Crowdfunding Industry Report 2013

2
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2013CF MASSOLUTION.COM 2
33 2013CF MASSOLUTION.COM
Every big change starts off small. And nobody appreciates that fact more than Victor Emanuel Dijon von Monteton.
Victor is a former orchestral conductor who now conducts business as a consultant at A.T. Kearney a skill just as prized in business as in music.
As one of the top management consultancies worldwide, A.T. Kearney prides itself in leveraging the power of diverse teams to bring the best mix
of skills to our clients. Our promise: Immediate Impact, Growing Advantage. To find out more, visit www.ATKearney.com.
But unlike Beethoven,
we dont leave anything
unfinished.
Every great composition starts with a single tone.
Ellenoff Grossman & Schole LLP
212 370 1300
ellenoff@egsllp.com
www.CrowdESQ.com
Ellenoff Grossman & Schole is the leading law firm serving the security crowdfunding industry.
Recognized as a thought leader and expert on the nuanced legalities of the JOBS Act,
Douglas S. Ellenoff, a member of the firm, speaks prolifically at conferences and events.
Hes been a key representative and advocate for the industry and has actively engaged with
the SEC to discuss many aspects of the proposed new law. Additionally, EG&S is working with
securities professionals internationally to assist them with shaping smart legislation to foster
investment crowdfunding in their jurisdictions. EG&S is actively engaged with clients in the
crowdfunding industry, including funding portals, broker-dealers, technology solution providers,
software developers, investors and entrepreneurs.
FOUNDING SPONSOR
1. Introduction ............................................................................................
6
a. Foreword ................................................................................................... 7
b. Key Findings ............................................................................................. 9
i. Highlights ........................................................................................... 9
ii. Predictions ........................................................................................ 9
iii. Key Messages .................................................................................. 10
iv. Developments ................................................................................. 11
c. About this Research ................................................................................. 12
i. The 2013CF Industry Report .............................................................. 12
ii. The Research Team .......................................................................... 14
iii. About massolution ........................................................................... 17
d. Crowdfunding Defned ............................................................................ 18
i. Defnition and Taxonomy .................................................................. 18
ii. Crowdfunding Models ...................................................................... 19
2. The 2012 Crowdfunding Market ..................................................
21
a. Market Growth and Composition ........................................................... 22
i. Crowdfunding World Map; Total Funds Raised ................................ 23
ii. Growth by Crowdfunding Model ...................................................... 25
iii. Predictions; Regions ......................................................................... 27
iv. Predictions; Crowdfunding Models ................................................. 29
b. Campaign Statistics .................................................................................. 31
i. Campaigns Worldwide ....................................................................... 32
ii. Crowdfunding Models ...................................................................... 33
c. Success Rates ............................................................................................ 35
i. Threshold-Pledge Systems ................................................................ 36
ii. Funding Probabilities ........................................................................ 38
iii. The Pledge vs. Pay Out Ratio ........................................................... 39
d. Most Active Categories ............................................................................. 40
i. Across all Models ............................................................................... 41
ii. Financial vs. Non-Financial Return ................................................... 43
iii. Individual Models ............................................................................. 45
4
TABLE OF CONTENTS
3. Web 2.0 Financing .................................................................................
50
a. The Collaborative Web .............................................................................. 51
b. Crowdfunding Dynamics .......................................................................... 52
i. Introduction ....................................................................................... 52
ii. Social Ties .......................................................................................... 53
iii. Social Proof ....................................................................................... 55
iv. Third-level Acceleration: Strong Ties, Weak Ties, & Beyond ............ 56
c. Legal Frameworks ..................................................................................... 58
i. Global Overview ................................................................................. 58
ii. Europe ............................................................................................... 60
ii. USA ..................................................................................................... 61
iv. Key Markets and Initiatives ............................................................. 62
d. Direct Crowdfunding ................................................................................ 66
i. Case Studies ....................................................................................... 66
ii. Applicability ....................................................................................... 68
iii. Costs and Benefts of CFPs .............................................................. 68
4. Outlook ........................................................................................................
70
a. Emerging Crowdfunding Platforms ......................................................... 71
i. A New World Map .............................................................................. 72
ii. Niche Platforms ................................................................................. 74
iii. Crowdfunding Models and Threshold-Pledge Systems ................. 75
iv. Financial Backing .............................................................................. 77
b. Capital Infow ............................................................................................ 78
i. Crowdsourcing Primer ....................................................................... 79
ii. Capital Infow Distribution ............................................................... 80
c. Developments ........................................................................................... 82
i. Industry Focus / Niche Platforms ...................................................... 83
ii. Locavesting / Community Platforms ................................................ 83
iii. Hybrid Platforms .............................................................................. 85
iv. Enterprise Crowdfunding ................................................................. 85
v. Crowdfunding Economic Development ........................................... 86
vi. LIVE Crowdfunding ........................................................................... 86
Appendix ............................................................................................................... 87
Acknowledgments ................................................................................................ 88
5
TABLE OF CONTENTS (CONT.)
6
FOREWORD
KEY FINDINGS
ABOUT THIS RESEARCH
CROWDFUNDING DEFINED
INTRODUCTION
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
2013CF MASSOLUTION.COM
If you think that crowdfunding just means smaller companies that launch games
and device projects on platforms like Kickstarter, think again. Crowdfunding has
now emerged as a viable, scalable alternative to public and private fnance.
These developments have implications for how governments frame economic
development programs, and leverage public investments.
Behind the scenes major, global companies are running the rule over crowdfunding
as a way to leverage their innovation portfolios into the marketplace. Crowdfunding
is helping enterprises interact with lead customers, and validate R&D outputs.
No fnancial institution can afford not to be informed about how crowdfunding is
evolving across the world and providing new opportunities for banks, investment
houses, and fnancial intermediaries.
We founded massolution in order to study and advise on how crowdfunding models
are emerging in different parts of the world, impacting government policy, informing
enterprise innovation and changing the role of fnancial institutions.
We hope you fnd our 2013CF Industry Report insightful and that you embrace how
crowdfunding will change the way business is done.
Carl Esposti
CEO/Founder
Massolution and Crowdsourcing.org
FOREWORD
Introduction
7
CROWDFUNDING HAS
NOW EMERGED AS A
VIABLE, SCALABLE
ALTERNATIVE TO
PUBLIC AND PRIVATE
FINANCE.
THE NEW FINANCIAL REVOLUTION

SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
2012 was a year of acceleration for the crowdfunding markets! It was the year where
crowdfunding platforms raised a total of $2.7bn compared with $1.5bn in 2011. In
massolutions 2012CF Industry Report, we predicted that the total funding volumes
would reach $2.8bn; our forecast was therefore correct within a very low margin of
error (~5%), and we can thus confrm that the global crowdfunding markets have
accelerated from an annual growth of 64% in 2011 to an 81% growth in 2012. We
are forecasting $5.1bn in total global funding volumes in 2013.
2012 was also the year where in January, the Elevation Dock became the frst
individual campaign to reach the $1m milestone. A few months later in April, Pebble
Technology showed how to reach this milestone in only 28 hours; a campaign that
resulted in over $10m total funds raised.
It was also the year where attention shifted towards crowdfundings potential
impact on entrepreneurial fnance. Equity-based crowdfunding got the bulk of
media attention in the US when the Jumpstart Our Business Startups Act (JOBS Act)
was signed into law on April 5th.
Since crowdfunding markets are nascent and the concept itself not broadly
understood, discussions about its applicability and potential often strands in
polemic narratives that contributes very limited (if any) value to the discussion. The
2013CF Industry Report therefore provides clarity on the taxonomy for the industry.
In addition to this we have added a separate chapter, Web 2.0 Financing, to provide
a deeper understanding of the very core of crowdfunding. Namely, capital formation
on the collaborative web. We are grateful for eminent contributions of Bryan Zhang
(Cambridge University), Dan Marom (The Hebrew University), Kristof De Buysere
(Tilburg University), and Sean Carr (University of Virginia).
Kevin Berg Kartaszewicz-Grell, Ph.D.
Research Director (Crowdfunding), Massolution
FOREWORD
Introduction
8
WE ARE
FORECASTING
$5.1BN IN TOTAL
GLOBAL FUNDING
VOLUMES IN 2013.
A YEAR OF ACCELERATION
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
The 2012 worldwide crowdfunding volume reached $2.7bn raised from
over 1.1m campaigns. Worldwide crowdfunding volumes grew 81% in 2012,
which is an acceleration from the 64% growth in 2011.
Growth rates by region:
North American crowdfunding volumes grew 105% to $1.6bn.
European crowdfunding volumes grew 65% to $945m.
On average, all other markets grew close to 125%.
Growth rates by crowdfunding models:
Donations- and Reward-based crowdfunding grew 85% to $1.4bn.
Lending-based crowdfunding grew 111% to $1.2bn.
Equity-based crowdfunding grew 30% to $116m.
HIGHLIGHTS
KEY FINDINGS
Introduction
9
THE 2012
WORLDWIDE
CROWDFUNDING
VOLUME REACHED
$2.7BN RAISED
FROM OVER 1.1M
CAMPAIGNS.
$5.1bn will be raised via crowdfunding platforms in 2013.

