" /> HZ Capital Group
Close

Some Crowdfunding Facts You Should Know in 2019

Crowdfunding has existed for a good part of the past decade, and has been responsible for bringing many ideas and services to market that would otherwise have been wasted just from a lack of funds. Today, we look into crowdfunding’s current state, like market size, and the behaviour of backers and founders.

The sizes of different crowdfunding forms today:

Type Size in 2019 (US$ millions) Predicted market size by 2023 (US$ millions) Biggest market and value (US$ millions)
Reward 6,923.6 11,985.6 China

5,572

Debt (Loan) 180,790.0 290,135.5 China

163,917

Equity 4,794.9 8,014.6 China

833

Source: Statista

Reward crowdfunding failures rates can go up to 89%.

The rate of success varies across platforms.

London-based market research firm The Crowdfunding Centre analysed 5 of the largest US, UK, and Canada-based crowdfunding platforms between January to December 2015. The 2016 study found that the platforms registered anywhere between 11 to 31% success rates; with Kickstarter holding the highest rate. Indiegogo, probably the second largest platform after Kickstarter, had a 13% success rate.

Kickstarter is possibly the only platform we know of that that provides live updates of its statistics; Its success rate currently stands at 36.85%today as of the time of writing. If you know of any platform that does the same, let us know!

Tech crowdfunding projects have the lowest success rate.

This may come as a surprise after all the high-stakes tech crowdfunding projects you’ve seen in the news, but tech projects on Kickstarter have the lowest success rate of any category. We believe any crowdfunding platform with a similar target audience base to Kickstarter will have similar figures.

The success rate for Kickstarter’s tech projects rests at just 20.3%,far lower than their platform’s average success rate. Over four-fifths of these failed tech projects never attained more than 20% of their funding targets before expiring.

62% of all crowdfunding contributions are $50 USD or below.

A 2016 survey on crowdfunding backers by Pew Research found that 49% of backers gave between $11 to $50, while an additional 13% said they gave $10 or lesser. Still, people are not shy to donate larger amounts.

Source: Pew Research Center

Another study by Inc. put the average pledge amount at $403.18. This means some really invested people are putting in much more into your project than normal. After providing so much value to these backers, how do you show appreciation and value to your most devoted segments of your community?

Inc suggests centering pledge rewards within $200 to $450 to incentivise more people into putting money into your campaign – the final push for your award-winning campaign!

Equity crowdfunding is mainly used as a last-resort method to get funds.

A study by researchers from Belgium’s Ghent University and France’s SKEMA School of Business found that firms that were more unprofitable and therefore lacking internal funds were more likely to search for equity crowdfunding. Firms with excessive debt levels and more intangible assets were also more likely to search for equity crowdfunding. This suggests that firms turn to equity crowdfunding only when they have exhausted all other avenues.

At this point, the fate of the business’s survival hinges on the outcome of the crowdfunding, according to the researchers. More than 40 percent of firms that failed to get equity crowdfunding from 2012 to 2015 had failed by late 2017. This was a far higher percentage than for firms that succeeded at equity crowdfunding or raised debt, the study found.

Your ethnicity may influence the outcome of your crowdfunding campaign.

Unfortunately, the world isn’t colourblind. An assistant professor of entrepreneurship and innovation at Northeastern University had previously found out in 2017 that “African American men are significantly less likely than similar white founders to reach their fundraising goals and that prospective supporters rate identical projects as lower in quality when they see the founder is an African American male.”

They conducted another study to determine if this bias affected the perceived price of a crowdfunding product. The researchers found a crowdfunding project (a tray with a charging jack) with no mention of the creator’s race and launched three pages. The first had a white founder; the second an identical page with a black founder instead. The last one featured the black founder again, but with the description placing emphasis on the founder’s race.

326 people were then recruited, sorted into 3 groups – one group per webpage, and asked to recommend a price for the tray. The white founder received a recommended price of $29.11 on average, however the identical project with the black founder saw a $6 price drop.

A workaround to this problem? Declare the material costs of the project upfront. The price difference disappeared once customers were given this extra information.

Still, this is an unfortunate subconscious bias that we hope disappears one day.

Micro-investments are becoming a trend

Millenials, notorious for less than stellar saving habits, are embracing micro-investing. These micro-investing apps allow individuals to round up their purchases to the nearest dollar; the excess is routed to an investing account.

These apps are removing the friction that comes from having to perform due diligence checks on small and medium enterprises – and of requiring large sums of upfront individual investments. E27 features one such micro-investment platform Roobee, which offers micro-investments starting from US$10 and allows crowds access to Initial Public Offerings, real-estate, loans, and investment funds. A testing phase helped 5,000 people put over 21,000 Ether into these projects during private rounds.

 

Bonus Facts: ICOs

ICOs were once touted as bringing forth the upheaval of the banking system, and even crowdfunding models as we know it. But times have changed drastically since its heydays in late 2017. How much?

ICO fundings are crashing towards zero

Things are not looking good for ICOs. Fundstrat reported that after reaching a peak in late 2017 to early 2018, ICO funding amounts began to collapse throughout the rest of the year, continuing into 2019.

No doubt the fall in cryptocurrency prices have been instrumental in the decline of ICOs. However, the chaotic behavior of players in the field have not helped. Failures, overpromises, and disappearing acts such as one leaving behind only the word “penis” on a webpage; all these have left an extremely bitter taste in the mouths of affected parties.

86% of ICOs are worth less than what they started with

TokenData reported that 70% of tokens were valued lesser than what was raised during their ICO; a report by Ernst & Young put this at the higher 86%. The figure from the latter was based on 110 ICOs that accounted for nearly 90% of the funds raised in 2017.

The valuations of the ICOs were no doubt badly hit by declining crypto prices, however that likely is only half the story. The reasons for projects shedding their value run the gamut from malicious players to mere inexperience. Yet all of them have added to the realization that ICOs and crypto were way, way overhyped beyond its capabilities, resulting in the price correction we see today.

Over half of all token projects were reported to not make it beyond 4 months – though the report cautions that the study methodology, which utilises the intensity of Twitter posts, may leave room for inaccuracy.

What are your views on the future of crowdfunding, ICOs, and blockchain in general?