Annals of dubious statistics, crowdfunding edition

By Felix Salmon
July 27, 2012

Are crowdfunding statistics the new counterfeiting statistics? Certainly they seem to have become a meme. If you know that crowdfunding is a big deal, it’s probably because you read all about it in TechCrunch, in May (“these portals raised $1.5 billion and successfully funded more than 1 million campaigns in 2011″), USA Today, a few weeks later (“About $1.5 billion was raised in 2011 by about 450 crowd-sourcing Internet sites worldwide”), or maybe the Economist, a week after that (“$2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011″). More recently, Forbes upped the ante even further: “This year alone, an estimated $3.2 billion dollars is expected to be raised through donation-based crowdfunding platforms like Kickstarter”.

All of these statistics, you won’t be surprised to hear, come from the same place: a May report from and its research arm, Massolution. The report lists — by placing their logos on five successive pages of the report, so that their names can’t be searched — 135 different “participating companies”, starting with Lending Club and Kiva, and ending with… um, hang on a sec. Lending Club and Kiva? Since when are they “crowdfunding platforms”?

It turns out, if you look at the definition of a “crowdfunding platform” that the report uses, it’s incredibly broad: “an operator of a funding platform that facilitates monetary exchange between funders and fundraisers.” Which turns out to include not only peer-to-peer lenders but also FirstGiving, a website which non-profits use to accept donations, and which claims to have moved $1 billion of funds through its system. For that matter, the definition doesn’t even say that the crowdfunding platform needs to be online: I reckon that if anybody hosting a political fundraiser probably counts as a crowdfunding platform under this definition. Hell, the New York Stock Exchange would even qualify.

Oh, and guess what: if you add up all the money raised in 2011 from all 135 companies listed, it doesn’t come to $1.47 billion at all. It comes to just $575 million. Where does the other $895 million come from? The report basically pulls it out of thin air, reckoning that since it didn’t manage to get numbers from all of the crowdfunding companies in the world, it would try to extrapolate, somehow. Or, in the language of the report:

Each CFP was modelled individually based on key metrics, market growth dynamics and other characteristics for a number of large CFPs that did not provide data in order to estimate the total funds.

It’s very hard to know what this means, but when it comes to crowdfunding platforms, all of the big ones, including Kickstarter, are already on the list. It beggars belief to assert that there’s a whole bunch of other platforms out there which together raise more money than those 135 companies put together.

In any case, you won’t find it in the abridged version of the report, but the key chart is this one:


According to this chart, of the $575 million that Massolution managed to total up, fully 49% is “donation based”, from companies like FirstGiving. And another 22% is “lending-based”, from companies like Lending Club. (I don’t know which bucket Kiva is in; I suspect it’s lending, but it’s certainly one or the other.) I don’t consider peer-to-peer lending to be crowdfunding, and I don’t think that giving money to charity online counts as crowdfunding either. So what happens if you exclude those two categories? You get $63 million in reward-based crowdfunding (think Kickstarter, which is now up to $247 million in total funds raised), and another $103 million in equity-based crowdfunding, all of which comes from outside the US.

Recently, SecondMarket has been moving into the business of raising money for fund managers of various descriptions — this too counts as crowdfunding under the Massolution definition, even if it’s just a couple of high net worth individuals putting their money into an art fund. And SecondMarket is adamant that it does not want to get into the crowdfunding game.

All of which is to say that Massolution has done a very good job of taking the relatively small amount of genuine crowdfunding which is going on out there, throwing it into a bucket with a lot of stuff which is not crowdfunding, and persuading the media that crowdfunding has already become a billion-dollar business, even before all the new activity legalized by the JOBS Act kicks in.

So what are the real numbers? Well, if you take only the “reward-based” and “equity-based” slices from the Massolution pie, they come to $165 million for 2011. That’s more or less in line with the $123 million number which the Daily Crowdsource came up with earlier this year. It’s not chump change, but it makes the entire global crowdsourcing space roughly half as big, in revenue terms, as, say, the Fifth Avenue Apple Store.

