Latest revision as of 12:24, 21 May 2015

Political and socioeconomic background

Crowdfunding and Crowdlending - often described as a phenomena - certainly did not enter the world like an apple falling from a tree. The idea of microfinancing - nowadays often used as an important instrument in the development aid - is not new but has its roots in the early 18th century.^[1] Peer-to-peer structures also play an important part in the tradition of computer communication - the whole internet was originally developed in the late 1960’s to be a peer-to-peer system. The Original ARPANET connected UCLA, Stanford Research Institute, UC Santa Barbara and the University of Utah not in a client/server format but as equal computing peers.^[2]
The internet with its development of pirate copying and growing problems of the music industry with the digital rights management played an important role in crowdfunding. The social perception of the first crowdfunding platforms was confined to the music industry. Since Brian Camelio, a Boston programmer, lauchned the first crowdfunding platform ArtistShare in 2003, a lot of platforms with similiar programs were founded. Through the website, musicians were able to raise money without even having produced an album. With ArtistShare´s first project - Maria Schneiders Grammy awarded Convert in a Garden - a completely new financial modell filled the blanks of a music industry in times of crisis. The business modell was renowed for a new artistic independence of the usual production processes. Sellaband – also focused on the production of music albums - was founded in 2006, followed by Indiegogo 2008 – just to name the famous ones.
The economic climate in the following years plays an important role in the developement of the different platforms since these years were also accompanied by a massive economic crisis and with that social changes.^[3] Two important ideas seem to unite in the crowdfunding concept: first the classical pioneering spirit that "every man is the architect of his own fortune" and secondly "together we can make it". In it`s best moments crowdfunding even seems to merge with ideas of the Occupy Wall Street movement of a participatory society that does not need the industry to fulfill their ideas.<sup>[4] [5]</sup> The revolutionary spirit of the occupy movement is closely connnected to the internet, the growing P2P community and to the idea of it`s revolutionary potential, e.g. bitcoins. ^[6]
Debt based P2P platforms already rose in the UK in 2005 and in the US in 2006, but the growing interest of the public can be reflected by the increase of search requests on google. The term appeared for the first time in the google engine in 2006. Since 2009 the public perception changed massively. The US crowdfunding platform Kickstarter launched in 2009. From the year of the founding of the platform in 2009 until january 2012 more than 10000 projects were financed – art and culture, but also food producers, fashiondesigner and inventors.
Crowdfunding with it`s viral nature became such an important factor for the US industry that politics had to react (JOBS Act).
Nowdays a whole range of platforms exist. From revolutionary, anti capitalistic ones like Mayday US, a super-pac in the US which has the goal to abandon all super-pacs^[7]to super capitalistic ones, from idealistic to the nonsense of the fun society with a monetary explosive potential.^[8]
The Austrian Federal Economic Chamber WKO estimates that in 2012 more than 1.1 million campaigns worldwide and across all crowdfunding modells were raised. The cumulative volume amounted 2.7 billion Dollar. In the following year the doubling of this ratio is expected. ^[9]

Crowdfunding in the US - The JOBS Act

Crowdfunding´s rising importance in the capital market was only recently given notice through the legislation of the JOBS (Jumpstart Our Business) Act in the United States of America, signed into law on April 5th 2012. So far, crowdfunding has been regulated in the Securities Act of 1933 and therefore has only been accessible for accredited investors, i.e. those who meet a certain level of wealth defined by the US Securities and Exchange Commission - SEC. The SEC is the US capital markets regulations authority. ^[10]

Title I and II of the JOBS Act were designed to ease restrictions on capital-raising, from IPO´s to start-up seed financing. It enables businesses to solicit securities-based funding from the general public.
Regulations are with the SEC, and they are currently delayed in rulemaking. One of the last provisions that are still missing to be implemented is equity based crowdfunding for non accredited investors: ^[11]
Title III of the JOBS Act wants to democratize equity based crowdfunding by providing an online mechanism that allows non-accredited investors to participate and invest online into private companies, in small amounts. On September 23rd 2012, the proposal was implemented by the SEC, but has not been legalized until November 2014. ^[12]

The SEC is heavily delayed with the rules, as they were supposed to be finalized within 270 days. So far, only a 585-pages rule proposal exists. The reason for the delay is that the SEC is in a conflict with two of its core missions: the protection of investors and the promotion of capital formation.

