some require a framework to permit it in order to have the confidence to act and without it it will no action will take place or do some see its absence as an opportunity?. I guess Fons Trompenaars might have a view in this as well!

Oliver Gajda also used the event as an opportunity to announce the release of the European Crowdfunding Networks ( of which twintangibles is a founding member)  White Paper A Framework for European Crowdfunding. This is published today ( October 29th) and has numerous recommendations that encourage european institutions to consider putting place an enabling code that allows crowdfunding to be both trans europe and so inevitably stronger, and to establish a greater sense of permanence and credibility around a phenomena that is here to stay and will form part of our entrepreneurial eco system for the future.

Personally I found the experience inspiring and certainly from the passion and diversity of approach on show Italy is on the brink of significant potential development in this area. As I made my way to The Sapienza University of Rome – the venue for the main event –  past the Porta Maggiore early in the day I wondered if, metaphorically speaking, Italy was on the brink of going through a gateway to new opportunity or if it would be a bit “tutto fumo e niente arrosto” – an awful lot of sizzle but not much steak!. By the end of the day I was certain that there was plenty of steak and the that Italy have made a real first step in taking advantage of this new opportunity. I and twintangibles were proud to be associated with it.

All that and crowdknitting too!

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