North America will remain the largest market in 2013:
72% will be raised in North America.
26% will be raised in Europe.
The remaining 2% will be raised primarily in Asia and Oceania.
Lending-based crowdfunding to exceed $2bn in 2013:
Lending-based crowdfunding is expected reach $2.1bn.
Crowdfunding without fnancial return is expected to reach $2.8bn.
Out of the $2.8bn from non-fnancial crowdfunding, $1.4bn will be raised
via pure donation-based crowdfunding.
Equity-based crowdfunding is expected to reach $166m.
PREDICTIONS
The total number of successful campaigns across all models is largely unchanged,
but the aggregate funding volume almost doubled! This indicates a new level of
market maturity, in part because crowdfunding models are picking up traction
among start-ups and SMEs who have higher funding requirements than the
usual crowdfunding campaign.
Social Causes is by far the most popular category and drives close to 30% of all
crowdfunding activity. We expect this position to change as start-ups and SMEs
continue to take additional market share.
As crowdfunding resonates with the broader public, crowdfunding platforms will
have to prepare for further disruption as direct crowdfunding, outside platform
domains, drives a greater level of market disaggregation.
There is increased activity as regulators, especially in North America and in
Europe, are preparing for equity- and lending-based crowdfunding.
Crowdfunding platforms will need to develop strategies to either respond to or
participate in enterprise crowdfunding, as large enterprises have begun to either
partner or host their own platforms.
KEY MESSAGES
KEY FINDINGS
Introduction
THE TOTAL NUMBER
OF SUCCESSFUL
CAMPAIGNS
ACROSS ALL
MODELS IS LARGELY
UNCHANGED, BUT
THE AGGREGATE
FUNDING VOLUME
ALMOST DOUBLED!
Massolution has identifed six major developments within the crowdfunding
market.
Niche Platforms As platforms try to beneft from market differentiation, a
clear niche-, industry-, and sector-orientation is emerging.
Community Platforms Local investing has proven to overcome traditional
obstacles between investor and investee; relationships of trust are built,
nurtured, and leveraged through community-based crowdfunding.
Hybrid Platforms In the future crowdfunding platforms will no longer be
defned as donations-platforms, rewards-platforms, etc. Platforms will be
merging the various crowdfunding models and will tailor these hybrids of models
to the campaign owners needs.
Enterprise Crowdfunding Large enterprises have begun to look into
crowdfunding. Each model carries a new potential for large companies: raising
social profle, market testing, and spin-ins of entrepreneurial ventures are some
of the most popular examples.
Crowdfunding Economic Development Major development banks and similar
institutions are seeking to leverage crowdfunding for economic developments.
Crowdfundings social profle and its strong connection to micro-fnance are the
main drivers.
LIVE Crowdfunding Online crowdfunding has recently been augmented
with exclusive launch events. These events are attributes to any of the basic
crowdfunding models and will become more commonplace because they
provide the much needed feeling of exclusivity to early-bird crowdfunders.
DEVELOPMENTS
KEY FINDINGS
Introduction
MASSOLUTION
HAS IDENTIFIED
SIX MAJOR
DEVELOPMENTS
WITHIN THE
CROWDFUNDING
MARKET.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
ACROSS THE
MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL
MODELS
THE 2013CF INDUSTRY REPORT
The 2013CF Industry Report provides a unique and in-depth analysis of
the crowdfunding market trends and composition. The research report is
informed by several sources of data and external research:
362 crowdfunding platforms out of an estimated total of 813 (both active
and pre-launch), have participated in this survey via the industry website,
Crowdsourcing.org. The response rate of 45% is an increase of 6% compared
to massolutions 2012CF Survey, and the quality of the submissions has also
improved, which has resulted in an 85% acceptance rate.
Key was the 2013CF Survey, which was conducted during the frst six weeks
of 2013 and resulted in the most comprehensive data collection on the
worldwide crowdfunding market to date. From the 2013CF Survey, we received
308 responses of a sufciently high quality and integrity. These submissions
provided extensive data related to the analysis presented in this report.
The survey was divided into separate sections depending on whether the
responder represented a launched (active) platform, or a pre-launched platform.
As expected, given that the crowdfunding industry, in many respects, is still in its
cradle, the pre-launch ratio is fairly high: 28%.
Massolution has conducted signifcant follow-up research via other reliable
channels to complete the profling of the global crowdfunding industry. 85%
of the total market estimate is explained by primary and secondary research.
The remaining 15% is extrapolated taking regional and model distributions into
account.
The 2013CF Industry Report extends the scope of industry snapshots and trend
assessments of last years report with a deeper dive into one of the core topics
in the crowdfunding literature. We do this in the chapter Web 2.0 Financing. The
chapter was made possible by the collective efforts of massolutions research
ABOUT THIS RESEARCH
Introduction
12
THE 2013CF
INDUSTRY REPORT
PROVIDES A UNIQUE
AND IN-DEPTH
ANALYSIS OF THE
CROWDFUNDING
MARKET TRENDS AND
COMPOSITION.
13 13 2013CF MASSOLUTION.COM
director Kevin Berg Kartaszewicz-Grell and four of the top tier researchers in
academia: Bryan Zhang (Cambridge University), Dan Marom (The Hebrew
University), Kristof De Buysere (Tilburg University), and Sean Carr (University
of Virginia). The insights presented in the third chapter thus draw upon these
researchers own data, along with additional outreach by massolution.
Massolutions research methodology (C-STEP), crowdfunding industry
taxonomy, and the application of standardized metrics used throughout
this report have been developed over the course of several research and
advisory engagements. C-STEP is a research methodology that facilitates
analyses and assessments of crowdfundings applicability across regions and
verticals. It provides a unifying framework for strategizing, mechanism design,
implementation, and execution against any goal. Please contact massolution at
research@crowdsourcing.org for further information.
ABOUT THIS RESEARCH
Introduction
THE 2013CF INDUSTRY REPORT (CONT.)
C-STEP
TM
Crowdfunding - Social
Transformation and
Economic Performance
14 2013CF MASSOLUTION.COM 14
The 2013CF Industry Report was made possible through the tireless efforts of:
THE RESEARCH TEAM
ABOUT THIS RESEARCH
Introduction
Kevin Berg Kartaszewicz-Grell
Research Director
Kevin is massolutions Research Director for Crowdfunding and
Crowdsourcing.orgs CAPS Program Director. Research interests
include: Information-fow in distributed networks and Network
driven asset allocation. He holds a PhD in fnance, an MSc and a
BSc in mathematics and economics.
Maria Adamowicz
Senior Analyst
Maria is a multi-lingual researcher with a variety of fnancial and
analytical experience from various countries. She holds a double
MBA in Capital Markets (Warsaw University) and International
Business (HULT International Business School).
Francesco Schiavone, University of Naples
Academic Advisor / Regional Analyst; Italy
Francesco Schiavone is an assistant professor in management at
University Parthenope in Napoli (Italy). He is afliated professor at
ESG Business School in Paris (France). His main research interest
are innovation, technological change, communities of practice,
crowdfunding.
THE RESEARCH TEAM (CONT.)
ABOUT THIS RESEARCH
Introduction
Sean Carr, University of Virginia
Academic Contributor
Sean is a lecturer and PhD researcher at the University of Virginias
Darden School of Business and director of intellectual capital at
the Batten Institute. Research interests include: entrepreneurship
and organizational dynamics. He holds an MBA, MSc, and a BA.
Kristof De Buysere, Tilburg University
Kristof has been trained in law, engineering (applied computer
science) and fnance and is a lecturer and researcher at
the department of Business Law at Tilburg University (The
Netherlands). He also advises technology companies, especially
during their fundraising efforts.
Dan Marom, The Hebrew University
Dan is a PhD researcher at the Hebrew University, and co-author
of The CrowdFunding Revolution (with Kevin Lawton). He holds
an MBA (Cum laude) and a BSc in electrical engineering. His
research focuses on crowdfunding and entrepreneurial fnance.
Bryan Zhang, Cambridge University
Bryan is a PhD researcher in crowdfunding at Cambridge
University. He is a Fellow of the Royal Society of Arts and a
Postgraduate Fellow of the Royal Geographical Society. He holds a
BA from Cambridge and an MSc from Oxford.
THE RESEARCH TEAM (CONT.)
ABOUT THIS RESEARCH
Introduction
Tim Haverkamp
Regional Analyst; the Netherlands
Tim is a Business Administration graduate at the Erasmus
University Rotterdam. He did his master in Entrepreneurship
and a second master in Financial Law. His master thesis was on
internationalization strategies of crowdfunding platforms.
Jia Qiao
Regional Analyst; China
Jia Qiao is a graduate of South East University, China. After
completing her Bachelor in Business Administration in 2010, she
went on to further studies in Enterprise Management, obtaining
her Masters in March 2013.
David Shin
Regional Analyst; Korea
David is the CEO of CrowdRI and MARKMOUNT, research and
media platforms about crowdsourcing & funding in South Korea.
He holds a BA from Hanyang University and is fnishing his MSc at
the University of North Korean Studies in South Korea.
There is a revolution in how we work and how we fund business and
massolution is at the heart of it.
Massolution is a unique research and advisory frm that is pioneering the
use of crowd-solutions in government, institutions and in enterprises.
Massolutions pioneering work includes:
Consulting to enterprises on the adoption of crowdsourcing and
crowdfunding to leverage enterprise innovation portfolios
Supporting enterprises in the design and delivery of new work processes
that enable crowd labor solutions
Advisory work to Governments and institutions on national crowdsourcing
and crowdfunding strategies that drive social and economic impact
Advising nations on the design and build of future digital workforce
strategies to create new high-income digital jobs
Agency advisory on the use of the crowd to improve public sector processes
and drive new forms of capital formation.
Massolution is helping to write the guidelines for a new way to do and
fund business.
ABOUT MASSOLUTION
ABOUT THIS RESEARCH
Introduction
CROWDSOURCING, INC
Crowdsourcing, Inc
operates two business
units, massolution
(Research and Advisory)
and Crowdsourcing.org
(Publishing and Events),
and is headquartered in Los
Angeles, California at:
11400 West Olympic Blvd.
Suite 200
Los Angeles, CA 90064

To reach a member
of the massolution or
Crowdsourcing.org team
please contact:
research@crowdsourcing.org.

Media Contact
Jennifer Moebius
jennifer@crowdsourcing.org
Twitter
@Crowdsourcing_
DEFINITION AND TAXONOMY
Crowdfunders and Campaign Owners
Crowdfunding refers to any kind of capital formation where both funding needs
and funding purposes are communicated broadly, via an open call, in a forum
where the call can be evaluated by a large group of individuals, the crowd. The
outreach is referred to as a crowdfunding campaign and the person or company
who is in charge of the campaign is referred to as the campaign owner.
Open Calls
An open call in context of crowdfunding (and crowdsourcing in general)
is understood as a call-to-action; e.g. a call-for-support or capital, where
the message is not targeted at any specifc intended recipient. This line
of communication serves as an indirect stakeholder screening since the
communication is established via the interested recipients feedback as opposed
to direct communication established by the sender.
Crowdfunding Platforms (CFPs)
In a crowdfunding context, the sender is the campaign owner, the recipient
is any member of the crowd that decides to support the campaign, and the
communication is predominantly established via a crowdfunding platform
(CFP) supported by the campaign owners personal means of communication
and outreach. In a modern context, the availability of personal communication
channels have accelerated rapidly, which has fundamentally changed the
nature of open calls, and thus the nature of crowdfunding. With the emergence
of Web 2.0, open calls transcend into open communication, and a request for
fnancial support or an investment proposal therefore turn into collaborative
social network activities. We have therefore included a separate chapter, Web
2.0 Financing, in this years report that will explore some of the implications that
the collaborative web has on crowdfunding.
Introduction
CROWDFUNDING
REFERS TO ANY
KIND OF CAPITAL
FORMATION WHERE
BOTH FUNDING
NEEDS AND FUNDING
PURPOSES ARE
COMMUNICATED
BROADLY VIA AN
OPEN CALL IN A
FORUM WHERE
THE CALL CAN BE
EVALUATED BY A
LARGE GROUP OF
INDIVIDUALS, THE
CROWD.
CROWDFUNDING MODELS
There are four well established crowdfunding models: donation-based, reward-
based, lending-based, and equity-based crowdfunding, and one emerging
model royalty-based crowdfunding. Each of these have different features to
match the different needs of campaign owners.
Massolutions taxonomy is thus determined by the proposed exchange between
campaign owner and crowdfunder. Other taxonomies attempt to analyze the
crowdfunding market based on the variety in types of campaign owners, the
different incentives the crowdfunders may have to support a project, and even
a raw division into which regions the crowdfunding activity takes place in.
Although these approaches may be well-motivated, the aggregation of
fundamentally different exchanges makes for a myopic analysis and renders
the reader uninformed about the economic reality underlying the aggregation,
as well as the incentives for crowdfunders to engage and campaign owners to
propose specifc exchanges.
One immediate beneft of the exchange-based taxonomy is that it allows the
researcher to investigate how the different crowdfunding models apply to
different funding scenarios; e.g. based on a categorization of campaign owners,
the maturity of the campaign owner (or crowdfunder), the economic outlook of
the campaign owner, etc. The defnition of each crowdfunding model is provided
in the margin.
Introduction
DONATIONS
Crowdfunders donate money
to campaign owners and
do not expect to receive a
tangible beneft from the
transaction.
REWARDS
Crowdfunders support
campaign owners and receive
some kind of reward in return
for their contribution.
EQUITY
Crowdfunders invest in
equity or equity-like shares in
return for their investment.
LENDING
Crowdfunders lend money
to campaign owners and
expect the future repayment
of a principal with or without
interest.
ROYALTY
Crowdfunders invest in
a share of revenue earned in
return for their investment.
Threshold-Pledge Systems (TPS)
Across the various crowdfunding models, one of the most common
characteristics is the campaign owners communication of funding need and
purpose. Unless the campaign seeks support for an ongoing project (often
social and/or philanthropic), the aggregate funding goal will almost always
be communicated as a part of the open call. CFPs divide into three categories
as to whether the announced funding goal must be reached in order for the
campaign owner to be able to collect the funds. When a campaign owner has
to reach the funding goal, the CFP is said to use a Threshold-Pledge System
(TPS). The TPS feature is frequently considered synonymous with crowdfunding.
However, this is inaccurate; only 54% of the CFPs worldwide use this model. 28%
of the CFPs will pay out any amount raised to the campaign owner, regardless
of whether the funding goal was reached or not. A TPS is especially applicable
when the campaign owner seeks capital for a project that does not scale down.
Some platforms target campaign owners of both kinds, and the TPS decision is
given to the campaign owner when the campaign is launched; 18% of the CFPs
worldwide have an optional TPS.
Introduction
Figure: Threshold-Pledge Systems availability.
Threshold-Pledge
System
54%
No Threshold-Pledge
System
28%
Optional
18%
CROWDFUNDING MODELS (CONT.)
21
MARKET GROWTH AND COMPOSITION
CAMPAIGN STATISTICS
SUCCESS RATES
MOST ACTIVE CATEGORIES
THE 2012
CROWDFUNDING
MARKET
The 2012 Crowdfunding Market
Introduction
Data on crowdfunding is scarce, but extremely important for all market
constituents to inform market strategies and have a clear understanding of
which crowdfunding sectors are expanding rapidly.
Crowdfunding saw tremendous growth in 2012 in terms of dollars raised,
exceeding growth in 2011. In this section, we examine and analyze this
development, looking at specifc regions and crowdfunding platform models.
Our forecasts for crowdfunding in 2013 are based on a two-period lagged
regression and also take into account model-specifc and regional variation.
In this section we will be addressing which models and regions are seeing
greatest growth, and we will take a closer look at the level of activity within each
of the major categories.
CROWDFUNDING
SAW TREMENDOUS
GROWTH IN 2012 IN
TERMS OF DOLLARS
RAISED, EXCEEDING
GROWTH IN 2011.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
NORTH
AMERICA
ASIA
OCEANIA
Total funds raised during 2012 in USD
$1,606 million
$76 million
$33 million
AFRICA
$0.065 million
EUROPE
$945 million
SOUTH
AMERICA
$0.8 million
WORLDWIDE
$2.7bn
23
The global crowdfunding market grew 81% in 2012 to a total funding volume of
$2.7bn. Compared with 64% growth in 2011, crowdfunding is accelerating.
CROWDFUNDING WORLD MAP: TOTAL FUNDS RAISED
Figure: Global crowdfunding volumes; the Crowdfunding World Map.
Crowdfundings increasing adoption across the world is providing access to a
new source of capital for entrepreneurs in many countries, however, North
American and European platforms are still overwhelmingly dominant, raising
signifcantly more capital than platforms in all other regions combined.
North American platforms raised in excess of $1.6bn, which is a 105% increase
compared to 2011. In 2011, the North American crowdfunding market grew at
the lesser rate of 86%.
European platforms raised close to $945m, which is a 65% increase compared
to 2011. In 2011, the European crowdfunding market grew at the lesser rate of
42%, and the global acceleration is thus driven by acceleration in both North
American and European crowdfunding markets.
North America and Europe still account for more than 95% of the total market.
Crowdfunding in Asia and Oceania is accelerating, however, the aggregate 2012
funding volumes are below $50m and $100m, respectively.
South American and African CFPs are also emerging and funding volumes
are accelerating from a zero base at a much higher rate than other regions,
where crowdfunding is more established. Crowdfunding markets outside North
America and Europe, accelerated from at 59% growth rate in 2011 to 125% in
2012.
24
CROWDFUNDING WORLD MAP (CONT.)
THE GLOBAL
CROWDFUNDING
MARKET GREW 81%
IN 2012 TO A TOTAL
FUNDING VOLUME OF
$2.67BN.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
The growth in 2012 funding volumes was primarily driven by lending-based and
donation-based crowdfunding.
Lending grew 111% to a total volume of $1.2bn, while donation-based
crowdfunding grew 45% to a total volume of $979m. The growth in lending
volumes mainly stems from crowdfunded micro-loans and from local SME loans.
In the aggregate, crowdfunding without fnancial return, donation- and reward-
based, grew 85% to a total close to $1.4bn. Therefore, the additional growth
(85% compared with the 45% growth in donations) stems from campaigns where
rewards are offered in return for fundingeither combined with an option to
donate or as a pure reward-based crowdfunding campaign.
GROWTH BY CROWDFUNDING MODEL
Figure: Growth by crowdfunding model.
0
1000
2000
3000
Equity Donation Lending Reward Mixed others
2010 2011 2012
460.4
49.9
316.5
15.7
675.7
88.9
554.9
61.5
979.3
115.7
1169.7
383.3
12.4
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o
f

