Why crowdfunding hasn't caught on in AsiaJuly 8, 2013: 11:16 AM ET
The popular fundraising method hasn't stuck yet. It's only a matter of time.
By Kurt Wagner, reporter
FORTUNE -- The crowdfunding industry made it clear it isn't going anywhere last year. Popular crowdfunding platforms like Kickstarter and Indiegogo made it simple for entrepreneurs to fund their creative projects by soliciting donations from the general public. With more than 600 platforms worldwide, crowdfunding has grown from a $530 million industry in 2009 to nearly $2.7 billion last year, according to a recent study by Massolution, a research firm specializing in crowdsourcing businesses.
The relatively new funding strategy -- in which entrepreneurs receive donations often in exchange for small perks or gifts -- is predicted to eclipse $5 billion in total funding in 2013, according to the study.
But not everyone has fully adopted crowdfunding. Platforms in Asia, home to more than half of the world's population, were responsible for only $33 million in funding last year -- just over 1% of the total raised, according to the study. With so many entrepreneurs relying on the masses to jumpstart their projects, it's noticeable that the largest concentration of people on the globe appears to be uninterested.
There are a number of reasons crowdfunding hasn't gained traction in Asia like it has in North America ($1.6 billion in 2012) or Europe ($945 million), says Leo Shimada, founder of Singapore-based platform Crowdonomic. The most obvious is that Asia doesn't have the high-profile, reliable platforms that have helped push the industry forward elsewhere, he argues. Tom Russell, CEO of equity-based platform SeedAsia in China, agrees. "I don't know if you've had a platform quite like Kickstarter anywhere else in the world yet," he says.
Too many crowdfunding providers in Asia are taking a "cookie-cutter approach," explains Shimada, simply throwing up a website without providing the services or reliability donors have come to expect in other parts of the world. "They look at Indiegogo or Kickstarter and replicate the website and expect money to come in," he says.
Local culture is another thing. For example, the public perception of failure is different in Asia than it is in the United States, says Shimada, and funding an idea online is risky in that it opens the entrepreneur to criticism and the potential to fail publicly. "Wherever you are in the world, no one wants to be a loser," says Shimada, "but especially in a region like Asia where there's this thing about saving face and a pronounced fear of failure." In China, Russell pointed to the importance of guanxi, the process of maintaining relationships and influential networks, as a possible crowdfunding deterrent. "[In China] people like to invest in their local community," he says. "They're often very willing to get behind projects where they know the founders, or they have an understanding of what the person is doing. But the idea of investing on the Internet, I feel that's just very unfamiliar to them." It is because of this that SeedAsia works to connect investors with entrepreneurs offline.
Back in the United States, leading platforms like Kickstarter and Indiegogo have been aggressively expanding overseas -- just not to Asia. Kickstarter began hosting U.K.-based campaigns and accepting pounds last fall. In January, Indiegogo opened its platform to new currencies and languages, including four localized homepages for the U.K., Germany, France, and Canada. Indiegogo's Head of International Operations, Liz Wald, says the platform is certainly considering expansion into Asia but wants to be sure the timing is right. Asia moves fast, she says, so there is an added importance to beating competitors to the region to capture early adopters.
In other words, the race for Asia is on, but that doesn't mean being reckless. "You have to have a willingness to commit, you can't half-go to Asia," says Wald, who joined Indiegogo after leading Etsy's international efforts for three years. "Everyone wants to be there and be one of the first players, but if you're not really ready to commit, I think it can be an expensive and painful [lesson]."
Given the potential market, you can expect crowdfunding's major platforms are watching Asia closely. Prematurely rushing into the region may hurt, but letting the competition beat you there? That may be the most painful lesson of all.