Dear Startup Investor,
Hope you’re enjoying your holidays! It’s been a huge year for crowdfunding and the industry continues to grow rapidly. Some of the companies I helped start, like Graze, Miso Robotics, and Piestro have all raised millions in dollars by crowdfunding.
I remember when I first started crowdfunding in 2019, I wondered if there would be enough angel investors out there to raise even $1 million for each of these companies. Today I have the opposite problem – there is so much demand!
Crowdfunding is a lot bigger and growing a lot faster than I thought back then. Excitingly, we’re just at the beginning. While 2021 was a great year for the industry, I think 2022 will be even better.
And that means you can expect to see more (and better) startup investment opportunities than ever before.
Here are the three most exciting trends in crowdfunding you should have your eye on as we head into 2022.
Crowdfunding Goes Global
Crowdfunding has seen the most recent success primarily in the United States, where a number of different crowdfunding platforms have helped raise hundreds of millions of dollars in the last couple of years. However, crowdfunding is going global, and fast.
In Europe for example, the new European Union framework for crowdfunding went live at the end of November. This framework harmonizes and unifies the rules and regulations around crowdfunding across the European Union, a challenge that has previously prevented crowdfunding’s growth on the continent.
So far, crowdfunding in Europe has primarily been constrained to the United Kingdom, where a lot of platforms such as Crowdcube and StartEngine are eyeing for their initial expansion into Europe. Even Republic – one of the biggest crowdfunding platforms in the United States – has its eye on Europe and recently acquired UK-based Seedrs for $100 million as part of this expansion.
Crowdfunding is also being employed in a novel way by companies around the world as a launchpad into new geographic markets. For example, Chinese startup EcoFlow – a manufacturer of portable batteries – used crowdfunding as a way to rapidly build up name and brand recognition in the US before launching in the market.
This touches on one of the biggest benefits of crowdfunding – the positive impact on sales and marketing. Building a community of retail investors helps create hundreds and thousands of ambassadors and salespeople for your product.
Companies have recognized this and are now creatively using crowdfunding to help expand their brands and products out of their initial launch markets. Not only did EcoFlow rapidly increase its brand recognition it also raised over $12 million in funding from the crowd. That sounds like a pretty good deal to me!
Crowdfunding Meets Crypto
In 2021 we started to see some people experimenting once again with combining crowdfunding with the world of blockchain and cryptocurrencies. If you remember back to 2017 and the Initial Coin Offering (ICO) craze of the time – where companies offered public sales of their new tokens to help finance the launch of their company – this was the first time the two worlds collided.
Since then, as crypto has matured, the opportunities for experimentation have broadened. Firstly the biggest news today is that Kickstarter – one of the industry’s biggest platforms – plans to launch a new subsidiary focused on building crowdfunding solutions on top of blockchain. Kickstarter has stated they plan to move their entire platform onto the blockchain in the near term. This is a huge shift for the company and differentiates them from all the other crowdfunding platforms in the market. Will this put pressure on other platforms to follow suit? We will see in 2022.
Aside from the Kickstarter news, something I’m keeping track of is the rise of Decentralized Autonomous Organizations (DAOs). There are a lot of definitions for DAOs out there but at their core they are a shared community that comes together and pools funds to help achieve a shared goal. One of the most public attempts to do this recently was ConstitutionDAO. This DAO was formed with the goal of buying a copy of the US Constitution that was soon to be put on sale by auction house Sotheby. The DAO raised about $47 million via crypto donations, and every donor in turn received voting rights to have a say in what decisions the DAO made and how the funds were to be used. In the end (spoiler alert!) the DAO lost the bid for the constitution to Citadel CEO Ken Griffin.
I’ve been thinking a lot about ConstitutionDAOs and DAOs broadly. The early examples have created a new hybrid between crowdfunding and community-governance that we have never seen before. I think there is a ton of potential around this model, but there are lots of problems that still need to be solved. We all know that having too many cooks in the kitchen can be a problem and that voting isn’t always a perfect system. Nonetheless I’m wondering these days what it looks like to try launch a community and product via DAO and what that can mean for both angel investors and entrepreneurs in the long-term.
Crowdfunding New Assets
The last major trend I’m keeping my eye on is the rise of crowdfunding for all kinds of new assets. Republic has rapidly expanded outside of startup investing and now offers angel investors the opportunity to invest in crypto, real estate and video games and more! Increasingly as the SEC relaxes regulations around crowdfunding and the industry matures people are experimenting with crowdfunding all sorts of new assets.
Crowdfunding for real estate in particular seems to be really gaining steam. Most people want to invest in real estate but the reality is buying an entire real estate property is something people do 2-3 times in a life at max. Until recently there hasn’t been a way for people to participate as a small investor in a real estate deal, until the rise of equity crowdfunding. A similar pattern is playing out for other expensive investment assets such as art.
Creatively, crowdfunding is even being used to provide capital to businesses who most need it and often struggle to get it – small businesses. For example, in the UK independent booksellers have successfully used crowdfunding to keep their businesses going during the pandemic. People are even using crowdfunding to finance legal battles.
It’s still very early days for crowdfunding despite a great 2021. Crowdfunding is only just beginning its global expansion and huge parts of the world still don’t have crowdfunding regulations in place or platforms to facilitate crowdfunding. I think this is one of the most exciting trends in crowdfunding and will allow angel investors to invest in the best companies globally, not just where they live. Diversification is always a great thing as an investor.
Besides the globalization of crowdfunding, we’re going to see a lot more experimentation with crypto and new assets in the crowdfunding space in 2022. Not all these experiments are going to work or go well, but some of them are going to show promise and start to broaden the use cases for crowdfunding and the kinds of participation angel investors can have in a company. I’m excited for these experiments.
Until next year, happy holidays!