Given the proliferation of the crowdfunding sector, this often begs several questions relating to the growth and maturity of the market. Which direction is this sector actually heading towards? What platforms are the most popular? Which region is experiencing the most growth and are there any notable trends? Last but not least, how mature is the crowdfunding market now?
What type of platforms are the most popular?
Among the types of crowdfunding platforms, the ones generating the larger volumes are generally the lending-based ones. Lending Club and Prosper are topping the ranks, with a total funding volume (paid out) surpassing the $4 billion and $2 billion USD mark respectively in 2014. As evidenced by Lending Club’s recent IPO, this sector of lending continues to gain traction on both the consumer and commercial side. On the first day of trading, the valuation of the stock climbed north of $9 billion, putting it on par with much larger financial institutions by assets. This serves as a sign that alternative finance has arrived to the mainstream.
As for the key driver underpinning the growth in emerging crowdfunding platforms, it is business/investment-orientated crowdfunding that wins the crown.
Are there other notable growth trends?
There are, however, some changes in other modalities. In terms of geographical distribution of platforms, new market entrants are cropping up in countries like the UAE and Turkey. There is also an emergence of significant niche platforms such as the growth in specific categories such as real estate crowdfunding. According to Massolution’s data, there are currently over 90 real estate crowdfunding platforms in operation, with examples of global players like Wealth Migrate and regional ones like CrowdfundUp, in Perth, Australia.
What is the regional breakdown of crowdfunding platforms?
Not surprisingly, North America (30%) and Europe (48%) account for the majority of pre-launched crowdfunding platforms. Asia and South America are represented with 13.5% and 4% of active crowdfunding respectively, while Oceania accounts for 3.2% and Africa 1.2%.
How mature is the crowdfunding market?
One measure of maturity of regional crowdfunding markets is determined by the relative number of new market entrants. While new crowdfunding platforms are launching on almost a weekly basis, joining the ranks of the 1,250 or so crowdfunding platforms already in operation across the globe, the number of new platforms launched as a percentage of the whole is slowing, which could be largely due to the perception of potential crowdfunding platforms that the more established markets are, for now, approaching capacity.
From a regulatory perspective, North American can still in fact be arguable considered a “young” market since the regulatory framework around crowdfunding with financial returns for the broader population have yet to be determined (in both USA and Canada).
On the other hand, the regulatory frameworks in Europe and Asia are not so stringent, nor so plagued with such uncertainty. As such, market entrance is largely determined by the competitive advantages fashioned by individual crowdfunding platforms. Many of these jurisdictions have made greater progress than the US opening up securities-based crowdfunding to the masses.
Taking Malaysia as an example, in June, the Securities Commission (SC) approved six equity crowdfunding platforms to begin operations by year end. This move is watershed and marks Malaysia as the first country in Asia-Pacific to legislate equity crowdfunding. At this year’s Synergy and Crowdfunding Forum, SC’s chairman, Datuk Ranjit Ajit Singh, “The establishment of the ECF is a component of SC’s strategy to democratise finance”. While Malaysia has developed a diversified and well established RM 2.8 trillion capital market that has helped businesses to grow as well finance long-term investments in the economy, it is Mr. Singh’s belief that in order for capital markets to be inclusive, SMEs and start ups must be able to obtain market-based financing. To read more about this initiative, click here.
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