Crowdfunding has evolved from its initial stage of pooling resources from multiple investors to finance small ideas to the global phenomenon affecting arts and media, property investments, climate change and philanthropy today. Regardless of how diverse the dream, crowdfunding portals have made it impossible for us to remain idle and indifferent. Various platforms have emerged, each with their own methodologies and functions to facilitate the growing needs of the market and reduce financing costs. Here are the pioneer firms in each category: equity, rewards, lending, and donations.
Fundrise: Equitable Solutions for Property Investments
Established by Ben and Daniel Miller in 2010, Fundrise is motivated by what crowdfunding can offer to real estate financing as it gives locals the chance to invest in a property across their street for as little as $100. They started a year after they were founded, raising $325,000 from 175 investors, the first ever online equity offering for a realty property. It has now raised more than $20 million from over 1000 investors, averaging $1 million weekly, while its members participated in over 30 property listings nationwide. They reported that more than 400 of the top real estate companies with over 54.8 billion of assets under management are on Fundrise.
Recently, it raised $31 million capital from Chinese social networking stalwart RenRen and executives at Silverstein Properties, owners of World Trade Centers and managers of over 35 million square feet of commercial, residential and retail space. This is the highest capital raise ever for a real estate crowdfunding platform. With this backing, the company can participate in more development projects so that more small investors can join and support their communities. By cutting out the middlemen and increasing transparency, it is shaping the future of real estate investing.
SeedInvest, another crowdfunding platform for equity investments, closed a series A round funding of $2 million, and enabled startups to raise $15 million.
Reward Your Way with Kickstarter
Kickstarter is making dreams come alive by funding innovations, films, musical tours, arts and technology. Since 2009, it has raised over $1 billion across 65,000 projects from 6.6 million persons. All projects are independently monitored with funding goals set; funds will not be committed until the project is fully backed, minimizing risks and increasing the attractiveness of the platform. Project creators maintain full ownership of their inventions. While donors expect nothing in return, they are usually offered incentives as a form of appreciation. A 5 percent fee is levied on all monies funded from fully backed projects.
RocketHub, another leading rewards crowdfunding site, provides a similar service by funding inventions across a variety of ideas. RocketHub capitalizes on social media, allowing creators to advertise, set funding goals, and also offer perks for contributions.
LendingClub: When There Is Nothing Left to Bank On
LendingClub is a crowdfunding platform that fills in where commercial banks have failed by providing loans to individuals at a lower cost but with greater benefits. The transparency and ease of access is what makes LendingClub “America’s #1 credit marketplace.” Over $5 billion has been loaned thus far with average interest paid of approximately $1 billion. It claims that 83.70 percent of these loans were accessed to consolidate credit card debts with the minority sought funds for business, motor vehicle and other general needs. LendingClub loan notes can be spread across several instruments, over 100 notes, thereby minimizing risks and increasing returns. This facility is eliminating intermediaries by allowing anyone to directly lend funds to others with the promise of more attractive returns.
Other debt crowdfunding sites such as Prosper loaned $1 billion to 95,000 people, by offering low fixed rates from 6.73 percent for individuals with excellent credit ratings. Kiva, the first online crowdfunded lending site, has funded an average of 1 million loans totalling approximately $500 million, and boasts a repayment rate of 99 percent.
Crowdrise: Doing Good Gets Top Points
Crowdrise is breaking new grounds by using the online platform not just to raise funds but also to increase fun by giving out points, badges, and prizes to engage more donors. Adding media mileage to their cause is having a celebrity as one of its founders. Actor Edward Norton walks the talk and with some swagger. He donated his own money and ran marathons while always urging others to give back and participate. Proof that social networking can be put to use for the greater good, they raised $1.2 million from the marathon for the Maasai reserve after sending out tweets like “give $101 in next 11 hours” or “donate $31 in next 5 hours”. With a bike or laptop as a prize, it sealed a winning deal for worthy causes.
Another forerunner in this category is give2gether which came about after careful study of the motives behind giving. Formed in 2007 by a group of economists and technology experts, it uses game theory and social media to increase donor participation.
Regardless of the need, there is an online service to suit the diversity of the market. With this much activity, it only makes sense to not just follow the trends but blaze trails of your own.
By David Drake
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group, a global financial media company with divisions in Corporate Communications, Publishing and Conferences. You can reach him directly at David@LDJCapital.com.