Crowdinvesting is a way of having your project financed by a large number of investors. What you should keep in mind, what different options are available and where you can find the right platform for your project, you can find out here.
Note: Gender-appropriate language is important to us. Therefore, we use gender-neutral terms on this portal whenever possible. In addition, we will switch to the generic masculine form. This explicitly refers to all genders (m/f/d). This procedure has only editorial reasons and does not contain any valuation.
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:
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 differs in the various models.
Crowdinvesting, also called equity-based crowdfunding, is when many investors put money into a startup or other project. The keyword "invest" already indicates that a certain return is hoped for.
Crowdfunding is a different story. Here it is more like a donation. It is rather questionable whether the financier will financially benefit from his or her contribution.
Crowdlending, or lending-based crowdfunding, on the other hand, refers to the process when many people decide to give money for an idea. However, one would like to have this money back again. 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, crowdinvesting for companies. As we now know, this is a special form of corporate financing. A group of people finances a specific project or an entire company. It can be a good alternative or supplement to start-up loans.
By the way, it does not always have to be professional investors who participate in crowdinvesting. Rather, small investors can also participate in crowd funding. This is a real development. Until recently, only professional investors such as venture capitalists or business angels were able to invest in start-ups or special projects.
With crowdinvesting, investors hope – as with traditional forms of investment – that their money will bring a nice return. The difference between crowdinvesting and more traditional 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, the investment is usually also gone. On the other hand, the prospect of a high return is greater with this form of investment.
International linguistic usage
If you want to talk about crowdinvesting outside Germany, you should use the term "equity-based crowdfunding". The term Crowdinvesting is only used in Germany in this way.
Advantages of crowdinvesting for companies compared to crowdfunding
In addition, there are other advantages that both forms of investment 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 addressing 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 for which projects crowdfunding is suitable at all. It may not be the right thing for your idea.
It is often assumed that crowdfunding can be worthwhile for you if you have a completely new, very innovative idea that has not yet been tested further. At such an early stage, it is often not yet possible to attract other backers to your project. The way via crowdfunding 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 that you can start with production. In return they get the product – when it is produced.
The different models that come into question for this form of financing have already been mentioned above.
Use crowdinvesting capital as equity
If you need additional capital besides the money you have raised through crowdinvesting, you are probably in a good starting position. Banks treat crowdinvesting capital like equity. This means that with a little luck you can get a higher loan or better conditions – after all, you have equity capital to show for it.
How do crowdinvesting projects work??
If you want to start a crowdinvesting campaign, you have to go through several steps. These can vary from supplier to supplier. Here we present the rough process in a little more detail:
1. Step: Search for a platform
The first step, if 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 and papers there. Depending on the provider:in can be quite different documents.
2. Step: Have the documents checked
The responsible employees of the crowdinvesting platform then check the documents and decide on the further procedure. Documents on the planned financing and the project itself are usually included in the application. If you are interested in financing via crowdinvesting, you should have these documents together in advance and make 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 platform's employees come to the conclusion that the documents are in order, the next step is to proceed. Because now your project is presented on the platform. With the aim 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: Waiting for investors
As soon as 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. Because the amount of the investment of each individual interested party also depends on the provider. Also important: The communication with the potential backer:inside. The less problematic and more detailed the exchange with investors, the better. Because presumably only few backers will invest in projects, about which they know little or nothing at all.
5. Step: Conclude investment contracts
Once enough money has been raised, it is time for the investment contracts. The legal basis for the investment is laid down in this document. You, the initiator of the project, now receive the invested money and can start your project.
However, this does not release you from your obligation. Rather, you should keep your investors up to date on the progress of your project or company. Marketing and PR for the project must therefore 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 that you inform your investors about the current status once a quarter, while others are satisfied with a report every six to twelve months.
Duration of support
How long the investors are involved in your crowdinvesting project depends again on the respective platform. As a rule, investors are involved for two to five years. If you need a lot of capital, longer terms of up to eight years are possible.
Finding the right provider: What should I look for in crowdinvesting platforms??
The question is, of course, how you can find good and reputable crowdinvesting platforms. After all, you want your project or business to be funded by a trusted provider and ideally by the best crowdinvesting platform. It is a good idea to find out about the experiences of other entrepreneurs or investors 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 had the opportunity to have their project funded here.
- Innovestment: This platform has been around since 2011 and specializes in sustainable projects.
- Seedmatch: It has been on the market for a long time and currently has over 70 investors.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're looking into the topic. It promotes exclusively 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.
Real estate investments are possible here
In addition, there are platforms that specialize in real estate investing. If you are interested in this, the following providers may be suitable for you:
- Engel und Volkers Crowdinvesting: Engel und Volkers is limited to the German market. The real estate GmbH offers on its platform – not surprisingly – the option to invest in real estate projects.
- Bergfurst Crowdinvesting: Bergfurst has also specialized in real estate investment. Investors can participate here via so-called patriarchal subordinated loans in the development on the real estate market.
Overview of all providers
You can find a detailed overview of the different providers and platforms on the page crowdinvesting-compact.de. There you can filter providers according to various criteria and thus make a great comparison of crowdinvesting platforms for companies.
The risks for investors
As beautiful and innovative as the idea of crowdinvesting may be, you should not forget the risks involved. Straight investors must count in the worst case on the fact that their assets are suddenly gone.
- The risk of default is particularly high for start-ups, which like to use this form of financing.
- Mostly there is the money back, 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.
- On top of that, the Small Investor Protection Act was amended some time ago. Now, private investors are allowed to invest a maximum amount of up to 25.invest 000 euros. Even more money that would be gone in the event of insolvency.
- The shares in the company – if they are silent partnerships or subordinated loans – are counted as capital income for tax purposes for the investors. With the result that a final withholding tax of 25% is due for it. This reduces the profit not insignificantly.
For you as a startup, here's what else to consider if you want to get your project funded through crowdinvesting. Many investors get involved in this form of investment because of the prospect of high returns. But that return has to come from somewhere – and it has to come from you. So you have to be prepared to pay your investor:inside – depending on the financing model – high interest rates.