The Future Of Crowdfunding

15th August, 2016 by

Crowdfunding is hitting the mainstream.

With Amazon’s recent announcement that it will now have a featured crowdfunding section in partnership with Kickstarter, called Amazon Launchpad, this seems like a big moment in the mainstreaming of crowdfunding. It used to be that crowdfunding was on the fringes of the established forces in the retail and creative world; if you couldn’t get an agent to back your book or an investor to back your product idea, you could ask the crowd to do it instead. But now, with a partnership on the world’s biggest platforms for e-commerce—which reportedly nets more than 180 million visitors per day—it seems the mechanism of crowdfunding is no longer a second-best funding option.

Mashable reported on the partnership by saying “Currently, the portal mostly features gadgets, books, home goods, movies and board games. There’s quite a range, from this totally inconspicuous posture fixer featured on Shark Tank to gluten-free banana flour. Some of it looks odd, but then again, as Amazon points out, there’s already a proven market for these products.” It then went on to quote Amazon Vice President Jim Adkins, who said “Working with Kickstarter is a great way for us to hear directly from customers what products they care about, since they truly hold the power to bring these products to life.”

Estimates from the World Bank state that by 2025, the amount of investment being funneled into crowdfunding will reach $93 billion. With huge figures like this as well as this Amazon’s partnership in the headlines, it’s worth taking a look back at crowdfunding, from where it started to where it’s likely to go next. In terms of online platforms, ArtistShare was the first internet-era platform that allowed unknowns to try and crowd-fund their way to fame, founded in 2000. Later iterations including Kickstarter and Indiegogo took it mainstream, offered rewards to supporters, and resonated with the democratized, internet-era idea that the “gatekeepers” no longer hold all the power when it comes to creative pursuits.

The next level of crowdfunding’s evolution came with crowdfunding campaigns not just around a particular product or creative idea, but companies themselves. Startup crowdfunding on platforms like Seedrs, StartupValley, and Crowd cube offers equity where generous patrons can bank on the next company they think might hit it big, rather than the promise of a tangible reward or product at the end.

As Daniel Pianko, Managing Partner of University Ventures told Inc recently, this kind of crowdfunding investment “won’t replace expertly managed investments funds any time soon. But it will be an exciting part of a new investing dynamic. Going forward, entrepreneurs will have to consider whether going to crowd markets first or instead of private investors and investors will have to figure out what early crowdfunding success means for a potential company.”

Pianko points to something that seems to be implicit in the crowdfunding model, whether you’re funding an album or documentary or what you hope will one day be a unicorn company: it has to be something that the “crowd” feel won’t exist unless they fund it. Crowdfunding’s greatest strength is its ability to serve a very particular niche audience or demographic that might not be big enough for a major retailer to warrant serving. Once that niche is filled, there’s always the potential for other consumers to see proof of concept and become believers as well, but it takes early adopters get things off the ground. With a partnership like the one with Amazon, a more mainstream consumer base—one that might not have previously been exposed to crowdfunding—could potentially be served and new niches discovered.

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