Well, according to a new report by the UK-based Crowdfunding Centre, fund raising on rewards based platforms is continuing to rise, not just in North America and Europe but around the world. Indeed, between January and December 2015, around $834.5m was raised through successful campaigns, representing an increase of 20% from the previous year.
Perhaps unsurprisingly, the bulk of the action was in the US – where a total of $590m was raised across 20,000 fully-funded campaigns. There was also significant activity here in Britain where the amount raised came to $69.8m, making the number two nation in the Crowfunding Centre’s league table.
And as such, the figures provide a timely reminder that despite the publicity generated by Britain’s equity-based platforms – which raised around £84m for business in 2014 – rewards crowdfunding continues to be a hugely important source of funding for businesses and projects that are too small, too risky, or perhaps simply too left field to attract conventional investors.
Of course, you could argue that many of those who campaign for funding on crowdfunding sites are not really businesses in any conventional sense. A quick trawl through some of the major platforms will reveal authors covering the cost of their latest book, musicians funding CDs and film makers seeking backing for their first features. The business plan – such as it is – is simply to simultaneously raise money to produce the product and effectively sell it (often at a premium) for those who pledge cash.
And certainly the creative arts tends to be very well represented in crowdfunding campaigns. Music, film and publishing topped the list in terms of the number of fully funded campaigns in each category, perhaps suggesting that there are a huge number of CDs and novels in the world that wouldn’t have seen the light of day if it wasn’t for the support of crowdfunding pledges.
However, when the categories are broken down by total funds raised, then it is technology that that sits at the top of the league with a figure of $225m, closely followed by design and games. In other words, while more books, cds and films are published thanks to crowdfunding platforms, the lion’s share of the money is being directed at innovation.
And it’s this finding that highlights the continuing importance of rewards crowdfunding. The big crowdfunding platforms – notably Kickstarter and Indiegogo, along with regional players such as Britain’s Crowdfunder.co.uk – offer early stage innovators an opportunity to raise cash they need to build prototypes or bring new products to market. And in the process they are also finding buyers and ambassadors. Crucially, they are not giving away equity in return.
Meanwhile, those who pledge are not really risking very much. For instance, according to the State of the Crowdfunding Nation report, the average pledge via Britain’s Crowdfunder.co.uk platform is around $113. For Indiegogo and Kickstarter the figure comes in at around $90. Compare and contract with the £2,687 average investment via equity crowdfunding leader Crowdcube.
It is of course, a slightly unfair comparison. Equity investors are buying shares, and to receive (ultimately) a decent return, it’s necessary to buy a sizeable stake. Rewards pledgers are simply backing an idea with the hope of (perhaps) receiving a product and some recognition in return. Crucially, they will rarely, if ever, be pledging cash they can’t afford to give away.
But it’s a comparison that does highlight the importance of rewards crowdfunding, even in a country like Britain where the concept equity investment and debt sourced from the crowd has been embraced both by an innovative corporate finance sector and by increasing numbers of cash-hungry businesses.