Crowdfunding on the case: Job creation-SME funding-R&D
By Kieran Garvey @Microwdfinance
While socially and environmentally orientated projects make up a major proportion of projects being funded through crowdfunding, it is also serving unmet demand for small and medium sized enterprises. Given that SMEs account for 67% of all jobs in the EU and 80% of all new jobs created (de Buysere, 2012,) access to SME finance should be of real interest to governments. Over 90% of jobs are created in this sector with important societal impacts. At a time when government public finances are in very bad shape, job creation is a vital source of tax revenue crucial to the vitality of the economy and beyond for providing the welfare needs of disadvantaged sectors in society – not to mention overall political stability.
Crowdfunding R&D and technological development
Crowdfunding has an important role to play in providing access to finance for small and medium sized enterprises as well as new start ups and innovative technology development. Today for example new build your own robots are being funded on Kickstarter which is paving the way for modular robotics as well as numerous ‘drones’ and ‘UAVs.’ Less controversially, a few days ago a former Googler is now using toys and coding to teach kids tech development of the future. This is being funded through crowdfunding, contributing to the industries of the future. In the same vein, $100 3D printers are finding their way onto crowdfunding platforms helping to provide access to this new technology and bringing it in reach of the masses – with profound consequences for how we consume and indeed what it means to be a consumer. This funding is resulting in technologies being developed leading to new business and entrepreneurial opportunities creating job opportunities for many, many people. Just check out this McKinsey report for the kinds of technologies they see will be paving the economic way of the future by 2025 and then consider how many technologies, businesses, inventions are now germinating on crowdfunding platforms that follow suit. It is early days admittedly, but the impacts of crowdfunding and its true potential has not even yet emerged.
SMEs are key to job creation and sustainable economic success
The European Commission estimates that there are some 23 million small and medium sized enterprises (“SME”s) in Europe, 90% of which have 10 or less employees. According to the European Investment Bank, only 30% of businesses are using bank loans while some 40% rely on expensive short-term bank credit or overdraft facilities (de Buysere 2013, pg.5.) According to the Parliamentary Commission on Banking Standards, 25,000 viable small businesses fail in the UK alone every year due to lack of growth funding and the unwillingness of banks and investment firms to provide financing (2013.) It is possible that many potentially valuable innovations never reach market due to lack of funding and those companies that failed may have also created a great deal of jobs and valuable products and services but did not attain the funds needed to grow into a viable and secure businesses (Mollick, 2012, p.27)
For Consumer-Investors crowdfunding is opportunity
According to the recent report by the (Parliamentary Commission on Banking Standards, 2013, pg.57,) crowdfunding/peer-to-peer platforms have the potential to improve the UK retail banking market as both a source of competition to mainstream banks as well as an alternative to them. Furthermore, it could bring important consumer benefits by increasing the range of asset classes to which consumers have access. This access should not be restricted to high net worth individuals but, subject to consumer protections, should be available to all. The emergence of such firms could increase competition and choice for lenders, borrowers, consumers and investors. Access to investment opportunities can be seen in terms of lower thresholds for minimum investments which therefore open up investment opportunities to more people. This is something that the vast majority of crowdfunding opportunities enable with very low minimum investments often as little as £5.
Clearly crowdfunding while supporting a range of social and environmental ventures is also perfectly capable of providing new kinds of investment opportunities. Crowdfunding offers the chance to financially support new kinds of investment and access new opportunities as an alternative to mainstream providers. By engaging the masses in the development of the businesses, technologies and social projects of the future, crowdfunding is offering a relatively new way to allocate and distribute resources and capital in a way that will spur new innovation in every sense. We are just beginning to see the potential for this sector but over the coming years and decades, the profound changes currently ongoing will make them selves seen and heard loud and clear.