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Blog

The New Preferred Funding Model: Crowdfunding Has Eclipsed Venture Capital

Mihir Gandhi

It’s happened. Move over, venture capital; it is virtually every entrepreneur’s dream to make it big via a crowdfunding splash. Where dreams go, reality follows, and the crowdfunding industry is about to leave venture capital in the proverbial dust.

By the Numbers
The funds raised through crowdfunding industry have been increasing steadily. In 2010, a scant $880 million was attributed to crowdfunding. In 2014, that number ballooned to $16 billion and by the time we close the doors on 2015, projections from Massolution’s 2015 Global Crowdfunding report suggest that the amount raised by entrepreneurs via crowdfunding will reach $34 billion. Compare that to the $30 billion annual average of venture capital, and you can see that it appears the tables have truly turned.

The crowdfunding numbers above include all types of crowdfunding: donation, lending, equity and rewards. Equity crowdfunding is the newest entrant, walking through the doors opened by Title II of the JOBS Act in 2013.

Global Picture
Massolution’s 2015 CF report also suggests that the strong growth in global funds raised in 2014 was in part due to Asia, where crowdfunding volumes grew a whopping 320 percent to $3.4 billion raised. That has put Asia ahead of Europe as the second-largest crowdfunding region, behind North America where the $9.46 billion raised was up 145 percent in 2014.

Equity Crowdfunding
Equity crowdfunding currently represents a relatively small slice of the crowdfunding pie, at an estimated $2.56 billion for 2015 according to Massolution. That’s because the majority of equity crowdfunding takes place under Title II Rule 506(c) rules which only allow accredited investors to invest.  Title VI Reg A+ rules allow non-accredited investors to invest, but the rules were only recently made effective.  Title III crowdfunding rules haven’t been legalized yet but those rules also allow non-accredited investors to invest.  That $2.56 billion in equity crowdfunding for 2015 includes activity from angel investors and VCs who participate online. Firms like Arena Ventures are looking to merge the best of both worlds, bringing VC investment experts together with investors that participate in their syndicates through crowdfunding. Made possible through the use of AngelList’s syndicates platform, it’s an interesting twist to traditional venture capital.

Sharing Economy’s Continued Growth
The fledgling sharing economy is getting credit for creating 17 billion dollar companies, according to VentureBeat, including eBay, Etsy, Airbnb and Uber.  A study commissioned by the World Bank has predicted that by 2020 crowdfunding will reach between $90 and $96 billion – but if the current crowdfunding growth rates continue we won’t be surprised to see $90 billion as early as 2017.

Most equity crowdfunding requires investors to be accredited and verified. For fast, secure verification of accredited investor status, turn to the experts at VerifyInvestor.com.