Creation of a platform or attraction of investments in crowdfunding

Attracting investments in a project using crowdfunding or creating your own crowdfunding platform

Crowdfunding is the collective pooling of resources through Internet platforms used to fund individuals, companies, organizations, foundations, projects, products or groups. These platforms pool small amounts of capital in a limited amount of time from many people who share a common interest in a particular idea, project or business. People who raise funds to finance a project through crowdfunding are called recipients, and people who donate funds are called donors.

Crowdfunding can be classified by purpose, type of reward and form.

According to the purpose, crowdfunding is divided into:

• business project - development and launch of a new product, construction, financing of start-ups and attraction of investments in the business;
• political - election campaigns and actions;
• creative - cinematography, literature, painting, music, sports;
• social - charity, volunteering, creating public goods, operations and treatment.

It should be borne in mind that the division of projects by goals is conditional, since sometimes the same project can belong to several categories.

According to the type of remuneration for investors, crowdfunding is divided into:

• without remuneration - charitable actions and social projects, participating in which, sponsors do not receive material benefits. For example, disaster relief, non-profit activities, medical assistance;
• non-financial reward - sponsors receive a trial sample of the product, a disc with a released film, autographs, an invitation to a presentation or other gifts and valuable prizes;
• financial reward (crowdinvesting) - investors get the opportunity to participate in equity capital and receive dividends from profits.

According to the form, crowdfunding is divided into:

• royalty crowdfunding (reward) - includes non-financial rewards in the form of various forms of incentives mentioned earlier, or a share of the income from the project's profits. Investments are made in projects related to creativity, art, intellectual property;
• credit crowdfunding (crowdlending) - an investor provides funds at a certain percentage for a predetermined period. There are 2 (two) main types of crowdlending: P2P lending - when individuals lend to other individuals; P2B lending - when individuals lend to organizations, companies (usually medium and small businesses).
• equity crowdfunding (crowdinvesting) - in exchange for the invested money, the investor receives part of the property, company shares, the right to receive dividends, the right to participate in decision-making by voting at general meetings;
• charitable crowdfunding (donation) is a gratuitous transfer of funds for a predetermined purpose. Unlike a charitable foundation, which acts as an intermediary and distributor of finances, the donors themselves manage the funds, the platform only takes care of the transfer of funds.

Some of the advantages of using crowdfunding for potential investors include:

• a large number of ideas and business projects. This abundance allows each specific investor to choose exactly the direction or area that is of interest to him. It could be philanthropy, the film industry, information technology, innovative product development, anything.
• the possibility of investing small amounts. Often, wanting to help someone or contribute to the development of something truly socially significant, people believe that insignificant investments will not change anything and there is no point in providing them. Crowdfunding, which was originally created as a way to pool the insignificant investments of many people, solves this problem.
• investment diversification. By investing small amounts of money in various start-ups and business ideas, a potential investor can reduce the risks of financial losses to a minimum level. This is true for those who, with the help of crowdfunding, want to receive income in the future.

The main benefits of crowdfunding for startup idea developers are:

