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CrowdFunding Types - - CFP

posted Apr 3, 2013, 3:53 PM by Andrew Manzo   [ updated Apr 5, 2013, 4:28 PM by David Khorram ]

Crowdfunding is now on the roll with the crowdfunding bill currently debating among the United States’ Senates and the huge success of recent crowdfunding platforms. For instance, Kickstarter raised about 85 millions dollars which gives a new dimension to crowdfunding.

But what is crowdfunding?

Crowdfunding is above all a new source of funding. In-between microcredit and venture capital, crowdfunding gathers and unites a community of investors –the crowd- on a project, a company, or a cause to make their fundings possible.

Crowdfunding responds to needs in capital from a few thousand to several hundreds thousand euros. This phenomenon, even though it is really new, has experienced strong evolutions since its emergence in the mid-2000 and is today revisited in several different models.

“Philanthropic” Crowdfunding

Crowdfunding was first turned towards philanthropy or “highlight favourite” financing, through the funding of artistic, cultural or charity projects. Some platforms such as Ulule, Kickstarter, MyMajorCompany or IndieGoGo enabled a huge development of this phenonmenon.

This platforms’ model is simple: entrepreneurs reference their companies on the website and call on the crowd to find the funds necessary to carry out their projects. But in this case there is no expected return on investment, no gain of equity shares, not even interests. Most often these amounts of money are given in exchange for a non-financial rewards.

“Equity based” crowdfunding

Nowadays crowdfunding is developing and it takes a new shape. Equity based crowdfunding enables to gather higher amounts of money in exchange for companies’ equity shares. This gives an easy access for investors to young companies with a high growth potential.

Crowdfunding also permits to reconcile investors with the real economy. How? It connects investors with innovative companies in order to settle a financial and human collaboration between them. Therefore investors can chose an alternative to traditional shareholding: they can decide to participate to the growth of tomorrow’s companies.

This is the model developed by Crowdcube or Anaxago the new platform dedicated to innovative companies.

Through this new model, crowdfunding allows access to a catalogue of unlisted companies (most often start-ups) selected for their potential of growth.

This new model responds to a need in capital that can reach several hundreds of thousand of euros.

Indeed, finding funds is never an easy task especially in the current economic environment. The access to credit is now more difficult in particular for the companies with a risky profile: the prudential requirements (Bâle II et III, et Solvency II) encourage credit institutions and institutional investors to limit their exposure to risky businesses.

Crowdfunding responds to an equity gap (lack of players in the financing of this phase of business development) for companies in the seed stage and tends to make accessible the well-known role of Business Angels.

Crowdfunding potentially embodies a real alternative to conventional sources of funding and might be an opportunity to give back some meaning to investment.

Chiefly by giving to every particular investor the possibility to become, in accordance with their investment capacities, the protagonists of tomorrow’s growth.

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