Crowdfunding #1 - Crowdinvesting - let's join forces!
When it comes to investing, do you usually think of stocks, bonds or funds, correctly? There are other forms of investing. One example is crowdfunding, another is crowdinvesting. A project or group of project managers do not borrow money from a bank, but from individual creditors (you and me).
CROWDFUNDING & -DONATING
The focus of crowdfunding projects is often social. Quite often, you purchase the product, which can only be produced thanks to the funding made available via the campaign. Given this there is usually a delay between your cash injection and receiving a gift or product or service.
Sometimes you don’t receive a product, meaning you donate money to finance the project without expecting a return. However, in crowdfunding projects, the project will only be implemented if the funding target is met or exceeded. A funding target is the minimum amount the project requires. The digital platform Edition F in Berlin has conducted a very successful crowdfunding campaign. Thanks to a very high funding target Edition F was able to turn the Future Female Force into reality (an online academy for women).
Crowdinvesting does not provide you with a product, but renders you the money you spent after a certain amount of time plus interest. Often, you invest in start ups as part of this scheme. The risk is that your money will not be repaid to you at all. This can occur when the start up ceases to exist after a few years. As part of crowd investing, you get shares in the start up, so become a co-owner of the start up (by owning a certain percentage of its shares). In case of bankruptcy, your money is often gone. This is called risk capital. For this reason, this type of investing is only recommended if you have thoroughly researched the start up and believe in its economic viability and vision, or if you invest smaller amounts that you an afford to loose.
CROWDINVESTING IS POPULAR
Crowdinvesting is still very popular, especially because it allows "normal" investors to invest in start-ups, what previously only wealthy business angels or similar. was withheld. According to the crowdfunding.de portal, the volume of "successfully financed and completed crowdinvesting projects of German issuers" in 2017 was approximately EUR 170 million. That's more than 100 million euros more than last year. In the meantime you can also invest in real estate projects or sustainable projects (eg construction of a solar system) in addition to start-ups. Currently, most German crowdinvesting investors are investing in real estate projects.
WHERE CAN YOU INVEST YOUR MONEY?
The most popular crowdfunding providers are
Popular crowdinvesting providers are:
Exporo (real estate projects)
Bettervest (sustainable projects)
WHAT ARE THE RETURNS?
It is very different. In crowdfunding there is no return in the sense. When you donate your money, you may receive a gift or something in return, but you will not get your money back plus interest or a return. Therefore, the return here is an ethical or emotional return, e.g. because you support a sustainable or social project.
Crowdfunding is different, where you invest and maybe receive a return (depending on how the project goes). This is 5-7% for real estate projects, but very different for start-ups and can range between 0% and 20%.
WHAT IS THE DURATION?
In crowdfunding campaigns without or with consideration there is no duration in the sense, but your money is simply used for the realization of the project. Crowdinvesting usually has a duration on the other side. This depends on the project. For real estate projects the duration is 1-5 years, for start-ups 5-7 years.
ARE THERE AT MINIMUM INVESTMENT AMOUNTS?
When crowdfunding usually not or smaller amounts. Crowdinvesting is between 5 - 250 EUR (companisto is 5 EUR, seedmatch 250 EUR)
WHAT ARE THE COSTS AND RISKS?
The costs are incurred by the companies, i. for the start ups or the projects placed on the platform. However, as mentioned earlier, the risk of crowd investing is very high and more in line with the active investment approach than the passive one, as it is neither sufficiently diversified, it follows a stock picking approach and is also more speculative. That's why we only recommend crowdinvesting if you have worked hard on the project and the potential risks.
Written by Clara Creitz
Finelles Founder. Coach and Consultant (UBS, Towers Watson).