Although the world seems to become more and more centralised with a bunch of large companies becoming more and more dominating, controlled by a few, I believe we have the tools for a more distributed world. One of these tools is the crowdfunding platform.

In the last decade a huge number of crowdfunding platforms have been build; More than 45 in the Netherlands alone! Must be at least hundreds. maybe even more than a thousand in the world!

In this article I'll show you why these platforms give the opportunity to anybody - the mass - to become part of successful (new) businesses. I'll use figures of and examples in my home country "the Netherlands" - this little fart on planet earth - to substantiate the claim.

_{image: published by freaksugar (source)}

Crowdfunding Ecosystem

It is about two decades ago the concept of crowdfunding platforms - as we know it - was born. Sure, crowdfunding is older than that - offline - in the hands of families, corporate financiers, private bankers, investment houses and such; Mostly at places not accessible to the common people - the mass - you and I.

This totally changed when the first online crowdfunding platform was established back in the year 2001. Since then many platforms emerged with the most notable ones: Kickstarter and Indiegogo. These later platforms give entrepreneurs the ability to crowdsource funds to bring their prototype product into production by pre-selling the product. Great platforms with which I have good experiences; All purchases I made were delivered; Some maybe a little later than initially promised, but no single company bailed out.

Crowdfunding is so Much More!

In general, through crowdfunding the financing can take various forms:

• Donation: a financial contribution without consideration
• Rewards: a financial contribution with consideration in kind (eg a product or service)
• Loan: a loan that is repaid with interest
• Convertible Loan: an investment that is later converted from loan to shares
• Shares: an investment in which the investor becomes the co-owner of a company

It are the convertible loan and shares categories crowdfunding platform that give the earlier mentioned opportunities.

The Opportunity

Crowdfunding platform offering convertible loans and shares, broke open the traditionally closed funding ecosystem for startups and early stage growth businesses. While in most traditional funding forms it was very difficult to enter the game of private funding, these crowdfunding platforms are available to literary anybody with large but certainly also small pockets.

Note: Most of the equity based platforms don't have any - or very low - entry barriers. For as little as a few dollars, you and I can participate. It is - however - questionable if it makes sense to go in with just a handful of dollars, but still. I know a few people who go in with about 100$ per company.

_{image: published by The Balance Small Business (source)}

I personally like the convertible loan method a lot! With this product the funder gives a loan to the company. After a set time - or triggered by some other criteria (eg a new large investor comes on board) - the offer is made to convert the loan into shares. This offer is generally optional, meaning, the funder can decide to convert or not to convert. In case the funder does not want to convert the loan, the company has to fulfil its obligations set for the loan.

In case the option to convert is chosen, the loan + accumulated interest is converted into shares. From that moment onwards, the funder becomes shareholder with all the rights that goes along with it. These include not only the right to be informed on the progress of the company, but also the right to vote (the later depends on the by the company given status to the crowdfunder shareholder, the country and local laws).

The reasons I very much like the convertible loan funding a lot, are amongst others:

• Initial Share value is set at a later Stage
• Lower Investment Risks
• Time to Decide to own Shares
• Decision to become Shareholder with more Inside information
• Option not to become Shareholder

In the Netherlands we have two equity platforms: Symbid and OnePlanetCrowd. The former offers many different forms of equity contracts, and is the largest of the two. The later I like the most, due to several unique angles:

• Companies must have a social and/or renewable angle to their product or service; Think of sharing economy, renewable energy, re-cycling, up-cycling and so on
• OnePlanetCrowd thoroughly analyses the companies (including a kinda due diligence) and funding offer before allowing the campaign on their platform; This ensures serious offers only protecting the investor and preventing dilution of the platform value with eg spammy funding campaigns and companies

In the Netherlands crowdfunding is growing rapidly. While 6 years ago, 32 Million Euro was sourced from the crowd, in 2018 this was a 10-fold of that amount with a total of 329 Million Euro. The predictions for coming years are phenomenal; Soon and we will source billions from the crowd in the Netherlands alone; Possibly from hundreds of thousands individuals.

Snappcar: One of Dutch First Crowdfunding Successes

Snappcar - a car sharing platform for anybody to rent their car to anybody who likes to rent one - ran two crowdfunding campaigns back in 2014 and 2015, collecting around 600k Euro each round.

The company existed already for a bit of time before they crowdsourced new funding, with a service fully operational in the Netherlands. Hence, they were not a startup, but a early stage growth company. The investments from the two crowdfunding rounds, Snappcars used to expand their business towards international presence. Something they are doing very successfully by now, with operations not only in the Netherlands, but also in Denmark, Sweden, Germany being one of the largest private car sharing platforms worldwide.

Other then their main shareholders, Snappcar is owned by between 500 and 1.000 (tiny) shareholders. Without the modern crowdfunding platforms, the chances are very high we wouldn't have seen so many shareholders being part of this company.

_{image: published by OnePlanetCrowd (source)}

Know What You Do

As with any investment, investing in private companies shall be done with care. It is not easy to get your money out (usually at buy out or conversion into a public company). You will be in it for the long hole. Additionally, please realise that many startup companies go belly up; This can easily be 4 out of 5; Maybe even 9 out of 10.

But the upside is that the investment can be very profitable! Certainly, it is not easy to find the hidden gems.

That said: Due to the low amount of money that is allowed for investment, one can also 'bet' on a wide range of companies; It is still to be seen if random investing will give worse or better results than investing after thorough analyses. But please do not take that as an advice of any kind!

Interesting Reads

• List Of The Best Equity Crowdfunding Sites
  (Classified By Country)
• A Brief History Of Crowdfunding by Startups
• The History of Crowdfunding by Fundable
• ArtistShare: the First Crowdfunding Platform
• Equity Crowdfunding: Regulations per Country

References

• Crowdfunding in the Netherlands
• Crowdfunding per Platform in the Netherlands
• Kickstarter
• Indiegogo
• OnePlanetCrowd
• Symbid
• Snappcar (crowdfunding round 1: 2014 | crowdfunding round 2: 2015)

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