In fact, the term “crowdfunding” obviously encompasses three forms of participatory investment: traditional crowdfunding in the form of a donation, crowdlending or lending to companies and crowdequity or equity crowdfunding. So before investing with crowdfunding, you should not forget to define beforehand what type of project to finance and to make sure that the project is really promising.
Crowdfunding in the form of donations
This is the simplest form of participatory financing and, above all, the one that is best known to individuals. This type of participatory financing is mainly aimed at providing financial support to project holders such as individuals, entrepreneurs, charities and many others. Thus, these project leaders will only have to select a crowdfunding platform, present their projects and then attract investors. It is through this platform that they will be able to raise the funds needed to finance their projects. In general, there are two forms of donations. First the donation without counterpart, i.e. the investor chooses a project considered as promising according to his interest, and this without counterpart. And secondly the donation with counterpart, i.e. a kind of reward coming from the project leader in return for the donation he obtained from the investor.
Crowdlending in the form of a business loan
This form of crowdfunding is mainly aimed at companies, especially SMEs, SMEs and TWAs. Participatory financing in the form of loans or crowdfunding allows companies to develop while setting up innovative projects. Thus, crowdlending investors will be able to help the company director to strengthen his banking file. Moreover, crowdfunding lending is a system based on the principle of interest-bearing or non-interest-bearing loans. In the case of interest-bearing loans, the investor supports the company financially in return for a return on investment. The interest rate is higher or lower, ranging from 4 to 10% applying to the sums lent. In the case of a non-interest-bearing loan, the investor will be reimbursed, but no interest rate will apply to the sum lent.
Equity crowdfunding or crowdequity
To be more precise, equity-based crowdfunding or crowdfunding in action allows individual investors to invest directly in the capital of companies looking for investors. In return for strengthening the company’s equity capital, individual investors acquire shares and thus become co-shareholders. Therefore, automatically, these investors will have access to rights, including dividends, voting rights at meetings, and so on. If the capital invested is considerable, the investor can of course influence the company’s strategy. On the other hand, there is also what is known as royalty crowdfunding, whereby companies can raise money in exchange for royalties on turnover. Thus, the return on investment will be rather considerable on the investor’s side: a fixed percentage of the turnover paid each quarter.