Crowdfunding's role in the new cvs funding landscape (S1)

Crowdfundings role in the new

CVS funding landscape

Peter Baeck, Nesta @peterbaeck

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

• 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

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.

Different sectors

Business’

Public services’

Education and research

Arts

Events

infrastructure

Services

Campaigns

Community and voluntary sector

Donation or Rewards based projects:Find an existing crowdfunding platform that works for you and launch a project.

Community Shares: Find an existing crowdfunding platform that works for you and launch a project.

Set up your own platform:Find an existing crowdfunding platform that works for you and launch a project.

Mixed and matched crowdfunding:Match traditional sources of finance such as grants from local authorities, charities and foundations with small contributions from the crowd.

Source: Massolution

The rise of the platforms

UK Crowdfunding Directory crowdingin.com

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

Market in rapid growth

Growth of market to date + awareness + repeat usage

=

£4 billion in 2015

Lesson about the alternative finance market

More than half said they would have been unlikely to get funding elsewhere

Donation-based crowdfunding

Reward-based crowdfunding

P2P lendingEquity CFDBS

Donation CFRewards CF

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.

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

Future growth of the alternative finance market

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

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.

Research and programme work on crowdfunding

Research and programme work on crowdfunding

www.nesta.org.uk/project/crowdfunding

- 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 Peter.baeck@nesta.org.uk

@peterbaeck