TOKYO -- The practice of collecting small amounts of funds from backers on the Internet to finance a project, known as crowdfunding, has finally begun to be adopted in Japan after becoming commonplace in the U.S. and Europe.
Crowdfunding platforms raised $5.1 billion in 2013, according to an estimate by research company Massolution. Sixty percent of the total raised in 2012 was in North America and 35% came from Europe, with Asia accounting for slightly more than 1%.
In Japan, some of the well-known crowdfunding sites, including Readyfor and Campfire, which both launched in 2011, have just started to become known to the general public.
Crowdfunding is already recognized in the U.S. and Europe as an effective way for venture businesses to raise money. Among the projects financed are those that would be passed over by venture capital and financial institutions because of the long periods needed to recoup investment. Crowdfunding platforms allow entrepreneurs to publicize their business plans online and collect small contributions from many participants, which means that each investor will suffer just a small loss if the project fails.
"It's very significant because it brings out ideas that were buried," says Noriyuki Yanagawa, a professor at the University of Tokyo's Graduate School of Economics.
In 2011, California-based startup Whill raised 1 million yen ($9,700 at current exchange rates) on Japan's Campfire platform and unveiled a prototype of a stylish wheelchair at the Tokyo Motor Show. It was then able to raise $1.5 million in the U.S. The wheelchair is slated to hit the market this summer.
"Crowdfunding is the cheapest marketing method," says Jun Akaike of Impossible Tokyo, a company that sells equipment for creating instant film from photos shot on iPhones. The Tokyo-based startup turned to crowdfunding in 2012 and found some 3,000 supporters in the U.S. and Japan combined. This let him know that there is a market for the product, says Akaike.
The Japanese government has started to put its weight behind crowdfunding. The Financial Services Agency is expected to revise rules as early as next spring so that venture businesses can collect small sums over the Internet by offering shares.