Fundraising platforms are solutions not to be neglected. Large sums can be raised :
- The average amount raised on a crowdfunding platform varies between 3 000€ and 5 000€.
- On a crowdlending platform, the average amount raised varies between 1 000€ and 200 000€.
- The average amount raised on a crowdequity platform varies between 40 000€ and 500 000€.
Matching crowdfunding and crowdlending are part of the non-dilutive financing category. They are used at the startup’s inception while crowdequity is part of the dilutive financing category. It is used during the seed and development phase of the startup.
The advantages of these platforms are numerous. (i) First, crowdfunding platforms are levers that can provide entrepreneurs with proof of market validation. (ii) Crowdfunding platforms can also serve as a lever to build equity in order to go after a bank loan or grant.
Do you have questions about crowdfunding platforms or fundraising in general ?
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Fundraising or crowdfunding platforms are on the rise. That’s why going through a crowdfunding platform is an almost indispensable step.
The different types of fundraising platforms
Fundraising platforms are everywhere but they are all different. In fact, we must make certain distinctions.
It can be donations without any counterpart (reward), donations with symbolic counterpart or a pre-sale of the product/service.
The average amount varies between 3 000€ and 5 000€.
These are interest-free loans or interest-bearing loans (without a deposit or guarantee on your part).
The average amount varies between 1 000€ and 200 000€.
This is a participation in the company’s capital. The investment can be in capital (the financer is remunerated in the form of capital gains or dividends when the shares are sold), in royalties (remuneration in the form of commissions on sales) or in bonds (remuneration in the form of interest).
The average amount varies between 40 000€ and 500 000€ depending on the type of investment.
At what stage of development should I use crowdfunding platforms ?
Matching and non-matching crowdfunding and crowdlenfing fall into the category of non-dilutive financing. Conversely, crowdequity is part of dilutive financing (dilution of the startup’s capital with the entry of new shareholders).
Often, non-dilutive financing is more used at the startup’s inception and dilutive financing when the startup has a fairly recurring turnover. Therefore, crowdfunding and crowdlenfing will be more used at the startup’s beginning while crowdequity will be used in the seed and development phase.
The advantages of using a crowdfunding platform
Fundraising platforms as proof of market validation
This financing method allows the entrepreneur to test his market and the reception of his product/service by his audience.
Thus, the entrepreneur can estimate his capacity to federate a community around his project. This is an important first step to know if the targeted people are ready to buy the product or service.
Fundraising platforms to seek a bank loan
Most of the time, banks only accept to lend money if the entrepreneur has the equivalent of the amount borrowed in his own funds. This allows banks to protect themselves from credit risk. Thus, doing a crowdfunding campaign can be a first step to strengthen the equity before going for a bank loan or a public grant.
Advantages and disadvantages of each type of financing
The advantage of crowdfunding is that the participants’ money is not an investment but a donation, therefore it does not have to be paid back. The participants make this donation because they believe in the project and in the founding team. The disadvantage is that the amount raised is quite low. Indeed, the average amount varies between 3 000€ and 5 000€.
The advantage of crowdlending is that it is a loan, so no capital dilution, and a good alternative if the bank does not want to take the risk of financing the project. The main disadvantage is the interest rate on which the entrepreneur must remain vigilant. Also, the amount received will have to be paid back whether the project takes off or not.
The advantage of crowdequity is the amount raised, which can reach quite large sums. The average amount raised varies between 40 000€ and 500 000€ depending on the type of investment. The disadvantage is the dilution of the capital, but here again there are calculations to be made to avoid giving up too much of the capital and that the entrepreneur keeps more than the majority of the shares.
Finally, some crowdfunding platforms have their preferences in terms of the startup’s activity. But often, fundraising platforms are generalists, meaning that they accept all types of projects. Therefore, before launching the campaign, the team should do its research on the platform’s specifics and rules (the rate charged by the platform when the campaign is successful). Thus, a successful crowdfunding campaign requires a lot of preparation beforehand.
Fundraising platforms are financing solutions that should not be neglected. Indeed, in addition to being able to test its market and its ability to federate a community around its project, the entrepreneur raises capital that will be used to strengthen the equity of the startup. The more mature, innovative and serious the project, the more it will be possible to raise significant amounts of money on these different fundraising platforms. It is up to each person to choose which type of participatory financing suits them best. But if there is one thing you should remember from this article, it is : “Don’t deprive yourself of this source of financing” !
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