Two weeks ago we asked you to think about the future of crowdfunding in the business world. Where will crowdfunding platforms be in five years? At the same level as the banks? Or a fading memory of a digital quirk that once haunted the world wide web?
The question sparked a great discussion among Real Business readers – but, in the end, most of you agreed. 51 per cent of you voted that crowdfunding will become a valuable source of finance for SMEs within the next five years.
This means that over half of you believe in the potential of crowdfunding to open up and democratise the funding landscape, disrupt business finance and grow enough to level with bank lending in the near future.
The other half of you is more conflicted. Some 24 per cent believe that crowdfunding might stay relevant for the art projects and startup ideas that Kickstarter became famous for, but will never end up financing SMEs. 21 per cent believe it does have the potential to reach the mid-market – but only a long time from now, and most certainly not in the next five years.
And the true sceptics? They’re the four per cent thinking that crowdfunding will never become a powerful finance model, and soon be forgotten as a digital quirk.
Whether the model will succeed or not, the question will be, why? There’s never been a more dynamic time for finance, in a time when cynicism for the commercial banks is growing, venture capital is low, digital innovation is high and SMEs are more important to the economy than ever. Yet, it stays difficult for new models, such as crowdfunding to break through.
In the UK, the development of the model is being slowed down by legal speed bumps. The FSA is treating crowdfunding with care, aiming to make it available only to sophisticated investors and to protect them from a potentially risky environment. But some say that risk drives innovation, and that too many restrictions might result in the 51 per cent in our poll being wrong.
Darren Westlake, founder of the world’s first equity crowdfunding platform, Crowdcube told us that allowing freedom with limitation will be the right way to ensure a proliferation of crowdfunding platforms.
“It’s important to give potential investors all the information they need to be able to make a decision when investing in a business, but at them same time give them some warning that this is high risk – you do the same thing in the stock market. It’s essential to get the balance right of protecting the investors and making sure they know what they’re doing, but on the other hand letting the model develop.
“We need to find out what balance we need to make it work. It’s frustrating; we’re relatively intelligent as a nation, we don’t need nannying. We know what we’re getting into. We don’t need anyone to tell us, ‘No, you can’t do that,’ we just need to know what the risks are and be presented with information. We are able to make our own judgments.”
If we find that balance, will crowdfunding reach the mid-market, giving growing businesses a new alternative to raise funding?
When we discussed this idea a few months ago, the Collaborative Fund’s Karyn Campbell told us, “Though the line between individual and business is blurring, bigger companies may face challenges getting people to invest money on a crowdfunding platform, unless they create interesting campaigns and clearly state how this investment translates to ownership, how it will be returned to the individual, and the stakes involved. Most people feel like they already give enough money to big companies.”
It proves her right that some businesses are already testing the landscape with unconventional projects such as the Bonk of Pants, a charity campaign by Pants to Poverty, that aims to raise a total of £100,000 of investment through crowdfunding in 100 days.
What’s clear is that crowdfunding is already spreading globally and will not be ignored as an interesting model that could help to contribute to the economy and boost business growth. If the crowd of Real Business readers is right, it won’t stop there.