Crowdfunding portals are “websites that enable large numbers of individuals to support financially a project or company…” however not all investors are happy since much of the capital goes to inexperienced inventors and project managers. Nonetheless Deloitte reported that crowdfunding raised $3 billion in 2013 which was twice the 2011 estimates of $1.5 billion.
The Deloitte’s report identified these four categories of crowdfunding categories:
- Consumer lending (which is the largest) from financial institutions and payday lending companies. In 2013 these loans accounted for $1.4 billion.
- Reward-based (which is second largest) where individuals go to a website and support a specific project in exchange for a reward. Estimates are this category was about $700 million in 2013.
- Donation market which overlaps with the reward-based market where there are many artistic endeavors that use reward crowdfunding which encourages the funder to contribute very small amounts of money, typically less than $25, without expectation of return – except for the knowledge of having contributed to a worthy cause. In 2013 this category was worth an estimated $500 million.
- Venture capital which could increase significantly if North America security regulators allow companies to raise money from crowdfunding for an equity stake.
Stay tuned to follow crowdfunding which is here to stay since as it helps fund creative new Internet businesses around the world.