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Crowdfundings role in the new
CVS funding landscape
Peter Baeck, Nesta @peterbaeck
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What is it?crowdfunding is a way of financing projects, businesses and loans through small contributions from a large number of sources, rather than large amounts from a few. the contributions are made directly or through a light–touch platform rather than through banks, charities or stock exchanges
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• Setting up and running funding campaign is (relatively) low cost, low risk
• High failure rates• Tapping in to mixed motivations• Funding what there is actual demand for /
better market intelligence
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Different models
£%Equity based: Enables the crowd to invest for equity, or profit/revenue sharing in businesses or projects. This form of the model has been the slowest to grow due to regulatory restrictions that relate to this type of activity.
Lending based: Projects or businesses seeking debt apply through the platform uploading their pitch, with members of the crowd taking small chunks of the overall loan.
Reward based: Enables people to contribute to projects and receive non–financial rewards in return, usually operating a tiered system where the more you donate the better the reward
you receive.
Donation based: Allows charities, or those who raise money for social or charitable projects, to gather a community online and to enable them to donate to a specific project.
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Different sectors
Business’
Public services’
Education and research
Arts
Events
infrastructure
Services
Campaigns
Community and voluntary sector
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Donation or Rewards based projects:Find an existing crowdfunding platform that works for you and launch a project.
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Community Shares: Find an existing crowdfunding platform that works for you and launch a project.
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Set up your own platform:Find an existing crowdfunding platform that works for you and launch a project.
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Mixed and matched crowdfunding:Match traditional sources of finance such as grants from local authorities, charities and foundations with small contributions from the crowd.
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Source: Massolution
The rise of the platforms
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UK Crowdfunding Directory crowdingin.com
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What we did
National surveys of 506
SME’s and 2,000
consumers
Capture and analysis of data from all major UK alternative
finance platforms
Surveyed 14,000
users of alternative
finance
STUDYDATA
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Market in rapid growth
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Growth of market to date + awareness + repeat usage
=
£4 billion in 2015
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Lesson about the alternative finance market
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More than half said they would have been unlikely to get funding elsewhere
Donation-based crowdfunding
Reward-based crowdfunding
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P2P lendingEquity CFDBS
Donation CFRewards CF
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For donations and reward–based crowdfunding just 23% and 21% stated the money they donated or pledged would otherwise be used for charitable giving, indicating that alternative finance is providing significant additional giving to social good projects.
27% of backers on donation–based crowdfunding platforms had also offered to help or volunteer with the project.
32% of investors in community shares have offered to volunteer directly with the community project
32% of investors in community shares attended share holder meetings.
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Social media is one of the most effective ways of finding backers for projects with a social purpose. Over two thirds (68%) of people who used donation-based crowdfunding found out about the first campaign they supported through social media, the same goes for a third (33%) of people who used reward-based crowdfunding to back a project.
70% of backers in rewards-based crowdfunding also gave non–financial support, usually by promoting the crowdfunding campaign to their networks.
46% of people who have funded projects through donation-based crowdfunding have supported projects that others in or outside their local area could use, and only 22% have funded projects they could use themselves
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Future growth of the alternative finance market
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Consumer awareness 14% had used at least one form of alternative finance
52% were aware of at least one form of alternative finance
Opportunity for growth…
What would make users more likely to invest/save through alternative finance platforms
• 72 % if I could earn better return
• 62% if it gave more transparency
• 62% if I could receive better guidance on how to use the different platforms.
56% think alternative finance is risky
60% were unlikely or very unlikely to begin using alternative finance in near future
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User perceptions of alternative finance
P2P business lending• 86% of borrowers likely to
approach P2P first in the future• 53% expect to lend more, 38%
about the same
P2P consumer lending• 75% very likely to approach P2P
first if they were to borrow again• 92% likely to recommend to
others with money to lend
Invoice trading• All would go to invoice trading in
the future (75% even if banks were to offer similar terms
• 86% likely to recommend it to other businesses
Equity Crowdfunding• 91% would approach it if they
needed venture capital in the future
• Half of investors plan to invest more in the coming year
Community shares• 75% investors in community
shares would be likely or very likely to recommend it to people they know
Pension led funding• 79% are likely to approach PLF for
funds in the future with• 81% would be likely to
recommend PLF to a business they know.
Reward-baed crowdfunding• 81% would approach reward
crowdfunding should they need to fundraise again in the future
• So would 78% of unsuccessful fundraisers
Debt based securities
• 45% plan to invest more in the coming year, 37% planning on investing about the same
Donation-based crowfunding• 47% very likely to approach it if
they need finance in the future.• 72% of backers likely to
recommend it to people they know.
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Research and programme work on crowdfunding
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Research and programme work on crowdfunding
www.nesta.org.uk/project/crowdfunding
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- What are the opportunities for CVS organisations
- How can we make the most of these, why aren’t CVS organisations using crowdfunding- Skills- Knowledge- Scepticism
- The role of government (central / local)
- What are the big challenges?- Where doesn’t it work –
products versus services- Funding projects versus core
costs [email protected]
@peterbaeck