INVESTMENT via the growing crowdfunding phenomenon is set to double in just two years, experts are predicting.
Crowdfunding portals – which see individuals make small investments in companies or projects – will raise $3bn (£1.85bn) in 2013 compared to the $1.5bn raised in 2011, according to research from professional services firm Deloitte.
Although it accounts for just a fraction of total venture capital spending, crowdfunding is expected to complement traditional investment vehicles by helping companies in their infancy.
And Deloitte predicts the new breed of crowdfunding portals are also likely to become successful companies in their own right, as consumers facing low savings rates choose to put their money elsewhere.
Crowdfunding websites to have grown in recent years include British lending firms Zopa and Funding Circle and US investment site Kickstarter.
One prominent project to have benefited from crowdfunding is the Pebble – a watch that connects to the iPhone or Android smartphones to add functionality such as answering calls. The Pebble has received more than $10m of funding from nearly 70,000 backers on Kickstarter.
Deloitte’s predictions on crowdfunding, seen by City A.M., come as part of the firm’s influential Technology, Media, and Telecommunications predictions report for the new year.
WHAT IS CROWDFUNDING?
Much of crowdfunding’s success so far has come from peer-to-peer lending, in which individuals borrow and lend from each other over the internet, bypassing a bank and thus achieving far more favourable rates for both. Peer-to-peer lending companies, including British firm Zopa, have seen vast increases in the sums lent over their systems in recent years.
This consumer lending boom accounts for around half of the $3bn (£1.85bn) expected to be raised from crowdfunding in 2013.
The other $1.5bn will come from individuals investing in projects or companies in three different ways.
The most popular of these is reward-based funding, in which people back a company in exchange for a reward such as the computer game they have invested in. The other methods of crowdfunding are venture capital – in which investors receive a stake in the company – and donations – where donors do not receive a reward.
A large proportion of the business projects that have seen investment from crowdfunding portals are in the consumer technology and arts sectors, with people putting money into new plays, video games or gadgets.
The best-known crowdfunding website has been US-based Kickstarter, which recently launched in the UK. Kickstarter has raised over $385m since its 2009 launch, with projects raising up to $10m through tens of thousands of backers.
Crowdfunding was recently championed by Bank of England director Andrew Haldane.