Twelve months have passed since my predictions in ITBusiness.ca on how the 2014 Canadian crowdfunding sector would unfold. So here’s a look back and scorecard using a one to five scale (with five = 100 per cent accurate, and one = 100 per cent wrong) for my past prognostications. I will look into the alternative finance crystal ball for 2015 in a follow-up post coming soon.
1. Alternative Financing not a trend ~ 5
Exhibit 1: Lending Club’s IPO valuation of $9 billion last week made it larger than all but 14 banks in the U.S. Investor Interest in Lending Club (NYSE:LC) has continued to soar with the stock trading recently as high as $27 up from the $15 IPO price. The appetite on the lending side of crowdfunding appears very strong with OnDeck (NYSE: ONDK) up next with an IPO planned this week to raise $175 million. Banks beware.
Equity, donations and rewards have all shown dramatic growth internationally and the latter two models in Canada, as well. The growth of equity is covered below and while crowdlending in Canada has been mired in regulatory red tape, recent expansion in Quebec and Nova Scotia by Vancouver’s consumer lending platform GroupLend point to continued growth. The second “marketplace lending” entrant Borrowell announced their intentions to launch Q1 2015. This restrictive lending regulatory environment also led the Vancouver co-founders of award–winning business lending platform InvestNextDoor.com to focus on the U.S. Market for now.
2. Plug ‘n Play on High Traffic Websites ~ 4
One of the more interesting developments in 2014 has been the implementation of “Crowdfunding as a Service” on some of the major print media publishers including FundAid.ca for Glacier Media, FuelLocal.ca for Metroland Media and Blackpress4good.com introducing the Power of Good (see image) – all Powered by FundRazr. While stand-alone sites, the campaigns, technology and promotion are integrated to varying degrees on their community news sites. (Full disclosure: I am a former FundRazr executive).
Overall, the trend for more high traffic websites to follow suit by offering crowdfunding as a service has been slower than anticipated. The traction of the new sites above is still unclear, but this trend will be very interesting to watch.
3. Fraud largely kept in check ~ 5
While the incidence of fraud continues to be low, there were some campaigns with a profile that have been under scrutiny, especially the delivery of international hardware campaigns including the HealBe Gobe calorie counter and the Cicret bracelet (see Brian Jackson’s article on Cicret here). The platforms continue to use and reference the systems in place for fraud prevention but “open” funding sites like Indiegogo largely employ caveat emptor and asking their communities to be whistleblowers.
The equity side is just getting off the ground via sites like SeedUps Canada with no indication of fraud to date. Overall, there has been less buzz around fraud on the equity side and the lending sector has seemingly developed data analysis, systems and algorithms such that risk mitigation of default is manageable and spread across multiple borrowers. As predicted, the move online does not appear to have increased incidence of fraud vs. offline.
4. Enter Enterprise ~ 3
I predicted that franchisors would see the funding and marketing benefits of crowdfunding and Aussie Pet Mobile recently launched an innovative equity campaign to launch new franchises in Ontario on SeedUps.ca. Social enterprise also gained significant traction with the launch of SVX Social Venture Exchange and campaigns like Saskatchewan’s Affinity Credit Union’s Business-for-Good Social Venture Challenge.
Internal crowdfunding by Enterprise has not emerged significantly even after IBM’s successful experiment in 2013 improved innovation and morale. More growth has been seen on the crowdsourcing and ideation side within enterprise. South of the border, Dick’s Sporting Goods Foundation introduced SportsMatter and promptly matched $2M in funding for youth sports teams. It is unclear whether the program will continue in 2015 and lead to follow ons in Canada.
5. Away from Destination sites ~ 2
This trend has not yet gained substantial traction given the strength of well-funded destination sites like Kickstarter and Indiegogo ($56M in VC funds to date). Indiegogo’s launch of OutPost as a self-hosted solution, powered by Indiegogo, launched sites like FanRepublic.co.uk but there has been little noise around it since early in 2014. For the most part, for fundraisers it is still about the destination sites.
