Crowdinvesting as an alternative venture financing option

 

Ever lower interest rates and declining corporate lending make individuals as well as entrepreneurs increasingly look for alternative investment and financing opportunities. This is where crowdinvesting – also known as equity or lending based crowdfunding – comes into play. With crowdinvesting, entrepreneurs profit from the financial strength of the public (the crowd) who collectively invests into their business. On the other hand small investors may receive attractive returns on their investment.

 

Crowdinvesting is a special form of crowdfunding. In a public crowdinvesting campaign many people invest in a company and later participate in its success. At CONDA, the leading equity crowdfunding platform in Austria, investors are given the opportunity to invest small sums, starting from 100 euro up to 5,000 euro into promising startups and SMEs.

 

Crowdinvesting is more than just a trend. There is hardly any other financial product that gives small investors the opportunity to explore, interact with and decide for an individual investment target by themselves. By doing so, crowdinvestors share the entrepreneurial risks with the companies they invest in, let their capital work in real economy and thus generate long-term passive income. Through the removal of intermediaries, the money reaches the companies faster and more direct, the investor holds full responsibility for the investment and its return, chances and risks likewise. Crowdinvesting can therefore be referred to as the democratization of finance.

 

The roll of crowdinvesting in financing innovative ventures

 

As actual equity crowdfunding is deemed too complex in Austria, due to the established types of companies and the overload of handling a multitude of (direct) investors, the most frequently used financial instrument for crowdinvesting is a subordinate loan. Depending on the contract design, the money invested from the crowd may be qualified as equity mezzanine, as it is in the case of CONDA.  The larger part of the investment’s return is tied to the company’s growth.

A lot of innovative entrepreneurs chose crowdinvesting for the benefits that come with this type of financing – the crowdinvesting campaign:

  • Building a community: gaining direct market feedback, building a company image and trust, enhancing customer loyalty
  • Media attention: active communication online and in social media as well as traditional PR achieve a high marketing value
  • Equity mezzanine financing: better financial standing can be leveraged to access other loans, public funds or to approach investors

 

The future of crowdinvesting in Austria and Europe

 

Since its launch, the CONDA crowd has invested more than 8.57 million euro in 44 successful crowdinvesting campaigns. The CONDA community counts more than 15,000 users and 5,000 crowdinvestors, the average investment being a little over 1,000 euro.

 

In September 2015 a new, so called ‘crowdfunding law’ came into effect in Austria. The prospectus requirement that previously started at a financing sum of 250,000 euros, was elevated to 5 million euros, making Crowdinvesting much more attractive for innovative startups with ambitious goals and SMEs. The new law is considered a great success across the national opinion leaders and is a great opportunity for the still so young equity crowdfunding industry. "Even at closer inspection, we consider the law a great success and a confirmation of our crowdinvesting model, because we already meet the legal requirements. We believe the market is at its early stages and with this new legal framework we look very confidently into the future." said Paul Pöltner, managing director of CONDA.

 

Until recently, CONDA was mainly operating within the Austrian and German market. Due to the fact that crowdfunding and crowdinvesting are worldwide trends with double to triple digit growth rates per year, CONDA aims to serve the entire European market. In March 2016 it opened its platform for Slovenian and Slovakian projects and investors, and more countries are to follow soon. CONDAs vision is to foster entrepreneurship and innovation on a European level by delivering high-quality processes and contracts to entrepreneurs and investors and enabling cross-country investments. 

 



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