Crowdfunding is an alternative form of financing for companies that has become increasingly popular in recent years.
The basic idea is that not one investor invests a large sum in a project or company, but many investors invest small amounts. This means that challenging and risky projects can be executed that a single investor would not support due to the high risk. By investing smaller amounts in several projects, the risk is spread; the investor can build his personal portfolio and minimize the risk of individual projects. In general, however, it should be noted that investments in crowdfunding are always high-risk investments.
In general, four different forms of crowdfunding are distinguished:
- Donation based Crowdfunding: Donors participate with very small amounts and receive no consideration. The aim is to enable projects from the social, creative, cultural and art areas.
- Reward based Crowdfunding: The consideration is of material nature or ideally. It can also be the early use of the project result. However, no money is paid back to the supporters.
- Lending based Crowdfunding: The private investor lends his money via a crowdfunding platform or directly to a company of his choice. Interest is paid in return. It is agreed that the interest and the loan need only be paid on maturity if the company can afford it without becoming insolvent. In the event of the company’s insolvency, all other senior creditors’ claims are satisfied in full first, and subordinated creditors’ claims only if this is still possible. Because of the subordination, higher interest rates are promised than with secured loans.
- Equity based Crowdfunding: In contrast to lending based crowdfunding, in which investors act as lenders, equity-based crowdfunding allows investors to become co-owners or shareholders of the company. This form of financing can be achieved through GmbH participations, profit participation certificates or a form as a typical silent partner. Investors are thus entitled to a regular profit share if a profit is made and to their share of the sales proceeds if the company is sold. With this form, the investors bear both an entrepreneurial risk and can therefore lose their investment amount completely.
Crowdfunding has established itself as a global umbrella term for all forms of financing made possible by a crowd. This includes all four groups mentioned above. In the German-speaking countries, however, a separation between crowdfunding and crowd-investing has developed in recent years.
Depending on the arrangement of the consideration, a distinction is made between crowdfunding and crowd-investing. If there is no consideration or only non-monetary consideration with ideal value, one speaks of crowdfunding. Unlike crowdfunding, crowd-investing involves agreeing a monetary inflow for the investor. This can be achieved, for example, through a participation, a subordinated loan or other financial instruments.
Danube Angels is a crowdinvesting platform dedicated to equity based crowdfunding, also called crowdinvesting. With Danube Angels, everyone has the opportunity to participate in interesting late seed/early stage companies from the DACH region, Czech Republic, Slovakia, Hungary and Croatia from a minimum amount of € 1.000. Further information about Danube Angels can be found here.