We live in a world where we share everything. We share automobiles, offices, flats, and as of recently capital. The crowdfunding concept is not entirely new, although it has developed massively during the past years. Practically, for the first case of crowdfunding can be pinpointed the historical moment Paris donated the Liberty Statue to New York, but without foundation to place it on it. The citizens of New York decided to take actions, and after the newspapers published advertisements for collecting money, they build a foundation where to place the symbol of freedom. The advantage of such capital-generating practices goes beyond the transparent money collection. By accessing new investors, the popularity of products and services increases and that’s how the project gets evaluated by the users real-time.
What is shared funding/crowdfunding? Crowdfunding is the method of financing a project or initiative by collecting relatively small amounts of funds from large groups of people. Nowadays this is achieved by specialized internet platforms, but it can be attained by employing other untraditional methods, for example, by organizing special events or even e-mails. There are two main types of crowdfunding. The primary one is based on ‘award for funding,’ where users fund the specific initiative, and in return, they receive specific products or services (this method is employed by popular platforms like Kickstarter).
The other method is funding and receiving a part of the capital in return (shares). The crowdfunding industry is quite new in Europe. Even though we are using contemporary terms like “crowdfunding” and “shared investments,” they still do not hold a clear and definitive meaning, as well as a legislative regulation. Despite that, the industry of alternative funding is developing at a breakneck pace.
Thanks to this industry, plenty of good ideas receive publicity and access to more significant capitals when necessary. The success of a project that is being evaluated by the public depends predominantly on how much its creator believes in his or her idea. It also depends to what extent it is inclined to stand up in front of the major audience and stand for its views while overcoming its many difficulties and answer the criticism.
Being placed in the middle of a tremendous competition, only the excellent products and ideas that are presented well to investors and with complete concept on future development are the ones that succeed. The crowd itself can distinguish accurately the right projects that will reach peaks.
The audience also has a strong sense for self-regulation by swiftly uncovering and punishing ‘fraudsters’ and ‘unfair’ ones among them. Crowdfunding gives funders access to plenty of different ideas, including new opportunities from the developing markets. Any entrepreneur will try to convince people with capital that his or her idea is the best and that it holds great potential. Entrepreneurs are aware that if they would like to their project to succeed, they must be good at convincing.
Peer-to-peer is the most popular type of crowdfunding. How did it come to life? After the culmination of the financial crisis in 2008, borrowers began looking out for access to loans with lower interest rates. On the other hand, lenders were looking for a higher return rate of their investments.
Meanwhile, due to the strict regulations, banks faced significant difficulties to meet the increasing demands of the market. Thiconducted a substantial vacuum for lending that P2P platforms managed to fulfill.
On the one hand, this allowed for borrowers to obtain cheaper loans. On the contrary, it provided an opportunity for funders to earn more for their capital. These platforms work as a mediator for both ends where on one side are lenders or investors, and on the other are the borrowers or the people looking for funding for their projects or goals. The P2P lending industry marked a vast increase, particularly in developed countries with advanced financial markets. These platforms have lent 6.6 billion loans with an increase of 128% in the USA alone for the past year.
It makes the USA the largest market in the world regarding its volume. The trend of developing alternative online funding did not miss Europe. According to latest market researches, the undoubtable leader of the lending volume is the United Kingdom, followed by France, Germany, Switzerland, and Netherlands.