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Choosing the Right Crowdfunding Product

Interested in raising capital through crowdfunding? We’re not surprised. After all, crowdfunding comes with some pretty sweet advantages. The crowdfunding process is cheap, quick, easy – often entirely online. Because crowdfunding requires no collateral, it is a great alternative to traditional funding such as secured loans.

As we discussed in our last article, there are three major forms of crowdfunding: rewards-based crowdfunding, equity crowdfunding, and peer-to-peer lending. To learn more about them and compare the different forms, click here.

Each form serves a different purpose and targets a different demographic, so it is crucial that you pick the right crowdfunding product. Which crowdfunding product is your match? Below, we have provided a handy list for you to use. Read on!

Rewards-Based Crowdfunding

  • Rewards-based crowdfunding is for you if you are trying to pitch a project. It is meant to raise capital for products or services. Its purpose is not to fund your overall business.
  • Rewards-based crowdfunding is ideal for those in the creative or artistic field, or those developing new products and technology to get market validation and pre-orders before starting production.
  • Most rewards-based crowdfunding campaigns expect to raise around $10,000 – $100,000 according to this article.
  • This is a crowdfunding form that requires effort on your part. You need to create a business plan for your brand and your project, you need to do research, think about legal and tax issues in advance, plan the rewards you will offer your supporters, and craft a compelling story or video to market your project and entice new backers. For more details, check out this Forbes article.
  • Costs include: reward and shipping costs, income taxes, and platform fees.
  • Key platforms include Kickstarter and Indiegogo. Coincidentally, Kickstarter has opened new branches in Asia, including Singapore.

Equity Crowdfunding

  • Equity crowdfunding’s primary purpose is to fund startups with strong growth potential.
  • Because equity crowdfunding is essentially a barter of company shares for funds, ask yourself: are you willing to part ways with your company shares? Are you someone who likes to be in control of your company? If you are indeed willing to let go of company stocks and are looking to raise a large amount of funds, then equity crowdfunding is for you.
  • Equity crowdfunding campaigns expect to raise somewhere between $250,000- $3,000,000.
  • Like rewards-based crowdfunding, equity crowdfunding requires effort on your part. Your startup may be very promising, but you still need to pitch its worth to potential investors on your chosen platform.
  • Costs include platform fees and of course, partial ownership of your business.
  • Key platforms include: AngelList and CircleUp.

Peer-to-Peer Lending or Debt Crowdfunding

  • Peer-to-peer lending provides loans with competitive rates and no collateral. Depending on your chosen platform, you can crowdfund personal loans or business loans.
  • However, peer-to-peer loans are especially useful for SMEs and the underbanked segment.
  • Ideal for small businesses searching for short-term credit to strengthen cash flow, to expand their companies, to finance a newly secured project, or just for operating expense.
  • Here’s an example: businesses with income tied in accounts receivable are a great target segment for peer-to-peer lending as they can have quick loans through invoice financing to start new projects while they wait to get paid.
  • A good option for younger, smaller, and revenue-generating companies, but with no suitable assets for secured loans.
  • Peer-to-peer lending campaigns expect to raise around $20,000-$500,000.
  • Requires less effort on your part compared to rewards-based crowdfunding and equity crowdfunding. Your chosen platform will do credit assessment to see if you are suitable for a loan and take care of the rest. You don’t need to market your funding needs.
  • Costs include platform fees and loan interest.

If peer-to-peer lending sounds like the crowdfunding product for you, you can learn more here and apply for a peer-to-peer loan at Funding Societies here.

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The future of peer-to-peer lending in Asia

This article was first published by GTnews

The financial services industry has taken huge strides in the last 20-odd years, with path-breaking innovations in the financial system such as the advent of automated teller machines (ATMs), credit cards, online banking, mobile banking and sophisticated loan and deposit products. The speed of innovation has been unprecedented.

One new offering that has developed more recently is peer-to-peer (P2P) lending, also known as marketplace lending or crowdfunding. The concept seeks to leverage on the existing gaps in the lending system and serve the underbanked borrower segment while at the same time providing excellent returns to the lenders, who are usually retail investors with excess cash.

Since P2P lending is primarily an online proposition, the inherent costs and overheads are low. P2B (peer-to-business) lending seeks to use this concept to fund businesses which don’t have access to bank funding. Personal loans and loans to small businesses are the two most common lending products within the P2P framework.

The roots of P2P lending lie in the UK and US and go back to 2005-06, with lenders such as Zopa (the first P2P lender), Prosper, Lending Club and Ondeck being the pioneers. Thereafter came other big players like Funding Circle (UK) and Society One (Australia). Over the years, however, Asia has overtaken the US, primarily led by China. In 2015, P2P lenders globally originated loans worth US$64bn, with China contributing more than half of the total. Major lenders in Asia include:

China – Lufax, Dianrong, Yirendai
India – Faircent, Lenden Club, i2ifunding
Southeast Asia – Funding Societies, Modalku
Hong Kong – WeLab
Japan – Maneo

Unlike in the US and UK as well as some other developed markets, where P2P is predominantly an online model, a majority of the P2P lenders in Asia have a mix of online and offline models. Lack of data availability, low internet penetration, manual processes and regulatory challenges in emerging Asian economies are some of the challenges that inhibit growth of completely automated online models.

In the last few years, a new set of completely online P2P lenders has emerged. They use behavioural data from social media, acquire data through partnerships, and also use innovative technology-based credit scoring methods for giving out faster and lower-cost loans to underserved segments. One such example is Paipaidai in China which uses the online trading history of the borrower to underwrite loans.

Another recent phenomenon is the advent of cross-border P2P lending. Crowdcredit funds borrowers in emerging markets including Europe and Latin America through retail investors based in Japan.

The P2P segment has also attracted a significant amount of venture capital (VC) activity in recent times, as well as other funding, with some of the most notable funding for P2P lending companies in the Asian context including:

Lufax: Raised about US$19bn in their Series B round

Dianrong: Raised about US$1bn in their Series C round

WeLab: Raised U$160m in their Series B round

Funding Societies: Raised about US$7m in their Series A round

The key growth drivers for P2P lending in Asia include:

  • Rapidly-developing and high-growth Asian economies with large but credit-worthy underbanked populations
  • Huge funding gaps where banks are not able to lend due to structural inefficiencies
  • The availability of a large pool of retail investors with excess cash
  • Increasing internet and mobile phone penetration that complements the online product proposition and reach
  • Fintech-led fast online processes that help reduce costs and overheads while aiding customer adoption
  • Support from regulators and government bodies towards inclusive financial growth
  • According to Statista, P2P lending globally is expected to cross US$1 trillion in loan origination by 2050. Asia, given its unique positioning, should account for a significant portion of that total.
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