Crowdfunding is not a new concept, rather this trend that really took off in 2016 is been applied more in different areas of business.
For instance, in 2016, crowdfunding racked in $34.4 billion in 2015, this meant that this means of collecting funds has bypassed venture capital globally by 2016. During this time, for example, crowdfunding in Australia funding was still in its infancy.
It was, however, the United States’ Congress that passed a law, called the Jumpstart Our Business Startups (JOBS) Act that brought the equity crowdfunding to prominence. Maybe the Europeans would like to take note of this and loosen up on protectionism a bit by helping new entrepreneurs with a “JOBS” equivalent?
Now based on international trends, crowdfunding is a rapidly growing field of investment, and this is also true within the property crowdfunding environment: According to a study conducted by the University of South Australian in conjunction with Domacom, one of the largest property crowdfunding platforms in Australia, although they pointed out that “Australia is still in its infancy as far as regulation and legislation, as well as academic and other sources of information, around property crowdfunding.”
Nonetheless, the use of crowd funding permits a business get a better insight of a small community. This as the consumer that using the product is the best to explain the success and downsides of a product. In addition, getting that information early could be better as they can make changes.
In addition, to gauge constructive feedback from the consumer is more powerful than listening to the workers of a company as they are biased towards their employer. A company that did this was GE Appliances. They launched a project called FirstBuild. This project is a worldwide co-creation community that studies the insights about how to make their appliances better through the processes of creation, design and manufacturing.
Above and beyond the benefit of gaining consumer market insights directly from the source, the people that buy the products or those that do not want to buy or make use of the product. Crowdfunding is indicating a shift, a shift from the venture capital towards this form of money correction and funding model. In fact, The World Bank predicted that crowdfunding would become 1.8 times more than venture capital investments globally.
As a result, there is an implication for entrepreneurs, which will need to educate themselves about the new kind of investors that are entering the market.
An example of a crowdfunding company is HomeFundMe. This company works in that it makes it possible to buy a home by means of a collective contribution of up to $7,500. As such, models are being used; it is pushing out the more traditional lenders. Still, crowdfunding is not just limited towards the mortgage market, but tech companies can also benefit. Although only 60% of startups make it, by having a crowdfunding model means that smaller amounts can be invested rather than bigger lump sums – and if the startup failed, losses for the investor is limited.
Where crowdfunding was first limited to startups and nonprofit organizations, this is changing into the property sector and companies. In fact, the change will reach a projected amount of around $93 billion by 2025 according to The World Bank.More so, as there are fears of a recession and uncertainty, there is a rising trend towards using smarter investment approaches. More so, it allows anyone to invest and thus it is not just restricted towards the venture capitalist.
Final thoughts: Although crowdfunding is not the mainstream type of investment, it might be strange for any seasoned investor. But this out of the box method has some benefits, mostly relating to understanding the audience better.
Ghostwriter of article. Published in thesouthafrican.com. [Text altered].
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