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Sheil Malde leads Deloitte’s commercial due diligence team in the Nordics. He has over 17 years of experience in strategic and transactions consulting across a number of industries and countries. Sheil graduated from the University of Cambridge, UK, with Master of Engineering and Master of Arts degrees.

Crowdfunding grows up

Crowdfunding has become an important source of alternative funding for start-up and early stage companies, primarily due to the potential of better access to capital at lower cost compared to traditional funding sources and the inherent market testing that comes with launching a crowdfunding campaign. Crowdfunding is clearly going to be part of the future funding landscape, although the pace at which it will develop in different countries is unclear.

Norwegian use of crowdfunding is relatively immature compared with other European countries such as the UK, or even closer neighbours such as Sweden and Finland. Regulatory clarity and greater awareness of the opportunities offered by crowdfunding to both funders and fundraisers are key to unlocking its potential. Combining the wisdom (and money) of the crowd with government-backed incentive schemes, such as Innovasjon Norge and SkatteFUNN, should increase the pace and success rate of innovation amongst Norwegian entrepreneurs and small businesses.

This article describes the different types of crowdfunding; details how they fit in the funding lifecycle of a business compared to traditional options; and provides an overview of market development including a comparison of Norway with other countries.


1. What is crowdfunding?

Crowdfunding as a concept is not new – it is similar to raising finance from friends and family, but where ‘friends’ include people unknown to you and who could be from anywhere in the world. It combines the incentives from the emotional side of fundraising traditionally associated with charitable giving, with the financial side of investing traditionally associated with business angels, venture capitalists and bankers.

Crowdfunding can be segmented into three broad models based on the primary motivation of the funder:



Figure 1 Crowdfunding segmentation.



Table 1 Characteristics of the main crowdfunding models.


2. How does crowdfunding fit in the business and funding lifecycle

2.1 Funding lifecycle of a business

Companies utilise different types and sources of funding as they develop, primarily driven by the interaction between access to capital, level of risk and cost of capital.

Development phase companies are naturally higher risk due to untested market propositions, lack of positive cash flow and weak balance sheets. For development phase companies, access to capital is more limited and relatively expensive, as it is usually in the form of equity. During this phase, founders are usually in a weaker negotiating position when raising external capital and historically they have had fewer financing alternatives.



Figure 2 Business growth lifecycle and traditional private financing options.



Figure 3 Business growth lifecycle and crowdfunding options.


The option of crowdfunding partially fills the gap in the traditional finance market caused by the limited availability of funding during the development phase. This became more acute following the global financial crisis, especially for higher risk ventures and the small to medium sized enterprise segment (SME) in most countries.

Crowdfunding allows companies to access capital that is either not available from traditional sources, such as banks or venture capitalists, or with better overall terms (e.g. lower cost, less restrictions, more control), enabling a larger number of entrepreneurs and companies to connect with a broader set of investors (or backers as more commonly used in this context).

Capital from founders, friends and family is still the primary source of funding the initial establishment of a company (seed stage). Crowdfunding can be used at this stage of the cycle, particularly for some product categories such as technology or arts, but the market has evolved from helping finance entrepreneurs and inventors realise a concept, to being a key marketing tool to gauge and build demand for relatively well developed products/services.

2.2 Reward based crowdfunding

Reward based crowdfunding is primarily used by B2C companies during the start-up and early stages. It could be considered the most disruptive model to traditional financing, since it effectively provides funds with little or no financing cost. The main costs for a fundraiser are associated with the crowdfunding campaign and fees paid to the crowdfunding platform, usually based on the amount of funds raised.

Reward based crowdfunding effectively finances parts of working capital during a company’s development phase that traditionally would have required funding in the form of equity (due to the high risk of failure during this phase). As a bonus, it provides feedback on market demand, reducing one of the key business risks. A successfully funded campaign is a good sign of positive market potential – it could be considered a form of market due diligence.

Although reward based crowdfunding could disrupt traditional options, it also provides value to the traditional finance value chain by acting as an investment filter: B2C companies unable to attract reward based crowdfunding may not be good candidates for business angel or venture capital funding.

2.3 Equity based crowdfunding

Equity based crowdfunding is also used during the development phase where capital is needed to fund capability building (e.g. sales & marketing) or product development.

Traditional financing from business angels or venture capital funds can result in a shift in power from the founders to the limited number of new external investors, whose primary motivation is financial return. However, in addition to capital, these types of investor bring value to the company in the form of experience and networks, filling a gap that is key to successfully growing.

