Meaning of Crowdfunding Part I

Crowdfunding is becoming increasingly popular as a form of financing in Germany. One of the reasons for this is that this method is quite simple and can be used by almost all companies, especially startups. There are a large number of different types of crowdfunding, each of which has various advantages and disadvantages. In addition, companies have various crowdfunding platforms to choose from, on which they can present their projects and tackle them. In principle, crowdfunding is suitable for financing all projects, but it is specifically for niche projectsvery suitable. However, various criteria such as taxation must be taken into account here, so that the crowdfunding project is also worthwhile and can compete with alternative financing models.

What is crowdfunding?

According to Sciencedict, crowdfunding is used to finance projects and products as well as to implement business ideas. Equity is used for crowdfunding; funds that are similar to equity can also be used. Crowdfunding can be done with participatory loans and with silent partnerships. A profit-sharing loan is a loan in which the lender receives a share of the company’s profits in addition to the interest. In crowdfunding, financial resources are used by many people; these people are the financiers. Crowdfunding is mostly called on the Internet, so the investors are usually Internet users.

Benefits of crowdfunding

Crowdfunding is a form of financing that is especially suitable for startups. This is mainly due to the fact that it involves very little bureaucracy. A crowdfunding campaign that is successful can be set up with comparatively little work. In addition, crowdfunding can be used by all legal forms . Even if the credit prospects are poor with classic financing models, the required money can still be generated via crowdfunding.

In addition, crowdfunding always has a positive marketing effect. In order to advance the campaign, various marketing tools such as videos or hands-on activities must be used and produced. This creates a relationship between the crowd and the crowdfunding company. This means that the participants have an interest in staying loyal to the company over the long term.

The financing itself is characterized by a high degree of flexibility. It is possible to customize the crowdfunding campaign. In addition, even very small investments are possible. So you don’t necessarily have to find a big financier who puts huge amounts of money on the table at once. That is why crowdfunding is also very attractive for private investors. As much money can be invested as you would like, and the potential for returns or considerations in return are considerable. Crowdfunding is usually characterized by transparency. This goes in both directions, so that the initiators can see directly from the crowd whether the project is liked or not.

Crowdfunding disadvantages

However, there are also various disadvantages associated with crowdfunding. So there is the “all or nothing” principle here. Either the financing target is achieved in full or all of the money goes back to the investors. In this context, the companies are partly dependent on the crowdfunding platforms you choose and their terms and conditions. Because of this situation, crowdfunding campaigns often fail. On some portals just a third, on others half of all campaigns actually achieve the desired goal.

This is very bad in view of the administrative and time required for a crowdfunding campaign. Companies first have to make advance payments without being sure that they will actually achieve their financing goal. One of the reasons for this is that interested parties have a very large selection of projects available. Investors therefore have to choose very precisely which projects they will make their money available to.

Crowdfunding – a still young financing option

Crowdfunding is still a young form of financing. In 2010, two small projects in Germany were successfully financed with crowdfunding for the first time. The year 2011 is the starting year for crowdfunding in Germany. An example of crowdfunding is the film “Hotel Desire”, which was financed by donations of 175,000 euros. The film for the series “Stromberg” was also financed by crowdfunding, and by the end of March 2012 a sum of one million euros should be raised. After just two days, income of more than 150,000 euros was recorded, the sum of one million euros was reached after a week.

Another very successful crowdfunding campaign was that for the game “Star Citizen”. With revenues of 153 million euros, it exceeded its target financing many times over. The investment company “The DAO” even took in 160 million euros, but was paid out in the crypto currency “Ether”. Crowdfunding platforms are now available on the Internet through which crowdfunding campaigns can be accessed. There are also regional crowdfunding initiatives that mainly focus on startups in the region.

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