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Money from the crowd: ways of crowd financing

Different types of crowdfunding

The idea behind crowdfunding is that many, mostly small donors, come together in the crowd (in German: the swarm). So even the small amounts of a single donor add up to a larger sum. When banks lend to companies, they actually follow the same principle, as they pool the funds from the deposits of numerous customers. With crowd financing, however, no intermediary like the bank is required. The company contacts the crowd directly and makes the appropriate agreement. There are four main forms of funding from the crowd:

  • Crowdfunding
  • Crowdinvesting (often also referred to as equity-based crowdfunding)
  • Crowdlending
  • Crowd donation

The differences are in particular how the crowd makes the capital available - i.e. what consideration is provided by the company. What the different forms of financing by the crowd have in common is that they are mediated and carried out via online platforms. These then usually participate in successful financing through a corresponding remuneration model.

We regularly record how much money the crowd in Germany is making available via the individual channels in our crowdfunding monitor.

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Crowdfunding: Support from the crowd for creative people

Crowdfunding is based on support from the crowd, who in return receive so-called thank you. These can be freely determined by the project initiator. Often, however, they are closely related to the project to be financed. At the end of the project, the crowd often receives the finished product that they supported. However, there is no direct contractual relationship between the crowd and the project initiator.

Crowdfunding is particularly suitable for creative people and artists who often want to finance their CDs, books, films or art projects. However, funding from the crowd for software and hardware, IT projects, games as well as shops or gastronomic concepts can also be found on the platforms.

While the crowd on large international platforms such as indiegogo or kickstarter also provides capital in the millions for individual projects, the projects on local platforms such as Startnext are much smaller. Overall, crowdfunding financing is often found for projects between EUR 5,000 and EUR 50,000. Financing via crowdfunding is not a sure-fire success, but rather involves intensive communication. You can see here how to successfully get support from the crowd.

Crowdinvesting: many small business angels

Unlike crowdfunding, crowdinvesting involves the crowd entering into a contractual relationship with the start-up. However, it is usually not a classic investment such as a business angel financing, but a participation loan, which is a hybrid between equity and debt. Nevertheless, crowd investing is often compared with financing from a business angel, although there are many small business angels from the crowd.

The investment amounts of the individual members of the crowd range from a few hundred euros to several thousand euros. In this way, start-ups can sometimes collect very large amounts from the crowd on German platforms. Typical financings range between 100,000 euros and 500,000 euros, with start-ups having already collected up to 3 million euros per financing round. In addition, after successful financing, start-ups also have the opportunity to receive capital from the crowd again, so that follow-up financing can take place.

There are numerous platforms on which start-ups can receive capital from the crowd. And in addition to financing start-ups, the platforms also offer crowd investing for medium-sized companies, green projects, real estate or films. Learn more about equity crowdfunding.

Crowdlending: loans from the crowd

Crowdlending - also known as credit from private - has been around in Germany for a longer time than the other two forms of financing through the crowd. Here, the investors join forces in loan projects and enter into a classic loan relationship. Thus, the founder or the company has to pay interest and repayments to the crowd.

The platforms active in the market differ primarily in terms of the requirements that founders or self-employed people have to bring with them for funding from the crowd. In some cases, business activities that have existed for several years are required in order to be permitted on the platform. On the other hand, the platforms also differ in the maximum loan amount made available by the crowd.

For start-ups, the crowd loan is certainly not suitable due to the high risk. Rather, crowdlending serves more as an alternative for financing, which could also take place through the bank. Find out more about crowdlending and the active platforms for your credit from the crowd.

Crowd donation: Donations by the crowd

Another form of crowdfunding is donation-based and is known as crowddonation. This is where project initiators present their initiatives, for which they then receive donations from the crowd. However, this crowd financing is hardly suitable for profit-oriented start-ups and companies. Founders from the field of social entrepreneurship who start with a gGmbH, for example, can benefit from donations from the crowd.

Alternatives to crowd funding

As an alternative to financing via the crowd, the classic ways of financing are of course available. These include:

In the chapter on the financing strategy, we explained to you which financing method makes sense in which phase of the company.

If you want to attract an investor, you need a compelling business and financial plan! A start-up coach will help you and ensure that you are optimally prepared - use the sponsored start-up coaching for this.

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Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular conversation partner in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.