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Crowdfunding is a method of raising capital through a large pool of individual investors — the reach of the internet has been the primary leverage in tapping a wider audience. Traditionally, if one wanted to raise capital to start a business, they were needed to approach the traditional funding sources including banks primarily.
A nice analogy given into understanding the field of crowdfunding is that of a funnel. Traditional fundraising places you at the wide end of the funnel and your investor/s at the narrower end. If you fail to point the funnel at the right investor or at the right time, it could jeopardize your venture. Crowdfunding platforms invert the funnel – the entrepreneur is provided with a wide platform to showcase and direct his business model to a much more interested audience and receive investments in exchange of equity.
Amongst the obvious benefit of funds, Crowdfunding also benefits the investee in crucial aspects including
The development of Crowdfunding though remains limited in the region. While a number of real-estate focused crowdfunding platforms have emerged, other more generalist platforms have been far and few – reward-based site Zoomal from Lebanon, and equity platform Eureeca, Dubai operating from the DIFC since late 2016 are some of the names. In a more recent development, the Dubai Financial Services Authority (DFSA) has begun a consultation process on its proposed framework for the sector, which is also sometimes known as peer-to-peer lending. The consultation, which was launched on January 31, is the first in what is promised to be a series of initiatives covering Crowdfunding. The development of loan-based crowdfunding would provide another option for companies looking to raise finance and would provide a much needed impetus to the focus SME group.
Source for image: Massolution 2015
According to a World Bank report, global investment via crowdfunding could reach USD 93 billion by 2025 from USD 35 billion in 2015, a CAGR of 10.3%. Experts differ on what will be the biggest future trend within the field of crowdfunding – but most agree that the industry isn’t going away. British website businessadvice.co.uk predicts 2017 will see crowdfunding “cement its position as a mainstream route to funding.”