Forms of crowdfunding: Does consumer policy need to take action?

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Andreas Oehler

Release date:
July 2016

German Council for Consumer Affairs (SVRV)

The digital world creates new ways to fund projects and that within a structure which is either similar to equity or borrowed capital. Besides these mixed forms with the focus on equity-based (crowd investing) or lending-based (crowd lending) aspects, other financing models are being offered as well. These emphasize rather non-financial and emotional instead of monetary aspects (reward-based) in terms of their financing structure, which may ultimately result in a mere orientation towards donations (donation-based). The core of such project fundings through the 'swarm' seems reasonably easy: The minimum sum is being defined in advance, which has to be achieved within a previously determined time frame in order for the project to be realized. If this sum is not achieved, the 'swarm financiers' get refunded. 

The highlighted chances of these models refer to the broad participation of many diverse small investors in financing process as well as cost and efficiency advantages for all actors involved. Risks are associated with the lack of transparency about project information given that a business-like participation exists as well as the easy confirmation of small investors due to the usually small sums.

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