As businesses seek out new ways to raise money, venture capitalists could start to fund some early stage businesses through crowdsourcing rather than relying on institutional investors, according to the latest research.
"The percentage of early stage seed deals funded by crowdfunding is growing, and is beginning to cannibalize the volume of these deals funded by venture capital firms in Europe," said Robert Wardrop, executive director at Cambridge University's Cambridge Centre for Alternative Finance in the UK.
Crowdfunding for lending represents about 80 percent of the total market in Europe, Wardrop said. But Asia is still ripe for development with demand for alternative financing for entrepreneurial innovation in sophisticated regions like Indonesia, Japan, Singapore, and Thailand growing in a move to remain competitive with China.
In Europe, there has been an emergence of smaller venture capitalists using crowdfunding platforms to both raise funds to make new investments and provide capital for later stages of existing investments, Wardrop said. And this trend could catch on in Asia.
The emergence of crowdfunding/crowdsourcing, funding a project or venture by raising monetary contributions from a large number of people via the internet, was created in the aftermath of the global financial crisis. When traditional financial institutions restricted its lending capacity and entrepreneurs turned to the internet to connect with investors to help finance their business plans.
While the crowdfunding scene in Europe is well recorded -- the European Alternative Finance report estimated about 144 percent growth in the online alternative finance market from 2013 through to 2014 in Europe -- there is no one reliable research database about alternative finance activity in Asia.
To help untap Asia's crowdfunding potential, the University of Cambridge is planning to partner up with the University of China and corporate sponsors to conduct an Asian alternative finance report. The Asian alternative finance study is expected to be commissioned in July of 2015, and to be completed in the Q4 of 2015, Wardrop said.
The exact size of the alternative finance market in select countries in Asia may be a mystery now, but it is clear to one academic researcher that it is a big market that could become a massive one in coming years.
"The China market alone could represent USD 48 billion in crowdfunding by 2020, if the country liberalizes its law to allow more equity funding," said Richard Swart, global crowdfunding and alternative finance researcher at the University of California, Berkeley, Haas School of Business.