How do crowdfunding websites make money

Crowdfunding projects: what investors should know

Valeria Nickel, April 14th, 2021

How much can I invest in a crowdfunding project?

As for the investment amount, it is for natural persons legally capped at € 25,000. For crowdfunding projects started before July 15, 2019, the previous subscription limit of € 10,000 still applies. Another limit is that given in advance Project volume per se: If you only want to collect € 2,000, you cannot invest more as you like. In addition, the following applies: the higher your financial contribution, the better.

Depending on the crowdfunding platform or project, there is often Minimum investment amounts. In crowdinvesting, these are between € 10 and € 500; in smaller reward-based projects, they are generally lower, if at all.

What happens if a crowdfunding project does not materialize?

The minimum amount necessary to realize the crowdfunding project is called Funding threshold. If this threshold is not exceeded by a certain point in time, the funding is deemed to be failed and all crowd investors get her money back. This is common practice, no matter which of the 4 crowd financing types you choose. If the funding threshold is reached within the foreseen period, the crowdfunding project has basically come about.

What happens if a crowdfunding project fails?

A successfully financed project should of course be implemented in such a way that the donors or investors can receive their reward or interest in the end. Even so, various circumstances can cause a project to fail.

This is the case with good crowdfunding platforms regulated in the terms and conditions. Because a failure means not the total failure of the investment.

There is usually still capital that needs to be managed. For example, the project initiators can be obliged to do the best possible and to bring the project to a conclusion with a reasonable amount of effort. The project initiator must show transparently what has already been achieved, how the funding contributions have been used and that careful work has been carried out to ensure that the project is completed successfully.

However, if there is a total failure, the remaining capital will be divided among the creditors. At this point, it is of great importance which financial product was invested in the crowd investing project:

  • If the investors are holders of participatory or qualified subordinated loans, they will only be served after all other creditors from the bankruptcy estate - provided, of course, there is still something left.
  • If, on the other hand, investors have invested in a secured bank loan, as arranged by BERGFÜRST, they will be served first or second in the event of insolvency and have realizable collateral.

When does it make sense to invest in crowdfunding projects?

Anyone who discovers a crowdfunding project that suits them - for example because it is in the neighborhood is implemented or a personally important topic appeals - is particularly important to the heart, can always invest meaningfully in this project. Because then it is not primarily about a reward for the support, i.e. the economic success of the project. Rather, it can make sense to invest in projects that are personally important to you, even without something in return, if you are doing something good for your environment. If you are more interested in crowdfunding projects with material consideration, it is best to invest in projects whose topics or industries you are familiar with. A self-determined investment decision can be made most sensibly with enough background information to meet.

What are the 3 most important success factors for crowdfunding projects?

Around half of the crowdfunding projects started are successfully financed, the other half do not reach their desired capital. What distinguishes the failed projects from the successful ones? These 3 factors have a particular impact on whether a company gets the desired amount or not:

  1. Concise ideathat appeals to many people: As a potential supporter, you should understand at a glance what it is about and what money is being raised for. It should also be an attractive project that you are happy to contribute to.
  2. PitchVideothat introduces the makers and the project: This is clearer and more appealing than a long text that a potential investor will usually not read to the end at all.
  3. communication: You have to spread your idea. Above all, it is worthwhile to identify the relevant interest group and specifically address it. However, this usually happens automatically when the appropriate platform is selected.

What is the current success rate of crowdfunding projects?

In 2020, according to the platform, a total of 292 crowdfunding projects Successfully financed in the areas of real estate, companies (startups) and energy. This means that the project has collected the amount of money from the “crowd” that was targeted from the start. The number of successfully repaid projects is difficult to determine because, on the one hand, only a few projects were due due to the fact that they ran for several years. On the other hand, many platforms do not provide reliable information about the failed startups.

Which projects were crowdfunded to finance?

There are various projects from all possible areas that have already been funded by crowdfunding. Most famous are Startup Financing. Also small cultural and creative projects are very popular - from storybooks to online magazines for curvy women. In addition, mainly spread social projectswho, for example, support refugees on their way to work and training. Also Sports facilities and ecological projects are popular crowdfunding objects. Profit-oriented investors mainly invest in real estate projects that the startups have now overtaken.

Which crowdfunding model is suitable for which projects?

There are 4 different types of crowdfunding. The "reward-based“Model, the supporters receive rather symbolic consideration. This form is particularly suitable for cultural, creative, social, ecological and sporting projects, as it ultimately creates a product with which the supporters can be rewarded in various ways.

At the "equity-based“With crowdfunding, investors participate in the projects through financial instruments and expect a corresponding return. This form is therefore particularly suitable for investments in startups and real estate, since here - if the project is successful - high profits can be generated. The third model is “lending-based” crowdfunding, which is particularly suitable for small loans to private individuals who need this for private purchases. Social projects in which there are no profits or products at the end is the "donation-based“Crowdfunding the right way, as the donors don't expect anything in return.

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