Insights into crowdfunding

Insights into crowdfunding

Crowdfunding became known around 2005/06 in the creative industries. To cope with illegal downloads in the music industries, money was raised before publishing. However, the concept of crowdfunding is much older. In 1885 the Statute of Liberty would not have been completed without a newspaper-led campaign (by Joseph Pulitzer of the New York World) that attracted 160,000 donors.

Crowdfunding is a web-based way for businesses or other organizations to raise money. Thus, it fits on very specific situations within a business life cycle. It seems simple: just sign-up with a high-quality crowdfunding platform, click some buttons and you will raise money. Yet, like any other fundraising campaign or business strategy to raise money, crowdfunding requires a sound strategy and solid execution. There are 2 main crowdfunding techniques shown in the following chart.

Crowdfunding

They are distinctive in the funding mechanisms, campaigns, disclosure requirements and funding target to be raised (in general, reward-or donation-based crowdfunding raises a lower volume than yield-oriented campaigns, in average it is about volumes between EUR 1,000 and EUR 1 Mio.).

Austria has passed a Crowd Funding Law, Alternativfinanzierungsgesetz (AltFG) in 2015, which has been facilitating crowd investments for SMEs (Small and Medium sized companies):

  • Financing instruments may be silent partnerships, subordinated loans etc., senior loans, however, are still prohibited.

  • Only show content that is beneficial for understanding.

  • The money raised must be used for the operation of the business.

  • The prospectus requirements (information about the company, business plan, Due Diligence etc.) have been simplified, depending on the capital target: up to EUR 1.5 Million an information sheet is sufficient, up to EUR 5 Mio a „light“ prospectus is required.

  • Investors are limited to a maximum of EUR 5,000 within 12 months, exceptions may apply for wealthy or professional investors.

The volume of crowdfunding in Austria has increased from EUR 3.5 Mio. in 2014 to 29 Euro Mio. in 2017, of which yield-oriented crowd investing contributed to 90% of the total.1


Source: 1Crowdcircus GmbH, an independent Austrian based crowdfunding portal

Picture credits: pixabay,acib

Tags: crowd investments, crowdfunding, funding