Crowdfunding for financing niche projects
Crowdfunding is mainly used to fund niche projects. With crowdfunding, investors can acquire stakes in the company and certify their claims to a share in the company’s profits. Crowdinvesting, which is used to finance companies or real estate, works in a similar way to crowdfunding. Numerous investors bring in small contributions so that a large sum is raised for the investment. Crowdfunding is not about funding from business angelsto be confused, because when it comes to financing through business angels, there is often only one person, the business angel, who provides the capital. The business angel, just like the people involved in crowdfunding, receives shares in the company and participates in the profits. Crowdfunding is used for projects that only require a small volume of funding and that do not have a good chance with the banks.
Participation with small contributions is possible
A large number of donors are involved in crowdfunding, and crowdfunders can already participate with small amounts of one euro or more. With traditional crowdfunding there is no participation or obligation between crowdfunders and companies.
How is crowdfunding taxed?
According to Usvsukenglish, there are currently no separate regulations for the taxation of crowdfunding campaigns. Instead, such campaigns are viewed as if they were an online shop with very long delivery times. Depending on the type of campaign and whether consideration is provided for the donation, a crowdfunding campaign creates sales contracts. These affect the tax liability of the respective company.
Profits must be taxed
Basically, if companies generate money through crowdfunding, they have an economic profit. This is usually taxable. How high the taxes are depends on a variety of factors. This includes the type of company . A distinction is also made between the various crowdfunding variants. If no consideration is promised for the investment, it is a loan or donation. With reward-based crowdfunding, on the other hand, the focus is on the purchase aspect, which is why a purchase contract may arise here. In such a case, questions of sales tax come into play, which must be taken into account.
Is a crowdfunding project worth it?
It is currently the case that not even 50% of all crowdfunding campaigns achieve the targeted funding goals. This naturally raises the question of whether crowdfunding is even worthwhile for companies. There is no general answer to this question. There have been campaigns that raised several million euros through crowdfunding. Others didn’t even reach small goals like an amount of $ 1000. The prerequisites for crowdfunding are basically good, but various success factors must come together in order for the financing goal to be achieved.
Fan base already given?
It is a great advantage if the company already has a large fan base behind it. This then makes it possible to achieve a high reach, for example by passing on information about the campaign and drawing the attention of as many people as possible to it. This increases the number of supporters without the companies having to invest a lot in expanding their reach. In addition, the intended project should have a good chance of being successful and being implemented. The more realistic the goals, the more likely investors are to be willing to support a project.
Is the crowdfunding project attractive enough?
Last but not least, it is important that the project itself has a certain attractiveness. The more unusual and creative a crowdfunding project, the easier it is to stand out from the competition. It also helps if the projects take into account certain topics that are currently relevant in society. Projects that focus on sustainability or take on social responsibility for society currently have a very good chance of achieving their financing goal. Of course, lifestyle and trend projects are also very popular with investors.
In the meantime, however, the concept has also arrived in many other industries. For example, real estate companies have the opportunity to generate funds for construction projects. But artists such as writers or musicians also have a good chance of actually implementing the projects they have devised through crowdfunding. It is particularly important to address as many people as possible with your own project and to get them excited about it.
Alternatives to financing through crowdfunding
Since crowdfunding is still a relatively young and comparatively unknown form of financing, many people still opt for the classic ways of providing projects with money. These include, in particular, loans. Interested parties can choose between online loans and promotional loans, each with different terms and conditions.
It is also possible to rely on financing with your own funds. Bootstrapping is particularly popular here. With this procedure, foreign money is completely dispensed with and only your own money is used. This is associated with certain risks, which is why the willingness to take risks is an essential part of this form of financing. It’s about working particularly efficiently in order to achieve a positive cash flow as quickly as possible . This means that a newly founded company has to work economically and make money as quickly as possible. Knowledge of sales is essential for this.
There are various approaches that combine these two strategies. The focus here is on an efficient mix of equity and debt. Examples of this type of financing are incubators, VC companies or business angels. These strategies rely on the help of companies or private investors to help fund projects they consider worthy of support.
Crowdfunding is definitely a lucrative and legitimate method of generating money for your own projects. However, it is important to develop a targeted crowdfunding strategy in order to put the campaign on safe feet. This massively increases the chance of achieving the desired financing goal. Such a strategy includes, among other things, choosing the right crowdfunding platform.
In addition, suitable marketing strategies need to get investors excited about their own project. The greater the range, the more likely the project will be successful. Crowdfunding is now established in the USA and the model is also gaining ground in Germany. Thus, crowdfunding has already secured a firm place alongside other forms of financing such as loans or financing using equity.