What is crowdfunding?

In the field of alternative finance, 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 brief introductory video or a detailed description. Interested supporters can then 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. Otherwise, the supporters get their money back.

Donation-based crowdfunding

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, environmental or humanitarian projects.

Projects: Social, cultural, or environmental 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.

Reward-based Crowdfunding

Originally from the creative industry, reward-based crowdfunding rewards its supporters 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

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 Peer-to-Peer lending, crowdlending represents an alternative form of loaning where individuals or 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.

Crowdinvesting as a loan

Crowdinvesting as a loan is an extension of the concept of crowdlending, focusing primarily – but not solely – on growth companies. These companies may already have solid turnover and often have already reached the break-even point. In order to finance their further expansion, they combine the procurement of capital as well as a significant advertising effect for the company through a crowdinvesting campaign. The interest offered is well above the market average and is therefore extremely attractive for investors. The financing usually takes place via so-called subordinated loans, also known as mezzanine capital.

Projects: Companies with solid turnover and reached break-even point.

Investors: Investors who are looking for higher interest rates compared to a savings account.

Example: An established software company is looking for financial resources for the market launch of a new product via crowdinvesting.