1. Position Paper
Crowdfunding: A New Model for Economic
Development
Abstract: This positioning paper this paper proposes a model
whereby nations and governments seeking to leverage
technology innovation as an engine for economic development
can utilize crowdfunding platforms to create the core of a
vibrant capital ecosystem. If implemented correctly, this new
model could also serve as a means to accelerate market
liquidity, and provide the data analytics required for regional
competitive distinction “clustering” and sustainable economic
growth.
June 2016

2. Position Paper: Crowdfunding: A New Model for Economic Development June 2016
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Crowdfunding: A New Model For Economic
Development
− A New Capital Solution Implemented at a National Level −
Crowdfunding has become an attractive and viable alternative to traditional angel and venture funding
for early stage technology companies since its humble beginnings in 2002. The overall crowdfunding
marketplace has expanded significantly every year, doubling in 2015 to reach over $16 billion in capital
raised. Currently, in 2016, the crowdfunding ecosystem is on track to eclipse the traditional venture capital
markets for the first time1.
This positioning paper explores the rise of crowdfunding as a capital funding mechanism along with the
various forms and structures the crowdfunding ecosystems take. The paper also addresses how serial
entrepreneurs are utilizing the crowdfunding models as a replacement for both Angel and early-stage
venture capital to boot-strap new startups.
Additionally, this paper proposes a model whereby nations and governments seeking to leverage
technology innovation as an engine for economic development can utilize crowdfunding platforms to
create the core of a vibrant capital ecosystem. If implemented correctly, this new model could also serve
as a means to accelerate market liquidity, and provide the data analytics required for regional competitive
distinction “clustering” and sustainable economic growth.
A NATION-STATE CHALLENGE
For governments and nations looking to effectively transition economies or drive new forms of sustainable
economic development through technology and innovation, a number of foundational structures and
ecosystems are required. Most national transformations begin with a focus and investment strategy into
the education of the populace in order to seed the beginnings for new generations of technology savvy
entrepreneurs that will ultimately serve as the transformation engine.
1
Jun 9, 2015; “Trends Show Crowdfunding to Surpass VC in 2016” by Chance Barnett

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Beyond investments into education, another of the more critical ecosystems is a functioning and engaged
capital community that serves as the life-blood of the technology entrepreneur and will provide the fuel
that propels and sustains the startup throughout its lifecycle.
While the technology and innovation based capital ecosystem in the United States has become the model
for robust capital ecosystems, it has taken over 30 years to fully mature and coalesce. In most countries
outside the U.S., the capital ecosystem is far less mature or simply does not exist at all. As InnoVacient
works with governments and nations around the world on Directed Transformations, focused around
economic development or expansion, an underdeveloped capital ecosystem is usually one of the first
items that must be addressed – at a national level – in order to support the growth of new technology
innovations that will serve as the sustainable engine of economic transformation.
If a nation’s capital liquidity is not appropriately addressed, nothing deliberate in terms of economic
expansion is likely to occur. For most governments and nations undertaking this type of economic
transformation, the necessary maturation of a capital market with participants (funding sources) that have
an appetite for assuming “growth-based” risk, can take years to develop into a coordinated ecosystem.
However, a new capital model has emerged that offers a potential solution to help mitigate the risks and
timeframes of traditional early stage capital - crowdfunding.
WHAT IS CROWDFUNDING?
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a
large number of people, today often performed via internet-mediated registries, but the concept can also
be executed through mail-order subscriptions, benefit events, and other methods. 2 Additionally,
crowdfunding has become well-known as a form of alternative financing, which has emerged outside of
the traditional venture capital financial system3.
The crowdfunding model is based on a platform offered by a neutral sponsoring organization or entity
that connects individuals and entrepreneurs with potential ideas or projects requiring funding with
individual investors looking to invest in projects that offer a potential return. In most cases, the platform
is designed to support a specific type of funding: lending, equity investment, rewards and donation.
Examples of the leading crowdfunding platforms include: Kickstarter (the leading crowdfunding site with
over $220 million raised and over 61,000 launched projects), Indiegogo, RocketHub, GoFundMe, Razoo,
Crowdrise, PledgeMusic and Sellaband.
2
Oxford Dictionary Definition of Crowdfunding.
3
"Cambridge Judge Business School: Cambridge Centre for Alternative Finance". Jbs.cam.ac.uk.