Crowdfunding Platforms and the JOBS Act
The motivation on side of US crowdfunding platforms like crowdfunder.com or circleup.com - which currently are doing crowdfunding for accredited investors only - has naturally been very high and a lot of wellknown names can be found on the supporters list. The team of crowdfunder.com, for example, got involved in crowdfunding legislation and regulation early on in November 2011, as the first crowdfunding legislation was introduced to the House of Representatives and has since then, been engaged with leadership in Congress, the SEC and the White House. Now, platforms are waiting for Title III of the Jobs Act to get legal, in order to facilitate non-equity based crowdfunding with non-accredited investors. Crowdfunder.com CEO Chance Barnett is even “thrilled at how swiftly the SEC picked up crowdfunding rulings”. He is waiting for the “Democratization of Crowdfunding” and sees his company as part of a historic movement. ^[13]

Many suppporters of equity based crowdfunding, i.e. also many crowdfunding platforms, are talking of a revolution in investing, a victory against sexism and racism, the democratization of capitalism and other predictions that go out on a limb.
On the contrast, critical voices are warning of too much expectations of equity based crowdfunding. First, crowdfunding will not increase the supply of investment capital in a substantial amount. Besides, the so far proposed regulations are very complex: they seem to be to heavily regulated for businesses to use and still earn money and too weak to protect investors. The SEC estimates that it would cost $39.000 to pay accountants, lawyers and the crowdfunding portal to raise only $100.000 new funds. ^[14]

Key Points of the Crowdfund Act under The JOBS Act, as listed at crowdfunder.com ^[15]

• A company will be able to crowdfund up to $1 million over a 12 month period.
  
• Individuals with annual income or net worth of less than $100,000 may invest up to $2,000 or 5 percent of their annual income or their net worth, whichever is greater, over a 12 month period.
  
• Individuals with annual income or a net worth of $100,000 or more may invest up to 10% of annual income or net worth, capped at $100,000 maximum aggregate amount, over a 12 month period.
  
• Investors can fund one company or several companies as long as they remain within these annual limits.
  
• Minimum Review & Checks: Companies that seek to crowdfund a securities-based round must have background checks done on all principles with 10% or greater ownership in the company and provide full and adequate disclosures with a business plan and a full description of their ownership and capital structure.
  
• Crowdfunding portals, alongside the legally required background checks, must do a full review of the company, disclosures and the raise in order to approve a company prior to fundraising.
  
• An investor must wait a minimum of 12 months before selling her/his securities unless the sale is to a family member, the issuing company, or an accredited investor, in addition to other restrictions normally placed on the transfer of securities.
  
• A crowdfunding round does not prevent a company from raising capital through other legal channels.
  
• Companies crowdfunding will be exempt from the 500 shareholder cap pursuant to rules and regulations of the SEC.
  

All in all, one can suspect that only companies really in need of money would use non-accredited investor crowdfunding. And even those will try out every other option first. This is why non-accredited investor crowdfunding needs better regulations in order to work and benefit both investor and company and subsequently the platforms.

Crowdeconomies and the Dynamics of the Market

Crowdfunding as a new webbased funding modell has a relative short history. At a closer look the phenomena crowdfunding often seems nebulous. It seems that the sheer spectrum and diversity of the crowdfunding plattforms offers a suitable projection screen for quite different interests.
Some financial newspapers see positive trends within some sectors whereas other papers write about the decline or even the disappearance of plattforms. Very often during the research also the facts seem vague and unclear: forecasts often use second hand informations. ^[16] But very often they tend to speculation and hype.

The sheer mass of forecasts for the capital market make one thing clear: the economy recognized the potential of the new financial model. ^[17] In the background enormous sums are flowing. In the year 2012 the crowdlending-based credits worldwide totalled $1.2 billion. ^[18] It`s the interest and the speculative nature of the markets which are changing the concept of crowdfunding (since there ever was one concept) substantially.
New markets are discovered ^[19] and market places are shifting also geograhically. ^{[20] [21]} Since the highrise of the lending-based crowdfunding in the US in 2006-2008 as a indirect reaction of the banking crises the economic markets recovered and the banks are looking for strategies for regaining the territories.^[22] But not only banks – some plattforms are sold to listed public limited companies with clear economic interests.^[23]

Often the looks are only focused on the initiator of the crowdfunding campaign or the investors mostly consisting out of anonymous internet users – whereas the influence or the interest of the plattform itself is overlooked. The information of the economic interest of the plattform is cryptic and hidden under the catchwords of creativity and engagement.
The following closer look at the platforms is supposed to raise awareness of the structures behind the platforms. For a general overview we point out that we made a distinction between crowdsourcing and crowdfunding portals since the platforms themselves constitute genre specific behaviour. If they take fees and how much is often not really obvious.

