“In 2013, crowdfunding deals will be more formally developed to a higher standard of planning and disclosure than in 2012, when crowdfunding was seen as a hot new panacea for virtually every half-baked idea that could be printed into a square the size of a classified ad box. The fact is that there will be a flight toward quality in the crowdfunding market in the year ahead, with a vigorous and continuous participation on the part of sponsors in promotion,” said Douglas E. Castle, CEO of CrowdFunding Incubator LLC.
“When some crowdfunding platforms and sites start to post their actual success and failure numbers, time-sensitive fundraising objectives aren’t being met, and new regulations creep over the horizon, both attractive deals and prospective contributors are going to be tougher to come by.
“If anything, entrepreneurs are going to have to do everything that can to convince an increasingly educated group of prospective contributors that they’ll receive some form of compensation, either real or emotional, in exchange for their paid vote of confidence, whether or not funding goals are achieved, and whether or not the projects are actually successful.
There will be an increase in installment or phased-type fundings, and they will be of an increasing level of complexity and disclosure.”
“The notion of just posting up a request for funding on the web and waiting for the money to materialize is gone. Project sponsors who require crowdfunding for their capitalization base are going to have to participate actively in the promotion of their own ideas through social media, news releases, publicity and promotion, blogging and pushing prospective donors to their sites.
“Project sponsors are going to have to ‘pay to play’, putting much more of their own money and efforts at risk before contributor or donor money comes rolling in. Sponsor-hopefuls who are truly ambitious about raising money through this supercharged vehicle will have to drive much of their own traffic to the crowdfunding sites or platforms where they are being featured.”
CFI’s Chief Operations Officer, RD Watkins added, “The better crowdfunding websites are going to be getting choosier about which project promoters they want to rent out their valuable website real estate to. The decision makers who own these crowdfunding platforms are going to be looking very, very carefully at not only the viability of any given project, but they’ll also be looking at how much the project’s sponsors are willing to participate in the promotional process, in terms of both effort, and promotional investment.
Castle added, “The newer, smarter contributors as well as the operators of the funding sites want to see three things: they want an idea or a business plan that makes sense; they want some kind of present-day, tangible consideration in exchange for their contributions of seed or early-stage capital; and they want to see that the innovators and entrepreneurs who are looking to them for funds have some serious skin and sweat in the game.
We’ll also see a small number of crowdfunding platforms and sites start to take dominant thought-leadership and market share positions in what has been, to date, an extremely fragmented market. There will be some consolidations of bigger players, and some interesting partnership- type arrangements between the finer crowdfunding platforms and securities broker-dealers, as well as with accredited angel groups and venture capitalists.
The good news is that this trans-formative market scenario will impose a higher standard of quality on the part of both the website owners and the entrepreneurial hopefuls. It’s an inevitable form of ‘market adjustment’ or ‘correction’ that follows a period of too much money and too little oversight. This will absolutely benefit the contributors, the better-quality platform providers and the growth of jobs and innovation in the private sector.”