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$
This growth can best be explained by start-ups and SMEs adaptation of reward-
based crowdfunding. The path from prototype to marketplace drastically
shortens for products and services that can appeal to the crowd.
In many juristictions equity-based crowdfunding is still pending regulators
acceptance, which means that growth on a global scale is limited. In 2012, the
market grew 30% to 115.7m. [1]
Lending- and reward-based crowdfunding accelerated 35% and 232%,
respectively (change in growth rates), while the growth in donations-based
crowdfunding is stable at 45% growth compared to 47% in 2011. Equity-based
crowdfunding grew slower in 2012 at 30% growth than in 2011 when the growth
was 78%.
An analysis of funding activity by category for each crowdfunding model is
provided later in this chapter.
26
GROWTH BY CROWDFUNDING MODEL (CONT.)
[1] Against revised numbers for 2010/2011. See Appendix for further information.
LENDING- AND
REWARD-BASED
CROWDFUNDING
ACCELERATED
35% AND 232%
RESPECTIVELY.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
The predictions in this section are derived from a two-period lagged regression
of total funding volumes using subsamples of all combinations of region and
crowdfunding model.
Extrapolations were made based on 204 survey responses from our 2013CF
survey and 135 survey responses from 2012CF survey supplemented by data
collected by massolutions on-going tracking of the crowdfunding market. On
this basis we predict that crowdfunding volumes in 2013 will be $5.1bn.
PREDICTIONS; REGIONS
Figure: Growth in funding volume worldwide in millions of USD
(research based estimate for 2013).
WE PREDICT THAT
CROWDFUNDING
VOLUMES IN 2013
WILL BE $5.1BN.
0
2000
4000
6000
Europe North America Other Regions
2010 2011 2012
3698.2
1330.0
109.7
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$
2013 (est.)
3000
5000
1000
North American crowdfunding is expected to reafrm its solid lead in terms
of aggregate funding volume in 2013. Close to $3.7bn will be crowdfunded in
North America. This market is expected to evolve faster due to the growth in
lending-based crowdfunding.
Although equity-based crowdfunding is increasing in scale in Europe, the size
of the market is still small in comparison to the size of the the current lending
market in North America. This difference is of such magnitude that we predict
that North America will remain ahead of Europe in 2013. Even accounting for
accelerated growth in Europe, the funding volume gap will not be bridged during
2013. We predict, largely due to the popularity of lending-based crowdfunding in
North America, that this region will account for 72% of the total funding volume
in 2013, compared to 60% in 2012.
Outside North America and Europe, crowdfunding is a relatively new concept and
for this reason, we will see rapid growth outside the established crowdfunding
markets within three years. Asia and Oceania account for most of the growth
outside North America and Europe.
28
PREDICTIONS; REGIONS (CONT.)
NORTH AMERICAN
CROWDFUNDING
IS EXPECTED TO
REAFFIRM ITS SOLID
LEAD IN TERMS
OF AGGREGATE
FUNDING VOLUME
IN 2013. CLOSE TO
$3.7BN WILL BE
CROWDFUNDED IN
NORTH AMERICA.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
0
2000
4000
6000
Equity Donation Lending Reward Mixed others
2010 2011 2012
1430.3
165.9
2123.4
1344.2
74.1
M
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$
2013 (est.)
3000
5000
1000
29
Lending- and donation-based crowdfunding are expected to remain the most
popular crowdfunding models, but we predict that in 2013, total funding
volumes for reward-based models will be close in comparison.
Lending-based crowdfunding is expected to grow 82% to a total above $2bn,
accounting for more than 40% of the total 2013 funding volume. This model
will continue to grow in popularity for crowdfunded micro-loans (personal and
commercial) and for SME loans.
PREDICTIONS; CROWDFUNDING MODELS
Figure: Growth in funding volume by crowdfunding model in
millions of USD (research based estimate for 2013).
LENDING- AND
DONATION-BASED
CROWDFUNDING ARE
EXPECTED TO REMAIN
THE MOST POPULAR
CROWDFUNDING
MODELS.
Donation-based crowdfunding is expected to grow 46% to a total of $1.4bn,

