Crowdfunding: how does it work?

Even if you know us well, a quick refresher on crowdfunding might be helpful. In this article, we explain or re-explain (after all, isn't that the very essence of education?) what crowdfunding is, how our platform works, what our accreditation means, who the key players in responsible investment are…  In short,  we explain how crowdfunding works!

To learn more: Understanding crowdfunding investment

What is crowdfunding?

Also known as crowdfunding, participatory financing is an alternative to traditional bank loans. More precisely, it involves the exchange of funds between individuals outside of institutional financial channels. Through an online platform, crowdfunding is the ideal solution for supporting projects you care about while diversifying your investment portfolio.

The definition from  https://financeparticipative.org/  also supports this idea: "Crowdfunding is a fundraising tool operated via an internet platform allowing a group of contributors to collectively choose to directly and traceably finance identified projects."

The different forms of crowdfunding

The donation

The principle of donations allows project leaders to raise funds from investors like you. These donations can be entirely altruistic or include symbolic or tangible rewards. What does that mean? A reward is a non-financial contribution offered to donors during a campaign to thank them for their support.

The loan

The project owner acts as the borrower and enters into a loan agreement with each lender, either in writing or via a durable medium (e.g., email, secure personal account). The lender opens an online account on the platform and deposits their contribution. The loan may be granted with or without interest.

• A loan with interest cannot exceed €2,000 per lender and per project.
• Furthermore, its duration cannot exceed 7 years .
• The maximum amount that can be borrowed by a project promoter is set at €5,000,000  per project.
• The platform must have the European status of crowdfunding service provider (PSFP).
• The register is managed by ESMA and can be viewed online.
• An interest-free loan cannot exceed  €5,000 per lender and per project, without any time limit.
• The maximum amount that can be borrowed by a project promoter is then set at  €1,000,000 per project.

Subscription to securities

This form of crowdfunding, called crowdequity, allows a project owner to raise funds by issuing company shares. Contributors, like you, subscribe to these shares, thus becoming shareholders in the company. From then on, you acquire rights to information about the company and can participate in general meetings. You may also receive dividends and realize a capital gain when you sell your shares in the future.

There is no individual limit on subscriptions, but a project promoter cannot raise more than €8,000,000 over a 12-month period. Furthermore, if you subscribe to the company's capital, you may be eligible for a Madelin tax reduction equal to 18% of the amounts invested.

Who is crowdfunding for?

Crowdfunding is a collective payment method. It's for anyone who wants to invest in financial assets without going through a bank. It's also ideal for those looking to diversify their portfolio with a complementary solution. This type of investment allows you to participate in social, environmental, and local projects. To direct your savings, there's nothing better than choosing a project that aligns with your values. It's no wonder, then, that more and more savers are drawn to this meaningful and impactful model.

With just a few clicks online, everyone can take control of their finances by supporting concrete, local initiatives. Citizens and project leaders work together to create a more sustainable and inclusive economy.

How to choose a crowdfunding platform?

Before embarking on crowdfunding, you need to identify the platform that best suits your project, your values, your desires… To do this and be sure of making the right choice (it's always better), a few criteria must be studied beforehand.

First, you need to define your funding objective. The amount, the desired duration, the type of project, the interest rate, the return, and whether to open a PEA-PME (French SME savings plan) are all elements to consider. Every investment carries a risk of capital loss and liquidity issues, so it's crucial to only invest money you don't need immediately and to diversify your savings. Once your financial plan is established, you need to do some research and comparison. Explore the different crowdfunding platforms available on the market, checking their specific features. Are they generalist? Do they specialize in a particular sector? What is the default rate? Do you have all the necessary information for your investment? What are the investment requirements?  If you need information, don't hesitate to contact the platform's support or ask questions on a dedicated forum. This will undoubtedly help you better understand the economic and regulatory environment of the site you're browsing. Comparing different platforms is the key to success in financial investments! That's why we recommend you keep up to date with the latest news (why not enable notifications?) and updates.

If you're interested in real estate, check out platforms specializing in real estate crowdfunding. If you'd like to invest in social projects, consider community initiatives. For impact investing, visit an environmentally focused site like Enerfip. If you're interested in these types of investments or have any questions,  contact our Investor Relations team today .