Investors wishing to quickly and easily raise capital for their project can benefit from crowdfunding. This is possible thanks to the unwavering role of the Internet. It stands out until 5 the types of financing most rapidly developed in recent years by crowdfunding investment. Unregulated risks to investors. The EU seeks to formalise this issue.
Crowdfunding is a form of community funding that is or will be organised around these projects. Such activities are being developed on a large scale through the spread of the Internet. The project is usually financed by a large number of one-off contributions. It is done by those interested in the project.
This is an extremely effective method allowing small and medium-sized entrepreneurs to gain the necessary capital in a relatively fast and easy way. It is also an alternative to borrowing bank loans or offering shares in a traditional public offering.
5 types of crowdfunding
Grant Crowdfunding (charitative)
The funding community of the project shall not receive any mutual benefit. This is how most charitable or scientific projects are implemented.
Crowdfunding based on awards
The most popular type of financing used in Poland. Before paying the funds, the depositor is informed of what form of gratification he will be entitled to. Usually, the objective value of the award is much lower than the funds invested.
Crowdfunding based on pre-sale
The financiers shall pay the funds for the implementation of a specific product or service, which shall be provided to them by the beneficiary after execution. The campaigns carried out in this model are linked to the threshold of the collected minimum amount, the overrun of which is necessary for the payment of funds and the start of the project.
Crowdfunding (community loans)
The beneficiary is obliged to reimburse the paying agent with all the funds he has paid together with the interest previously fixed.
Investment Crowdfunding (equity)
The contributor shall receive shares in the undertaking in exchange for financial assistance. The investor has partial control of the beneficiary company. By subsequent divestment of its shares or receiving dividends from the company, it can expect profit.
Crowdfunding requires regulation
The latter is becoming an increasingly popular form of capital raising by small companies and start-ups. In Poland, crowdfunding platforms operate in two legal regimes. Some are run by the brokerage house and are supervised by the Financial Supervision Commission. They are strictly regulated and supervised to ensure investor safety. However, the vast majority of platforms are almost completely unregulated. This significantly increases the risk to average investors.
The European Union seeks to regulate investment crowdfunding
The European Union intends to regulate and harmonise the functioning of such platforms throughout Europe. The European Parliament and the European Commission worked out in December 2021 an agreement on this. The most important change would be the possibility to promote emissions in 27 EU countries. For Poland, this would mean that the approval of crowdfunding platforms issued by KNF would be standardized throughout Europe. ESMA (European Securities and Markets Authority) will be responsible at EU level.