One has to find out the hidden risks and guidelines that are the base of this newly grown industry carefully.

Crowdfunding in Europe

The EU´s regulating framework so far leaves too much space for interpretation on the national level. There is no crowdfunding directive and no financial instrument for use on a cross-border basis without facing compliance costs for meeting the various regulations in the different countries. This results in an investor-unfriendly environment where every platform operates in a different transaction model, depending on the country where it is based. ^[24][25]

United Kingdom
In the UK there are even better conditions for crowdfunding than in the US. The FCA - Financial Conduct Agency put in place rules to govern the market much earlier than the US. This also the reason why the market has exploded in the past few years. London is on of the biggest markets for Crowdfunding.^[26]
Especially Crowdlending is booming very much according to CMC, a buisness consultant from Oxfordshire. 843 million pound were lent during the last year. That is 121% more than in 2013. Over 3.700 businesses borrowed money this way, while 70.000 consumers took out loans, while on the supply side there are 86.000 active lenders in the sector last year. ^[27]

Germany
2011 can be considered as the starting year for crowdfunding in germany. The first realized campaigns were film projects: Hotel desire from the company Brainpool funded 175000€ through donations, followed by the planned film Stromberg, originally a widely known tv series, which raised the predefined 1 000 000 Euro within only one week.
The raised money is for the specific purpose of the particular action, for the process of crowdfunding no specific statutory basis exists. Contrarily to this the funding through stocks is regulated by a specific stock market law. Whereas in the US with Obames signing of the Jobs act a common base exists.

Austria
Crowdfunding is legal in austria but restrictions exist. Sometimes the legal situation is not fully clear. Since crowdfunding is not yet so popular in austria the federal institutions work slower.
Usually new financing modells and especially new crowdfunding plattforms were proved by the Financial market authority (FMA). But a licence or a seal does not exist. So the Austrians Federal Economic Chamber (WKO) generally suggests to question the status of potential crowdfunding partners. Especially within the „crowdlending-model law" conflicts appear and show the legal limit of the model in correspondence with the existing law nowadays. For example, the FMA only accepts subordinated credits which means that the credits can be alienated if a company is getting financial difficulties through that transaction. The FMA only accepts crowdlending - platforms that are co-working with banks, so they are obliged to do so. If a company has no financial - trading license, they are not allowed to crowd - lend in Austria.
The Austrians Federal Economic Chamber estimates that the typical crowdinvestor is male and about 40 years. he has a good income, ready to take risks and to invest between 5000 and 50000 euros. Very active crowdinvestors begin to establish crowdinvestment portfolios and work on 3 or more plattforms to spread the risks. They use crowdfunding as an alternative investmentform, according to the WKO. The base of the evaluated data here is not quite clear.
The first austrian platform www.respekt.net in 2010 and in 2012 the first crowdinvest-platform wwww.1000x1000.at. In the meantime, more platforms with all kind of focus exist that raised an estimated 1.5 million Euro until now. ^[28]

Ethics and Consumer Protection

In 2014 the Austrian Working Chamber analysed 18 different crowdfunding platforms from Austria, Germany, the UK and Switzerland. The different analysed platforms also represented different crowdfunding models in order to get an overview of the manner how the sites represent themselves and checked concerning consumer protection rights:^[29]

• risks
  
• costs
  
• right of withdrawal
  
• modalities of cancellation
  
• terms and conditions
  
  

The conclusion reporting several faults resulted in a (yet unfullfilled) list of demands:

• determine information standards:
  
• obligatory and distinct notes about the risks
  
• to ensure the duties of grant and requirements of trade
  
• obligatory registration
  
• no untightening of the duty of grant
  
• no perforation of the EU prospected lawgiving
  

Crowdsourcing

The web is recently more often used to raise funds; and the crowdfunding platforms allow this movement a huge flow of money. But there are also web platforms, which dedicate themselves to the flow of knowledge, ideas and skills. These are the so-called “crowdsourcing” platforms, which work in a way that we could define as distributed problem solving ^[30] or collective mobilization^[31]. Since the aim of this “problem solving” process is to address as many people as possible, the stakeholders come from an online-community, available thanks to some provided space, i.e. the platforms, rather than from traditional employees or suppliers. Also the name crowdsourcing refers to this huge, undefined public, the “crowd”, which represents the external help: the open call is launched outside in the web (therefore sourcing, from out-sourcing, externalization) without knowing who exactly is going to answer^[32]. The term crowdsourcing was coined in 2005 by Jeff Howe and Mark Robinson, editors at Wired Magazine.

