Crowdfunding is also known as Participative Financing in French. It's a new form of financing that brings investors and project owners together via a website. We take a look at this new financing solution and show you how to use it for your rural projects.
Crowdfunding has developed strongly since the 2008 financial crisis, benefiting from the growth of new technologies (internet and social networks) and the development of appropriate regulations.
In France, the funds raised by crowdfunding are growing strongly every year, approaching €2 billion in 2021 (€1.88 billion compared with €1.02 billion in 2020, i.e. +84%).
A large number of websites specialise in crowdfunding. Entrepreneurs present their projects on these platforms. Investors (individuals and professionals) then select the projects they wish to support, and invest part of their savings in the project.
Platforms may be generalist, supporting all types of project, or they may be limited to a particular geographical area (department, region) or sector of activity (renewable energy, agriculture, property, etc.).
A minimum amount to be raised is generally defined. If the minimum amount is not reached, the sums paid in by investors are reimbursed. A maximum amount can also be set, depending on the wishes of the project owner.
The launch of a crowdfunding campaign is limited in time and is usually accompanied by a strong relay on social networks in order to reach a wide range of investors, each of whom will invest a relatively modest sum.
European regulations have been added to the French regulations in order to harmonise practices in all European countries.
These regulations require platforms to register with ORIAS (the French register of insurance, banking and finance intermediaries) and, depending on the situation, with ACPR (the French supervisory authority). These 2 procedures require minimum guarantees in terms of share capital, professional indemnity insurance and good repute.
A change in the regulations, scheduled for autumn 2022, should make it possible to extend the activity of the platforms.
Crowdfunding is suitable for all types of investors and project sponsors, as it offers a number of advantages
For entrepreneurs, crowdfunding is most often a complement to traditional bank financing. Even though some projects are now financed entirely by crowdfunding.
It is a way of testing a market and developing a community of customers or users, which is very useful for setting up a new business or launching a new product or service.
As far as investors are concerned, there are several reasons for the development of this new savings method:
It should be noted that many investors know the project owner. Equity crowdfunding provides a legal framework that allows local investment, even for beginners and small investments.
There are 3 types of financing available through crowdfunding.
The investor gives a sum of money that will never be repaid. There are several types of donation:
Donations are mainly aimed at very local projects, and donors have a very strong link with the project owner.
The overall amounts raised are generally between €3 and €5,000 and the average donation is between €50 and €70.
With or without interest, this is an investment for the investor, who will be repaid his capital over the term of the loan.
At present, regulations limit the term of loans to 7 years, as well as the amount borrowed:
The average amount raised varies between €1,000 and €200,000, depending on the type of loan.
This involves taking a stake in the company's capital. The investment can be :
Equity financing is generally used to finance the development of innovative projects, or to complete an investor's round of financing.
In some cases, taking a stake can enable investors to benefit from tax reductions.
Average investment amounts are between €50,000 and €100,000.
Crowdfunding platforms charge commission on the amount of capital raised.
They are generally :
Among the large number of crowdfunding platforms, several are specifically designed for rural areas. They support agricultural projects, projects with an ecological dimension and renewable energy projects.
Here is a non-exhaustive list of these platforms. We will be devoting articles to several of these companies:
The renovation of a cold storage room thanks to donations from 120 contributors who paid a total of €7,473, the conversion of a troglodyte cellar thanks to a €30,000 loan in which 151 individuals took part, the setting up of a €80,000 equity loan over 5 years to finance part of the takeover of a dairy farm and its conversion to organic farming, etc. These are just some of the projects that have recently been financed on the bluebees.fr website, to which we will shortly be devoting an article in our series devoted to alternative financing tools.
These are just a few examples of the real potential of crowdfunding to support the projects of rural entrepreneurs.
Having an idea is not enough to launch a crowdfunding campaign.
Preparing your campaign is the most important step.
You need to :
You then need to select the platform you want to use. This is an important task, given the wide range of platforms on offer today. The websites trouverlebonfinancement.fr or https://tousnosprojets.bpifrance.fr/ will help you to select the most suitable platform for your project, depending on the formula you have chosen (donation, loan, capital) and your sector of activity.
During the campaign, you need to be very active in both face-to-face and digital communication. It is this communication approach that will enable you to reach your fundraising target.
After the campaign, you will need to take stock of the actions you have taken and the feedback you have received, prepare a communication plan for your funders and, of course, honour your commitments.
The diversity of platforms and funding methods (loans, donations, capital) may seem daunting. However, these solutions offer real opportunities, as we can see from a few examples of projects that have been financed.
It's true that the cost will often be a little higher than traditional bank financing, but crowdfunding is above all a complementary solution to borrowing and will enable you to create a strong relationship with your investors, who will very likely be your first customers.