accounting for 28% of the total 2013 funding volume. Donations will continue
to be popular for social and personal causes, but will gain less traction for
commercial ventures.
Reward-based crowdfunding has gained tremendous popularity, and in many
cases, has been combined with other models, in particular donation-based
crowdfunding. We predict that as reward structures keep evolving and as the
market gains further trust in reward-based models, 2013 will be the year where
more than $1bn is raised via reward-based crowdfunding.
30
PREDICTIONS; CROWDFUNDING MODELS (CONT.)
2013 WILL BE THE
YEAR WHERE MORE
THAN $1BN IS RAISED
VIA REWARD-BASED
CROWDFUNDING.
CAMPAIGN STATISTICS
Introduction
In this section, we take a closer look at crowdfunding campaign statistics. Our
research shows that over 1 million crowdfunding campaigns (of all kinds) were
successfully funded in 2012.
The majority of the campaigns were conducted on donation-based platforms,
followed by lending-based, the two most established crowdfunding models.
Median campaign sizes across lending-, reward-, and donation-based
crowdfunding models were all under $5,000. While the median size of equity-
based campaigns were signifcantly higher at $190,000, over twice the median
size of equity-based campaigns in 2011.
This information serves as a great starting point for entrepreneurs looking
to crowdfund an idea. The section provides details of typical crowdfunding
campaign sizes of successful campaigns across each model of the most popular
models.
THE MEDIAN SIZE
OF EQUITY-BASED
CAMPAIGNS IN 2012
WAS $190,000, OVER
DOUBLE THE 2011
MEDIAN.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Number of crowdfunding campaigns; Crowdfunding World Map.
32
Consistent with the distribution of global crowdfunding volumes, the majority of
campaigns were hosted on North American or European CFPs.
More than 1.1 million crowdfunding campaigns received funding during 2012.
680,000 campaigns were donation-based and close to 250,000 were lending-
based. 625,000 campaigns were hosted on North American CFPs and 470,000
hosted on European CFPs.
CAMPAIGNS WORLDWIDE
CAMPAIGN STATISTICS
NORTH
AMERICA
Total numbers of crowdfunding campaigns in 2012
625 thousand
EUROPE
470 thousand
WORLDWIDE
1.1 million
OTHER
REGIONS
8 thousand
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Number of crowdfunding campaigns by model.
33
Donation-based crowdfunding has a very different appeal than the other
models. Its application is therefore also very different.
Donation-based campaigns typically have smaller funding goals, and therefore
a high volume of campaigns account for the large contribution to total funding
volume from this model.
62% of all successful campaigns in 2012 were donation-based, while lending-
based crowdfunding accounted for 22%.
CROWDFUNDING MODELS
CAMPAIGN STATISTICS
62% OF ALL
SUCCESSFUL
CAMPAIGNS IN 2012
WERE DONATION-
BASED, WHILE
LENDING-BASED
CROWDFUNDING
ACCOUNTED FOR
22%.
0
400
800
Donation Others
2009 2010 2011
62%
22%
15%
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2012
600
1000
200
Debt Donations-Reward Mix
1200
1%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Median campaign sizes in USD across crowdfunding models.
34
The typical campaign sizes across the different crowdfunding models are: $1,400
for donation-based campaigns, $2,300 (donation-reward mix), $2,300 (rewards),
$4,700 (lending), and $190,000 (equity).
The number of successful campaigns was almost unchanged compared to 2011,
while the funding volume in the same period grew by 81%. This is due to the
fact that donation-based campaigns accounted for almost half of the aggregate
funding volume and that the typical funding volume per campaign more than
doubled in 2012.
CROWDFUNDING MODELS (CONT.)
CAMPAIGN STATISTICS
LENDING
$4.7 thousand
MIXED OTHERS
$4.3 thousand
REWARD
$2.3 thousand
DONATION-
REWARD MIX
$2.3 thousand
DONATIONS
$1.4 thousand
EQUITY
$190 thousand
SUCCESS RATES
Introduction
One of the most important data points to analyze when it comes to crowdfunding
are the actual success rates of crowdfunding campaigns. Success rates are
analyzed via funding probabilities and pay out vs. pledge ratios.
In order to understand a campaigns likely success rate, one must frst become
familiar with the Threshold-Pledge System (TPS). This section looks at the use of
TPS across the different crowdfunding models.
We examine funding probabilities by both crowdfunding model and region. From
a model perspective, lending-based campaigns have the highest probability of
succeeding, largely due to the popularity of micro-loans which have the highest
funding probability across all types of campaigns. From a regional perspective,
campaigns in North America succeed more frequently that all other regions.
We fnish the section by evaluating the pledge vs. pay out ratio, which is a partial
measure of crowdfundings efciency; if the ratio is high, individual pledges are
more likely to be allocated to the campaign owners as intended, rather than
being returned to the crowdfunder. Again, we categorize the data by both
crowdfunding model and region.
SUCCESS RATES
ARE ANALYZED
VIA TWO KEY
METRICS: FUNDING
PROBABILITIES AND
PLEDGE VS. PAY OUT
RATIOS.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Availability of Threshold-Pledge Systems across crowdfunding models.
36
In order to understand why funding probabilities are relevant for crowdfunding
campaigns, it is crucial to realize that besides the fve basic crowdfunding
models (donations, rewards, lending, equity, and royalty), CFPs differ in their
use of the Threshold-Pledge System (TPS).
When a campaign owner has to reach the funding goal to receive funding, the
CFP is said to use a TPS; 54% of the CFPs worldwide use this model. 28% of
the CFPs will pay out any amount raised to the campaign owner, regardless
of whether the funding goal was reached or not. A TPS is especially applicable
THRESHOLD-PLEDGE SYSTEMS
SUCCESS RATES
0
60%
40%
80%
20%
100%
Threshold-Pledge System
No Threshold-Pledge System
Optional
R
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SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Threshold-Pledge Systems availability.
37
when the campaign owner seeks capital for a project that does not scale down.
Some platforms target campaign owners of both kinds, and the TPS decision
is given to the campaign owner when the campaign is launched; 18% of the
CFPs worldwide have an optional TPS. When a campaign owner elects not to
use a TPS, they are assured of receiving any contribution of funds made to their
campaign. Campaigns that serve a social or personal (noncommercial) cause
are less likely to use a TPS and many CFPs that specialize in donation-based
crowdfunding will therefore not offer a TPS option.
A TPS reduces the execution/delivery risk if the campaign owner sets the
funding goal at the funding level required to get a product from prototype to
market. If the funding goal is not reached, additional funding will be needed
to complete the process. If these funds cannot be raised, the product is less
likely to reach production. In this situation, a TPS will lower the risk of a product
experiencing delays or being canceled due to a lack of funding, and hence the
TPS has mitigated the delivery risk. For this reason, reward-based crowdfunding
often makes use of a TPS.
THRESHOLD-PLEDGE SYSTEMS (CONT.)
SUCCESS RATES
Threshold-Pledge
System
54%
No Threshold-Pledge
System
28%
Optional
18%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: Funding probabilities for crowdfunding campaigns by model (left) and by region (right).
38
We can estimate the funding probabilities for each crowdfunding model by
comparing the number of successful campaign to the total amount of campaigns
posted.
This reveals that most models funding probabilities are aligned around a 50/50
chance of reaching the goal.
Lendingbased crowdfunding is the exception with a 91% funding probability.
This relatively high fgure stems primarily from crowdfunded micro-loans.
As lending-based crowdfunding is more popular than other models in North
America, this draws the funding probability across all models for this region to
90%.
FUNDING PROBABILITIES
SUCCESS RATES
Successful Unsuccessful
0%
20%
40%
60%
80%
100%
D
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SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Figure: The pledge vs. pay out ratio for crowdfunding campaigns by model (left) and by region (right).
39
Besides funding probabilities, the pledge vs. pay out ratio informs us about
what percentage of funds pledged on a crowdfunding campaign was paid out to
campaign owners. Funds that are not paid out to a campaign owner are simply
returned to the crowdfunder, having not created any economic value, and thus
the pledge vs. pay out ratio is a partial measure of crowdfundings efciency in
terms of individuals investment preferences.
As noted earlier, donation-based crowdfunding platforms make less use
of TPS, which means that any funds that are pledged will also be paid out.
Donations therefore score relatively high with this measure (94%). Equity-based
crowdfunding has an average funding probability (45%), but a high pledge vs.
payout ratio (93%). This indicates that equity-based crowdfunding is an efcient
way to invest in terms of investment preferences.
THE PLEDGE VS. PAY OUT RATIO
SUCCESS RATES
Paid out Not paid out
0%
20%
40%
60%
80%
100%
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s
Introduction
Just as the traditional capital formation industry has identifable successes that
can guide investors, so too crowdfunding data, collected by massolution, allows
us to highlight what is working best in crowdfunding campaigns.
If you want to understand where success and failure lies, this data is essential. It
can tell us which categories of projects are rising, falling or emerging, and which
types of projects succeed per platform-type.
For example, we can observe that across all crowdfunding models, social causes
is a very active. But that is not the case with environmentally oriented campaigns,
a type you might imagine is close to social causes.
Unlike traditional capital formation multilayered reward structures are integral
to crowdfunding. So what works, and what does not? That is one of the key
questions for anybody approaching this sector.
UNLIKE TRADITIONAL
CAPITAL FORMATION
MULTILAYERED
REWARD
STRUCTURES
ARE INTEGRAL TO
CROWDFUNDING.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Social Causes
Business and Entrepreneurship
Films and Performing Arts
Music and Recording Arts
Energy and Environment
Fashion
Art (general)
Information and Communication Technology
Journalism, Books, Photo, and Publishing Arts
Science and Technology
27.4%
16.9%
11.9%
7.5%
5.9%
5.5%
4.8%
4.8%
3.5%
3.2%
41
Crowdfunding frst gained popularity as a way to fund creative, philanthropic,
and social endeavors. This popularity prevails, but crowdfundings application
for entrepreneurial ventures has gained traction as well, especially crowdfunding
models with fnancial return.
Massolution measures platform activity across two parameters: the number
of successful campaigns and the funding volumes within individual categories.
From these parameters we derive comparable statistics across 15 categories
The 10 most popular are presented in the bar chart. The presentation and
analysis in this section is informed by comprehensive survey data from 49 CFPs.
ACROSS ALL MODELS
Figure: Crowdfunding Platform activity across the 10 most active categories.
Social Causes is still the most active category (27.4%), followed by Business &
Entrepreneurship (16.9%), and the two major art categories: Films & Performing
Arts (11.9%) and Music & Recording Arts (7.5%). Energy & Environment (5.9%)
is the emerging category among the fve most active categories. Some of the
ventures in this category could be added to the Social Causes category while
others could be added to Business & Entrepreneurship, but because of an
increased focus on green technologies and visionary energy solutions and
due to their broad appeal, Energy & Environment has branched out as its own
category that is expected to grow rapidly in the years to come.
42
ACROSS ALL MODELS (CONT.)
ENERGY &
ENVIRONMENT
CAMPAIGNS ARE
EXPECTED TO GROW
RAPIDLY IN THE
YEARS TO COME.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Social Causes
Fashion
Art (general)
Journalism, Books, Photo, and Publishing Arts
Science and Technology
Donation and/or Rewards Financial Return
0% 5% 10% 15% 20% 25% 30%
43
If we inspect the most active categories to see which crowdfunding models are
driving activity, several interesting observations can be made.
The high level of activity in the Social Causes category is driven by all
crowdfunding models, which lends to the conclusion that crowdfunding in itself
has an engaging effect and an appeal to common or social challenges.
FINANCIAL VS. NON-FINANCIAL RETURN
Figure: Financial versus Non-Financial crowdfunding activities.
The activities in the Business & Entrepreneurship and in the Energy &
Environment categories are mainly driven by crowdfunding models that offer
some kind of fnancial return. This can be explained by the for-proft mindset
of the campaign owners in these categories and the fact that, especially for
campaigns in the Energy & Environment category, it is challenging to establish a
suitable reward structure. However, emerging CFPs within this niche might take
that particular challenge and create a crowdfunding model that does not rely on
fnancial return within the Energy & Environment category.
When we compare the two major art categories, it is interesting to see that Film
& Performing Arts make use of both fnancial and non-fnancial crowdfunding,
while the activity in the Music & Recording Arts category is mainly driven by
non-fnancial crowdfunding; reward-based crowdfunding is especially popular
in the latter category. The concentration on non-fnancial crowdfunding can be
explained by cultural biases among recording artists, or by the relatively low
funding requirements in this category.
44
FINANCIAL VS. NON-FINANCIAL RETURN (CONT.)
FILM & PERFORMING
ARTS MAKE USE OF
BOTH FINANCIAL
AND NON-FINANCIAL
CROWDFUNDING.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Non-fnancial crowdfunding is popular, especially the donation-based model.
It is applied across all the biggest categories except for Energy & Environment.
As expected, the Social Causes category has more activity on platforms using
this particular model.
Business & Entrepreneurship has less, which is explained by the for-proft
mindset of most of the campaign owners in this category.
This model is also very popular for creative projects that do not fall into one of
the two art categories we discuss above.
INDIVIDUAL MODELS: DONATIONS
Figure: Donation-based crowdfunding activity.
Social Causes
Films and Performing Art
Art (general)
32.6%
14.1%
12.8%
9.3%
7.9%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
The crowdfunding model that, beyond any doubt, gets the most media attention
is the reward-based model. Activity within this model (where the crowdfunders
are offered a tangible non-fnancial return) is more evenly spread out, as artists,
entrepreneurs, and businesses adopt this funding model.
Social Causes is again the most active category. In fact, the activity across the
different categories using reward-based crowdfunding is more or less similar
to the overall picture except for the Energy & Environment category, where
reward-based crowdfunding is still nascent.
INDIVIDUAL MODELS: REWARDS
Figure: Reward-based crowdfunding activity.
Social Causes
Fashion
17.7%
17.7%
16.3%
11.1%
8.2%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
The simplest fnancial agreement one can think of is a loan. These agreements
promise a pre-determined repayment schedule and, commonly, an interest
payment, as well. The expected total repayment is therefore capped at the
time lender and borrower agree on the terms of the agreement. Lending will
therefore not provide the high potential of other fnancial agreements, and for
this reason, lending-based crowdfunding is most used by small businesses.
The Business & Entrepreneurship category is therefore the most active category
on lending-based campaigns, followed by Energy & Environment campaigns.
Social Causes and creative ventures are less active in the use of this model
presumably because they cannot guarantee the required repayment.
INDIVIDUAL MODELS: LENDING
Figure: Lending-based crowdfunding activity.
Social Causes
Art (general)
54.2%
25.0%
12.5%
4.2%
4.2%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Not surprisingly, most of the activity within the equity-based crowdfunding
space relates to commercial enterprises.
The Business & Entrepreneurship category is the most active, followed by Social
Causes, which is less active on equity-based campaigns when compared to
other models.
Information & Communications Technology (ICT) campaigns have been
separated from the Business & Entrepreneurship category because campaigns
in this particular category are expected to be the front-runners of equity-based
crowdfunding. The reasons for this is not related to the particular risk structure
of campaigns in this category, but merely due to the fact that crowdfunding
is better recognized by both prospective campaign owners and crowdfunders
interested in this feld.
INDIVIDUAL MODELS: EQUITY
Figure: Equity-based crowdfunding activity.
Social Causes
Film and Performing Arts
29.1%
23.3%
14.9%
14.6%
5.1%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
When a campaign owner offers a share of a revenue-stream without offering
a stake in the company driving the revenue, we refer to this as a royalty-based
crowdfunding campaign.
Since this is the youngest model, we expect it to evolve and change its activity
profle to refect exactly what this model brings that the others do not.
As of today, the activity is mainly driven by the Business & Entrepreneurship
category, Social Causes, Energy & Environment, Films & Performing Arts, and
Fashion.
The model is especially applicable when the crowdfunder is only interested in
one of the campaign owners activities, which explains the relatively high activity
in the categories: Film & Performing Arts and Fashion.
INDIVIDUAL MODELS: ROYALTY
Figure: Royalty-based crowdfunding activity.
Social Causes
Film and Performing Arts
Fashion
32.3%
15.6%
12.5%
12.5%
10.4%
50
THE COLLABORATIVE WEB
CROWDFUNDING DYNAMICS
LEGAL FRAMEWORKS
DIRECT CROWDFUNDING
WEB 2.0 FINANCING
Web 2.0 Financing
THE COLLABORATIVE WEB
Modern (online) communication tools and networks have changed the nature
of open calls, and thus the nature of crowdfunding. With the emergence of the
collaborative web (Web 2.0), open calls transcend into open communication,
and a request for fnancial support or an investment proposal therefore turn
into collaborative social network activities.
Crowdfunding is still a relatively new phenomenon, yet an understanding of how
its dynamics facilitate powerful interactions between social and fnancial capital
has begun to emerge. Researchers around the world are asking important
questions, such as, what transforms early investors/supporters into advocates
and promoters? How does a campaign activate its network of friends and
family? And, most importantly, how does a second-level network (friends and
family) energize a third-level of outside supporters (i.e., complete strangers)?
This section, CROWDFUNDING DYNAMICS, will present perspectives about the
hidden, social dynamics of crowdfunding, with a special look at the phenomenon
of third-level acceleration. Sean Carr from the University of Virginia is the main
contributor to the section.
Given the many unknowns about the dynamics of crowdfunding, policy makers
and regulators have been struggling to assess the appropriate measures for
investor (and entrepreneurial) protection; in many jurisdictions, crowdfunding
has not even been considered yet. To give our readers an idea of the various
developments in crowdfunding regulation, the section LEGAL FRAMEWORKS
presents the needed overview. Kristof De Buysere from Tilburg University is the
main contributor to the section.
The fnal section, DIRECT CROWDFUNDING, takes a deeper dive into a relatively
new research subject, namely the emergence of crowdfunding campaigns that
are hosted outside and independent of any structured online platform. Dan
Marom from The Hebrew University is the main contributor to the section.
OPEN CALLS
TRANSCEND
INTO OPEN
COMMUNICATION ON
THE COLLABORATIVE
WEB.
Whoever you are, I have always depended on the kindness of strangers.

