Crowdfunding raised $ 1.5 billion in 2011 and could attract twice as much in 2012

Original author: Suw Charman-Anderson
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We recently launched the Darfara crowdfunding campaign and continue to study the theories and practices of this approach to project financing. We decided to translate the following article on a rather interesting, in our opinion, report on global crowdfunding.

A crowdfunding industry report published by the massolution research group shows that crowdfunding platforms raised nearly $ 1.5 billion in 2011 by funding more than a million projects . They also write that with current trends, this growing market will double in 2012.

The market was divided into four types of crowdfunding platforms:
  • equity: contributors receive a share in projects, earn part of the proceeds;
  • loan: contributors receive income from their funds and expect return on investment;
  • bonus: donors receive non-financial benefits, and projects often use campaigns for pre-sales.
  • gratuitous: contributors do not expect anything in return, they have philanthropic motives.

To the surprise of those of us who focus on bonus crowdfunding, only 11% of the total amount was raised in such projects, and 49% of the funds were raised in projects free of charge. This is despite the fact that 47% of platforms work on a bonus basis and only 27% on a free basis.

At the same time, the total amount of fees in bonus crowdfunding is growing by 524% per year - from $ 1.6 million since 2009. Not surprisingly, North America collects the lion's share of the money - $ 837.2 million - this is more than half of the amount collected worldwide. North America is also the fastest growing region.

A massolution study found that as of April 2012 there were 452 crowdfunding platforms in the world. It is expected that their number will increase by the end of the year to 536. Most platforms are based in North America - 208, of which 191 are in the United States. In Europe - 139 platforms, of which 44 are in the UK.

At the same time, 95% of all funds raised in Europe, and 73% of all funds raised in North America, were collected on five leading platforms. It would be interesting to go a little deeper into these figures in order to see the success rate of projects on these five platforms and the reasons for their dominance - because they are larger or because most of the projects complete successfully.

Interestingly, although the market is expanding rapidly in terms of attracted funds and the number of platforms, the ratio of funds paid to promised funds is falling. In 2009, 89% of the promised funds were paid, but by 2011 this figure dropped to 79%.

massolution believes this is due to the number of new platforms. But I would also suggest that there is an effect of increasing the number of inexperienced fundraisers who don’t understand how much work is needed for the success of the campaign, don’t have the network needed to reach a sufficient number of contributors, or whose projects are simply unattractive. This problem will only get worse as crowdfunding and the influx of opportunists hoping to make quick money grow in popularity.

This is especially true for projects on a bonus basis, where only 50% of the promised funds are paid, compared with 75% for shared, 79% for non-repayable and 88% for loan projects.

Campaign sizes sharply distinguish shared crowdfunding from other types. The average equity campaign seeks to raise $ 84,597 in comparison with $ 5,587 in loan, $ 4,076 in bonus and $ 664 in gratuitous campaigns. This may partly explain why gratuitous campaigns are so successful, collecting 49% of all funds: campaigns are smaller and they are more likely to achieve the goal. Equity projects collect 18% of the total, loan projects - 22%, and bonus projects - only 11%.

I would like the report to contain more information about the practical details of the behavior of fundraisers and contributors. But massolution still touches on some interesting trends.

massolution says fundraising through crowdfunding takes longer than you can imagine. Bonus projects require an average of ten weeks to complete successfully. But this figure can be misleading, because Kickstarter now recommends setting a short term, because it is difficult to maintain momentum for more than a month. It would be interesting to see in this figure the ratio of projects where the deadline was set and where not, i.e. whether this figure is caused by the fact that people themselves set such a deadline, or by the fact that projects really take so much time to complete.

Contrary to popular belief, says massolution, collecting the first 25% is no harder than the last. In fact, on the contrary, it takes a little longer to collect the last 25%. There are also no signs that the flow of funds is accelerating towards the end of the project.

As for the contributors themselves, 90% fund only one or two projects, and only 7% fund 3-5 projects. Most contributors are not very active and do not show special loyalty to any one platform. The average minimum contribution amount ranges from $ 3 in bonded projects, $ 8 in gratuitous projects and up to $ 60 in equity or loan projects.

But fundraisers who run more than one project seem to prefer the same platforms: 17% use the same platform more than two times, and 4% more than three times.
It’s great that crowdfunding reports are coming out, but massolution still left many questions unanswered. For example, although they affect which areas are popular on which resources, the data given is not detailed enough to be useful. For example, it is interesting that only 9% of bonus and gratuitous projects are projects in the field of films, music and art, although they are covered more than others. But what is the separation between these types of projects? What is the success rate? How much is promised and going?

Hopefully this is just the beginning. We need more research to shed light on an area where there are no serious statistics yet. I hope that once this report has appeared with an analysis of trends, we will soon get something more meaningful that will help contributors and project creators make informed decisions about crowdfunding.

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