is the process of raising capital for a business project, by using the
Internet and various social media platforms, to reach out to a large
group of people.
Typically, the crowdfunding model involves
The project initiator/creator who
proposes the project;
comprising individuals or groups of individuals, who support the
project and ;
The internet platform, which brings
the parties together for launching the project by allowing supporters
to make their contributions or donations online, and coordinating and
managing fundraising activities.
There are currently four main kinds of
Donation crowdfunding: supporters have
a social or a personal interest for investing, without expecting
anything in return;
Reward cowdfunding : In return
for a donation from supporters of a project, the project initiator
typically gives some type of incentive for participation ;.
Debt crowdfunding (or peer-to-peer
lending): supporters receive the principal along with the interest
Equity crowdfunding: supporters invest
in the project in exchange for equity. If the project becomes
successful, the value of their share will increase.
Belgian Law of 18 December 2016 on crowdfunding entered into force on 1
The law aims at finding a harmonious
balance between the need for a light crowdfunding regime (less
expensive) and the need to protect investors by regulating
platforms targeting Belgian investors by way of debt or equity
instruments. Donation- and reward-crowdfunding are excluded from the scope
of the law.
Key features include:
Alternative finance service: The
crowdfunding law introduces a specific status for equity and debt
crowdfunding platforms referred to as “alternative financing
platforms” and prescribes operating requirements (professional duties,
information requirements, procedures on conflicts of interest and
appropriateness tests) for both alternative financing platforms and
regulated entities (credit institutions and investment funds) that
engage in alternative financing activities;
Higher thresholds for the prospectus
exemption: The crowdfunding law provides for an exemption from the
obligation to publish a prospectus for public offerings through an
alternative financing platform for less than EUR 300,000 with a
maximum of EUR 5,000 per individual investor (that used to be 3.000
Activation of tax advantages (tax
shelter, tax reduction, exemption). Investments via a crowdfunding
platform or a starter fund benefit from tax advantages that were
already available for direct investments in startup companies.
is a trending topic nowadays. Domestic and international media are
increasingly reporting on crowdfunding as an alternative form of funding
of projects and enterprises.
Successfully crowdfunded projects can
indeed get huge amounts of attention, on social media and elsewhere, which
can help startup grow beyond what the money raised alone could have done.
However, in any case, project
initiators must be aware of the following risks before embarking on
Not succeeding: If the fundraising
target is not reached, money collected during the campaign
will have to be returned to investors in most cases.
People copying the project: There is
no protection of intellectual property on crowdfunding platforms.
Initiators' ideas are online for plenty of people to see and
there is a risk of someone duplicating their proposition.
Underestimating the costs: Proper
budgeting and planning are vital. It is common to underestimate just
how much time and resources crowdfunding takes. Some forms of
crowdfunding may even create additional costs. For Crowdfunding,
transactions are one time, and not continuous. Project initiators must
learn how to balance the short-term influx of cash raised through
crowdfunding efforts with the daily cash flow expense requirements of
Damage to reputation: As the
market is now quite competitive, no doubt that experienced investors
will be looking into the offering. Any error or under-preparation
will reflect badly on the project initiators and their project or
Responsibilities & liabilities:
Dealing with a potentially diverse set of investors/supporters/backers
brings different issues, expectations and demands. Not understanding a
contributor’s rights, complaints handling or enforcement mechanisms
can create problems, particularly with equity crowdfunding, which
comes with some loss of control over your startup.