Crowdinvesting for companies

Crowdinvesting is a possibility to have your project financed by many investors. What you should consider, which different possibilities there are and where you can find the right platform for your project, you can find out here.

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Definition of terms: The difference between crowdinvesting, crowdfunding, crowdfinancing and crowdlending

Before we delve into the topic of crowdinvesting in a little more detail and clarify the question of what crowdinvesting is in the first place, we should explain the terms that are mentioned in this context:

Crowdfinancing

Is the generic term to the now following expressions. What they have in common is that companies are financed by many backers, i.e. the crowd, and thus receive money independently of a bank. The way this works is different for the different models.

Crowdinvesting

Crowdinvesting, also called equity-based crowdfunding, is when many investors invest money in a start-up or other project. The keyword "invest" here already indicates that you are hoping for a certain return on investment.

Crowdfunding

With crowdfunding it looks already different. This is more likely to be a donation. Whether the backer or the backer will have something financially from his grant is rather questionable.

Crowdlending

Crowdlending, or lending-based crowdfunding, on the other hand, refers to the process when many people decide to give money for an idea. However, you would like to get this money back. Because crowdlending is a form of loan for certain projects, with the difference that no interest is due.

Crowdinvesting: What does it mean?

But now in detail to the actual topic, crowdfunding for businesses. As we now know, this is a special form of business financing. In doing so, a group of people, a specific project or even an entire company finances. It can be a good alternative or supplement to start-up loans.

By the way, it does not always have to be professional investor:s who participate in crowdinvesting. In fact, even small investors can participate in swarm funding. This is a real further development. Until recently, almost only professional investors such as venture capitalists or business angels could invest in start-ups or special projects.

In crowdinvesting, investors:inside – as in traditional forms of investment – hope that their invested money will bring a nice return. The difference between crowdinvesting and the more classical investments such as federal treasury bonds or shares is that in the worst case the entire money can be gone. If the startup is not successful, usually the investment is gone too. On the other hand, the prospect of a high return is greater with this type of investment.

International Language Use

If you want to talk about crowdfunding outside of Germany, you should use the term "equity-based crowdfunding". The term crowdinvesting is only used in this way in Germany.

Advantages of crowdinvesting for companies compared to crowdfunding

Investors get more return if the project or company is successful. As a rule, investors do not get a return. The investment is rather considered as a donation. Instead of a return, investors get the finished product as a thank-you gift. Crowdinvesting is not limited to specific projects. Crowdfunding is often used to support artistic or charitable projects.

In addition, there are other advantages that both investment forms have in common:

• Companies can finance themselves independently of a bank.
• The swarm can give feedback on the startup or the idea.
• If you let yourself be financed by the crowd, you are appealing to a rather young audience. This can mean an advantage in marketing.

Is crowdfunding suitable for my project??

Before we delve further into the topic of crowdinvesting for businesses, it is probably of interest to you to know which projects are suitable for crowdfunding in the first place. It may not be the right thing for your idea at all.

It is often assumed that crowdfunding can be worthwhile for you if you have a brand new, very innovative idea that has not yet been tested further. At such an early stage, it is often not yet possible to win over other backers for your project. The crowdfunding route is therefore the only possible one.

On the other hand, you can also profit from this form of financing with a finished product. You can make the crowdinvestors your first customers and pass on the production costs to them. They give you the money so you can start production. In return, they get the product – once it has been produced.

We've already touched on the different models that can be considered for this form of financing above.

Use crowdinvesting capital as equity

If you need additional capital besides the money you have raised via crowdinvesting, you are probably in a good starting position. Banks treat crowdinvesting capital like equity capital. This means that with a bit of luck you will get a higher loan or better conditions – after all, you have equity capital to show.

How do crowdinvesting projects work??

If you want to start a crowdinvesting campaign, you have to go through several steps. These can vary from provider to provider. We'll outline the rough process in a little more detail here:

1. Step: Search for a platform

The first step when you want to finance your idea via crowdinvesting is to find a suitable platform. Once you have decided on a particular platform, you submit the required documents to it. Depending on the provider:in can be quite different documents.

2. Step: Have documents checked

The responsible employees of the crowdinvesting platform then check the documents and decide on the further procedure. Because documents on the planned financing and the project itself are usually also included in the application. So if you are interested in crowdfunding, you should have these documents together in advance, making sure that the financing is solidly planned and that your idea has a chance of success. In other words, you should define your business model in advance and create a plausible business plan.

