People who know me know that I like to dig into the numbers. It is all well and good to sit around like a bunch of Renaissance philosophers and talk about solving problems through reason, but I like to see what the actual data has to tell us. With crowdfunding, the data says it is bigger than anyone predicted, getting bigger, and becoming more important every year.
Let’s look at the numbers. In 2012, crowdfunding platforms successfully funded more than one million projects, raising $2.7 Billion for small businesses and entrepreneurs. That is a lot of money, and a lot more money than most would have predicted when Kickstarter launched crowdfunding in the USA just four years ago.
Even more impressive, massolution’s 2013 Crowdfunding Industry Report forecasts an increase to $5.1 Billion in crowdfunding this year. Crowdfunding is still in its initial, exponential growth phase.
These numbers are with only reward-based crowdfunding permitted in the United States. Equity crowdfunding – allowed by the JOBS Act – is still waiting for SEC Regulations to be approved. Once equity crowdfunding goes live, we will see an additional spike in crowdfunded cash for small businesses and entrepreneurs. [For the difference between these two, read this].
This is important because other sources of cash for entrepreneurs and small business are tightening. For example, while bank lending remains a large source of cash for US entrepreneurs, with $283 Billion in small business lending in 2011, that figure is down from a high of $336 Billion in 2008, and even from $310 Billion in 2010. In fact, small business loans have decreased as a percentage of all non-farm, non-residential bank loans for a decade and a half – from 52% in 1995 to only 29% in 2012.
This lack of access to cash is starving small business, and makes the crowdfunding option attractive.
Of course, a small business doesn’t have to choose between seeking some of the $283 Billion in bank financing or trying to raise some of the predicted $5 Billion in crowdfunding money – a successful crowdfunding raise that not only finances, at least in part, the production of your product, but also proves demand by creating a fan base around the product will help you in getting that bank loan you need to take your business to the next level.
Crowdfunding isn’t here to replace other forms of financing. It’s here to complement them. Whether you are a small business owner who needs funds to complete a dream project or a professional who advises people on raising capital, you increasingly need to consider crowdfunding as a part of your strategy.
 Shane, Scott: Are Banks Loosing Interest in Small Business? Small Business Trends, February 2013 (citing to data from the FDIC).