from A Streetcar Named Desire
Tennessee Williams (1947), American playwright
By now, we have seen that crowdfunding campaigns can be wildly, even
fantastically, successful, raising millions of dollars from many thousands
of contributors. Even moderately effective crowdfunding efforts can attract
hundreds of people willing to extend a loan, offer a donation, or make an
investment in some person or project. Since not all these supporters have a
personal connection with the project or person being funded, what are the
dynamics that enable a campaign to win support outside its inner circle of
friends and family? How much does the support of friends and family infuence
ultimate success? How does a project make the leap from having a very close
network of familiar supporters to a broad group of complete strangers?
Crowdfunding platforms, enabled by Web 2.0 technologies that leverage social
medias greatest strengths, provide a structure that facilitates communication,
trust, and, ultimately, the kindness of strangers. But a clearer picture about how
this happens is beginning to emerge. While the phenomenon of crowdfunding is
still new, researchers have recently started to understand the mechanisms that
enable these powerful interactions between social and fnancial capital to occur.
What follows are a few perspectives from academia and elsewhere about the
hidden, social dynamics of crowdfunding.
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This section was contributed
by Sean Carr, University of
Virginia.
INTRODUCTION
SOCIAL TIES
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All economic transactions are, to one degree or another, embedded in networks
of personal and social relationships, and these relationships tend to affect
the allocation and cost of capital. For decades, many economists, sociologists,
psychologists, and historians have examined this phenomenon, asking the
question: How do the forces of fnancial and social capital intersect, and what
happens when they do?
The economic and fnancial historian Naomi Lamoreaux [1], for example,
studied the relationships between individual business enterprises and banks
in eighteenth- and nineteenth-century New England. She found that access
to capital was highly contingent upon personal alliances and kinship-based
social relations. That is, frm fnancing generally followed from blood relations
and marriage. Likewise, the economic sociologist Brian Uzzi [2] conducted
ethnographic feld studies of commercial banks and small- to medium-sized
frms in the Chicago area in the 1990s. He, too, found that when bankers and
frm owners had pre-existing personal relationships with one another (not just
business relationships), the frms often experienced better access to capital on
more favorable terms.
More recently, social network-based research like this has blossomed in the
study of entrepreneurship, and much of it has examined the infuence of
founders and frms personal networks on the development and performance
of new ventures. Scholars have found that an entrepreneurs social network
has the potential to infuence every stage of the entrepreneurial process,
including the discovery of an opportunity, team formation, the acquisition and
assembly of resources, and the growth and performance of the venture itself.
The general fnding from this line of research has been that entrepreneurs who
are embedded in rich social networks (i.e., they have very broad and diverse
networks of social ties) will be more successful at overcoming the obstacles to
resource mobilization than those whose networks are poor.
HOW DO THE FORCES
OF FINANCIAL AND
SOCIAL CAPITAL
INTERSECT?
SOCIAL TIES (CONT.)

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It should seem intuitive (or even obvious) that social ties also should matter in
crowdfunding, but little empirical work so far has explained the role of social
ties in this context. One notable exception is a recent working paper by Wharton
Business School professor Ethan Mollick [3], who conducted a cross-sectional
analysis of all projects fnanced on the popular reward-based crowdfunding site,
Kickstarter. Since Kickstarter enables project owners to link their project pages
to their Facebook accounts, he measured the number of Facebook friends for
each project sponsor. Mollick found that if the project sponsor from the Film
category had only ten friends on their Facebook account, then their probability
of getting their project fully funded on Kickstarter was about 9 percent. If the
project sponsor had 100 Facebook friends, then their funding probability rose
to 20 percent; if the sponsor had 1,000 Facebook friends, then their likelihood of
getting fully funded was 40 percent. While the number of virtual friends may
not be equivalent to a persons actual friends, it can serve as a rough proxy for
the extent of a project owners personal network. And even though the impact of
these virtual ties on funding may not be surprising, it does offer strong evidence
for the importance of social ties.
SOCIAL TIES
ARE IMPORTANT
COMPONENTS
TO DRIVE
CROWDFUNDING
SUCCESS.
SOCIAL PROOF
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55
So, we know that social ties matter in crowdfunding, but it is less clear exactly
how and why they matter. There are two related theories that may be instructive.
First, one theory suggests that social ties matter in economic exchanges because
they create expectations of trust and reciprocity among economic actors,
resulting in governance mechanisms and transfers of private information that
would not otherwise occur strictly through arms-length relationships. A second
theory suggests that social ties provide a signal to others that the person or
project is worthy of a commitment. The well-known psychologist Robert Cialdini
has referred to this phenomenon as social proof. [W]hen people are uncertain,
Cialdini said, they look to the actions of others to guide their actions [4].
Moving us toward a better understanding of how social ties matter and what
mechanism may be at work, a team of researchers from the University of
Arizona and the University of Maryland examined 56,584 loan requests from the
lending-based crowdfunding site Prosper.com [5]. They found that if a borrower
had one or more friends who were among their lenders, then their likelihood
of securing their full loan amount more than doubled. Interestingly they also
found that for 95% of all the loan requests that included loans from friends, only
4.4% of the total amount raised was provided by the friends. In other words,
the presence of even just a few friends in the borrowers network of lenders
provided a sufcient positive signal to other potential lenders. So, in this case, it
appears that a borrowers later-stage lenders may have been disproportionately
infuenced by the initial commitments (i.e., social proof) of the borrowers early-
stage lenders. In a related study using Prosper listings, another team from the
University of Nebraska and Radford University also found that social capital was
even more infuential when the borrower had poor credit history; the presence
of friends as lenders not only increased the probability of getting funded but
also resulted in their receiving more favorable interest rates [6].
SOCIAL PROOF
EXPLAINED.
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56
THIRD-LEVEL ACCELERATION: STRONG TIES, WEAK
TIES, AND BEYOND
Forty years ago, the economic sociologist Mark Granovetter wrote a seminal
paper (among the most infuential in the social sciences), called The Strength of
Weak Ties [7]. This paper introduced the theory that, under certain conditions,
a persons weak social ties (such as friends-of-friends or acquaintances) will be
more important and more effective than their strong ones for diffusing an idea
across a social network. Returning for a moment to the work by Ethan Mollick,
1,000 Facebook friends should be, almost by defnition, comprised of weak
ties. Given Mollicks fnding that having more Facebook friends is a predictor
of funding success, it would appear then that there is indeed strength in these
weak ties.
However, we can still only say for certain that weak ties have strength in the
aggregate. The studies discussed in this article also suggest that strong ties may
have a very important role in the early phases of a crowdfunding effort. Early
strong ties may help build trust and norms of reciprocity, while also providing
signals (social proof) for later-stage supporters.
In general, then, we should expect that people with whom a project owner has
strong ties are more likely to be motivated to help them than those whose ties
are weak. The logic behind this is that strong ties matter during the frst phase
of funding because they provide necessary signals of quality and legitimacy
(i.e., proof). Then, during the second stage of funding, these early signals will
infuence commitments from weaker ties in the persons network. Finally,
having built upon the foundation of strong ties and working through a larger set
of weak ties, project owners have the potential to infuence prospective lenders,
donors, or investors with whom they have no ties at all.
The evidence is still scant, but in essence, that is third-level acceleration
potentially the holy grail of crowdfunding.
THIRD-LEVEL
ACCELERATION IS
POTENTIALLY THE
HOLY GRAIL OF
CROWDFUNDING.
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57
References
[1] Lamoreaux, N.R., Banks, Kinship, and Economic Development: The New England Case. The
Journal of Economic History, 1986. 46(3): p. 647-667.
[2] Uzzi, B., Embeddedness in the Making of Financial Capital: How Social Relations and Networks
Beneft Firms Seeking Financing. American Sociological Review, 1999. 64(4): p. 481-505.
[3] Mollick, E., The Dynamics of Crowdfunding: Determinants of Success and Failure, in Working
Papers Series. 2012, The Wharton School of the University of Pennsylvania: Philadelphia, PA. p. July
11, 2012.
[4] Cialdini, R.B., Infuence: The Psychology of Persuasion. 1993, New York: William Morrow &
Company, Inc.
[5] Lin, M., N.R. Prabhala, and S. Viswanathan, Judging Borrowers by the Company They Keep:
Friendship Networks and Information Asymmetry in Online Peer-to-Peer Lending. 2011.
[6] Greiner, M.E. and H. Wang. The Role of Social Capital in People-to-People Lending Marketplaces.
in Thirtieth International Conference on Information Systems (ICIS). 2009. Phoenix, AZ: AIS
Electronic Library (AISeL).
[7] Granovetter, M.S., The Strength of Weak Ties. American Journal of Sociology, 1973. 78(6): p.
1360-1380.
This section is a synthesis of a global crowdfunding legal frameworks survey,
which sampled the strategic viewpoints of more than 20 industrial experts in
15 countries, and independent academic research in various key jurisdictions.
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LEGAL FRAMEWORKS
58
by Kristof De Buysere,
Tilburg University.
GLOBAL OVERVIEW
Donation- and reward-based crowdfunding rarely face any legal barriers. These
models are therefore widely available in most jurisdictions, and they are also
offered without any complex transactional structures.
Investment crowdfunding, and especially equity-based crowdfunding, however,
may incur a substantial number of legal issues, as the general solicitation
of investment vehicles such as loan and equity is heavily regulated, even for
small investments. Platforms that facilitate these types of crowdfunding may
face substantial regulations, as they come close to resembling intermediated
investment services.
As a result, equity-based crowdfunding is never straightforward and currently
has limited availabilities in many key markets, as illistrated in the table below.
There are, however, a few exceptions, where platforms operate under the ceiling
of an existing promotion regime as broker-dealers for accredited investors.
For instance, regulatory roadblocks may prevent users from directly buying equity
in investees. As a workaround, CFPs can organize indirect investment routes via
special vehicles (crowdfunded funds) where it is simpler to purchase a unit
than to buy an equity unit in the underlying company. Another example is legal
constructions based on nominee shareholders. Such constructions concentrate
the control over the equity units in the hands of one entity (controlled by the
CFP) and also offer the advantage of simplifying the investor relationship for the
investee, as only one entity will serve as the underwriter and as the subsequent
voter. Besides these constructions, other models exist where transaction
engineered investment contract are offered instead of equity. Such structured
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LEGAL FRAMEWORKS
59
GLOBAL OVERVIEW (CONT.)
contracts can mimic equity by varying degrees. The cash-fow rights may be
virtually identical or may, for instance, rather be calculated on a percentage
of the revenue (eventually for a limited period of time). In turn, lending-based
crowdfunding and (quasi-)equity-based CFPs that use such a structured contract
approach share the property that crowdfunders obtain a contract and become
creditors, instead of security holders.
Countries Equity Rewards Lending Royalty Donations
USA
Canada
Mexico
UK
The Netherlands
Spain
France
Austria
Germany
Australia
China
Hong Kong SAR
Israel
Russia
Turkey
Table: Crowdfunding model availability by key jurisdictions.
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LEGAL FRAMEWORKS
60
EUROPE
For all variations of crowdfunding, as discussed above, there are a number of
European directives that should be considered if the CFP accepts and processes
money that has been publicly collected. For instance, the transaction may be
regarded to fall within the scope of national implementations of the Payment
Services Directive, and potentially also Regulation (EC) No. 924/2009 on cross-
border payments in the European Community. Additionally, when crowdfunded
money is placed in a particular kind of digital account or e-wallet before it is
allocated to a project, it can also be subjected to the E-money Directive (Directive
2009/110/EC). Furthermore, if users have an option to withdraw money from
such previously uploaded funds, then these types of publicly collected
reclaimable funds can fall within the scope of Directive 2006/48/EC, relating to
the taking-up and pursuit of the business of credit institutions.
Besides money management, other directives in the domains of distance selling,
e-commerce, anti-money laundering, and consumer protection may also apply,
irrespective of the crowdfunding models. Other than this, there are, in essence,
no pan-European harmonized rules that negatively impact donation- or reward-
based crowdfunding.
The situation is different for lending- or equity-based crowdfunding, as these
may be considered as securities offerings where the Prospectus Directive
applies. Public offerings that fall within the scope of the directive, but are below
the threshold of 100,000 do not require a prospectus. Public offerings above
5,000,000 do require a full prospectus. Nevertheless, between 100,000 and
5,000,000 there is no harmonization and member states are free to adopt their
own regimes. As a result of national interpretations, CFPs may also be subject to
the Markets in Financial Instruments Directive (MiFID).
EU REGULATION
INDUCES A GRAY
AREA FOR SECURITIES
OFFERINGS BETWEEN
100,000 AND 5M.
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LEGAL FRAMEWORKS
61
USA
In the United States, there was until recently no nation-wide exemption to
allow the offering of instruments that qualify as securities without incurring
any administrative burden. Regulation D was used for private placements and
Regulation A was used for offerings where general solicitation and general
advertising could be applied, at the price of having to fle simplifed disclosure
documents. The JOBS Act changes a few things in this regard; among others,
crowdfunding (Title III of the JOBS Act). The Regulation D regime will now also
become possible for offerings which involve general solicitation and general
advertising, but even so, only accredited investors may purchase under the
JOBS Act (Title II).
The SEC is still in the process of implementing the key provisions of the JOBS
Act including Title II and Title III, which in time will allow unaccredited investors
to access equity-based crowdfunding. In addition, if the JOBS Act can be fully
implemented, companies will be able to raise $1m through CFPs, during any
12 month period, without being subject to regular registration, prospectus, or
heavy reporting regimes, besides a special registration or (limited) reporting.
The amount that any investor may invest in such a campaign depends upon if
the individuals income or net worth reaches the threshold of $100,000 or not
(maximum 5% of income/net worth or $2,000 or maximum 10% of income/net
worth or $100,000 respectively).
THE USA IS ONE
OF THE FIRST
COUNTRIES TO TAILOR
A CROWDFUNDING-
SPECIFIC EXEMPTION.
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LEGAL FRAMEWORKS
62
KEY MARKETS AND INITIATIVES
There are a number of countries preparing national regulations. In Canada, there
is a concept paper out for discussion about crowdfunding. In Israel, a bill was
offered in May 2012 to approve equity-based crowdfunding. Its guidelines are
very similar to the ones in the JOBS Act. Furthermore, the Spanish government
is studying a minor crowdfunding law called ley del mecenazgo for donation-
based crowdfunding.
Besides crafting regulatory initiatives, governments also intervene in the
market through direct participation and investment. In Mexico, for instance,
the government is involved in crowdfunding through a Seed Capital Fund with
a CFP. In the United Kingdom, the Treasury recently announced the allocation
of 20m to FundingCircle and 10m to Zopa, to be distributed through these
platforms to SMEs. The Business Secretary, Vince Cable, has also signaled the
Governments intention to do more to promote alternative fnance and allocate
more funds to CFPs. In addition, several U.K. local authorities have partnered
with CFPs to stimulate local businesses and raise funds for community-based
projects.
Notwithstanding all the positive initiatives around the world, many CFPs are
currently operating under regulatory regimes that sometimes hinder or even
suffocate their activities, with excessively stringent limitations.
For example, in Turkey, donation-based crowdfunding does not exist due to strict
regulations concerning donation and gift-giving. But issues might also simply
arise because charities and non-proft organizations are required to be properly
registered. In France, for example, donations are only allowed in situations with
registered associations or foundations. In Poland, there is uncertainty about
non-equity crowdfunding as it is unclear if such activities require permission
from the Minister of Internal Affairs and Administration.
For lending-based crowdfunding, the regulatory implications may largely
GOVERNMENTS FROM
ALL OVER THE WORLD
ARE DRAFTING
CROWDFUNDING
LEGISLATIONS
AND SPONSORING
NATIONAL
INITIATIVES.
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LEGAL FRAMEWORKS
63
KEY MARKETS AND INITIATIVES (CONT.)
depend on the role and function of the platform. Specifcally, if it collects funds
from investors, which are then lent out again, or if investors and lenders are
merely matched with each other, where the platforms subsequently do not
appear in the monetary interactions between those parties. In Germany, for
instance, credit brokerage will, under some conditions, not be considered as
credit institutions, depending on volume and whether or not the default risk of
the borrowers is taken over on behalf of another credit institution. In the U.K.,
meanwhile, lending-based CFPs are able to operate in a relatively unregulated
manner.
In Brazil, registration including a prospectus is required as soon as an offer
is directed to undetermined and not individualized investors. But the Brazilian
securities regulator (CVM) may exempt, at its own discretion, registrations for
offerings of a single and indivisible lot of securities, or securities that are issued
by small business companies.
In India, an offer or invitation to subscribe for shares or debentures will not be
deemed to be a public offer or a public invitation (and will thus not require a
prospectus) if the following conditions are satisfed: 1) the offer or invitation is
not intended to result in shares becoming available for subscription or purchase
other than those who have received the offer or invitation, and 2) if the offer is a
domestic concern of the one making and the one receiving the offer. The latter
notion is comparable to the U.K.s notion of domestic concern, and is one that
describes a pre-existing relationship between the investor and investee (which
is not possible with crowdfunding). In fact, private companies are prohibited
from making public offers or invitations altogether.
In Israel, public offers are exempted from prospectus requirements if the offer
does not exceed NIS 2,317,000 (a fgure that is indexed every year) and the
offer does not represent more than 5% of the issued and paid-up capital of the
company on a diluted basis, or if the number of investors is limited to 35.
IN SOME COUNTRIES,
CROWDFUNDING
IS ALLOWED/
DISALLOWED AT THE
SOLE DIGRESSION OF
THE REGULATOR.
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LEGAL FRAMEWORKS
64
KEY MARKETS AND INITIATIVES (CONT.)
Finally, the Chinese securities law considers offers to be public if securities are
issued to non-specifed institutions and/or individuals, or if securities are issued
to 200 or more specifed institutions and/or individuals. Such private offers may
not be made in a public manner (advertising, public inducement, or otherwise).
Public offers of stocks (and also corporate bonds) require prior examination and
approval, which includes submitting a prospectus.
To conclude, although the development of crowdfunding-specifc regulatory/
legislative regimes is evident, there are still considerable inadequacies in laws,
gaps in regulations, and passivity in policies when it comes to crowdfunding in
most jurisdictions (as elucidated by our surveyed experts in the fgure below).
Given the meteoric rise of crowdfunding in recent years, the fuidity of
crowdfunding industry landscapes, the complexity of crowdfunding mechanisms,
and the scope of crowdfunding activities, there is an urgent need for government
and the industry to work together and fnd the optimal crowdfunding regulation
and legislation.
Figure: Overall how do you rate the adequacy of legal frameworks and gov-
ernmental intervention on crowdfunding in your jurisdiction?
0%
20%
40%
60%
80%
100%
S
t
a
t
u
t
o
r
y

