You may know the term "crowdfunding" from all sorts of donation projects, where with a small contribution - even just a few hundred crowns - you support a good cause without expecting anything in return. In this case, however, we are talking about just one of the 4 types of crowdfunding: donation-based crowdfunding. What are the other 3? Read on to learn more about this phenomenon of our time and find out how investment crowdfunding in particular can earn you an attractive extra income.
What is crowdfunding?
Crowdfunding is a way of financing projects, businesses or ideas through financial contributions of any size from a large number of individuals, usually via an online platform. As a result, more or less anyone can raise the funds they need without depending on traditional financial institutions (banks, investors and so on).
This type of financing is used for a variety of purposes, including the development of new products, artistic projects, social initiatives or, for example, investing.
Types of crowdfunding
There are four main types of crowdfunding, each with its own specific purpose and way of working:
- Donation-based crowdfunding (Donation-based crowdfunding): People contribute money to a project or initiative without expecting any financial gain or reward. It is often used, for example, for charitable projects.
- Reward-based crowdfunding (Reward-based crowdfunding): Supporters contribute money to a project and in return for their support receive some kind of reward (a product, a service, an exclusive experience). This type of crowdfunding is often used to provide financial help for the creation of creative projects, such as new products, films or books.
- Debt-based crowdfunding (Debt-based crowdfunding, Peer-to-peer lending): This is a form of crowdfunding where people lend their money to individuals or companies in the expectation of getting their investment back with interest. This is similar to bank loans, but without a bank as an intermediary.
- Investment crowdfunding (Equity crowdfunding): Investors contribute money to a project or company and in return receive a stake in that company. In this way they can share in the profits if the company does well. This method can lower the barriers to entry for individual investors and often takes place through online platforms.
Please note: We at InvestBay do not provide investment crowdfunding, but crowdowning.
What is crowdowning?
Crowdowning, loosely translated as the co-ownership of a property by several people, simply takes the best of crowdfunding and enriches it with the benefits of property ownership. In this model, you as investors are co-owners of the property, while at the same time being protected from the unnecessary day-to-day management associated with owning it.
Although InvestBay is registered in the land registry as the owner, you are co-owners. That is why you have the opportunity to take a substantial part in the management and the related financial decisions - yet without having to deal with day-to-day operations in any way.
This investment in real estate generates two sources of income for you:
- from the appreciation upon sale at the end of the investment horizon
- from rent, in the form of ongoing letting of the property
Crowdfunding, or crowdowning? Read more details in our article.
Each of these types of crowdfunding has its advantages and disadvantages:
| Advantages | Disadvantages | |
| Donation-based crowdfunding |
You have the good feeling that you have contributed to something meaningful. You become part of a community of supporters who are emotionally invested in the project or cause. |
Apart from the good feeling of a financial gift, you get nothing in return. |
| Reward-based crowdfunding |
You have the good feeling that you have contributed to something meaningful. You receive an exclusive reward. You become part of a community of supporters who are emotionally invested in the project or cause. If the target amount set by the project's creator is not reached, you (often) get your contribution back. |
Some rewards may be financially disadvantageous for you, i.e. you overpay. |
| Debt-based crowdfunding |
It can offer higher returns compared to traditional investment instruments such as savings accounts or government bonds. A fixed repayment schedule is established, and so you know in advance when you will get your money back (with interest). |
It can be riskier than traditional investments. As always, in this case too there is a risk that the borrower will not repay diligently. P2P lending platforms may not be regulated as strictly as banking institutions, which can increase the risk of fraud or mismanagement. |
|
Investment crowdfunding |
It can bring high returns, especially if the company grows significantly or is acquired. It provides access to new and innovative projects that may have great growth potential. |
This is a high-risk investment. Crowdfunding platforms may not be regulated in the same way as traditional financial institutions, which can increase the risk of fraud or mismanagement. |
Always do thorough research and never invest more than you can afford to lose
Investment crowdfunding step by step
For beginners, investing through crowdfunding can be complicated. That is why we have put together a step-by-step guide for you:
- First, find out all the advantages and disadvantages of this type of crowdfunding, as well as the specifics of the projects, so that you are not unpleasantly surprised by anything.
- Choose a crowdfunding platform and create a user account on it.
- Look at the available projects and study their descriptions, plans and goals carefully. With this type of crowdfunding in particular, you might also be interested in the company's business plan and financial statements.
- Determine your investment strategy. How much do you want to invest? Or how often do you want to invest? It can be a good idea to spread your investments across different projects. Don't forget to also consider the risks - you can lose your entire investment if the project fails.
- Invest. The platform will usually guide you through the payment process, which may include various payment methods.
- Track your investment account and the progress of the project. Many platforms also provide updates from the project founders.
- Wait for the return on your investment. But be patient. The return on an investment of this type can take months to years (depending on the nature of the project).
How to do crowdowning with InvestBay?
- Register, verify your identity and fill in the investment questionnaire.
- Browse all the currently available investment projects, i.e. properties across Europe that you can invest in.
In the overview, you immediately see the estimated annual appreciation and the length of the investment, and in the detail you find all the other information, including photographs. After registering, you gain access to financial documents and detailed information. - Decide for yourself how much you want to invest. The minimum value of a single investment is CZK 2,500 (EUR 100).
- You place the order and transfer the money to the account. Done!
- As soon as the full amount is raised, we buy the property and transfer it in the land registry to us, to InvestBay.
- In addition to receiving a share of the property's sale at the end, you also receive money from renting out this property. What's more, you too can come here on holiday and stay at a discount.
If you want to start investing in the simplest possible way, start with crowdowning at InvestBay. With us, investing is easier to picture, even for beginners. Start your investment journey today.
TIP: Easily calculate your return on investment, appreciation and yields with our investment calculator!
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