Equity crowdfunding can bring in a diversified range of investors with a different mix of investing motivation, ranging from a combination of emotional and financial through to pure financial. When using equity crowdfunding, control usually remains with the founders and existing shareholders. In a similar way to business angels and venture capitalists, some of the new shareholders can provide additional value through experience and networks, although specific entrepreneurial knowledge may not be as deep. As the equity crowdfunding market matures, the mix could shift towards more financially motivated investors that bring fewer benefits compared with traditional business angel/venture capital investors.

Traditional investors also act as ambassadors for their portfolio companies. One advantage of the crowdfunding option is that the potential number of business ambassadors could be orders of magnitude larger.

For companies looking towards an eventual Initial Public Offering, equity crowdfunding also potentially helps fulfil the investor spread requirements by increasing the number of existing shareholders before going to market.

Equity based crowdfunding is relatively new, and the direction it will take is not yet clear. It will open up early stage equity investing to a new range of investors, provided the regulatory environment allows this. From this perspective, it could be considered disruptive, as ticket sizes are smaller than traditional business angel and venture capital investments. While this smaller ticket size may change the way traditional funding works, the platforms used for equity crowdfunding are a source of potential opportunities for business angels/venture capitalists and could lower the cost of investing, partially offsetting the lower potential returns.

Case example: Northern Playground – a successful Norwegian start-up

Northern Playground was founded by Jo Egil Tobiassen and Magnus Aasrum in 2011 to solve a common problem in Norway: controlling body temperature while skiing, hunting, fishing and other outdoor activities.

Initially using the traditional financing route: funding by the founders, followed by fundraising from friends and family and support from Innovasjon Norge for R&D costs, Northern Playground developed and successfully launched a range of clothing articles. To fund further domestic growth and international expansion (primarily sales & marketing activities and increasing inventory), the company looked for external equity investment during winter 2015 and spring 2016. Discussions with traditional development phase investors did not give the founders what they were looking for – the capital was available but other needs were not met.

While considering fundraising options, and having developed a new product tailored for the sailing market, the company decided to use a reward based crowdfunding campaign for the product launch in May 2016. The campaign was primarily for marketing, but the funds raised (NOK 304 thousand from 264 backers in 22 countries in 29 days) helped with working capital. The campaign was picked up by several international magazines, resulting in editorial coverage that would have been expensive to obtain through traditional PR channels.

Having successfully executed its first crowdfunding campaign, the founders decided to try equity crowdfunding. After investigating a number of platforms to support and host the campaign, they decided to raise funding themselves using a self-hosted internet campaign and reaching out to their existing customers and network. The goal was minimum funding of NOK 1.2 million, with the smallest ticket of NOK 50,000. The campaign resulted in 35 people wanting to invest a total of NOK 3.7 million (3 times oversubscribed), enabling the founders to select who they would take on as investors. The company is currently using the funds raised to grow market presence.

Key learnings from Northern Playground:

  • The effort needed to prepare a successful crowdfunding campaign, particularly since it is only live for around a month, and subsequent follow up is easy to underestimate.
  • Raising equity using crowdfunding would have been challenging without a track record and a network of loyal supporters. If this was the case, using an established crowdfunding platform could have been a good option to reach new investors.
  • Crowdfunding is still in its infancy from the perspective of the public and potential customers for many product segments.
  • The confidence gained by the company from being oversubscribed and being able to select investors based on more than financial contribution was an unexpected bonus.

2.4 Exit options for equity crowdfunding investors

A relatively untested area for equity crowdfunding is the exit option for investors. The current options are sale to a trade or financial buyer, and listing on a stock exchange or similar marketplace.

Although there are relatively few exits to date, the potential has been shown. One of the first exits was E-Car Club, founded in 2011 and acquired by Europcar in 2015 (undisclosed terms). It raised £100,000 from 63 investors in 2013 (average investment of £1,500 and largest investment of £15,000), alongside a separate seed-funding round. This was followed by a £500,000 intuitional investment in 2014 to fund growth. One of the most successful exits to date has been Camden Town Brewery, launched in 2010 and sold to AB InBev in 2015 for £85 million. It raised £2.75 million from 2,173 investors in 2015 (8 months before sale to AB InBev).