3. Step: Presenting the project

If the employees of the platform come to the conclusion that the documents are in order, the next step will be taken. Because now your project is presented on the platform. With the goal of finding interested parties for it. The actual presentation depends again on the respective platform. Some are content with a short description, while others show more elaborate videos on the platform.

4. Step: Wait for investors

Once the project is presented on the platform, investors can give money for it. Here you should also pay attention to the individual modalities of the platform in advance. The amount of the investment of each individual interested party also depends on the provider. Also important: communication with potential investors. The less problematic and more detailed the exchange with the investors, the better. Few investors will invest in projects about which they know little or nothing.

5. Step: Conclude investment contracts

Once enough money has been collected, it's time for the investment contracts to be signed. This sets out the legal basis for the investment. You, the initiator of the project, now receive the invested money and can start your project.

But this does not mean that you are released from your duty. Rather, you should keep your investors up to date on the progress of your project or company. Marketing and PR for the project should not be neglected. After all, your shareholders are now also involved in the project.

How extensive your information obligations are depends on the respective platform. Some require you to update your investors once a quarter, while others are satisfied with a report every six to twelve months.

Duration of the support

How long the investors will be involved in your crowdfunding project depends again on the respective platform. As a rule, investors are involved for two to five years. However, if you need a lot of capital, longer terms of up to eight years are also possible.

Finding the right provider: What should I look for in crowdinvesting platforms?

Of course, the question arises how you can find good and reputable crowdinvesting platforms. Finally, you want to have your project or company promoted by a trusted provider and ideally by the best crowdinvesting platform. It is a good idea to find out about other entrepreneurs' or investors' experiences with the platform on the Internet.

The following platforms are often chosen when a new idea is to be financed. They are therefore among the best known:

• Kickstarter: The provider is the top dog among the crowdinvesting platforms – and that worldwide. Since 2009, founders and creatives have the opportunity to have their project funded here.
• Innovestment: The platform has been around since 2011 and specializes in sustainable projects.
• Seedmatch: It has been on the market for a long time and can currently provide over 70.000 registered users.
• GLS Crowd: If you want to support a sustainable project via crowdinvesting, you should take a closer look at GLS Crowd.
• Tomorrow Crowdinvesting: You should also be aware of this online bank if you are interested in the topic. It promotes only social and sustainable projects. The financial service provider is extremely transparent: customers can see at any time where the money is going and which projects are being funded. Coal and armaments industries are excluded here.

Real estate investments are possible here

In addition, there are platforms that specialize in real estate investments. Should you be interested, the following providers may come into question for you:

• Engel und Volkers Crowdinvesting: Engel und Volkers is limited to the German market. On its platform, Immobilien GmbH offers – unsurprisingly – the option of investing in real estate projects.
• Bergfurst Crowdinvesting: Bergfurst has also specialized in real estate investment. Investors can participate here over so-called patriarchal subordinate loans in the development on the real estate market.

Overview of all providers

A detailed overview of the different providers and platforms can be found on the crowdinvesting-compact page.de. There you can filter providers according to various criteria and thus make a great comparison of crowdinvesting platforms for businesses.

The risks for investors

As beautiful and innovative as the idea of crowdinvesting may be, you should not forget the risks involved. In the worst case, investors in particular have to reckon with their investments suddenly being gone.

• The risk of default is particularly high for start-ups, which like to use this form of financing.
• In most cases, the money is refunded if the targeted investment amount is not reached. If, on the other hand, the start-up that you have financed via crowdinvesting has to file for insolvency, the amounts paid are usually gone – and thus the loss is great.
• Still in addition the small investor protection law was adapted some time ago. Now, private investors are allowed to invest a maximum amount of up to 25.Invest 000 Euro. Even more money that would be gone in case of insolvency.
• The shares in the company – if they are silent participations or subordinated loans – are assessed as capital income for the investors for tax purposes. With the result that a final tax of 25 percent is due for it. This reduces the profit not insignificantly.

For you as a start-up, here's what else to consider if you want to get your project funded via crowdinvesting. Many investors become involved in this form of investment because of the prospect of high returns. But this return has to come from somewhere – from you. You must therefore be prepared to pay your investors – depending on the financing model – high interest rates.

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• Find out how much potential you have with the founder test.
• Create your business plan.
• Find the right legal form for your venture.

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