Crowdfunding, born as patronage, is a true revolution that is here to stay. This form of financing has changed the world of entrepreneurship. What’s more, it has made investment easier and more accessible thanks to technological advances and the democratization of the Internet.
What is crowdfunding?
The RAE (Spanish Royal Academy) defines crowdfunding as a collective form of financing through the participation of several people in a business project in exchange for any retribution or compensation. That is, crowdfunding does not require financial intermediaries such as banks to achieve this economic boost. Thus, companies obtain financing through small contributions from individuals or legal entities that want to collaborate with the project.
This form of financing is often conducted through specialized platforms, which, when operating as intermediaries with equity crowdfunding or crowdlending, must be registered with the Comisión Nacional del Mercado de Valores (CNMV) (Spanish Securities and Exchange Commission). However, registration is recommended for all platforms.
They connect investors with companies in need of financing. The participants in the project can contribute either with purely altruistic motivation or in exchange for rewards, varying from shares in the project to interests, offers, products, etc.
Types of crowdfunding
There are several crowdfunding models entrepreneurs can use to raise the necessary funding. The following are the top four:
- Crowdlending or loan crowdfunding. This method is based on company financing through a collective loan, without traditional financial institutions’ intervention. Investors contribute an amount of money to the requesting company to recover this investment after the established term, plus the amount of the defined interest.
- Equity crowdfunding or investment crowdfunding. This financing model allows investors to invest in a diversity of projects. Investors obtain, in return for their investment, participations or shares in the company they are financing. According to the company’s policy and results, investors can receive dividends and recover their investment with a capital gain in case of an exit.
- Donation-based crowdfunding. More than a financing model, it is a solidarity action. It is used to raise funds for humanitarian or social projects organized by NGOs. Donors do not receive any reward in exchange for the funding they provide.
- Reward-based crowdfunding or reward-based crowdfunding. This model primarily focuses on SMEs dedicated to cultural and artistic products. In exchange for funding, participants will receive rewards, however, not necessarily financial. These can be product samples, experiences, or services.
Fellow Funders’ model of success
As a benchmark Proveedor de Servicios de Financiación Participativa (PSFP) (Participatory Funding Service Provider) operating at the European level, Fellow Funders provides a safe and transparent meeting space between entrepreneurs and investors.
Through our equity crowdfunding platform and after a rigorous analysis, the selected companies raise funding rounds and offer investors, in exchange for the investments made, shares in their companies. They convert their investors into part of the company’s shareholding.
The projects published in Fellow Funders have been evaluated by an expert analyst team based on their viability, sector, competition, entrepreneurial team, regulation, scalability, and exit possibilities. Investors are thus assured of greater risk control through transparent, reliable, and quality operations. In addition, all available information on each project and how to make investments can be accessed within the platform.