Last December, I ventured out onto that proverbial limb and made a few predictions about what 2014 was likely to hold for crowdfunding. Now that the New Year is almost upon us, it’s time to revisit these predictions. Let’s see how accurately my crystal ball viewed the future.
“The implementation of the JOBS Act will not lead to an explosion of equity crowdfunding.”
Equity crowdfunding, by almost any measures, has grown dramatically. But the JOBS Act wasn’t the driver. Though many thought that the finalization of the JOBS (or Jumpstart Our Business Startups) Act—which directed the SEC to both simplify IPOs and corporate fundraising, and also allowed individuals to invest in crowdfunded equity campaigns for startups—would serve as what the Harvard Business Review described as a “big bang moment” in equity crowdfunding. So far in 2013, this has not been a key driver for growth.
Why not? It’s complicated. Timing is a big part of it. Title II of the JOBS Act, which allows for general solicitation, didn’t go live until September 23—long after most people thought—so we’re just starting to see its initial effects. For instance, CircleUp just closed our first deal using Title II. While companies, and their attorneys, work to understand the rules related to Title III, the growth will take time. In the long run we still believe Title II will be a big driver for private capital raises.
Title III is a different story. This section of the JOBS Act allows unaccredited investors to invest, but it stilll has not been implemented. Nonetheless, the rules have been proposed by the SEC, and those rules don’t look attractive. It’s extremely hard for us to imagine any attractive company raising money using Title III. Its restrictions are simply too significant.
“Donation-based crowdfunding sites will differentiate or die.”
When I say donation, I’m including rewards sites. I was too early about this one, but I think it’s still correct. Just as in so many other web industries—social media, flash sale sites, etc.—I believe this consolidation will play out over time. Successful donation sites are already differentiating based on industry or other factors, such as an integrated API (See Crowdtilt’s very interesting API). Of course, the main exception to this rule is Kickstarter, which is gaining scale rapidly. To grab market share from Kickstarter, I believe donation/rewards sites will have to discover a powerful niche, or risk dying a slow death—or a quick death, depending upon their funding.
Want evidence that some of the donation-based sites are struggling? Look at how few have been able to get funding outside of the top 3-4 (there are hundreds). Or look at the turnover at the top of their leadership teams. Many have seen significant turnover.
“Angel groups will embrace equity crowdfunding.”
This was my most accurate prediction..
Investors look for good investments. The smartest ones aren’t relying on deals that happen to stumble across their door or present to their local angel groups. We’ve seen thousands that are now turning to crowdfunding to find high quality dealflow and additional diligence materials that weren’t available offline.
Groups like the Foundry Group’s FG Angels are taking advantage of the ease that crowdfunding offers, as forming an online syndicate is much faster—and simpler—when compared to the process of forming a seed or VC fund. For instance, CircleUp offers profiles of startups that include data such as industry stats, bios, testimonials, product demos and major competitors, making it easier for professional and non-professional investors alike to vet potential investments.
This prediction is a TBD, but we’re already seeing trending toward consolidation. Though the number of platforms still hovers in the 400s and volume continues to grow—a 105% increase from 2011 to 2012, according to Massolution—many of the sites making the most noise in 2012 are now silent. In large part this is because they are running out of money. Many others are realizing it simply takes longer to build a marketplace than they expected, and venture capital firms are already seeing a few winners emerging. Over time, expect to see this trend continue.
Anything you think I missed? Feel free to let me know in the comments section.
Source : Forbes