The basic idea of crowdfunding – financing projects or companies by collecting relatively small amounts of money from a large number of people – is nothing new. What is new is using the Internet to reach potential funders.
Web-based crowdfunding started in the USA. Frustrated by the monopolistic recording labels, independent musicians turned to the internet to raise money for producing their albums. The first online platform for such fundraising, ArtistShare, was launched in 2003. Based on this model, different types of crowdfunding – donation-, reward-, equity- and lending-based – soon followed.
By 2012 more than 540 platforms raised over 2.6 billion dollars globally. The largest reward-based platform is Kickstarter, which since its launch in 2009 has raised more than 2 billion dollars for more than 77,000 projects.
Crowdfunding in Austria
By going to the masses for seed capital, companies get more public attention, brand ambassadors and early adopters – all important metrics for subsequent private investment.
The still-nascent Austrian crowdfunding-scene started in 2013. Of the three major Austrian players, CONDA alone accounted for almost half of the more than 2.5 million euros raised to date. All three are equity-based platforms, mainly because the donation-based model is uncommon in Europe and lending-based crowdfunding is legally prohibited in Austria. Equity-based crowdfunding is legally challenging in Austria as well – up to now only two platforms have received legal clearance from Austria’s Financial Market Authority.
A successful crowdfunding campaign, as with other types of financing, takes hard work and preparation. It is necessary to make a clear, executable (communication) plan, have enough resources in place, offer an easy to understand product, and tell a good story (via video, social media etc.).
Crowdfunding augments existing types of early-stage financing (e.g. business angels, venture capital firms and banks). With the entry of crowdfunding in the Austrian market, more ventures have the possibility to access risk capital. By going to the masses for seed capital, companies get more public attention, brand ambassadors and early adopters – all important metrics for subsequent private investment.
To get an closer insight into the facts and figures of crowdinvestors in Austria have a look at the table below.
Please click on the picture to enlarge the list. Photo credit: CONDA, TOSA