Crowdinvesting: types and features
Building a business begins with an idea, but without the necessary financial minimum, you may not get to the stage of presenting your idea to the general public. It should be understood that bank loans are virtually inaccessible to new firms due to high-interest rates. Venture capital funds are also in no hurry to help small businesses, mostly focusing on large-scale projects. In this case, crowdinvesting may be the best solution.
This option is based on raising funds from a large number of investors: they can be both individuals and legal entities. Funding is provided in exchange for a share in the business and its profits. Interaction in this case takes place through special platforms, which are used as an intermediary. The business lays out data about its project on the resource, describing its benefits and future profits. An interested investor can invest in an idea he or she likes. Both parties sign an agreement with the platform, which takes on the protection of their rights. In turn, the platform itself is regulated by the central bank.
There are several types of crowdinvesting. In the first case, the investor provides a loan, all the terms of which are stipulated in detail. The document should list the terms of repayment of the loan, the interest rate, and the penalty in case of non-compliance with the designated points. The second option of interaction between the parties is concluding a contract for the purchase and sale of securities, which can be both shares and bonds. The securities are placed and traded on the crowdinvesting platform.
The investor can purchase utilitarian digital rights, which makes him or her the owner of the seller’s tangible property and intellectual property. These rights also obligate the business to perform a certain list of work or services. In addition, the investor can purchase digital assets that entitle the investor to claim a portion of the business’s assets.
As for profits for the investor, they can be of various types, such as royalties, depending on the terms of the contract. If the business reaches a certain level of profitability, the investor can receive a pre-agreed profit percentage. Another option is crowdlending: the investor receives a percentage of the income, depending on the amount of his investment. This mechanism is similar to a bank deposit and is very common because it allows relatively small amounts of money to be invested.
In many developed countries, a variant of equity crowdfunding is used. In this case, the investor acquires a stake in the company through the purchase of securities and digital assets.
As with any type of investment, there are risks involved. First and foremost, the main risk is that the business will not reach the desired level of profitability. However, by diversifying your investment portfolio, it is possible to minimize losses.
