Crowdfunding taps into the financial backing of a community to bring innovative projects and creative ideas to life. Whether you're seeking funding for a new venture or supporting one, understanding the different forms of crowdfunding is crucial.
Crowdfunding is a proven method that allows individuals and businesses to raise capital directly from a large number of people - the "crowd" - through specialized crowdfunding platforms. These platforms serve as centralized hubs showcasing a range of crowdfunding projects, from creative endeavours to entrepreneurial initiatives.
The basic principle of crowdfunding is simple: An individual or organization presents their project on a specialized online platform, often with a detailed description. Interested supporters are then sourced to contribute financially.
Typically, a target sum is set for each project that must be reached within a certain timeframe. If the target is met, the project can be realized.
In comparison to crowdfunding, which traditionally has involved donations and non-financial rewards like vouchers, the focus in crowdinvesting has been on the financial return in the form of equity. Today the terms are used interchangeably.
Investors in crowdinvesting expect a financial return through dividends, increases in value or profit sharing. However, crowdinvesting also carries the risk of losing all the capital invested. It is therefore extremely important for investors to diversify their portfolio in order to spread the risk and pursue a balanced investment strategy.
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Donation-based crowdfunding, also known as charity crowdfunding, aims to collect donations for charitable purposes. Here, the focus is not on material returns, but on the altruistic idea of helping. This type of crowdfunding is often used for social or humanitarian projects.
Projects: Social projects that aim to bring about change or improvement.
Supporters: Individuals who support a project out of altruistic motives and do not expect a material return.
Originally from the creative industry, reward-based crowdfunding provides its contributors with material or immaterial rewards. This type of crowdfunding is particularly popular with artists, musicians or filmmakers who want to pre-finance their projects. In return, supporters receive, for example, the finished product, limited editions or unique experiences.
Projects: Creative ventures, innovations, product launches.
Supporters: Individuals who are interested in realizing a project and would like to receive exclusive rewards or products in return.
Example: A designer wants to finance a new collection and offers supporters limited editions of their designs.
Crowdinvesting, also known as equity-based crowdfunding, allows individual investors to directly participate in start-ups and companies. The investment often comes in the form of silent partnerships, profit participation rights or subordinated loans, tying the investor to the company for the mid to long term. This form of investment is particularly attractive for those who want to share in the success chances of a company. However, it also carries risks, as the total loss of the invested capital looms in the event of a company failure.
Projects: Start-ups or expanding companies with growth potential.
Investors: People who are seeking long-term involvement in companies and want to participate in the company's success.
Example: An innovative tech start-up is offering shares in its company. Investors receive a stake in the company and benefit from its growth and success.
Crowdlending, also known as fixed income investments, represents an alternative form of loaning where businesses borrow money directly from the crowd. Due to potentially higher returns compared to traditional savings methods, this form of crowdfunding is growing increasingly popular. It enables investors to diversify their portfolio while simultaneously supporting projects or businesses of their choice.
Projects: Medium-sized companies or private individuals who are looking for loans for specific projects.
Investors: Investors who are interested in a fixed return.
Example: A medium-sized company needs a loan for a new production facility. It gets this loan through crowdlending and pays back the investors' investment with interest.
Sustainability-focused crowdinvesting, also known as impact investing, enables individual investors to support start-ups and companies that aim to generate positive social or environmental impact alongside financial returns. Investments often take the form of silent partnerships, profit participation rights, or subordinated loans, tying the investor to the company for the mid to long term. With Europe setting ambitious goals for sustainable development, impact investing offers a powerful way to align financial growth with societal progress.
Projects: Start-ups or expanding companies with a clear focus on social or environmental impact.
Investors: Individuals looking for long-term involvement in purpose-driven companies and interested in contributing to their success.
Example: A business focused on renewable energy is raising funds to scale its operations. Investors receive a stake in the company and benefit as the business grows and makes a positive environmental impact.
Each project goes through a journey from its initial concept to the final reward for its supporters. In this section, we explain what this journey looks like in four basic steps and how each individual step contributes to the success of the project.
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