1. Alternative Financing is not a trend. Venture capital is being democratized. More and more entrepreneurs will build crowdfunding into their funding cycle to tap supporters. The market validation, feedback and community building are just as important as the funds being raised. Donations, rewards, equity and debt can all be utilized during the lifecycle of a venture. Still expectations will be reset. There will be disappointment for some. That is just the natural cycle unfolding.

Healthline.com crowdfunding Powered by FundRazr
Healthline.com visitors can now start crowd funding campaigns Powered by FundRazr

2. Plug n’ Play on high traffic websites. Major online communities in need of funds will plug and play crowdfunding onto their websites, like top 10 US Health Info site Healthline.com did for medical crowdfunding. Incubators and accelerators will bake crowdfunding services into their programs. Brands will connect their good works more effectively into promotions on their Facebook page, webpage and other social networks.

3. There will be fraud but… Wherever there is money, there are unscrupulous people trying to take advantage. This has existed offline for many years. The good news is that the authentication, verification, social policing and fraud-prevention features platforms are introducing will help keep this in check. None of those checks and balances exist offline.

4. Enterprise will enter the game. Institutions will run matching campaigns to leverage budgets and meet CSR goals. Franchisors will discover the benefits of crowdfunding their brands, financing franchisees and seeding new markets. Social enterprise will continue to ramp up as they combine the entrepreneurial and cause drivers that have been key to successful crowdfunding so far. Communities will harness advocates, dialogue and critically needed project funds.

5. A shift away from destination sites. Once upon a time people built their own payment solutions. Then PayPal offered an easy way to plug in the management of payments, fraud prevention and the like. The same trend will unfold and the impact will be the SaaS availability of crowdfunding as a funding and payment option. Why build the community of a destination site when you can build your own?

6. Crowdfunding meets Corporate Social Responsibility. Sponsorship networks will emerge that enable brands to attach themselves to locations or categories of interest. Why not make a product offer to contributors as a perk? Attach your equity to the crowdfunding of environmental, technology, healthcare or humane campaigns. CSR objectives will be met at the same time as sales promotion goals. Customers will be acquired, revenues measured and the silos of Cause Marketing and Sales will be broken down.

7. Follow the Leader. States and provinces will closely observe the early entrants like Saskatchewan, Georgia, Kansas and Michigan. Regulations will move to the middle once Federal regulations are brought in like the JOBS Act Title III in the US. The competition for capital will create a more consistent regulatory environment over time.

8. The sky will not fall when equity crowdfunding for non-accredited investors opens more widely. This has been shown in Australia, UK and other markets. The early market regulations in North American jurisdictions where it’s been introduced cap raises and set investor limits among other protections. You can spend thousands gambling in a casino or investing in a faceless mutual fund. Why can’t you make a small investment in a brand, concept, person or gadget that you love?

9. Consolidation and Contraction. With 1000+ sites claiming to offer crowdfunding, the campaigner can get confused on their options. The vast majority of these sites are not engineered to effectively raise funds and they will fade into the sunset in the next year or two. Some of the top niche sites will be acquired as the finance industry figures out that alternative financing is here to stay. The top 50-100 International sites will experience massive growth and VC money will fuel some platforms to acquire others for market share.

10. New venture funding models will develop. Accredited and non-accredited investors will co-invest. Syndication will increase. Influencers will emerge from the non-accredited class. Models will be created that manage the interests of the crowd of investors so that they are represented, but not a thorn in the side of entrepreneurs. It will be messy but it will evolve.

What do you think? Agree or disagree? 2014 will be a wild ride that will fuel new entrepreneurial dreams and the economy. It is not a panacea for all funding needs, but it is a powerful new tool. I can’t wait to get started.

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  • Rob Murray Brown

    Dont make the mistakes we in the Uk are making with Equity CF. Platforms are being successul pushing through pitches without vetting the business information – all of the pitches funded that have reported accounts to date have failed to come anywhere close to their profit pojcetions – 3 have gone bust. its not a game and shouldnt be promoted as such. Your regulators have been far tougher – maybe too much? It will be very expensive in the US to rasie £100k in ECF – estimates at £30k. At least you can start here and then ease it down with investors still protected. Here the investor well will (is already) dry up simply because platforms are not taking any responsibility for the information they publish and it is not always possible to check out. There is clear evidence that platforms actively encourage the sexing up of projections etc – not a good idea for the long term success of ECF.

    • Bret Conkin

      Hi Rob,
      It will be interesting to see if the US regs can modify the rules to make it workable or if the funding will all move state level. In terms of platform role, I think you’ll see some curated options and some as more open marketplaces. Start-ups are high risk – there is only so much a platform can do to vet – promoting vs. distributing does becomes a key question.

      • Rob Murray Brown

        The problem is the profit the platforms are tryng to make out this operation. Certainly in the UK a while back banks lent to SMEs and their role was in funding and guidance – their interests were aligned with the businesses they helped (funded) as this was their only way to get their money back – with the interest of course. No one said it was perfect and they used to dry me to distraction – but there was no misinformation. Where equity CF in the UK fails under the current model is the total lack of any liability on the part of the platforms for the stuff they publish – much of which turns out a year later to complete rubbish. P&L and cash flow forecastes become sales tools used by the platforms and pitches to sell their equity – this is not what they are meant for and the obvious consequences are near total failure to get anywhere close to sales projections. QED no ROI..

        The platforms all claim, as you have, that there is only so much they can do to check the veracity of the published information. If I can find out that most of it is rubbish why cant they?

  • jonathanprice

    There is clearly a difference between equity crowd funding and peer to peer, or peer to business lending, but I doubt if the situation for equity crowd funding is as bleak as Mr Murray Brown suggests. Yes there are issues with unrealistic assumptions and the FCA is already on the case, but I doubt whether none of the companies that have pitched have reached their profit projections. However even if that were true, is it so different from early stage venture capital, where 90% of companies fail to meet projections?

    The whole area of financing early stage companies is in rapid evolution, Businesses active in this field, like my own, have to develop their own strategy to stay relevant. Our choice is to focus on aligning the early stage company’s interests with our own and on driving the sales growth to get ahead of potential competitors.

    • Bret Conkin

      Hi Jonathan,
      It will be interesting to see alt financing unfold. Naysayers stand in front of all innovation. What is the nature of your business?

      • Rob Murray Brown

        Actually i suspect the pictue is considerably worse – my guess is based on having looked at the projections and the accounts as they come out. The FCA amd UKCFA are most certainly not on the case – that is one of the problems. If you look at it logically pure ECF just does not work – a more jv approach aligned with VCs might.

  • David S. Rose

    I think these are all legitimate (if a bit bold) predictions for the future. I’m not particularly sanguine about ‘traditional’ equity crowd funding for non-accredited investors, but there is no question that *some* form is necessary, and will emerge. My bet is on revenue-backed, non-convertible, notes with a kicker and a fixed cap. But we’ll see. In the meantime, we should all hang on for a wild ride.

    Thanks for the predictions, Bret!