You wish to financing projects via crowdfunding or crowdlending ?
In this article, we explain how :
- The concept of crowdfunding ;
- The difference between crowdfunding and crowdlending ;
- What are the advantages of participatory financing for investors and companies?
- The practical aspects of organising crowdfunding campaigns (conditions, fees, duration, etc.). etc.) ;
- Which equity crowdfunding platforms are approved in Belgium?
What is crowdfunding?
The term crowdfunding comes from English and literally means "crowdfunding".
Understood as participatory financing, crowdfunding is now a widespread source of funding for all kinds of projects.
What is crowdlending?
The term crowdlending refers to another form of participative financing: "interest-bearing loans to businesses to finance their development or to carry out specific transactions".
What are the advantages of equity crowdfunding for investors?
Participative investment is an alternative to stock market investment, offering a direct link with the real economy.
Investing through crowdfunding or crowdlending also allows you to diversify your investment portfolio while earning an attractive return. At a time when returns on savings accounts are close to zero and stock market prices are volatile, crowdlending allows you to achieve annual returns in excess of 5% net of interest.
Companies: What are the advantages of crowdfunding and crowdlending?
For businesses and project sponsors, crowdfunding is a complementary source of finance and/or an alternative to bank financing.
Conducting participatory fundraising also helps to give the project high visibility and raise funds quickly.
In certain circumstances (such as the current health and economic crisis), equity crowdfunding can be a godsend, providing essential leverage to continue financing business growth and maintaining investment capacity.
In practical terms, by raising funds via a participative platform, investors can manage a large number of investors with the support of a single point of contact. The funding platform plays a role throughout the duration of the investment (communication, reporting, investor remuneration, etc.), etc...).
What are the conditions for raising funds through crowdfunding or crowdlending in Belgium?
In Belgium, crowdfunding and crowdlending are regulated by the law of 18 December 2016. Compliance with this law is supervised by the Financial Services and Markets Authority (FSMA for short).
To use participative financing in Belgium, you need to choose a platform approved by the FSMA (BeeBonds is one of them).
Secondly, companies wishing to crowdfund must submit up-to-date financial and accounting data.
Finally, a full presentation file must be submitted for prior analysis of the data before publication on an approved platform accessible to all potential investors.
How long does it take to raise funds?
The duration of a crowdfunding campaign varies according to the platforms used and the quality of the projects. In general, you should allow at least 1 month. Most fundraising campaigns can be completed within 6 months.
How much does fundraising cost for project sponsors?
In general, the following costs will need to be taken into account:
- Application and administrative fees ;
- Percentage of amount raised ;
- Indirect costs associated with compiling the file (involvement of accountants, auditors, lawyers, etc.);
- For crowdlending: the remuneration of investors (based on the interest rate offered to investors) must be taken into account.
In the case of crowdfunding, it is important to bear in mind that a proportion of the company's shares will be returned to the investors. The proportion depends on the valuation at which investors have agreed to subscribe.
What are the costs to investors?
Depending on the platform chosen, investors may have to pay for :
- Platform registration fees ;
- Underwriting fees ;
- Administrative charges for account management;
- Withholding tax deducted at source when interest is paid in the context of crowdlending.
What are the risks of crowdfunding and crowdlending?
Although crowdfunding is becoming increasingly popular, it's important to bear in mind that every project involves a degree of risk.
The investment proposed often concerns projects in the start-up phase. In crowdfunding projects, it is important to bear in mind that the return on investment is obtained over a period of time that is not determined in advance. So there is no deadline for repayment and no guarantee of a return.
In contrast, when raising funds through crowdlending, the interest rate and repayment date are fixed from the outset.
Which crowdfunding platforms are approved in Belgium?
Crowdfunding platforms approved in Belgium are listed on the website of the Financial Services and Markets Authority (FSMA).
Currently, 7 platforms have obtained FSMA approval on the basis of the law regulating crowdfunding (last check - June 2020).
In addition to BeeBonds, these include 1001 Pact Impact Investments and Ecco Nova.
What are the stages in raising funds?
The steps involved in raising funds often follow a similar pattern. In order, here is the traditional route:
- Presentation of the project
- Validation of financing
- Launch of the campaign
- Closing the campaign
It should be noted that a project can give rise to several successive rounds of fundraising (and that crowdfunding is often combined with traditional fundraising during the development of a company).
Who is involved in a fundraising campaign?
There are many players involved in raising funds. First of all, the project owner, but also the issuer, the team that makes up the platform and finally the community of investors.
Not forgetting, of course, the supervisory authorities that ensure compliance with the rules, especially in the context of crowdfunding. In Belgium, this is the Authorité des Services et Marchés Financiers, better known as FSMA.