Transcript of podcast below.
If I wanted to start a business 30 years ago I’d probably have gone to the bank, obtained a loan, put up some kind of guarantee against the loan eventually paying off that loan over a period of years.
Of course this being the 21st century we don’t have to look to the bank to start a business, nor even our close friends, although both might still lend a helping hand. The power of the Internet and crowdfunding services enable tens, hundreds or even thousands of Internet “friends” to contribute towards an overall business funding goal.
To pick an example of the success of crowdfunding services, let’s take a look at Kickstarter, one of the more visible services. Since it’s launch in 2009 it’s raised more than $2 billion, has funded nearly 97,000 projects and has nearly 10 million individual backers who have made 27 million pledges in total. Now that’s pretty big, but what about the old fashioned banks?
Well given that Kickstarter is a US service, let’s look at a US bank like Wells Fargo, which loaned $1.9 billion dollars to small businesses in 2015 alone, with the top 100 US banks loaning $15 billion dollars in 2015. If you looked at stock market investment in companies seeking to list on the stock market in 2014, the total was $83.9 billion dollars. Crowdfunding may be the darling of the Internet, but old fashioned ways of raising money for businesses aren’t dead yet. I guess a good question to ask is this: why not?
I guess this is where we get to the truth of it. It doesn’t matter where you attempt to raise funding from, prospective investors will always want to know the same thing: what’s the product, what’s the plan, and just who is going to buy this thing anyway? The more convincing, and realistic, the business plan and product is, the better the chances of raising money. If you look at crowdfunding, banks and stock markets, each has a different appetite for risk, and the less risky a proposition looks, the more investment cash it’s likely to attract. Perhaps it’s time to take another look at crowdfunding – what kind of products are raising the cash?
I’m not sure about you but could you see a major bank funding a project called “Exploding Kittens”? I’m not sure that I can but I do know that crowdfunding helped raise $8 million for the project. In fact if you take a look at the list of crowdfunding by project you’ll notice that there’s a distinct trend towards video games and computer gadgets.
In other words crowdfunding fills a niche for projects and products that might carry too much risk for a traditional bank, or the stock markets to take a chance on, for now. Perhaps crowdfunding will become a mainstay for new business funding in the future – but that all depends on individual investors appetite for risk, and for that matter their taste in exploding kittens.