While getting into the constellation of these platforms, you might come across many words, whose meaning is not clear at first, but that can help you to understand better which is the aim of the platform and which project it does support. We could assume a categorization of the crowdsourcing platforms according to the flow they are dealing with: knowledge, ideas or skills.

Knowledge-based-platforms

These kinds of platforms host the projects which goal is to collect information from the users. The motto is that everyone can add what he knows and probably the most famous example is Wikipedia, the free encyclopedia that uses a Wiki platform. Also OpenStreetMap emerged from a Wiki platform. It provides localized information for the whole word, thanks to 1.6 millions users working on it. If we talk about flow of knowledge it is also appropriate to include the platforms in this category that promote the so-called crowd-voting: it occurs when a website gathers a large group’s opinions and judgment on a certain topic ^[33]. The sphere of application of crowd-voting goes from market strategies to political issues, since that, the received feedback can be exploited for upcoming decisions. Two examples of platforms of this type are launcht and crowdtivate. Terms related to these platforms:

• open data
• distributed knowledge
• wiki platform
• crowd-voting

Idea-based-platforms

These platforms host the stakeholders who make an open call for ideas. The motto is that it is easier to get good ideas when there are more brains working on it, and what makes a project a great project is exactly the idea itself, rather than the economical involvement in its realization. Crowd-creation is a broad field, which includes many stakeholders; depending on those you can find some categorizations of the process. For example, in some websites it appears to be a clear difference between the terms "open innovation", "co-creation" and "crowdsourcing", while in others the words are used indifferently. Regarding the platform Wazuko ^[34] open innovation is the “oldest” term and means creating and innovating with external stakeholders: customers, suppliers, partners and the company’s wider community. It allows a real democratic exchange and the exceeding of the strict borders between demand and supply parties. While open innovation suggests active collaboration between different organisations and the sharing of intellectual property, co-creation relates more specifically to the relationship between an organisation and a defined group of end users, its customers. Co-creation means that these end-users help the vendors to improve the quality of a product or service with their own personal engagement. According to Wazuko the difference is that while in Crowdsourcing there is first an open call and then the solution of the problem by the crowd, in co-creation the crowd works with the company. Generally speaking we can state that this bottom-up process is having a really large impact on the market strategies and that crowdsourcing is representing now a new possible model of production. The use of social input for many companies can make the difference between them and their competitors: in a world of widely distributed knowledge, where the boundaries between a firm and its environment have become more permeable, companies cannot afford to rely entirely on their own research and ideas to maintain a competitive advantage ^[35] But it’s not all about private companies and the market: there are many platforms that support a flow of ideas , that is addressed to the common good. One example is the platform 10.000 ideas, which aim is to switch the perception of the Latin American megacities into human scale cities, built from the people who live within it. Crowdsourcing -collaborative creativity- is the essential cornerstone of the project: participating is really easy, for instance you can contribute to the final success by simply reporting the need of a traffic light in one precise point ^[36] Terms related to these platforms:

• open innovation
• co-creation
• crowdsourcing
• crowd creativity
• participatory design

