Visionaries, entrepreneurs, or geniuses always come up with excellent projects that leave us speechless as they can change our lives forever. Nevertheless, on some occasions, we don’t get to know those fantastic projects for they don’t see the light of day.
And how is that? Well, think of an amazing car parked in a garage. It is beautiful, shiny, and is ready to hit the streets with its roaring engine. But you have no fuel, so there is no way you can get it out of the garage. Businesses work very similarly: just like cars cannot work without fuel, businesses cannot work without money.
However, we are surrounded by friendly neighbours who can lend us some fuel to drive our car, and we can reward them afterward. This same idea was applied to business, and it gave birth to crowdfunding, a way to help businesses that have no ‘fuel’ to get off the ground and develop their projects.
What exactly is crowdfunding and how does it work?
Crowdfunding is the collection of small amounts of capital provided by different people in order to finance a new business venture. There are different types of crowdfunding that vary depending on the way we want to raise money for our business. In this way, crowdfunding can be in form of donation- money is donated and thus contributors are not repaid-, in form of debt- investors provide debt and are later repaid-, in form of equity- the investors acquire shares of the company-, or in form of rewards- a reward or gift is given to the investor.
Through social media and crowdfunding websites, entrepreneurs can find new investors to finance their businesses. This latest option eases the search for companies to invest in, since crowdfunding websites provide very useful information about projects that helps us find the company that best suits our investment interests.
Crowdfunding in Europe
Crowdfunding has become a worldwide phenomenon given that this market encompasses platforms from all regions. The US and China are considered to be the most developed ones, however, the crowdfunding market in Europe is growing and is increasing its potential, partly thanks to the improvements in its regulatory framework.
Several European platforms are becoming more and more popular, especially those from the UK and the Netherlands, so we will present some of those famous European platforms that are currently on the top:
Crowdcube was born in 2010 in Britain and has become the world’s first equity crowdfunding platform. It was created by Darren Westlake and Luke Lang and, so far, it counts 1.2M members, it has funded more than 1000 companies and has raised €1.2 billion in investments.
Companies such as MoneyBox, Citymapper, or Nutmeg are part of the successful Crowdcube portfolio.
FundedByMe was created in 2011 in Stockholm, Sweden, and nowadays it is among the best crowdfunding platforms worldwide in form of reward and equity. It targets European entrepreneurs so that both they and investors can benefit and contribute to economic growth, and it has, so far, funded more than 100 companies and raised over €74M in investments.
Within the companies they have raised financing, we find Fixi Solution AB, Droshi AB, or Amido AB.
Launched in the UK, Seedrs provides a way to invest in startups that ensures an efficient communication network. In this way, startups and investors are connected even after the investment has been made. They make sure a due diligence is carried out so that investors are assured and can invest upwards of £10.
Seedrs has already funded more than 1000 companies and has raised £1.9 billion in investments in companies such as NEVOMO, or Cheeky Panda.
Companisto was founded in Germany and is one of the main equity-based crowdfunding platforms in Europe. Its network includes business angels, corporate finance specialists, and venture capital companies.
It offers a variety of payment methods internationally valid so that any investor from anywhere can invest upwards of €5. So far, Companisto has funded 30 startups and has raised nearly €6 million in investments. Within the funded companies, we find BigRep, Wearonize, or Ameria series C.
Why crowdfunding is important for startups
Raising financing is essential for startups to start developing their projects. It is a long journey and the more funding they have, the more assured their survival will be. However, it is very difficult to obtain funding from the beginning, so crowdfunding offers an opportunity to bring investors and entrepreneurs together and benefit both of them. Thanks to this system, the world gets to see breakthrough projects and to know breakthrough entrepreneurs.