The crowdfunding industry in 2014 has experienced immense growth. In the last three years crowdfunding has tripled according to Clearity, and according to NESTA the growth percentage even was an amazing 400%. The expectations of a $10 billion crowdfunding industry are hardly a month away from being realized. Logically, most of the debate regarding crowdfunding has been focusing on its growth. But what are we expecting 2015 besides more growth? One trend is the increase of mergers and acquisitions, and considerable cooperations.
Given that fact that for listed companies M&A’s are extremely important as they influence the share price considerably, M&A’s are often associated with larger companies. In an industry that is at the start of its existence M&A’s feel perhaps too early and a little awkward.
But given the tumultuous start of crowdfunding (the financial crisis that evoked a lot of anger and disappointment, firing up the speed at which the industry was going to develop), there has not been a neat, steady growth of an industry. The best comparison (though perhaps not the most flattering) is that to a mine field: after stepping on a couple of them and hearing some explosions, we find out that we’ve apparently found a minefield. The same happened with the crowdfunding industry: after ‘all of sudden’ (success is not a one night effort) having some platforms and successfully funded companies, we apparently have an industry. Combined with popularity of crowdfunding in general and the speed at which competing platforms come into existence, competition in the field has risen. And that’s where mergers, acquisitions and extensive collaborations come into view.
Synergy vs. competitive advantage
There are two main reasons why companies want a M&A or collaboration from the (often) larger party in the deal. First is the competitive advantage. A M&A or collaboration allows the company to decrease competitiveness by buying up and incorporation their most important competitors. In established industries a lot of legislation exists in order to prevent monopolies, but with the amount of platforms within the crowdfunding sector we’ll see a shake out of companies that are either bought up or stop existing. By eliminating competition a new market leader can come into existence and the company acquires a larger market share. And though the growth of the crowdfunding industry seems to continue in high tempo, there will come a time when the market starts getting saturated.
On the more constructive side, through a M&A or collaborations business and product knowledge is united. As result, crowdfunding platforms can more easily start creating other services (e.g. equity crowdfunding and lending) and diversify their range of funding products or offer their products internationally. Synergy is term often used to describe the melting pot of knowledge, skills, people and products that should lead to benefits that are larger than the separate parts could be. In a field where skills and knowledge are developing at an increased rate, bundling them creates a serious competitive advantage.
Collaboration and M&A’s within crowdfunding
Within the donations and rewards based crowdfunding branches, GrowVC.com announced one of the first mergers within that branche: the merger between Crowdfunding-italia.com and Kapipal. According to Crowdfund-italia’s founder Claudio Fioresta, “the merger with Kapipal will allow us to access the necessary resources to improve the usability of the site. Secondly, it will allow us to reach out to a much wider network.”. Completely in line with a couple of the most important motivations to arrange a merger, Kapipal and Crowdfund-italia decided to join forces on October 2014.
Another typical example is Fundable acquiring Launchrock in order to diversify its services. Launchrock is support network that allows start-ups to gain easy access to the resources, specifically first user and buyers, their need to build their company, or alternatively, persuade the first people to invest in a campaign. As per March 2014, Launchrock is now part of Fundable, a company that focusses on crowdfunding. The benefit for Fundable? A lot of entrepreneurs aim to get funding while their business development might not yet be on par with what is expected by future crowdfunders. Having a partner like Launchrock in order to further develop the business cases that aren’t suited yet, will create a closed loop and guarantees a minimal level of quality. In addition Launchrock will be able to add finance to its list of offered services.
There are more (though a limited amount of) examples to be found that indicate M&A movements in the crowdfunding industry. Seedrs acquired Junction Investments, NuWireInvestor announced that a crowdfunding campaign has been initiated in order to fund a M&A. And last week my own crowdfunding platform Symbid, announced its extensive collaboration with Credion, together forming the largest funding network for SME’s with the Netherlands.
Crowdfunding grows up and competition increases
What does this say about the crowdfunding field? That 2015 is a year of increased collaboration, a move towards scalability and increased scale of operations, that the competition is going to increase and that some players already feel the need to act upon that development. There have been more M&A’s than have been mentioned here, and there have certainly been a lot more meaningful and impactful collaboration. 2015 will be the year that for the first time, a large part of the growth of crowdfunding will be acquired via M&A’s and collaboration.
Ludwine Dekker has been coaching entrepreneurs in executing their digital fund raising for three years. As a digital marketing specialist, she specializes in entrepreneurship, technology and fund-raising. As a campaign manager at Symbid she strategically manages the entrepreneur’s campaigns and requirements, organizes pitch events, frequently writes for several platforms, and gives workshops. You may follow Ludwine on Twitter @Luudwine