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Interestingly, Kickstarter has already experienced “serial entrepreneurs” in their community. These are
entrepreneurs that have successfully launched multiple projects, and in the process have built a
community of investors and brand recognition that can be continually leveraged. One example, Luuup is
the highest funded pet related product to date – the Luuup entrepreneur has built an investor community
of 14,000 individuals that can now be accessed, with the entrepreneur’s permission, by other
entrepreneurs for their projects.
While lending-based funding still dominates the overall crowdfunding industry, under new US laws
enacted in 2013, “equity” crowdfunding has sprung forth as the newest category and is growing at
unprecedented rates. As previously mentioned in this report, the venture and equity based funding is on-
track to eclipse the traditional venture capital funding model in 2016. This is a meteoric rise that shows
how innovative models have the potential to disintermediate well established and entrenched
ecosystems.
CREATING CAPITAL ECOSYSTEMS THROUGH CROWDFUNDING AT A NATIONAL LEVEL
Nations that are transitioning economies or seeking to significantly increase levels of economic
development and prosperity through technology innovation all face a common challenge – effecting
noticeable change within timeframes that show demonstrable progress and measurable results. The
reality is that most governmental leaders cannot wait 30 plus years for a robust capital ecosystem to
develop and mature organically.
According to estimates from The World Bank, the overall crowdfunding industry will reach $90 billion by
2020. However, if the current trend of doubling year-over-year continues, we’ll see $90 billion by 20174.
If we look at what is driving this enormous growth, we see that it is the same on-line, massively scalable,
collaboration model that has disrupted existing industries like retail, real estate and transportation.
Understanding this exponential growth potential, an opportunity exists for a “disruptive” model that could
create or grow a capital ecosystem where one did not previously exist.
The crowdfunding model is already proving to be a scalable model that could be used by nations and
developing or transitioning economies around the world. The potential of tapping into this model to drive
transformative growth could even enable these nations to leapfrog existing nations, regions and
previously established financial ecosystems.
In fact, the beginnings of this model being used in practice can be seen in the fast-follower adoption of
the mostly U.S. based crowdfunding models by Asia. Between 2014 and 2015, Asian crowdfunding
4
https://www.crowdfunder.com/blog/trends-show-crowdfunding-to-surpass-vc-in-2016/

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volumes grew by 320 percent, to $3.4 billion5. This strong growth has moved Asia slightly ahead of Europe
($3.26 billion) as the second-biggest region by crowdfunding volume behind the U.S. in a relatively short
time span.
The systematic use of specialized crowdfunding platforms by a government or nation, in combination with
a directed approach to economic transformation, would enable a number of accelerated opportunities
including the rapid formation of funding liquidity required to support technology innovations and early
stage company success and growth.
These platforms would also enable governmental decision makers the ability to add government
incentives and bring together targeted public/private partnerships around identified areas of national
interest. Equally important, a properly managed crowdfunding platform operating at a national level, or
in partnership with private organizations or institutions, would have the added benefit of collecting data
analytics for clustering and trend analysis that would identify early success indicators and areas for further
government sponsored investment opportunities.
Additional benefits of a national crowdfunding strategy include leveraging contemporary channels of
social media and marketing in new dynamic models for government initiative brand value creation and a
significantly amplified public relations opportunity around investment into the overall economy and
populace.
IMPLEMENTATION CONSIDERATIONS
Today, crowdfunding is still largely a U.S. centric phenomenon, but other nations that are quickly
recognizing how to leverage the power of these new collaboration platforms are creating new capital
ecosystems that facilitate innovation and entrepreneurship. While the move towards these new platforms
is already demonstrating positive results, governmental leaders and key decision makers must also
recognize that too much involvement by the heavy-hand of government can just as easily stifle new
innovation as incent it.
With that understanding, a thorough dialogue should preamble any national initiative to utilize
crowdfunding for economic development or transformation. At a minimum, these dialogs should address
how best to coordinate public policy, regulations and incentives to accelerate funding sources and
liquidity to a point of critical-mass. Additionally, government should address how best to define and
5
http://www.crowdsourcing.org/editorial/global-crowdfunding-market-to-reach-344b-in-2015-predicts-massolutions-2015cf-
industry-report/45376

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support critical economic development targets while maximizing participation through public/private
partnerships.
More strategically, nationally sponsored crowdfunding initiatives must be aligned with ongoing job
creation initiatives and the overall stimulation of regional clusters and competitive distinctions as a basis
for sustainable economic growth. As no single crowdfunding model would be appropriate for every nation,
each national initiative must further consider:
 How appropriate the regulatory constraints in place within the US, UK, EU and Australia/NZ are to
the nation in question;
 The desired balance between local, regional and international funding sources;
 The operations and governance of the platforms through government only or public/private
partnership with sponsoring organizations or institutions; and
 Integration of the platforms and resulting data analytics into a broader economic development
governance and strategy.
CONCLUSION
Crowdfunding has rapidly grown to rival traditional venture capital in terms of scope and overall liquidity
volume. Internet access to crowdfunding platforms and social media advertising of crowdfunded projects
have galvanized a new class of “investor” and disrupted existing models of finance and transparency – in
effect democratizing early stage funding. The opportunity exists for governments and nations
contemplating or reinvigorating economic development models to harness this crowdfunding capability
to fast-path capital ecosystem creation and effectively leap-frog existing established models (and
countries). Platform based data analytics of startup activity and success will enable the identification and
stimulation of long-term regional competitive distinctions for export-dollar generation and economic
development.
The entrepreneurial community, whether technology based or traditional “brick and mortar”, no matter
where in the world, is very aware of international trends and business cultures that facilitate growth,
enabling them to be successful faster. A properly defined and implemented crowdfunding platform could
become the centerpiece of a broad economic development initiative that delivers value to a population
as well providing positive marketing, public relations and social media opportunities in itself, and access
to success stories of the entrepreneurs that utilize it.

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ABOUT INNOVACIENT
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