The lesson of this story is that we shouldn’t be getting ahead of ourselves, and we certainly shouldn’t be accepting uncritically any statistics which come from Massolution. Carl Esposti, Massolution’s CEO, is on the executive board of the Crowdfunding Professionals Association — which is to say he very much has a dog in this fight. Next time he starts throwing out statistics on the size of the crowdfunding market, it would behoove any journalist to double-check exactly what he means by that. And whether he thinks it includes things like online donations to the Red Cross.


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Good post, though frankly I’m more frightened if crowd funding does take off. I’d say that of late 2 of Felix’s top 10 topics are crowd funding and discussion of programs to reduce (or at least refi at lower rates) mortgage debt on underwater homes. My point being, if we’re not going to have a caveat emptor, deal with the consequences of one’s investment choices mindset, we shouldn’t weaken securities offering rules and consumer protection laws for things like crowd funding. Prosecute fraud, of course, but the nature of frauds is that the money is usually gone so recoveries are partial at best. I’m scared about the prospect of socializing crowd funding losses. In fairness, I’ll note that Felix has as a rule been skeptical of crowd funding.

Posted by realist50 | Report as abusive

Don’t understand the above comment. Isn’t investing in it of itself caveat emptor, i.e. there’s always a chance of losing everything. Just look at the facebook investors. They are under the old securities rules and they are getting reamed.

Securities laws aren’t being weakened by crowdfunding, they are just being updated based on the progression of technology. Nowadays, you can get a lot of information just by doing quick searches which back in the 80′s (when Reg D was adopted) was impossible or when the original securities act was adopted (back in the ’30s).

BTW, great post on the numbers. It’s always good to be cynical, but I believe one must also be open to new ideas.

In full disclosure, we run an equity-based crowdfunding portal (

Posted by JFierro | Report as abusive

Felix, thank you for your thoughtful article. However, there are some misunderstandings in your analysis. If I read your comments correctly, you discount lending-based crowdfunding in the final tally. Debt instruments typically are “securities,” and the intent under the JOBS Act is to permit crowdfunding with various forms of securities. So, lending-based crowdfunding probably belongs in the statistical mix. You also point out that current equity crowdfunding numbers make up only a small piece of the pie; however, the smaller number may be due to the fact that equity based crowdfunding won’t be permitted in the USA until the SEC promulgates regulations. The current numbers are derived from other countries where equity crowdfunding is permitted, so it’s also inaccurate to suggest that stats taken from smaller countries is an indication that the numbers really aren’t there for crowdfunding in the USA.

Posted by bdenglr | Report as abusive

Mr. Salmon, glad to see you’ve discovered the four basic types of crowdfunding. Yes, this word has multiple meanings as do many words.

This might help: ding-explained/

And, yes, sometimes financial analysts have to estimate revenue and the like. Makes it tough, don’t it?

Posted by crowdfundingm | Report as abusive

@JFierro – The JOBS act provides a new exemption from SEC registration and easing of current general solicitation rules to facilitate crowdfunding. It weakens or loosens existing securities laws. Whether or not that’s a good idea is open to debate, but that’s what it does.

Posted by realist50 | Report as abusive

The important thing to remember about crowdfunding is that small sums can have profound and exceptional value for small startups and entrepreneurs. The grosse figures are largely irrelevant and only important to old style thinkers. No one is arguing crowdfunding will replace traditional investment, it is complementary, but as an engine to drive entrepreneurship it is powerful and responds to a better lens of analysis than traditional venture capital. Indeed we are already finding the more infomed VCs sniffing around crowdfunding locations to find crowd validated models that they missed. Second and third round funders are going to have to come to terms with promising startups that have already sold equity to people whose investment model they don’t understand. If you want to find inflated numbers I suggest you look at the inflated salaries of the finance community who have single handedly decimated the economy with their own arrogant hubris. And what can you say about a commentator that believes in, and even uses, the notion of a memes – haven’t laughed as much in years!

Posted by twintangibles | Report as abusive

Here’s a comprehensive view and excellent commentary on crowdfunding by A. Brian Dengler, citing research from Wharton, Indiegogo, massolution and more:

“Crowdfunding Adds Up”:

Also, here’s Somolend’s take in a blog post titled “Crowdfunding: One Size Doesn’t Fit All”:  /crowdfunding-one-size-doesnt-fit-all/.

These debates are great and will help this very young and booming industry form around a common taxonomy.

Posted by expertcolor | Report as abusive