From a Norwegian perspective, the 2016 launch of Merkur Market by the Oslo Børs presents one exit opportunity. The listing requirements are less arduous than with Oslo Axess and the main Oslo Børs, for example requiring only limited scope due diligence and half-yearly financial reporting. However, it is not clear if Merkur competes with rather than complements crowdfunding as it is not regulated like the main Børs, nor if there are enough advantages compared to a full listing as the exit option.

3. Crowdfunding failures

The main failure risk of crowdfunding from a fundraiser perspective is not raising sufficient funding. Data and statistics on crowdfunding failure at a market level are not readily available. However, using information from Kickstarter, one of the largest reward based crowdfunding platforms globally, approximately 65% of launched campaigns failed to reach their funding goals. The failure rate varies significantly by industry category: the largely product based technology category has the highest funding failure rate at approximately 80% while the theatre category has one of the lowest failure rates at 40%.

From a funder perspective, the main risk is not receiving promised rewards. Of the 35% (10) successfully funded Kickstarter campaigns to date, 9% (11) have failed to deliver rewards to the backers as originally promised. Of these failed projects, 13% of backers received some form of refund or compensation.

One of the highest profile failures of a successfully funded reward based campaign was Zano, a drone developer that aimed to raise £125,000. In less than a year after successfully raising £2.3 million from 12,075 backers, it collapsed leaving the majority of backers with no product or compensation. This case highlighted the lack of recourse available to funders other than taking direct legal action against the fundraiser.

Robust data on failed equity funded companies is currently not publically available. As the market develops, failure rates compared to traditionally funded companies will be key in determining investor confidence.

4. The crowdfunding market

The volume of funds raised through crowdfunding has increased from an estimated US$0.9 billion in 2010 to US$34.4 billion in 2015, a compound annual growth rate of 109% (figure 4).



Figure 4 Global crowdfunding market size, 2010–2015.

Source: (1)


Lending is by far the largest segment of crowdfunding, accounting for approximately 70% of the 2015 market by volume; however, it is debatable if this segment fits the true spirit of ‘crowd’ as it includes some intuitional supported lending and usually comes once a company is in the established phase of the lifecycle.

The use of reward and equity based crowdfunding (excluding real estate) varies greatly by country, reflecting differences in the regulatory environment, investor tax incentives and maturity of traditional finance markets.



Figure 5 Development phase investment market size(a) for selected countries, 2015.

Source: (2),(3),(4),(5),(6),(7),(8),(9), Deloitte analysis


The US is the largest market for total development phase investment, including crowdfunding (figure 5), driven by business angels and venture capital. However, it lags the UK in equity based crowdfunding as a relative share of total funding (figure 7). US regulatory changes during 2015 and 2016, which allow non-accredited investors to participate in the equity crowdfunding market, are expected to drive significant growth from 2016 onwards. From a European perspective, the UK market is the largest. The Nordic market is driven by Sweden and Finland, with Norway lagging behind in 2015.

The UK market’s success is partially driven by a favourable regulatory environment, supervised by the Financial Conduct Authority, combined with tax incentives for investors. From a regulatory perspective, the key is finding a balance between investor protection and minimising bureaucracy, which is likely to be a moving target given the complexities involved when investors include the general public. Investor protection includes ensuring that potential investors are aware of the level of risk they are taking and that platforms are accountable for misrepresentation. From a tax perspective, the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) provide tax breaks for investors, with the aiming of reducing the risk of investing in development phase companies thereby encouraging investment.

The Swedish crowdfunding market has grown rapidly over the past few years, partly driven by the overall positive environment for start-up companies. The Norwegian market is currently very immature, partially due to alternative sources of funding and government-backed support such as Innovasjon Norge. However, recent developments in the start-up environment should enable the Norwegian crowdfunding market to grow from a demand perspective.



Figure 6 Development phase investment market size per capita(a) for selected countries, 2015.

Note (a) Consists of venture capital, business angel and crowdfunding (rewards & equity); does not include founder, friends & family or government-backed funding.

Sources: (2),(3),(4),(5),(6),(7),(8),(9), Deloitte analysis



Figure 7 Sources of development phase funding (b).

Note (b) Consists of venture capital and business angel funding.

Sources: (2),(3),(4),(5),(6),(7),(8),(9), Deloitte analysis


Taking into consideration country size expressed as population (figure 6) the US remains the most mature development phase investment market. The UK falls behind smaller European countries, including Finland, Denmark and Sweden. Norway is currently significantly behind the other Nordic countries, with private investment level per capita half of that in Sweden (note that funding includes domestic and foreign investment).