• simplified procedure for obtaining the necessary funds. Often, brilliant ideas never come to fruition, being frozen at the stage of finding funding. Not many large investors are ready to provide money for unique and therefore much more high-risk projects with the possibility of profit in the distant future.
• no need to obtain a bank loan and pay it with interest . It is not always possible to get a bank loan, especially a significant amount, without collateral. It is obvious that the profit of the future period will not be able to act as a guarantee for the bank. With crowdfunding, investments and any interest after the project is not returned. In some forms of crowdfunding, there is even no direct material return.
• lack of many intermediaries between developers and a group of investors. The presence of one reliable intermediary in the form of a long-standing and reliable crowdfunding platform allows you to add weight to the project and increase the degree of trust in it. In this case, the developer pays a commission of 5-15% or a percentage of the collected amount to the creators of the platform. Platforms may have additional income, for example, some platforms that raise funds for creative projects, further sell albums, books and other similar products. From charitable and very often from social projects, the commission is not charged at all. If, for one reason or another, it was not possible to obtain the necessary investments, then you do not need to pay anything, which makes crowdfunding an almost win-win and very profitable option for both businessmen and those who wish to implement certain social projects.
• Outreach – Using the crowdfunding platform, one can access thousands of accredited investors who can see, interact with and share the fundraising campaign.
• presentation – by creating a crowdfunding campaign, you can carry out an invaluable process of evaluating a business at the highest level - its history, attractiveness, offers, target market, value, etc., and put it into the right package.
• PR and marketing . From launch to completion, you can distribute and promote your campaign through social media, email newsletters, and other online marketing methods. Since other media are covering the progress of the fundraising, you can grow your business many times faster by driving traffic to the website and other company resources.
• proof of concept . Presenting a concept or business to the public provides an excellent opportunity to test and improve the proposal. When potential investors begin to show interest and make inquiries, you can quickly discover what is missing, what indicators need to be increased in order to more successfully raise funds.
• efficiency . One of the best benefits of online crowdfunding is its ability to centralize and streamline fundraising efforts. By creating a single comprehensive profile to which potential investors can be directed, there is no need to involve each of them separately. Thus, instead of duplicating the steps of printing documents, compiling folders and manually updating, it is possible to present everything on the Internet in a much more accessible format, leaving more time for doing business instead of raising funds.

VOLUME OF ALTERNATIVE LENDING IN THE WORLD

According to statista.com, the total volume of alternative lending in 2019 is 3,079.6 million, and the number of successfully funded loans reaches 63,922.7 thousand. Total lending is expected to have an annual growth rate in 2019-2023 of 10.7%, leading to a total of 5,214.8 million by 2023. In terms of country comparison, China reached 2,404 million in 2019 with the largest total loan disbursement.

The volume of P2B lending (business loans) in 2019 is 0,790.0 million, the average funding per company is ,829, and the number of successfully funded loans reaches 37,435.7 thousand. The total volume of business lending is expected to will have an annual growth rate in 2019-2023 of 12.6%, resulting in a total of 0,135.5 million by 2023. It is expected that by 2023 the number of successfully funded business loans will be 50,671.1 thousand. In terms of comparison by country, the largest total amount of business loans issued in China will reach 3,917 million in 2019.

The volume of P2P lending (consumer loans) in 2019 is ,289.5 million, the average funding per user is ,352, and the number of successfully funded loans reaches 26,487.0 thousand. The total lending volume is expected to have an annual a growth rate in 2019-2023 of 4.8%, resulting in a total of ,079.2 million by 2023. It is expected that by 2023 the number of users will be 34,928.5 thousand people. In terms of country comparison, China reached ,486 million in 2019 with the largest total loan disbursement.

VOLUME OF ALTERNATIVE FINANCING IN THE WORLD

According to statista.com, the total volume of alternative financing in 2019 is 11,718.5 million dollars, and the number of successfully funded projects reaches 8,770.1 thousand. The total volume of financing is expected to have an annual growth rate in 2019-2023 in the amount of 14.3%, leading to a total of ,000.2 million by 2023. In terms of country comparison, China achieved the largest total funding of ,405 million in 2019.

The volume of crowdinvesting (equity crowdfunding) in 2019 is ,794.9 million, the average funding per project is 4,115, and the number of successfully funded projects reaches 46.1 thousand. It is expected that the total funding will have an annual growth rate of 2019-2023 at a rate of 13.7%, leading to a total of ,014.6 million by 2023. The number of projects is expected to reach 64,500 by 2023. In terms of country comparison, China achieved the largest cumulative funding of ,486 million in 2019.

