Crowdfunding Soared to $2.7 Billion in 2012, But Equity Funding Is Still On Ice

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Asking strangers for money has never seemed cooler. With stars like Kirsten Bell and Charlie Kaufman attaching their names to successful crowdfunding projects, the stigma of soliciting donations online has largely been eliminated. And now we have the numbers to prove it.

According to a new report from Massolution out today, individual donors pledged $2.7 billion to more than a million crowdfunding campaigns across the globe in 2012—an 81% increase from 2011. “There is an immense desire to want to support the aspirations of entrepreneurs and people who are pursuing causes,” says Carl Esposti, CEO of the research firm.

(MORE: Why the Next Hit Video Game May Be Crowdfunded)

But while crowdfunding is clearly on a roll, a key aspect of the person-to-person financing revolution has still failed to launch: equity crowdfunding, which allows backers to become bona fide investors, not just donors, in the projects they support. According to the study, just 4% of all crowdfunding dollars were equity investments.

Although last year’s JOBS act relaxed the laws on who can invest in a startup via crowdfunding in the U.S., the SEC has yet to draft the specific rules that would allow anyone to sink up to 5% of their annual income into such ventures. (Currently, equity crowdfunding is restricted to accredited investors with a net worth of $1 million or $200,000 in annual income.)

Perhaps the most surprising finding of the study, which canvassed 585 sites to arrive at the $2.7 billion total, is that while slightly fewer campaigns got funded than in 2011, those that succeeded raised more money. On Kickstarter, the leading crowdfunding site, 17 projects banked more than $1 million in 2012, including the much-lauded Pebble smartwatch, which grossed a whopping $10.2 million.

The study revealed some other key trends. While social causes still comprise the largest portion (27.4%) of successful campaigns, the highest-grossing projects were either games or gadgets. Those include the Pebble watch, the Ouya Android gaming console ($8.8 million), the Star Citizen video game ($7 million), the Project Eternity video game ($4.3 million), and the Reaper Miniature Bones gaming figurines ($3.4 million). Projects that offered donors a reward in exchange for their largesse did particularly well, raising $383 million—more than six times as much as in 2011.

For all the money flowing, however, it’s important to remember that most crowdfunding efforts still fail. Of the 93,000 Kickstarter projects launched to date, about 50,000 failed to meet their funding goals and 11% raised no money at all.

(MORE: The Hidden Cost of Tax Refunds)

Massolution predicts that $5.1 billion will be raised globally via crowdfunding in 2013, but equity crowdfunding will remain a laggard. While the appointment of Mary Jo White as the new SEC chief should help get the ball rolling on hammering out the new equity crowdfunding rules, it’s likely to take several more months before the rules are finalized. Then everyday backers will finally get a chance to share in the financial success—or failure—of the projects they support.

2 comments
Syndicate_Room
Syndicate_Room

Equity crowdfunding still lagging behind the rest of the market in terms of growth. In the US is still mostly a no-go area in regulatory terms which explains the difference. However in the UK there are several platforms that are regulated and yet fail to grow with the rest of the market. Why? 


Syndicate Room (www.syndicateroom.com) is a new platform focused on adding value to investors launched recently in the UK, where the crowd can invest in the same pitches as Business Angels, giving them better valuations (negotiated by the Angels) and the peace of mind that the Angels are also investing their own money in the same pitch.

getstact
getstact

Kickstarter helped us instantly disrupt the wine storage industry through 'good design'.

www.getSTACT.com

Kickstarter / crowdfunding continues to be dominated by disruptive startups. What I wonder is when are the 'big boys' going to try to tap into this channel. Imagine the hype that a company like HTC could get with the right product on Kickstarter, would give them an edge on Samsung and Apple, if at least just for the hype this would generate.

Who will be the first Fortune 500 company to step up on Kickstarter? What are they waiting for already?