L
a
w
s
C
a
s
e

L
a
w
s
R
e
g
u
l
a
t
i
o
n
s
P
o
l
i
c
i
e
s
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o
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e
r
n
m
e
n
t
a
l
I
n
t
e
r
v
e
n
t
i
o
n
Very Inadequate
Inadequate
Adequate
Very Adequate
Excessive
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LEGAL FRAMEWORKS
65
Acknowledgments and Disclaimer
This section relies on the valuable input from a number of crowdfunding
industry experts:
Douglas Ellenoff and Joseph Barisonzi (USA), Veronica Armstrong and Craig
Asano (Canada), Hernan Fernandez and Pepe Villatoro (Mexico), Dr. Yannis
Pierrakis and Barry James (UK), Ronald Kleverlaan and John Molenaar (The
Netherlands), Jonathan Garcia (Spain), Stefano Bianchi (France), Reinhard
Willfort (Austria), Clas Beese (Germany), Paul Niederer and Mathew Walker
(Australia), Andy Lo (Hong Kong), Dan Marom (Israel), Vasily Ryzhonkov
(Russia), and Louise Westerlind (Turkey).
This section is a brief compilation of the available information at the time
of publication and is not intended as or in substitution of professional legal
advice.
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DIRECT CROWDFUNDING
66
RISE OF TRULY DISINTERMEDIATED CROWDFUNDING
Crowdfunding today is, by and large, driven by campaigns hosted on dedicated
crowdfunding platforms. CFPs provide a variety of tools and services to assist
campaign owners as well as crowdfunders. In return, the CFP will typically levy
a commision which is charged to campaign owner if the campaign is successful
(there are several other commision models, but this is the most prevalent one).
Due to this cost, any rational campaign owner will ask: is it worth it? In some
cases, campaign owners may decide to run their campaigns independent of
platforms. We call this Direct Crowdfunding.
CASE STUDIES
One Friday morning in late 2012, the creators of Lockitron, an innovative deadbolt
system controlled by your smartphone, were rejected by a major reward-based
CFP on the ground that it is a home improvement project. As graduates from Y
Combinators 2009 summer class, the founders formed a plan in the following
week: they would launch Lockitrons fundraising campaign on their own website
and try to bypass the usage of a CFP.
Lockitron offered a direct pre-order mechanism that was risk free - the
customer pays ($149 instead of $199 later) only when the product will be ready
to shipping. It was a big success. In 30 days, the founders received 14,704 pre-
orders totaling $2,278,891success that propelled the company into the ranks
of the most successful crowdfunding campaigns.
While most of the successful crowdfunding campaigns are intermediated through
CFPs, Lockitron made a breakthrough by being one of the frst tremendously
successful initiatives that utilised a direct reward-based mechanism. Is this
success indicative of an evolution in the crowdfunding marketplace, or will the
by Dan Marom, The Hebrew
University.
Web 2.0 Financing
DIRECT CROWDFUNDING
67
CASE STUDIES (CONT.)
next revolution in crowdfunding takes the form of total disintermediation and
become more akin to the open source phenomenon?
The founders of Lockitron certainly think so: the team launched Selfstarter.us,
an open source crowdfunding site offering entrepreneurs a generic skeleton
and use of Amazon Payments to get their campaigns off the ground. Selfstarter.
us is crowdfunding at its most basic level: it frees entrepreneurs from paying
the commission required by most platforms, serves as a pre-ordering payment
gateway, and collects multi-use tokens from customers.
One product that is currently being crowdfunded directly is Lumawake, an iPhone
charging dock with built-in smart sensors and home automation connectivity.
It is currently taking pre-orders via the Selfstarter.us platform, following their
rejection from a CFP. The team, inspired by the success of Lockitron, has
garnered over $72,000 in pre-orders for their smart dock.
Crowdtilt is another Y combinator graduate. Launched in early 2012, their
vision is to become the kickstarter for any group. Raising almost $15M in less
than a year, this initiative aims to lead group fundraising that is not ft for the
majority of CFPs. A few months ago, Crowdtilt released a solution that helps
entrepreneurs to launch their own crowdfunding site without touching a line of
code. Based on the Selfstarter open source project, it is inspired by Wordpress,
free to use, and customizable.
INTRODUCING DIRECT
CROWDFUNDING.
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DIRECT CROWDFUNDING
68
APPLICABILITY
The downside of direct crowdfunding? No authentication, administration,
mailers, or analytics tools. In short, entrepreneurs are largely left to their own
devices with direct crowdfunding, causing us all to wonder: is it worth the time,
money, and effort to go it alone? Or are those value-added services worth the
fve percent commission that most platforms are charging?
It depends on the savviness of the start-ups, and their willingness to invest time,
money, and effort into the tools they would have gotten as value-ads with an
intermediary. For frst-time entrepreneurs, however, the infrastructure provided
by CFPs may be worth it.
COSTS AND BENEFITS OF CFPS
Bypassing an intermediary may also increase the risk of fraud for crowdfunders.
Many crowdfunding platforms scrutinize each project before launching, an
effort which signals credibility to potential crowdfunders and safeguards them
from fraudulent activities. On the other hand, a large proportion of campaign
backers will usually consist of friends and family, whom the campaign owner has
strong social ties with and thus credibility assurance might not be a paramount
concern. The interesting question then is: How important is the CFP actually for
the campaign owner and for the crowd?
A crowdfunding platform is not synonymous with crowdfunding itself; rather,
a platform is simply a mechanism that provides a means to an end. The spirit
of crowdfunding is rooted in the conversations and idea-sharing between
campaign owners and the crowd, and Lockitron provides an example where
such interactions happened without an intermediary.
One could argue that the community on the CPF is the platforms real added
value. An enterprising entrepreneur, however, can always invite his or her social
THE SPIRIT OF
CROWDFUNDING IS
ROOTED IN THE IDEA-
SHARING BETWEEN
CAMPAIGN OWNER
AND THE CROWD.
SOMETIMES THAT CAN
HAPPEN WITHOUT
INTERMEDIATION.
Web 2.0 Financing

