Why An Equity Crowdfunding Site Could Become The Largest Marketplace In The World


BY Ryan Caldbeck, Forb, What do Airbnb, Etsy, OpenTable, Uber, and Kickstarter have in common? Well, to begin with, each of them are relatively young. Each of them also followed the heavyweights Amazon and Ebay, and each of them share something else in common:

Their success stems from the simple fact that each one removed friction in a market by aggregating supply and demand in a user-friendly way. And there is something else: Each of these platforms have reaped the massive benefits of network effects—that is, as more people use the platforms, more people want to be on the platforms. All of this leads to improved quality of goods/services, which in turn leads to dominance. Competitors are left behind, whether online (Kickstarter, for example, was not the first crowdfunding site.), or offline.

While these now well-known marketplaces have already gained significant scale, I believe that the equity crowdfunding marketplace that ultimately comes out on top could be even larger than many of the great marketplaces of today. To understand why, it’s useful to look at an example. Lets take some stats we have from CircleUp, an equity crowdfunding site, and OpenTable, the world’s leading online reservations marketplace. According to OpenTable’s 2012 SEC filings, the Company seated approximately 120 million diners in 2012, driven through its own platform, through affiliates (i.e., Yelp) or directly through the restaurant (i.e., on the restaurant’s site using OpenTable). If you divide OpenTable’s $91 million in reservation revenue by its 120 million consumers, that comes out to $0.76 per consumer. Not bad for many internet businesses.Now let’s look at equity crowdfunding. I’ll use CircleUp as an example, and I welcome others in the comments section below. On our platform, investors can invest anywhere from thousands to hundreds of thousands of dollars per investment (the minimum investment is determined by the entrepreneur on a deal by deal basis). Additionally, across the 21 companies that we have helped raise more then $21 million for, we have seen a large portion of capital come from “repeat investors”—that is, those who have made multiple investments on the platform. Our average investment depends on the deal but is typically five figures—for this post lets assume $10,000. If the average investor only invests $10,000 per year on CircleUp (note this is not the actual average, just a hypothetical), it would be worth somewhere between $500 and $1,000 in revenue to CircleUp (our fee structure is based on the size of the raise). Given the repeat investment rate, investors are often worth several thousands dollars per year to CircleUp. read Full article on

Source and more on http://www.forbes.com/sites/ryancaldbeck/2013/11/11/why-an-equity-crowdfunding-site-could-become-the-largest-marketplace-in-the-world/

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