Equity Crowdfunding – A New Asset Class?

Forms of investments and strategies

Equity-based crowdfunding democratizes investing

5 minute read

Germany has a lively startup scene. The Internet opened up many new fields of business. Furthermore, digitalization forces every medium-sized company to adapt to the changed conditions. Sigmar Gabriel and the Federal Ministry of Economics and Energy call for a stronger examination of digital possibilities. This is how small and medium-sized enterprises are to ensure their competitiveness for the coming years.

Both startups and small and medium-sized enterprises (SMEs) often lack the capital they need to implement their innovative ideas. According to a study by the industry association Bitkom, founders of startups only manage to raise about 50 percent of the capital they need via venture capital companies (VC), state subsidies or business angels. The remaining 50 percent can only be financed by own savings, friends or family. Medium-sized companies that want to grow have to deal with similar financing problems. The reason for this is the increasing uncertainty in the banking sector. This is confirmed by Deloitte's study "Financing in Medium-Sized Businesses."

As a result, financing via the crowd is becoming increasingly attractive. According to figures from the current Crowd Financing Monitor (2016), the crowd's investment volume grew from EUR 81.4 million (2015) to EUR 101.9 million (2016) in the first three quarters. Equity crowdfunding, or equity-based crowdfunding, as offered by Companisto plays a key role here.

 

Equity crowdfunding has opened up a new segment for investors. It is now also possible for private investors to invest where previously only investment bankers, business angels, and venture capital companies did business: In growth companies and startups. In the past, only wealthy people could participate in unlisted companies and startups via funds and generate high returns this way. All others were completely excluded from these investments until recently.

This changed a few years ago with the market launch of equity crowdfunding on online platforms such as Companisto. Thanks to equity crowdfunding, investors interested in promising business models and long-term investment opportunities can now be part of this economic sector. With a little patience and discipline, private investors can also benefit from equity crowdfunding and thus ideally achieve high returns. As a result, one could say that equity crowdfunding has democratized the investment sector.

 

Investors have several ways of making profits in equity crowdfunding: A startup can be sold or taken over, as in the case of Instagram, Wunderlist, and LinkedIn. In this case, the company is revalued and the investor receives a payout based on the increase in value and/or profits. Another option is for a company to go public - and in this case, the investor would be able to trade the shares. Moreover, growth companies, in particular, pay a fixed interest rate of around 8 percent per year.

On Companisto, the investors (called Companists) grant young companies a subordinated loan. In return, they benefit from an annual fixed interest rate for growth companies or a share in the profits and sales of startups. Although investors do not have a direct say in the startup's operative business through equity-based crowdfunding, they can participate up close in the investor forums, share their tips and experience, and watch a company gain momentum.

At Companisto, an example of a growth company is Sawade, a traditional chocolate manufacturer from Berlin that has repositioned itself with the help of the crowd. Sawade is a chocolate manufacturer on the outskirts of Berlin and, with its 130-year company history, has long since ceased to be a startup. The company was close to bankruptcy when the two entrepreneurs Benno and Melanie Hübel bought and modernized the company. They made Sawade a growing company and embraced digitalization.

To further enhance its competitiveness, Sawade offered investors the unique investment opportunity via Companisto to participate in the company's growth through a venture loan: 8 percent fixed interest per year with a term of four years. As a "sweet" temptation, investors at Companisto could even decide to receive their fixed interest rate in the form of chocolate and enjoy a 12 percent interest rate in return. The offer convinced the crowd: 1097 Companists invested EUR 1.3 million in Sawade via subordinated loans. Since then, the crowd-investors have been paid out punctually each half-year.

 

The financial industry offers several opportunities for those who want to achieve success for themselves. Equity crowdfunding can be a means to invest in new ways. At Companisto, the entry threshold is very low with a minimum investment of only EUR 100.

Germany scores poorly in international comparison in terms of wealth and finances - according to a study by Allianz this year, Germany ranks last alongside Austria.  In terms of prerequisites, we are one of the top five financially positioned countries in the Eurozone - but far behind when it comes to saving and investing. Unfortunately, savings under the mattress do not generate interest, returns, or dividends. German households could have generated around 200 million euro more if they had distributed just a small percentage of their money among higher-yielding financial products. This was reported by Die Welt at the end of September this year. It is, therefore, high time to take control of your own finances.

How can you do that? Find out in the article "Disappointed by Your Bank Advisor: How to take your finances into your own hands."

 

Have we sparked your interest? If so, then register on Companisto today!

Status as of 26.10.2016 12:20


 

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Cristin Liekfeldt

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