The volume of crowdfunding (reward-based crowdfunding) in 2019 is ,923.6 million, the average funding per project is 4, and the number of successfully funded projects reaches 8,724.0 thousand. The total funding is expected to have an annual pace growth in 2019-2023 in the amount of 14.7%, which will lead to a total amount of ,985.6 million by 2023. By 2023, the number of projects is expected to reach 12,063.9 thousand. In terms of comparison across countries, China achieved the largest cumulative funding amount of ,572 million in 2019.

CROWDINVESTING AT THE LEGISLATIVE LEVEL

The activities of crowdinvesting platforms from country to country have their own characteristics, taking into account local legislation. Some platforms conduct a preliminary assessment of projects, some platforms only bring companies and investors together, while others, on the contrary, act as the sole holder of an investor's share in a funded enterprise. The format is widespread when professional investors and business angels also invest in the company presented on the platform.

The main obstacle to the expansion of the crowdinvesting market is legislative restrictions that allow only accredited investors to join the platforms.

The sole leader in terms of the number of crowdinvesting platforms is the United States, where today there are more than 340 collective investment platforms, in the UK there are more than 80, in France more than 140. But in Russia there are almost no serious platforms.

CROWDINVESTING IN THE USA

The main obstacle to the development of crowdfunding in the United States was the restrictions of the Securities and Exchange Commission (SEC), in particular the Securities Act of 1933, adopted back in the years of the Great Depression to protect non-professional investors from risky investments. De facto, only a small part of the population with an annual income of at least $ 200 thousand or a net worth of $ 1 million could receive the status of accredited investors. In 2014, there were 8 million professional investors in the United States.

On April 5, 2012, the Startup Funding Act, the so-called JOBS Act (Jumpstart Our Business Startups Act) was signed in the USA., which allows start-up companies to raise up to million in investments from 2,000 investors (the maximum number) through crowdfunding without filing papers and registrations for the sale of shares, as was previously practiced. Previously, a company could only remain private as long as it had 500 or fewer shareholders. The adopted law increased the limit to 2,000 shareholders, of which up to 500 shareholders may be non-accredited investors. The investor receives company shares, dividends and the right to vote at general meetings of shareholders. The maximum amount of funding from one investor is ,000. The bill was designed to stimulate private investment in small businesses and liberalize the crowdinvesting market. The law provides for mandatory registration of financial portals with the SEC, as well as their membership in the relevant self-regulatory organization.

In September 2013, Title II went into effect, a section of the law allowing crowdinvesting advertising and allowing you to raise an unlimited amount of money from accredited investors.

In June 2015, part of the law TITLE IV (sometimes called "mini-IPO" or "registered crowdfunding") came into force, based on which companies can raise up to million from both professional and non-professional investors, but non-professional investors are limited - the opportunity to invest only up to 10% of your annual income. Initial SEC filing and ongoing financial reporting takes 6-8 months and costs -150K, but still costs significantly less than a full IPO, which typically attempts to raise 0M and costs .60 on average. million (registration, legal and financial services).

In May 2016, part of the TITLE III law came into force in the United States, which allowed any investor to invest in a private company. Non-professional investors with an annual income of up to ,000 are only allowed to invest ,000, investors with an annual income of more than ,000 to 0,000 are allowed to invest 5% of their annual income, and investors with an annual income of more than 0,000 are allowed to invest 10% of their annual income , but a maximum of 0,000. Companies can raise up to million in total investments from non-accredited investors.

The JOBS Act currently provides for two crowdfunding models: crowdfunding regulation (Reg CF) and A+ regulation (Reg A+) . The difference between the models is the allowed amount of attracted investments and the requirements for publishing an offer.

The Reg CF model allows you to raise up to million per calendar year through a financial broker that is a licensed "crowdfunding platform" or a licensed "broker-dealer". The reports to be provided are fairly general but do not require financial disclosure.

The second Reg A+ model allows companies to raise up to million. However, the Reg A+ model proposal is subject to review and approval by the SEC. Like companies publishing a prospectus, companies using the Reg A+ model are required to publish periodic reports to the public after the offering.