By Matt Belcher, Founder & CEO of CALTIER
Only ten short years ago, the term “online crowdfunding” had somewhat of a negative or quirky connotation. For many, it conjured up ideas that a company might not be able to secure traditional funding to grow; or, it was just a fun way to see if you could raise some money for your company from those who thought it was a good idea.
If I am totally honest, I, too, had the same hesitations (oh to be so short-sighted).
Two of the best-known companies, Kickstarter and Indigogo (established in 2009 and 2008 respectively), carved the way for companies to launch crowdfunded campaigns easily online.
In the early days, you may have received swag from the company as a gift for your investment. It was a clever concept and a fantastic way to support small and emerging businesses that were looking for funding. I have much respect for these companies that created this niche investing method while defining what funding looks like in the digital age. . For over 10 years, Kickstarter has been helping companies and startups raise billions of dollars.
So where are we today?
Pitchbook has stated that “Global crowdfunding has exploded from $8.61 billion in 2020 to $113.52 billion 2021 – a 1,021% increase”.*
Technavio also recently stated, “The global crowdfunding market share is expected to increase by USD 239.78 billion from 2021 to 2026, at a CAGR of 16.81%.”**
Given its current momentum, the crowdfunding market could be valued at over $350 billion by 2026. These rates of growth combined with the market’s momentum most certainly shows that it is only going to get bigger.
As a founder of a leading equity crowdfunding platform, I have to ask myself, “Why?”. Why is crowdfunding growing so quickly and is now considered by many of the original naysayers (myself included) a legitimate way to raise capital?
I personally think the following three key areas are to thank for driving this growth and change of mindset:
Investment software is more available and cost effective than ever. Today, there are a plethora of investment softwares and service providers that make it relatively easy for issuers to get set up. I come from a technology background having sold enterprise software and services to large companies in the banking, energy, and media industries. Back then it would have cost $ millions to build a platform that could take thousands of investors and provide a seamless process when investing. Let’s not even get into how long it would take to build and develop a mobile solution. While there are still significant costs involved, these are a fraction of what they would be ten years ago. But most importantly, you can get started and actually provide an online service for investors to invest in your company.
2. Compliance & Legal
It’s likely that readers of this article are aware that the Jump Start our Business Act (JOBS) was signed into law in 2012. Among many other things, the JOBS Act allowed non-accredited investors to invest in startups and mini IPOs. Essentially the CF and Reg A offerings.
This blew the doors open for companies, and very early adopters charged ahead and educated retail investors on how they could now be a part of startup and growth company investing.
For issuers, we now had a way to reach a pretty much-untapped market outside of the well-trodden, and saturated accredited investor route. It allowed us to advertise online and use social media to introduce our products and services to potential investors who would have never seen them before.
It was revolutionary back then to say the very least!
3. Retail Investor Demand
Last, but certainly, by no means least, there is an enormous demand from retail investors. You only have to look at the meteorite rise of the Robinhood trading platform to see how enthusiastically retail investors were seeking a new way to invest money. I know they have recently had to pivot and improve on some of their business processes, but you can’t ignore the 14 million users they have.
Retail investors want access to more options with which to diversify their portfolios. Crowdfunding kicks the door open to more opportunities other than the traditional stocks, bonds, mutual funds, ETFs, etc. These no longer cut it for today’s more savvy investors. They want to invest directly into causes, companies and assets they care about and have some affinity with.
So why is crowdfunding so important?
Depending on where you look, it is estimated there is about $150 trillion of household net worth in the U.S alone. However, about 50% of that is distributed between non-accredited investors. The rest is shared with about 10% of the population that are accredited investors.
This means that before crowdfunding, only 10% of the population was able to invest in opportunities that had the potential to have significant growth. This is the true sense of a glass ceiling. The other 90% of folks didn’t even know about these types of opportunities let alone be able to invest in them.
Fast forward to today and we have marketplaces and direct issuers like my company, CalTier, offering non-accredited investors the chance to participate in these types of potential growth opportunities.
The SEC has worked hard to implement many checks and balances in these programs, and I can tell you as a crowdfunding issuer, we spend a lot of time, money, and care making sure we adhere to these guidelines and compliance requirements. Doing this allows us to open the doors to more people who want to diversify their investment portfolios.
Crowdfunding is the perfect example of the ‘open market’ concept allowing those who want to get ahead in life the chance to do so outside of the traditional investing channels.