DIRECT CROWDFUNDING
69
COSTS AND BENEFITS OF CFPS (CONT.)
networks to support a crowdfunding campaign. But if a campaign is hosted on a
CFP that has the backing of a well-established community, the campaign owner
can leverage that community to achieve fundraising objectives.
If it is really the case that CFPs bring a substantial crowd for campaign owners
to leverage, one would expect that individual crowdfunders should be serial
investors on a given platform. The authors own research, however, indicates
that this might not be the case at least not yet. Only 10-20% of a sample of
crowdfunders have supported multiple projects.
Although crowdfunding itself is a relatively new concept, which lends to the
interpretation that it will take time before substantial repetition in support
will establish itself, the empirical evidence is still quite strong for the case that
some campaign owners can run succesful campaigns without leveraging CFP
communities. This fnding is, of course, sensitive to a campaigns fundraising
objectives, the specifc crowdfunding model applied, and the CFP that the data
was collected from.
While it may be too soon to tell if a company like Selfstarter that offers the
means to do direct crowdfunding will be the rising phoenix of crowdfunding, it
seems clear that CFPs need to show great care in providing value for campaign
owners as well as for crowdfunders.
If nothing else, direct crowdfunding provides a great opportunity for campaign
owners to fnd innovative ways to access capital, which is consistent with the
ethos of the crowdfunding movement in general.
EVIDENCE SUGGESTS
THAT CAMPAIGN
OWNERS SOMETIMES
DO NOT NEED
TO LEVERAGE
COMMUNITIES ON
SPECIFIC CFPS.
70
EMERGING CROWDFUNDING PLATFORMS
CAPITAL INFLOW
DEVELOPMENTS
OUTLOOK
Introduction
We see an unprecedented number of CFPs lining up to launch in 2013, and a
breakdown of those platforms, by geography and purpose, reveals a lot about
the direction in which crowdfunding is headed.
Not surprisingly, the most signifcant growth factor in emerging CFPs relates to
business/investment-oriented crowdfunding.
We also see changes, however, in other modalities, in the geographical
distribution of platforms, and in the emergence of signifcant niche platforms.
These three areas of change are described in this section.
Based on this evidence, we can see that new platform launches will signifcantly
alter the crowdfunding landscape within a short period of time.
In addition to structural changes, the massolution team has also logged the
capital infows in crowdsourcing and crowdfunding. A summary of these results
follows in the next section, Capital Infow.
Outlook
WE SEE AN
UNPRECEDENTED
NUMBER OF CFPS
LINING UP TO LAUNCH
IN 2013.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
Not surprisingly, North America and Europe account for the majority of pre-
launched CFPs. Currently, 84.6% of the active CFPs divide evenly between these
two continents. Asia and South America are represented with 6.7% and 4.3% of
active CFPs respectively, while Oceania accounts for 2.4% and Africa 1.9%.
Pre-launch CFPs break down in the same way, except for the placement of
Oceania and Africa. They are distributed as follows: North America (51.9%),
Europe (26%), Asia (10.4%), Oceania (1.3%), and Africa (2.6%).
A NEW WORLD MAP
Outlook
Figure: Global distribution of launched and pre-launched crowdfunding platforms.
NORTH
AMERICA
EUROPE
SOUTH
AMERICA
ASIA
AFRICA
OCEANIA
42.3%
51.9%
Pre-launch Launched
42.3%
26.0%
4.3%
7.8%
6.7%
10.4%
2.4%
1.3%
1.9%
2.6%
The difference between the percentage of launched CFPs and the percentage
of pre-launched CFPs can be interpreted as a maturity metric in a given region.
In regards to equity-based crowdfunding, North America is a young market
because the regulatory frameworks around crowdfunding with fnancial returns
have yet to be determined (in both USA and Canada). We will, therefore, have a
relatively large part of the CFPs in this region still preparing to launch.
In Europe, on the other hand, the regulatory frameworks are not surrounded by
the same uncertainty, which means that market entrance is determined by the
competitive advantages of individual pre-launch CFPs.
The same image presents itself in Asia, South America, and Africa, where the
regulatory uncertainty prevents many new CFPs from launching. Oceania,
however, is home to one of the most established CFPs offering equity-based
crowdfunding and a rage of relatively mature platforms for non-fnancial return.
There is very little regulatory uncertainty compared to North America, Asia,
South America, and Africa, which means that Oceania (together with Europe)
can be regarded as more mature crowdfunding regions.
Outlook
73
A NEW WORLD MAP (CONT.)
THE MATURITY
OF REGIONAL
CROWDFUNDING
MARKETS IS
MEASURED BY
RELATIVE MARKET
ENTRIES.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
We are aware of over 250 pre-launch CFPs. A representative sample of 85 were
selected and analyzed. Out of these, 40 will be niche platforms once they launch.
37.5% will focus on Social Causes, which carries some consistency with the
current marketplace. 25% will focus on Business and Entrepreneurship, which
is relatively large part compared to the current market, but can be explained
primarily by the increased attention crowdfunded start-ups and early stage
fnance have been getting after the passage of the JOBS Act in USA.
Science and Technology accounts for 15% of the sample, which is an interesting
development. Crowdfunded research and scientifc endeavors are still rather
nascent on active CFPs, and have yet to form as a strong category. Art accounts
for 12.5%, while Film & Performing Arts and Housing, Real Estate & Development
account for 5% each.
NICHE PLATFORMS
Outlook
Figure: Target niches for pre-launch crowdfunding platforms.
Social and
Personal Causes
38%
Business and
Entrepreneurship
25%
Science and
Technology
15%
Art (general)
12%
Films and
Performing Arts
5%
Housing, Real Estate
and Development
5%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
From our sample, we assessed which types of crowdfunding models were
prevalent for pre-launched CFPs and compared this data to launched CFPs in
order to identify trends and determine the likely impact on the market landscape.
While close to 55% of the current CFPs offer just one type of crowdfunding
(one of the fve basic models), only 37.5% of the pre-launch CFPs will structure
themselves this way. By and large, the type of crowdfunding being planned
by pre-launch CFPs is more varied, and combines the basic models into new
hybrids.
CROWDFUNDING MODELS AND THRESHOLD
PLEDGE SYSTEMS
Outlook
Figure left: Availability of Donation, Rewards, Equity, Lending, and Royalty-based crowdfunding on launched vs. pre-
launched crowdfunding platforms.
Figure right: Availability of threshold-pledge-systems on launched vs. pre-launch crowdfunding platforms.
Pre-launch Launched
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
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An important observation is that amongst pre-lauched CFPs, crowdfunding with
a fnancial return (equity-, lending-, and royalty-based) is increasing in popularity
as a crowdfunding model when compared to the current market. This can best
be explained by the increased attention to crowdfunding as an alternative to the
traditional channels of entrepreneurial fnance.
We also examined how platforms are approaching the decision to adopt a
funding goal strategy versus a strategy to allow pay-out of any amount raised.
As mentioned in the report introduction, CFPs divide into three categories as to
whether the announced funding goal must be reached in order for the campaign
owner to be able to collect the funds. When a campaign owner has to reach the
funding goal, the CFP is said to use a Threshold-Pledge System (TPS). 54% of the
CFPs worldwide use this today. 28% of the CFPs will pay out any amount raised
to the campaign owner irrespective of whether the funding goal being reached.
A TPS is especially applicable when the campaign owner seeks capital for a project
that does not scale down. Since some platforms target campaign owners of both
kinds, the TPS decision is given to the campaign owner when he or she launches
the campaign. 18% of the CFPs worldwide have an optional TPS. The availability
of TPS shows a slightly different pattern for pre-launch platforms compared to
the current market. While platforms where TPS is mandatory account for 54%
of todays total, TPS will be mandatory on 59% of the pre-launch platforms.
Platforms where a TPS is not available account for 28% today, and 13% of the
pre-launched CFPs. 29% of pre-launched CFPs will make the TPS optional, which
is signifcantly higher than the 18% we see today.
These differences are perfectly aligned with the general trend towards more
fexibility for campaign owners. A fexibility that relates to anything from choice
of crowdfunding model to requirements of reaching predefned funding goals.
Outlook
76
CROWDFUNDING MODELS AND THRESHOLD-
PLEDGE SYSTEMS (CONT.)
54% OF ALL CFPS
USE A THRESHOLD-
PLEDGE SYSTEM.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
As the crowdfunding industry matures and more success stories hit the media,
CFPs receive greater attention from the professional investor community. One
would expect CFPs which will offer crowdfunding with a fnancial return to have
easier access to investment capital than others, but this turns out not to be the
case.
If we divide the sample into a portion that offers fnancial return crowdfunding
and compare to the portion that will offer donation- and reward-based
crowdfunding, the frst group is more often bootstrapped and relies on the
capital of the founders (54% compared to 45.6%), and has more or less the same
ease of securing capital from private investors (41.1% compared to 36.6%). On
top of that, CFPs that will not offer fnancial return crowdfunding have easier
access to public grants (15.8% compared to 1.4%). Crowdfunding as a funding
source for CFPs is still nascent compared to private investments and grants.
FINANCIAL BACKING
Outlook
Figure: Financial backing of crowdfunding platforms that will offer crowdfunding with fnancial return to its crowd-
funders and campaign owners versus platforms that will focus on non-fnancial return crowdfunding.
Bootstrapping Private Investors Grants Crowdfunding
No financial return
Financial return
54.8%
41.1%
1.4%
2.7%
1.8%
15.8%
36.8%
45.6%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
In addition to crowdfunding models, massolution tracks and analyzes all forms
of crowdsourcing models. Crowdsourcing as an exponential organizational
online model for distributed production and problem solving can be categorized
in terms of general applications (outputs). The following taxonomy categories:
Cloud Labor, Crowd Creativity, Distributed Knowledge, Open Innovation, Tools,
and of course Crowdfunding is used on Crowdsourcing.org and given a more
detailed description on the following page.
In a forthcoming research report, 2013CS - The Crowd Investment Report,
massolution analyzes capital infow to the crowdsourcing and crowdfunding
asset classes in 2012. The general trend is quite clear: with the exception of
Open Innovation, Crowdfunding attracted less investment capital than the
other crowdsourcing categories. Crowd Creativity, which is the most developed
category of crowdsourcing, attracted most of the investment capital in 2012.
The majority of this money came from venture capital and late funding rounds
(Series C).
CAPITAL INFLOW
Outlook
Figure: Capital infow (millions of USD); Crowdsourcing platforms.
Venture
Angel
Seed
Series A
Series B
Series C
Series D
O
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CROWDSOURCING PRIMER
Cloud Labor
Leveraging of a distributed virtual labor pool, available on-demand to fulfll a
range of tasks from simple to complex. Crowdsourcing is used to connect labor
demand and supply. Virtual workers perform activities that range from simple
to specialized tasks.
Crowd Creativity
Tapping of creative talent pools to design and develop original art, media, or
content. Crowdsourcing is used to tap into online communities of thousands
of creatives to develop original products and concepts, including photography,
advertising, flm, video production, graphic design, apparel, consumer goods,
and branding concepts.
Distributed Knowledge
Development of knowledge assets or information resources from a distributed
pool of contributors. Crowdsourcing is used to develop, aggregate, and share
knowledge and information through open Q&A, user-generated knowledge
systems, news, citizen journalism, and forecasting.
Open Innovation
Use of sources outside of the entity or group to generate, develop and implement
ideas. In a world of widely distributed knowledge, where the boundaries
between a frm and its environment have become more permeable, companies
cannot afford to rely entirely on their own research and ideas to maintain a
competitive advantage.
Tools
Applications, platforms, and tools that support collaboration, communication
and sharing among distributed groups of people.
CAPITAL INFLOW
Outlook
MASSOLUTIONS
CROWDSOURCING
TAXONOMY OUTLINES
SIX DISTINCT
CROWDSOURCING
CATEGORIES:
CLOUD LABOR,
CROWD CREATIVITY,
DISTRIBUTED
KNOWLEDGE, OPEN
INNOVATION, TOOLS,
AND CROWDFUNDING.
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
In 2012, venture capitalists (VCs) and business angels invested in excess of $1.36
billion in platforms across the six crowdsourcing categoriesonly 10% was
invested in crowdfunding platforms.
The investments can be divided into pure VC or angel investments, and open
series A, B, C, and D rounds with mixed participation. Over 120 VC frms and 80
angel investors have been involved in investments in the crowdsourcing space
during 2012. This growing community is becoming increasingly specialized in
the understanding of crowdsourcing platforms.
In terms of capital infow, there has been relatively little interest from angel
investors in crowdfunding, but some interest from VCs. Because crowdfunding
represents new economic values, it also represents a different type of risk
that needs to be quantifed. For this reason, the majority of funds invested in
CAPITAL INFLOW DISTRIBUTION
CAPITAL INFLOW
Outlook
Figure: Distribution of capital infow to crowdfunding platforms across four of
the basic models.
Donations
29%
Rewards
13%
Equity
7%
Lending
51%
SECTION OVERVIEW
ACROSS THE MODELS
FINANCIAL VS.
NON-FINANCIAL
CROWDFUNDING
MODELS
INDIVIDUAL MODELS
CFPs went into platforms that specialize in lending and donations, where the
models are well developed and the platforms exposure, position and potential
is well understood. Equity-based CFPs account for only 7% of the aggregated
investment in CFPs. This can be due to regulatory uncertainty in individual
jurisdictions, which translates into uncertainty about the operational platforms
cost structure. This uncertainty can scare off some investors who may not have
the necessary means to assess the proftability of a specifc CFP contingent on
various regulatory outcomes.
As equity-based crowdfunding is nascent and in most jurisdictions still pending
regulation, the average investment going into CFPs specializing in this model is
signifcantly lower than the average investments in CFPs specializing in lending
or donation-based crowdfunding. This, however, is likely to change as regulatory
uncertainty around equity-based crowdfunding mitigates, and the proftability
of CFPs with this focus becomes more transparent.
CAPITAL INFLOW DISTRIBUTION (CONT.)
CAPITAL INFLOW
Outlook
Figure: Average investment sizes (million USD) across the Equity-, Reward-,
Lending-, and Donation-based crowdfunding models.
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Introduction
Crowdfunding represents a breakthrough in how businesses and local projects
are funded and disrupts centuries-old fnancial fows. But where is it actually
headed? What novel developments give us a glimpse of long-term trends? If you
were to look back at crowdfunding in 12 months time, what are the essentials
that could have been predicted today?
We wrap up this years industry report with a dive into some of the new
developments that Crowdsourcing.orgs editorial team and community
managers, as well as massolutions researchers and consultants, have identifed
as core to the 2013 scene.
The key developments concern emerging patterns and behaviors of campaign
owners; new types of CFPs; the inclusion of crowd funding in national economic
development strategies; the nascent feld of enterprise crowdfunding; and the
arrival of LIVE crowdfunding.
Outlook
DEVELOPMENTS
CROWDFUNDING
REPRESENTS A
BREAKTHROUGH IN
HOW BUSINESSES
AND LOCAL PROJECTS
ARE FUNDED
AND DISRUPTS
CENTURIES-OLD
FINANCIAL FLOWS.
The most persistent trend in the crowdfunding industry is the platforms