Lockitron finally delivered on it’s product in 2014 after a successful direct crowdfund on their own site in 2012 after rejection by Kickstarter. They then offered up their open source code (http://selfstarter.us). The Cicret bracelet mentioned earlier also launched a direct appeal, carefully asking for “donations” vs. offering pre-order and claims to have raised 14% of it’s goal. White label offerings have proliferated including Calgary-based Katipult so we will see if this trend firms up in 2015.
6. Crowdfunding meets Corporate Social Responsibility ~ 4
GreedyGiver.ca has been an innovator with their Perks Marketplace and Raise on Behalf functionality for Canadian charities. It appears to be an indirect marketplace in that the gift cards utilized are not a formal CSR program by brands like Starbucks and Cineplex but some of the benefits, brand halo/confidence/value, still accrue. Other attempts at sponsored perks, like The Crowdfunder Show on Fox TV, came and went in 2014.
As mentioned above (in 2.) Canadian community print publishers have been early adopters of the benefits of accomplishing their corporate social responsibility while actually helping fund their customers, both readers and subjects of their stories.
7. Growing conformity on regulations ~ 3
While there are provincial differences and abstainers like Alberta, 6 provinces have indicated interest in following Saskatchewan’s “Startup” exemption and 5 provinces indicated interest in following Ontario’s proposed “Integrated Crowdfunding” exemption (a good summary can be found here).
In the U.S., seven states have adopted intrastate crowdfunding laws and 13 more are pending (learn more and see a map here). There are commonalities on certain aspects such as caps, reporting, qualifying issuers and so on. Once the Feds, finally, introduce JOBs Title III in the US and after the new provincial exemptions have some time in market, expect the move to cross-border conformity to accelerate.
8. Non-accredited investors access equity crowdfunding ~ 2
Still waiting for new laws to be implemented in Canada as the year winds up. Look for the new crowdfunding exemptions and Ontario OM exemption to become law in Spring 2015. View more on the topic of equity crowdfunding regulations on the NCFAC site here. The experience elsewhere still indicates the sky will not fall once the rest of us can play too.
9. Consolidation and Contraction ~ 4
The sector is still in the growth phase so these factors will likely be more prominent in the next 2-3 years as we approach sector maturity. We did see some major VC investment in US platforms like Circle Up, Tilt, Prosper, LendUp, Patreon and Indiegogo with one source claiming $866M of VC money invested in platforms to date with an emphasis on debt platforms. While traditional banks have not done platform M&A, they have became some of the main backers on lending platforms like Prosper and Lending Club.
Just this week Indiegogo launched their free Indigogo Life platform focused on cause campaigns which appears to be a strategic move to squeeze out their competitors and contract the sector. 2014 also saw Donald Trump firing himself from crowdfunding and while The NCFA Canada website lists 85 portals in their Canada Crowdfunding Directory, at a glance, quite a few appear to have minimal traction (e.g. AlbertaBoostr, Cookieejar, FundHamOnt). A shakeout is coming.
10. New venture funding models develop ~ 4
Co-investment across accredited and “retail” investors is the promise of the recently launched InvestX, in this case for Canadian and US private equity deals. Their positioning of non-accredited investors riding along accredited investors with institutional investors and pros is an interesting new syndication model although to date, it appears only accredited investors can participate.
Accredited investor syndication has certainly increased via global platforms like OurCrowd. We have also started to see the introduction of models that manage the crowd of investors including CfPA’s equity term sheet template and other resources including those provided here via Forbes by Crowdfunder.com CEO Chance Barnett.
So my self-marked scorecard shows an average of 3.6/5 on my predictions or a “B.” What do you think? Please add your comments on these predictions and trends.
In my next post, I will cover Bold Predictions for Crowdfunding in 2015 with expert input from some of Canada’s leading experts on crowdfunding via the National Crowdfunding Association of Canada.