Crowdfunding, a good choice for Start-Ups?

Crowdfunding money jar image
  1. What is crowdfunding?

Crowdfunding or “crowdfunding” is translated as “participatory financing”. There is a way for companies, individuals to raise funds via an internet platform for their project. This method of financing consists of a funder who wishes to support a business creation or takeover project and a creator or business owner who does not have all the funds necessary to launch his project, who does not wish or cannot call on the bank or simply wishes to test his project on the market. Each other meet on the Internet via a platform. Projects are presented by their creator and funders choose to finance those they like. Currently, there are many Crowdfunding platforms such as GOFUNDME, KISKSTARTER, INDIEGOGO,…

Crowdfunding offers 4 forms of contributions to funders:

  • Un crowdlending (loan): The funder lends a sum of money to finance a project. The loan amount must be repaid within a specified time, with or without interest, it is up to the project leader to decide on this

  • A donation: The funder gives a sum of money without expecting anything in return, it is a donation, this category of financing is often reserved for associative acts

  • A reward: The funder gives a sum of money in exchange for a reward. The reward often takes the form of the product or service that the project leader is trying to finance.

  • An investment : The funder finances part of a project and receives shares of the company’s capital in return. He therefore becomes a shareholder of the financed company.

  1. The crowdfunding issue ?

Crowdfunding is an extremely fast financing process. And the start-up “Exploding Kittents” is a concrete example. It is a card game launched on the Kickstarter platform in January 2015, one of the most successful crowdfunding games in history. This start-up was financed to the tune of 8 million dollars by 220000 participants during only one month of funding. It broke the absolute record of the site being the most financed campaign in terms of number of investors and the 4e in terms of amount raised. In addition, crowdfunding is also a means of developing notoriety and making the project or company known. Crowdfunding makes it possible to completely free a project from dependence on banks, which often only judge it on the basis of tables of figures and narrow reading grids.

But crowdfunding also has risks. Crowdfunding is a legally regulated activity. Structures offering financing platforms must comply with rules. For example, the decree of 16 September 2014 specifies the conditions for loans made by individuals (up to 1000 euros per lender and per project for a loan with interest and 4000 euros without interest). In some projects, crowdfunding is more expensive than bank borrowing, in finance and energy because in addition to communication costs, it is necessary to integrate the platform commission and interest in the case of loans. In addition, project leaders have a heavy enough workload to launch their project.

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