attention to specifc types of campaign owners. Platforms offering reward-
based crowdfunding see an especially high value in assuring a common niche or
industry is serviced. Examples include platforms concentrating on video games,
recording art, performing art, real estate, food and beverages, ITC, fashion,
journalism, etc.
While it is natural to think that an emerging platform will decide on a specifc
niche simply to separate its service from the rest of the market, there is another
reason why this trend is likely to prevailit helps to build a repeated crowd on
the platform.
Having crowdfunders visit a platform, not because they have been invited onto
a specifc campaign by its owner, but because the campaigns on the platform
appeal to an individual crowdfunders taste, creates a vital value. The value
comes to the platform and its campaign owners, but also for the crowd itself,
as the communication around individual campaigns is more efcient when
everyone shares an interest across all campaigns. For these reasons, niche
platforms are expected to dominate, especially the reward-based campaigns.
Outlook
DEVELOPMENTS
83
INDUSTRY FOCUS / NICHE PLATFORMS
In her 2011 book, Locavesting, business and fnance journalist Amy Cortese
describes how a revolution in local investing is emerging and exemplifes this
statement with the increasing popularity of crowdfunding. For an outsider this
notion might seem a bit puzzling: the vast majority of crowdfunding campaigns
today are hosted online on regular crowdfunding platforms (with access for
everyone), so why should crowdfunding exemplify, boost, or even cohere with
local investing?
LOCAVESTING / COMMUNITY PLATFORMS
PLATFORMS BENEFIT
FROM A STRONGER
INDUSTRY FOCUS.
The answer relates to the crowdfunding dynamics; e.g. the exchange of

information within the crowd supporting a campaign. As with any other call-to-
action, call-for-support or communication-of-intent, a crowdfunding campaign
is induced with the same potential adversities and conficts of interest between
campaign owners and crowdfunders. In this regard, crowdfunding shares
a lot of similarities with traditional fnancing scenarios the agency conficts
between entrepreneurs and investors will not vanish just because we call their
interaction crowdfunding.
The interesting observation, however, is that crowdfunding brings something
entirely new to the table: a vast communication network around individual
campaigns. This is where Ms. Cortese could be right in her assessment that
crowdfunding will boost local investing. Campaign owners will rely on local
vetting; i.e. the support of local constituents which can be leveraged into a
signal of trust for non-local investors. This mechanism thus indicates that
crowdfunding offerings could be less exposed to adverse selection problems.
Besides that, raising capital locally creates a tighter bond between entrepreneur
and investor. The entrepreneur can beneft from this as it raises local profle
of and creates community engagement in the enterprise. The local investor
benefts because the relationship is less exposed to moral hazard (provided that
the entrepreneur stays local).
Because crowdfunding supports the locavesting idea with such a strong
communications tool, and because locavesting has such a promising outlook for
solving agency conficts, we thus expect to see community based crowdfunding
trending in 2013, as well.
Outlook
DEVELOPMENTS
84
LOCAVESTING / COMMUNITY PLATFORMS (CONT.)
LEVERAGING LOCAL
CAPITAL REDUCES
THE EXPOSURE TO
AGENCY CONFLICTS.
Given the range of the fve basic crowdfunding models (donations, rewards,
lending, equity, and royalty-based), we have seen that CFPs do not necessarily
stick to one model. Nothing prevents a CFP from offering several models
simultaneously, and the interesting question is which combinations of models
will add new value.
While fnancial products can reach a level of overwhelming sophistication either
because they are tailored to match a specifc investor risk profle (public markets)
or because they refect a contractual agreement in a complex environment
(private markets), the next level of sophistication in the crowdfunding market
will be tailored to the needs of campaign owners. This speaks to the increased
industry focus discussed above and, thus, our prediction is that CFPs will
advance their crowdfunding models to match what the campaign owners have
to offer in return in different future states of their companies.
Outlook
DEVELOPMENTS
85
HYBRID PLATFORMS
As a function of the increased attention given to crowdfunding, larger enterprises
are investigating how this funding tool applies to their working condition. In
this instance, the perceived beneft is not the additional funding itself, but the
democratization (or crowdsourcing) of specifc decisions that would otherwise
be made internally in the company.
Applying crowdfunding as an assessment of future demand for a specifc product
or service, will greatly reduce costs of market analyses and other costs induced
in the life of a product, and potentially reduce the time-to-market, as well.
ENTERPRISE CROWDFUNDING
PLATFORMS EVOLVE
FROM THE BASIC
CROWDFUNDING
MODELS.
LARGE ENTERPRISES
ARE ASSESSING WHAT
CROWDFUNDING
MIGHT BRING TO
THEIR TABLE.
As illustrated earlier in the report, crowdfunding has historically been embraced

by philanthropic ventures, especially, in the use of donation-based crowdfunding
and interest-free lending. The models naturally merge with micro-fnance,
because the funding needs are individually very small, which means that
individual donations or loans are likely triggers of funding success which is an
engaging factor.
The next step of crowdfunding in this particular space is the evolution and
scaling up to economic development at the macro level. How does crowdfunding
ft in with development banks and similar institutions efforts? What are the
synergies? And what is brought into the development by the crowdfunding tool?
These are all questions that some of the major institutions in this space are
investigating, which is why we expect to see much more economic development
crowdfunding in 2013.
Outlook
DEVELOPMENTS
86
CROWDFUNDING ECONOMIC DEVELOPMENT
The fnal trend that we see emerging in the crowdfunding space pertains to
launch-party events at the initiation of campaigns. Besides creating media
attention and offering a great marketing opportunity, LIVE Crowdfunding
taps into a peculiar investor need that is not as well serviced on an online
crowdfunding campaign: exclusivity. It is well understood that exclusivity in
access to new products or deal fows can be a triggering factor in itself, and LIVE
crowdfunding thus augments the open tent favor of online crowdfunding with
exactly that.
Events like these are therefore expected to become more commonplace and
the interplay between live events and online crowdfunding will evolve to service
specifc entrepreneurial needs.
LIVE CROWDFUNDING
A NEW CHALLENGE
FOR IMPACT
INVESTMENT.
BACK TO BASICS OR
A NEW BASIS?
Adjusted 2010/2011 estimates for the global equity crowdfunding volume
Re-Categorization: In the survey for the 2012CF Industry Report, no distinction
was made between equity- and royalty-based crowdfunding, as in the 2013CF
Industry Report. This means that the equity-funding volumes do not directly
compare between 2011 and 2012, and has therefore been backed out of the
2011 data before comparison. Since the royalty crowdfunding models is still
rather small compared to the major models, crowdfunding offerings of this type
are a part of the Mixed Others aggregation. Having backed out royalty from
Mixed Others we see that this model accounts for an estimated 11.7% of the
activity in this category in 2011 (having used a methodology consistent with the
one informing the 2013CF). Using the 2012 survey data we have estimated that
the 11.7% of the Mixed Others is about 19.0% of the given aggregation and
the equity-based crowdfunding volume model in 2011. When determining the
2012 growth in equity-based crowdfunding, we have thus scaled down the 2011
estimate by a factor of 0.81.
Result of Randomized Database Testing: Massolution performs a continuous
update of our database, and sometimes we see that a previous survey submission
may be inaccurate. A result hereof has been the editing of a 2011 survey
submission. The responder had mistakenly entered equity while the check-
up revealed that the CFP in question was offering lending-based crowdfunding.
This has resulted in a $2.9m reduction of the 2012 equity-based funding volume
estimate, and a $2.9m increase in the lending-based estimate.
Impact: For the purpose of estimating the growth rate for equity-based
crowdfunding, we have thus made the following adjustment of the 2011
estimate: (112.6m-2.9m) x 0.81 = 88.9m, resulting in a 29% growth in global
funding volumes for equity-based crowdfunding. Similarly for 2010: 61.5m x
0.81 = 49.8, since the CFP who had provided inaccurate data in the 2011 survey
did not operate in 2010.
87
Appendix
2013CF
We would like to thank all our sponsors and supporters whose help has enabled
the broad distribution of this report.
A special thanks to our research sponsors:
If you would like to participate as a sponsor in massolutions research portfolio,
please contact us at: advertise@crowdsourcing.org.
If you are interested massolutions customized research, please contact us at
research@crowdsourcing.org.
Acknowledgments
2013CF
Don't just build a Portal.
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Acknowledgments
2013CF
PARTICIPATING CROWDFUNDING PLATFORMS
We would like to thank the participating companies for an unprecedented
response to the 2013CF Survey and for providing extensive data.
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Acknowledgments
2013CF
Acknowledgments
2013CF
Acknowledgments
2013CF
Acknowledgments
2013CF

Crowdfunding Industry Report 2013

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massolution 2013, All rights reserved. Confdential.

THE NEW FINANCIAL REVOLUTION

$5.1bn will be raised via crowdfunding platforms in 2013.

Donation-based crowdfunding is expected to grow 46% to a total of $1.4bn,

Whoever you are, I have always depended on the kindness of strangers.

SOCIAL TIES (CONT.)

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

Web 2.0 Financing

The most persistent trend in the crowdfunding industry is the platforms

The answer relates to the crowdfunding dynamics; e.g. the exchange of

As illustrated earlier in the report, crowdfunding has historically been embraced

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