Several years ago, business angels were the talk of the town in the investment world. The obtaining of financing was reserved for elected officials who succeeded, either by trying their luck with the banks, or by contacting particularly wealthy relatives, or by spending weeks in desperate meetings with investors.
In short, few people could start their own business or launch their own activity, such as making a music album or publishing a book, without the help of bankers and financiers. And in any case, you always risked losing some of your capital or paying exorbitant interest. But all this is changing, thanks to the arrival of crowdfunding or participative financing. And I will explain why.
What is crowdfunding?
In 2019, crowdfunding has made it possible to finance projects to the tune of 402 million GBP, operations that have injected 65 million GBP into the global economy. But how does this type of financing work?
Crowdfunding is a participatory system that aims to collect financial contributions from a large number of individuals. Via a specialized platform, the crowdfunder (project leader) collects financing to set up its own activity in real estate, technology or agriculture.
In participatory financing, two parties are involved in a fund-raising operation:
- the investor who invests his money in the project in which he is growing (I am talking about the Internet user),
- and the project leader, who does not have the necessary funds to carry out the project.
However, like any financing system, crowdfunding always presents a risk for the investor, as the specialist Jean SADECKI puts it so well. Moreover, the investment can be made in different ways:
- the donation (the investor supports the project without expecting any financial counterpart),
- lending or crowdlending (the money invested is repaid with or without interest according to a schedule fixed at the time of the loan),
- and the investment (the saver guarantees the project, and in return receives financial securities, such as shares.
Why is crowdfunding effective?
For entrepreneurs, crowdfunding brings several advantages not found with traditional bankers and investors :
- Already crowdfunding allows you to finance your project without the need for traditional financing networks.
- It is a real strategy of community collaboration, which makes it possible to be surrounded to accompany one’s project.
- Participatory financing is generally not based on the simple search for profit (as bankers would do), but rather on other criteria, such as the performance of a community act.
- At the same time, crowdfunding allows for the gathering of observations on one’s project. Thus, investors, donors or lenders can give their opinion on the project via the crowdfunding platform.
In short, crowdfunding is much more than just a means of financing. It allows you to get your project talked about and even to find your first customers. And this even before you’ve even started your business.