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Crowdfunding: what is it?

Crowdfunding is a form of participatory financing that puts investors (often small investors) in touch with creative and/or entrepreneurial projects (often start-ups) via an Internet platform. The objective of this product is to raise funds from individuals who are solicited from a wide audience.

Crowdfunding can be just as appropriate for real estate projects as it is for artistic or environmental projects... The idea is that if the public likes the project, they will be tempted to finance it. Local projects can be just as successful, as long as they appeal to local residents. Crowdfunding is an excellent way of helping a young start up get its product to the market quickly. This funding can take various forms: donations, loans with or without interest, or capital investments.

Advantages

It can be obtained very quickly, often in just a few minutes. The entrepreneur does not have to offer any guarantees. It also provides a form of mini-market study. If investors rush in in large numbers, this will mean that the project is appealing. This will also be an advantage when negotiating a subordinated loan with a bank.

Disadvantages

For a start up developing a new product on the market, the project will be known to everyone. This can give ideas to entrepreneurs with more resources to develop the project themselves.

The second disadvantage is that it is more expensive than bank financing, due to the fact that investors take a high risk by financing a start up project, ‘that's the game...’. However, the start-up must ensure that the product to be marketed is profitable enough to support the cost of financing.

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