What is ‘crowdfunding’
It is a form of collaboration between different individuals in order to finance one or several projects in particular. The intermediation between people seeking money and those who are willing to grant it is done through crowdfunding platforms, companies that through advances in new technologies allow contacting both groups online and with maximum security. Within the crowdfunding, we find different models of financing projects, according to which, if we decide to contribute a quantity with them, we may or may not get something in return.
In the case of crowdlending, also known as P2P loans, we will achieve a return that will be the interest paid by people seeking financing (those who request the loan). On the other hand, in the case of crowdfunding of donations, as their own name indicates, we will donate a certain amount in a disinterested way and without receiving any physical or economic compensation in exchange.
The 4 models of ‘crowdfunding’ where to invest
As we have already said, there are different models of crowdfunding in which we can participate both by requesting financing or funds and by investing in the different projects they offer. These are the four types of crowdfunding that currently exist:
Donations: money is contributed to projects without expecting any kind of benefit in return. This type of projects tends to be for good causes such as helping those affected by a natural disaster, paying tuition fees or NGOs. Depending on the platform to which we go, the projects can be as varied as possible. Sometimes we can also find donation projects for startups.
Rewards: a certain amount is given to projects in exchange for a product or service as a benefit. They are usually projects from individuals or small businesses. For example, a person who wants funds to self-publish his book and, in exchange, will not send a copy when it is published.
Actions: also called crowd equity, it is the collection of funds needed to start or grow a business. In return, the company gives investors a proportional part of their investment in participation. In this case, the benefits will come in accordance with the success or failure of the company.
Loans http://www.intuitionandhealing.org/finding-a-great-merchant-services-provider/: known as crowdlending or P2P loans. Investors finance a part of a particular project or of companies, that is, they grant loans for these projects to be carried out. Investors will receive the interest generated by the loan in exchange. These interests will be generated based on the level of risk assigned to us by the platform after the credit analysis carried out. The higher the level of risk, the higher the interest will be, since investors will want to obtain a higher return in exchange for a higher risk. This type of crowdfunding is the most widespread in Spain.
The investment that we decide to make will depend on the type of compensation we expect in return, the projects in which we are interested in investing or the risk we want to assume among many other factors. Likewise, before making any type of investment it is important to know where to invest and understand the characteristics and the risk of each type of platform.
Types and characteristics of ‘crowdfunding’
In the following table, we can see more clearly and easily the purpose of each type of crowdfunding, whether or not regulated by the CNMV or the type of economic or physical remuneration that we can obtain according to each platform.
|TYPES OF CROWDFUNDING|
|NOT regulated by the CNMV||NOT regulated by the CNMV||Regulated by the CNMV||Regulated by the CNMV|
|Financing of NGO projects, good causes, humanitarian projects …||Financing ideas or small individual projects
(publication of a book, a CD)
|Investment in small companies or entrepreneur projects||Loans to individuals or companies|
|Without reward||Symbolic reward (the book or CD that we help fund, for example)||Participation in the business or shares of said company||Interest on the loan paid by the person receiving the money|
Differences between ‘crowdfunding’, ‘crowd equity’ and ‘crowdlending’
As we have already seen, the differences between the three types of investment are in the form of retribution that we expect from each one.
With crowdfunding, it is usually done for fundraising. In the case of donation crowdfunding we will not receive anything material or economic in return, but in the case of rewards, we will be able to receive something agreed in advance which is usually symbolic and not economic.
The crowd equity will allow us to invest, in general, to raise funds for an entrepreneurship project. It is usually assimilated enough to invest in the stock market, that is, to buy shares of a company, only that instead of being a consolidated company, it is a project to be developed. The earnings from this type of investment will be linked to the success of the project. In the case of real estate crowdfunding, funds are collected for the purchase and renovation of a property, to then sell it and return the investment and distribute the benefits among the different investors. In this case, the benefit will be given by the revaluation of the property and its final sale price.
Crowdlending is the most well-known type of investment in our country. The projects are to grant financing to companies already consolidated or to individuals, that is to say, with our contribution loans are granted. The benefit that we will obtain will be the interests that the person pays for his credit. The P2P lending platforms will analyze the profiles of people and companies as well as their projects to assign a level of risk from which the interest payable will be determined. The higher the risk of the project in which we invest, the higher the interest will be.
Although their names sound similar, the characteristics of each type of fundraising are completely different, as is the purpose of each intermediary platform. According to our need to raise funds, obtain financing or the project for which we want to invest or what we want to obtain in return we must go to one type or another.
How much money can we invest in these platforms
At this point, we must distinguish between the four models of crowdfunding. On the one hand, the platforms dedicated to the crowdfunding of donations and rewards are not supervised by the CNMV, since they are not made for profit. On the other hand, crowd equity or investing in P2P loans is, since it is an investment.
Law 5/2015, of April 27, on the Promotion of Business Financing, differentiates two types of investors when we speak of crowd equity and crowdlending: accredited and non-accredited. This categorization aims to protect new investors from this new form of investment by limiting the maximum amounts that we can contribute to this type of platform.
The non-accredited investors, individuals, can not invest more than 3,000 euros per project or more than 10,000 euros per year in all crowdfunding platforms together. In addition, it will be mandatory that they be duly informed of the risks that their investment has for each project in which they decide to participate and that they sign a document certifying that they have been duly informed of them.
Accredited investors or professional investors can be both physical and legal, what distinguishes them from non-accredited investors is their equity and their investment knowledge. To be accredited investors we must meet the following requirements:
|Accredited investor (natural person)||Accredited investor (legal person)|
|You must meet one of the following conditions:
||You must meet two of the following conditions:
In addition, the projects in which professional investors may participate may amount to 5 million euros while in projects where only non-accredited investors participate may only be 2 million euros maximum. Also in Spain, there is still a very low investment in projects financed with p2p loans.
How much money can we get with crowdfunding?
It will depend on the type of crowdfunding we go to, the projects in which we invest and how diversified our investment is. This type of investment may have a higher return than deposits, for example, but they also entail a greater risk. Thus, crowd equity is the one with the highest possibility of achieving high profitability, but it is also the kind of crowdfunding that risks us losing 100% of the investment.
Before starting to invest in any crowdfunding platform we must know what the risks or profitability we could be and calculate if, according to our profile, it is an investment adapted to us.
Companies of crowdfunding registered in the CNMV
All crowdfunding or crowd equity companies in Spain must be registered with the National Securities Market Commission (CNMV). Although the CNMV still has a large number of applications pending approval, these are the ones currently authorized by this public body:
|Crowdfunding platform||Type of crowdfunding||Authorization date|
|Adventureros||Crowdequity / Crowdlending||02/13/2017|
|Einicia||Crowdequity / Crowdlending||02/13/2017|
|Housers||Real estate crowdfunding||06/02/2017|
|Social Stock Exchange||Crowdequity of participations||12/15/2015|
|Start up Xplore||Crowdequity of participations||04/21/2017|
|The Crowd Angel||Crowdequity of participations||03/24/2017|
|WelCome Capital||Crowdequity / Crowdlending||02/13/2017|
There are many other crowdlending and crowd equity platforms that operate in our country and that are waiting for authorization from the CNMV. These platforms comply with all the requirements demanded by this entity and with all the laws that apply, although the CNMV always advises that it is better to go to companies already authorized to avoid falling into financial bars since these will be controlled under its regulations.