Before crowdfunding became widely used, the idea that a visionary entrepreneur could launch a business with no funds, was unrealistic to say the least. Without a considerable deposit and a spotless credit score, aspiring young creatives with no prior business experience simply didn’t stand a chance compared to veteran competitors who had all the resources. The launch of the first crowdfunding platforms (ArtistShare in 2003, IndieGoGo in 2008 and Kickstarter in 2009) completely changed the status quo, empowering entrepreneurs to gain funding and compete with the big companies.
All of a sudden, regular individuals found a way to put in practice brilliant ideas and launch products that the market wanted.
Now, it seems that funding is undergoing another major transformation thanks to the mainstream traction of Blockchain. On the surface, Blockchain is the technology that makes cryptocurrencies such as Bitcoin possible.
However, Blockchain is much more than that.
This disruptive technology has already begun to make an impact on all fields, including funding, creating even more opportunities for businesses. A new ecosystem is emerging, one where regular individuals who have great ideas can not only find funding, but also choose a type of funding that matches their needs.
If starting a crowdfunding campaign used to be the only option, now entrepreneurs can also compare it with the ICO alternative and choose the best fundraising option for them.
Blockchain offers more opportunities for tech startups
One of the main differences between Blockchain and traditional funding platform is that each is starting to distinguish its own target audience.
On the one hand, platforms such as Kickstarter remain a good source of funding for people who need enough money to manufacture and launch a product such as a boardgame or a book. On the other hand, ICOs are growing in popularity among tech entrepreneurs, so if you have a business model revolving around Blockchain applications in healthcare, finance or human resources, this fundraising option might be better suited.
Rewards for investors
Both Blockchain and crowdfunding platforms function on the idea that contributors should receive some kind of reward from the founder as a token of appreciation. However, each option works with different types of rewards:
- On crowdfunding platforms, rewards tend to be simpler and more symbolic. For example, people who are raising money to publish a book will send contributors a signed copy, or if they’re working on a boardgame, they will send the deluxe collector’s edition. Other options include custom T-shirts, keychains and other branded accessories.
- People who fund ICOs receive security tokens as a reward for their contribution, tokens which they can later use to pay for the services of the ICO. If it becomes successful, tokens are a way of investing and could bring them profit.
Accessibility and promotion
The more investors you manage to find for your business idea, the better. From an accessibility point of view, the mainstream popularity of crowdfunding doesn’t always translate in widespread accessibility.
More often than not, crowdfunding platforms have geographical limitations. Some websites only accept donations from specific countries or are only open to users from specific countries. For example, Kickstarter, one of the most popular crowdfunding platforms, is aimed only at US residents. Without a US address and a credit card issued in the US, users can’t start a fundraiser and this is a major limitation for people in other countries.
A recent study that delves into the dynamics of crowdfunding also reveals that, although crowdfunding platforms relax geographical barriers, the success of a project is still influenced by location. Thus, the founders of the most successful projects reside in areas that are in close proximity to venture capitalist hubs and in areas with a lot of creative talent, Florida being the most representative example.
Moreover, the legal status of crowdfunding varies around the world. The United States and Canada are the earliest adopters of crowdfunding and here it’s very common to see successful businesses starting out as crowdfunding projects. Other countries, such as New Zealand, Sweden, Kenya and the UK, have also implemented crowdfunding regulations.
However, in other countries, such as Romania and other states in Eastern Europe, crowdfunding has a vague legal status and entrepreneurs choose traditional funding methods for fear of taxes and fiscal complications.
On the other side, Blockchain is truly global. ICOs are accessible for everyone and there are no limitations. People from all over the world can invest and receive security tokens and, as an added benefit, ICOs get more coverage on the web and in social media. The ICO market is booming, but there still isn’t too much competition for businesses to fly under the radar. There is growing public interest in the disruptive power of ICOs, which means that they are more likely to be featured on tech, business and finance websites.
Even though from certain points of view Blockchain offers more streamlined fundraising opportunities than web-based platforms, the two aren’t necessarily direct competitors. On the contrary, entrepreneurs now have more options and can now choose the one that matches their business type and fundraising needs. However, one interesting consequence of this diversification is that banks and other traditional sources of funding have to keep up and offer friendlier, client-centered solutions.
Blockchain and crowdfunding are shaking things up in the finance world and some banks have even started using blockchain for their systems in an effort to catch up.