5. Crowdfunding platforms

Crowdfunding market growth has been driven by both the demand for funding and increasing supply of fundraising websites – crowdfunding platforms (CFPs). There are over 1,250 CFPs globally (1), with approximately a third in the US and half in Europe. CFPs usually focus on a specific crowdfunding model, such as rewards based, or on industry niches, for example renewable energy infrastructure investment. Some CFPs are beginning to expand to cover multiple crowdfunding models as they gain scale. Given the relatively immature nature of the market combined with fee earning potential averaging 4–8% of funds raised, the number of CFPs is expected to continue growing in the short term.

There are approximately 25 local CFPs in the Nordics covering all crowdfunding models. However, due to regulatory differences between countries, some CFPs operate only in one market and employ one crowdfunding model. For example Bidra, a Norwegian rewards based CFP, only allows campaigns from Norwegian registered companies. Other CFPs, such as Swedish headquarted FundedByMe, operate across several markets and cover multiple crowdfunding models, although some are restricted to specific geographies: for example, loans from FundedByMe are only available for Swedish and German companies.

Equity CFPs usually face more regulatory complexity. The EU’s Markets in Financial Instruments Directive (MiFID) aims to provide harmonised regulation across the European Economic Area (EEA) and is one of the primary routes for a CFP to be licenced in Europe. However, MiFID only applies to transferable securities and company laws in some countries may consider that stakes in private firms are not transferable, and therefore would not fall within the scope of MiFID. This is an example of regulatory differences that hinders market adoption.

MiFID is still not commonly used by equity crowdfunding platforms due to the cost and effort needed to meet its requirements. Finnish headquarted Invesdor is one of the first MiFID licenced platforms (supervised by the Finnish Financial Supervisory Authority), enabling it to operate in all EEA countries. It currently allows fundraising campaigns from Finnish, Norwegian, Danish, Swedish and British registered companies covering both equity and loan (bond) crowdfunding.

6. The future of crowdfunding

Corporate use of crowdfunding is rare, but is expected to increase as the industry becomes more legitimate in the eyes of the public and as corporates understand where to best use crowdfunding to connect with customers and local communities. For example, Marks & Spencer, a UK retailer, announced a crowdfunding campaign in June 2016 to fund the installation of solar panels on nine stores. Funders can invest between £100 and £100,000 with a targeted annual return of 5% for the first three years (increasing with inflation after that) based on Mark & Spencer buying the electricity generated to power its stores.

Crowdfunding has established itself as a viable route for raising funds at the start-up and SME level. Historical growth is expected to continue for the foreseeable future, mainly due to the industry’s focus on increasing awareness amongst the public combined with dialogue with regulators to create a positive environment. Recent regulatory changes in the US will help increase awareness of and participation in equity crowdfunding, which in turn should help drive growth globally.

Crowdfunding failures are likely to increase as the industry matures. A key to success at an industry level is dependent on CFPs and regulators learning from these failures and balancing the need for fundraiser/CFP accountability with the advantages offered by crowdfunding as a concept. Provided these are appropriately considered, the market should continue growing, enabling greater access to investment in development phase companies.

  • 1. Massolution/, 2015, 2015CF Crowdfunding Industry Report
  • 2. The Cambridge Centre for Alternative Finance, 2016, The Americas Alternative Finance Benchmarking Report
  • 3. The Cambridge Centre for Alternative Finance, 2016, The 2015 UK Alternative Finance Industry Report
  • 4. The Cambridge Centre for Alternative Finance, 2015, The European Alternative Finance Benchmarking Report
  • 5. European Commission, 2016, Crowdfunding in the EU Capital Markets Union
  • 6. European Private Equity and Venture Capital Association (EVCA), 2016, EVCA 2007–2015-dataset-europe-country-tables-public-version_final.xlsx
  • 7. National Venture Capital Association (NVCA), 2016, NVCA National-Aggregate-Data.xlsx
  • 8. Center for Venture Research, 2016, Full Year 2015 Angel Market Analysis Report
  • 9. eban (The European Trade Association for Business Angels, Seed Funds, and other Early Stage Market Players), 2016, European Early Stage Market Statistics
  • 10. Kickstarter, 2016,
  • 11. Mollick, Ethan R., 2015, Delivery Rates on Kickstarter

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