Private Capital | Q4 2014

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Facts, Evolution and Potential Disruption in Private Capital Investing Crowdfunding may be more disruptive than initially realized


By Hitesh Rathod, NexusCrowd Inc.


Crowdfunding – disrupting private capital markets

New areas of growth

As the crowdfunding market continues its evolution from donation and reward-based models to include increasingly sophisticated investors, the industry that was formerly marginalized and misunderstood by traditional finance has made one thing clear: crowdfunding is here to stay. In fact, crowdfunding may even be more disruptive than anyone initially realized. Driven by technology that has enabled improvements in all aspects of the investment process, crowdfunding has allowed capital providers and capital users to connect with unprecedented efficiency, leading to explosive growth. According to crowdsourcing solutions firm Massolution, global crowdfunding volumes increased from US$1.5 billion in 2011 to US$5.1 billion in 2013, and many market observers believe crowdfunding will continue growing well into the decade.

The proliferation of crowdfunding platforms has brought with it an increased level of risk as the opportunity for negligence or outright fraud increases. As crowdfunding transaction volumes continue their ascent, platforms have begun paying greater attention to the potential risks associated with exchanging real money for unproven projects, goods and services. The tension between ensuring investors are protected and companies gain greater access to capital is most deeply felt in the rapidly expanding securities crowdfunding segment. Currently, securities crowdfunding platforms offer investors the chance to invest in companies in exchange for securities. As crowdfunding platforms recognize the increased risks from providing capital to unproven companies, several securities crowdfunding platforms have attempted to mitigate the risk by bring-

Private Capital  §  Quarter 4 § 2014