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The competition between global, local and niche crowdfunding sites

A search for ‘crowdfunding’ on US startup investment site AngelList comes back with over 1,000 different companies. Given the term is less than a decade old, the large number of startups now active in the area is testament to the wide array of applications crowdfunding can be applied to and the opportunities it presents.

Yet, while many of these businesses are becoming more established, it is also true that a crowdfunding bubble has arisen and many of these new entrants will fade and die as the market consolidates. But which ones will survive? Will global behemoths like Kickstarter squash the numerous national platforms aimed at the same market of creative entrepreneurs or will those with a local touch find they have more to offer? Will generic sites looking to facilitate all people to fund all things become dominant in the market or will those with a tighter focus, targeting specific audiences or sector niches be able to deliver better services and cultivate loyal communities of users?  

Global versus local sites

As large international sites like Kickstarter and Indiegogo gain prevalence in new country after new country, the strength of their brand risks driving local competitors out of the market. Large global sites offer evidence of strong track records and over time have learned to refine their offers. They also have the offer of bigger potential funder bases to be tapped into, even though there is of course also more competition for backers’ attention.

Local and niche sites will however be able to fend off the international sites in some areas. In particular those funding areas where working with local partners on the ground is important or presents opportunities. An example of this is the Crowdfund Plymouth initiative between Plymouth City Council and Crowdfunder where the council match funds and works closely with the site to mobilise people to raise money for local projects on the site.

Regulation too will remain a barrier to sites with an international focus being dominant market forces, especially those operating models where people invest for profit. The investor, investee and platform may all be subject the regulation in their particular jurisdiction. Given the lack of regulatory harmonisation internationally, facilitating cross-border investments or being active in many different countries would require working within numerous and diverse regulatory regimes and be a large headache for platforms. Though some regulatory harmonisation is likely to occur, it is unlikely to be significant enough to facilitate the growth of cross-border crowdfunding investment at a large scale for some time to come.

Generalist versus niche

Another dimension where we will see platform differentiation is how narrow their sectoral focus is. Most large platforms doing lending, investment or rewards tend to be quite generalist helping individuals and businesses from lots of verticals access finance. Given the industry’s early stage of development and relatively small market size this allowed early entrants platforms to scale quicker. Yet, as the market grows, as does the awareness among the general public of these types of funding models, platforms with more narrow a focus will become more viable. Sites with a focus on a specific verticals like video games, fashion, tech hardware or the food industry will have the opportunity to tailor their services to their target audience and to build communities around a common interest.

These tailored sites can give these sites important competitive advantages over more generalist offerings. Some of these have already started appearing. Examples of sites with a more niche focus include US site Cruzu which focuses on facilitating rewards crowdfunding specifically for the wine-making sector and BeaconReader doing crowdfunding solely for journalism. Larger sites have sought to counter this development by setting up niches within their broader crowdfunding community. Some have done this by enabling niche communities and networks to curate their own part of the platform. Kickstarter for example worked with the RSA in the UK on curating a part of the site dedicated to projects by RSA alumni.

However, the sites with a generic focus are still limited by having a technology that is a single offer to backers and  fundraisers regardless of the projects they are seeking to fundraise for or back. This presents an opportunity for niche platforms to attract projects and people by developing more bespoke offers based on the niche they are focusing on. Music crowdfunding site PledgeMusic for example has built-in music players on each campaign page to allow backers to listen to sample tracks or DigVentures, which does crowdfunding for archeology projects, enables amateur archaeologists to come and work on site as well as donating money to the project.

Another example is Dragon Innovation which focuses on crowdfunding for hardware projects. Before any campaign can go live, the project goes through a process of ensuring that the design can be built, and correctly assessing how long it will take to build and how much it will cost. This aims to overcome issues with some hardware projects on other sites where entrepreneurs struggle to get manufacturing right or end up delivering rewards late or over budget.

The future

Looking forward, larger generic platforms will continue to play a role, those with a focus on specific geographies of audience verticals will find that they can carve  out part of the market for themselves. Increasingly sites will pop up targeting more specific audiences like crowdfunding for a specific city or for increasingly specific industries. This will bring a lot of innovation to the space as the sites iterate on the standard crowdfunding models to find which propositions are most attractive to their particular audiences, and in the process open up crowdfunding as a financing method for new types of often highly specialized projects and products.

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Peter Baeck

Peter Baeck

Peter Baeck

Director of the Centre for Collective Intelligence Design

Peter leads work that explores how combining human and machine intelligence can develop innovative solutions to social challenges.

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Liam Collins

Liam Collins

Liam Collins

Policy Advisor

Liam was a Policy Advisor in Nesta’s Policy and Research team. Liam’s work focused on innovation and economic growth with a particular emphasis on finance for innovation and innovative…

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