Crowdfunding – new ways to achieve market success

When many people pull together, even small contributions can make a significant difference: Crowdfunding and crowdinvesting are widely talked about. But what makes these new forms of financing stand out? Is it just another chance to obtain money? Or a completely new way to explore the market and gain support from people? There are mixed views on this topic but one thing is certain: More and more companies and start-ups use these instruments to attract attention on the web and to find people that provide financial support. In Germany alone, over 28 million euros have been raised via crowdfunding since the end of 2011.

Crowdfunding – new ways to achieve market success

Which types of projects are financed via crowdfunding? The spectrum is extremely diverse, ranging from business formations and start-up investments, environmental protection projects and cultural events all the way to actions of individuals such as the realisation of a film. Current examples include:

 

  • NTS X-Wind, a provider of innovative wind parks that uses power kites to generate power, was able to raise 29.5 million euros.

  • Krautreporter, an independent journalist magazine obtained funding of just over 1 million euros.

  • Bio-Strohhalme GmbH wants to keep on investing in the market of renewable drinking straws and has already raised a sum of more than 100 per cent.

  • The Bavarian filmmaker Benedikt Fuhrmann raised the funds for his documentary film project “Ein Blick Iran” thanks to crowdfunding.  Recently, the film project “Bavaria Vista Club” was also able to secure the financial funds needed for the realisation.


How crowdfunding succeeds
With respect to successful projects, industry experts are talking of real “campaigns” that are thoroughly prepared in a team. Thus many actions are launched with a professionally produced video that not only represents the idea in an impressive way, but also shows the people who are behind it and what drives them. Particularly important: The user must immediately be aware of what purpose the desired fund will be used for, which compensatory measures are in place (e.g. interests) and what happens if the funds cannot be raised. The running time of such campaigns should not be too short nor too long - approx. 30 to 60 days.

Business formations and start-up investments of course aim for higher project volumes that reward the investor by sharing the profits. Most art, culture, social and sustainability projects have lower project volumes and are often characterised by strong social media integration.

What incentives are provided at the end?
There are different mechanisms of participation. The aim may encompass a reward (e.g. fine wine as “interest” for the invested capital), a loan, profit-sharing or a gift. Experts differ between various financial mechanisms: “keep-it-all” with guaranteed minimum return and “all-or-nothing”, i.e. a possible total loss.

Materialising good ideas, even without a bank
Whether it be a new business idea or a cultural project, Those who want to turn their ideas into action, can raise funds, without having to resort to the bank. With crowdfunding, every web user can become an investor, thus enabling the realisation of exciting ideas.

There are different platforms where crowdfunding projects can be posted. Some of the well-known providers in Germany are:

  • Bergfürst (Berlin)

  • Companisto (Berlin)

  • Innovestment (Berlin)

  • Seedmatch (Dresden)

  • Startnext (Dresden)

  • Mashup Finance (Munich)


Crowdfunding is a promising topic for Bavaria's companies and especially for investors. What trends can be identified? What about topics such as cost transparency, taxation issues and legal security? And can innovation processes be controlled using the crowd or can internal crowdfunding even become a driver for innovation? A meeting will soon take place in Munich where experts will meet up and discuss these issues. On 20th November the CrowdDialog 2014, Europe's leading practice and knowledge conference for this topic, will take place in Munich.