What Does the Future of Crowdfunding Look Like?
Crowdfunding has made an enormous impact on the world of invention and entrepreneurship over the past decade or so, providing access to funding that individuals might otherwise never have considered a possibility. We’ve seen advances in legislation that now make it possible for people to crowdfund businesses in exchange for equity (to some degree), new platforms, and new approaches to crowdfund marketing.
But what does the future of crowdfunding look like? Is this a sustainable option for inventors, investors, and aspiring entrepreneurs, and if so, how might this evolve in the coming years?
The Crowdfunding Explosion
Crowdfunding emerged as a novel concept in the late-2000s, though examples of prototypical crowdfunding efforts can be traced back much further. Creators of the earliest crowdfunding platforms recognized that millions of people making small individual efforts could result in a massive total contribution—and the internet provided an opportunity to unify those contributions.
In the following years, people began to catch on to the opportunity of chipping in a few dollars for a cool idea, and new platforms emerged to give entrepreneurs and consumers new ways to create and fund those campaigns. Because crowdfunding is so similar to investing, developers faced regulatory hurdles that stood in the way of equity crowdfunding—but now we’re at a place where equity crowdfunding is possible.
Key Challenges for Advancement
With dozens of crowdfunding platforms available and the option of equity crowdfunding present, where can crowdfunding go from here? Straightforward options, like more diverse platforms and more investors engaging with crowdfunding, are almost certain, but if crowdfunding is going to evolve, it needs to address the following hurdles to growth:
Competing funding options. Crowdfunding can be used to acquire funds for new businesses or prototype products, but it has its limitations. If an entrepreneur could get the funding directly from an angel investor, rather than relying on small donations from thousands of people, it would greatly simplify things, and allow entrepreneurs to get valuable advice in addition to mere monetary donations. Even though equity crowdfunding is going to become more accessible, it’s likely going to remain a secondary option for funding—at least for the foreseeable future.
High rates and strict conditions. Most modern crowdfunding platforms attempt to keep tight control over the businesses and individuals that use them by creating strict conditions to exclude certain types of projects. They also charge occasionally high rates, demanding a fixed percentage of all contributions in exchange for the visibility and convenience of using the platform. This isn’t ideal for any party involved.
ICOs and high-risk ventures. The industry has also had problems with initial coin offerings (ICOs) and similarly high-risk ventures that unsuspecting consumers could fall prey to. Equity crowdfunding gives consumers the option to invest significant sums of money into cryptocurrencies, businesses, and products that are far from proven concepts—even if they sound good on paper. On a large scale, consumers losing money on these types of investments could have a negative impact on the economy—and could tarnish the reputation of crowdfunding as a viable method of investment or donation.
Options for the Future
How could crowdfunding resolve these challenges?
These are just some of the ways crowdfunding could change in the near future, arguably for the better:
Accessible competitors. Accessibility is key to crowdfunding’s future, both for the entrepreneurs and inventors trying to earn funding for their projects and for the people who want to invest. That means lowering unnecessary restrictions and hurdles to create projects while making investing a more enticing option for outside participants. This could manifest in many ways, including better UI for both parties, lower fees, and more diverse contribution options.
Accountability milestones. At the same time, lowered restrictions might not be a good thing—especially for equity crowdfunding. As an investment option, crowdfunding needs stronger protective measures to reduce the number of schemes, flops, and failures. Accountability milestones, like having a fully functional prototype product, or going through a legitimacy audit, could give consumers a better sense of the risks they’re facing when they invest, while filtering out low-quality companies and inventions.
Consumer disclosures and protections. Finally, we’ll likely see improved regulations and protections for consumers attempting to make money (or otherwise benefit) from crowdfunding. This is most likely to manifest as new disclosure requirements and transparent information available for consumers considering investing.
Perhaps the most important change coming to the world of crowdfunding is making the option mainstream for consumers. When crowdfunding stops becoming a novelty and starts being a regulated, accepted part of reality akin to stock trading platforms, many more opportunities will open up—and businesses will have far more options for how to secure the funding they need to advance.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.