Crowdfunding: an alternative financing scheme

NEWS FROM EUROPE
07.05.2018
Written by Eurac Research

eCentral project, financed by Interreg CENTRAL EUROPE programme, supports key stakeholders to realize benefits of nearly Zero Energy Buildings, using alternative financing schemes such as Crowdfunding (CF).

CF approach is an alternative method, completely different from the common typical business process, used to raise capital through small collective efforts (amounts of money) of a large number of people, friends, family members, customers and individual investors, and finance a project.

In particular, it allows informing about a business even before it is launched, and being based on a network of people, large investments have to be planned using multimedia information systems (text, audio, images, video, animations, …) that should persuade investors (no banks or other institutions involved) without providing guarantees of the business plan.

Crowdfunding is mainly based on three types of actors:

  • the founder, who has the project idea and aims to develop it;
  • a large crowd of people, who supports the idea with donations, rewards or loan crowdfunding (crowd lending);
  • web platform, an organization where it is possible to launch, apply and share the idea.

Currently there exist several CF typologies in relation to the raising process used, such as:

  • Donation based; completely dependent on donations;
  • Reward based (or pre-sales), a collection of funds through Internet in exchange for a reward or pre-sales product or service;
  • equity based, it enables to distribute the risk of enterprise on a larger number of investors;
  • loan based, where the investors act as a bank, and the sponsor will then give back the amount received plus an interest over the period of time;
  • mixed model.

At European level there is a Commission proposal for a regulation on European Crowdfunding services providers, adopted in March 2018. Furthermore, at European level there is the European Crowdfunding Network.

Real Estate (RES) Crowdfunding investments are allowed for European residents only if the platforms are located in Europe. A completed overview of EU regulation on RES CF in each EU country is reported in "Identifying market and regulatory obstacles to cross-border development of crowdfunding in the EU" elaborated by the European Crowdfunding Network AISBL together with Osborne Clarke.