Skill-based-platforms

These platforms represent a virtual labor pool, where demand and supply are easily satisfied. The crowd takes upon itself the job to do, which can range from simple to complex. For instance, when it’s about tiny tedious work that the computers cannot do, the proper term that the platforms use is microtasking. The work requires human cognition and could be image classification, scanning, transcription, geocoding, proofreading, database correction… . Of course tiny is al also the payment (typically .01¢ – .10¢ per task) ^[37] but the pro is that anyone can have access to this opportunity to work, even if with no special skills or living in less fortunate countries. The pro for the giver is that the work is done faster, cheaper and usually with few errors (when validation systems are in place). Clear instructions are essential. Microtask ^[38] is one of the most famous platforms for global distribution of short-duration tasks to online workers; one of his costumer is also the National Library of Finland, asking for the digitalization of its books. The term crowd-testing means something really similar, but restricted to the informatics field. The crowd tests a software and provides feedback about the bugs. The company can select the target group, and structure the software in a “user-centric” perspective ^[39], in order to improve the success of the app. As in the idea-based platforms, also among the skill-based platforms there are some committed just to the common good, with no money involvement. That is the example of the citizen science platforms, that collect the data of simple experiments conducted by amateur or non-professional scientists. These results are extremely important for the quick progress of a research. One example is the platform zooniverse ^[40], that with more than 1 million users treats countless issues, from the whales communication to the tropical cyclones. Terms related to these platforms:

• microtasking
• cloud labour
• crowd-testing
• citizen science

The role of the platforms in the process of co-creation

Design Quotient of a user of OpenIdeo

User classes in M@nor Labs

The platforms represent in the crowdsourcing processes an important actor that can decidedly affect the final result. It is very important to understand that between the company and the crowd there is an intermediary who is responsible to pass on the information, from both sides. That’s why choosing the platform for an open call becomes a central question, since the process of co-creation relies on this flow of information. According to the research “electric mobility and co-creation” ^[41] by Board of innovation and MissioneMotion the process of co-creation is successful when it follows these 5 rules:

• inspiring participation: the crowd should feel attracted by the challenge, every person should think that has a special contribution for the enterprise
• selecting the very best: when there is an open call for a problem hundreds of ideas may arrive, but probably some solutions are better than others: they must be underlined and chosen
• connecting creative minds: the feedback is a powerful tool for generating new concepts, the people should have the chance to talk to each other
• sharing results: the company owes the crowd the publications of the collective brain storming’s result! And not only for a matter of ethics, but also for instilling in the people a sense of longer-term engagement.
• continuing development: never stop to produce new ideas, you can always go on and achieve more

The platforms can largely help to achieve a good outcome, by providing the adequate tools to satisfy these five instances. The most important act is basically to enlarge the interaction between the party that decides to start the co-creation and the contributors that join the initiative along the process. Of course the level of possible interaction depends from many factors such as the amount of people involved, the necessary competences, the duration of the process, and so on… Nevertheless there are easy means that are effective for any co-creation and synonym of a well-designed platform: here some examples. The platform OpenIdeo provides for each user a Design Quotient ^[42] , which replaces the financial reward. The DQ is a personal description in marks of how much the solver has contributed in the co-creation platform and in which phases (inspiration, concepting, evaluation, collaboration). The DQ works like a game: for getting more points the users is spurred to take an active part in the process. A similar input is exploited by the platform M@nor Labs: instead of the DQ there are many users-categories to make visible what people have achieved in the platform. The aim is another time to stimulate the crowd to climb the “creative ladder”. Enlarge interaction means enable discussion: some platforms let the feedback play a central role, such as Quirky ^[43], others have the ”voting button”, such as OpenIdeo ^[44]. These very simple and apparently unimportant functions represent on the contrary the core of the crowdsourcing philosophy: they allow the crowd to participate and speak up its own ideas in big processes of creation and they to use the web to bring the most different and distant people together, in the same world: the web platform.

Crowdfunding

It is commonly described as having four basic models:

Donation based platforms

Donation based platforms provide services to collect donations to support initiatives for specific purposes from the crowd for a collaborative goal in form of a project or organisation and receive products, perks or rewards in return for their contribution. ^[45] As one very first example for a donation-based platform there can be seen the funding of the Statue of Liberty in New York by small donations from the American and French people or concerts by Mozart and Beethoven that financed concerts and new music compositions with money from interested patrons. The list is endless, the Internet just gave the process of donation a new dimension is global extent and timing. So crowdfunding on a donation base is the act of accruing micro donations to reach a larger fundraising goal and to democratize crowdfunding, to make it available to anyone. ^[46][47]

The target is to create a good conscience and social networks and the viral nature of crowdfunding itself mainly motivate this. In literature it is assumed that donations are made because individuals want to be altruistic, but crowd funders donate as well as they expect to be consumers or enjoy sufficient community benefits someday. Though big Charity organisations started online collection a long time ago, several new donation-based crowdfunding sites are established since 2008 and allow small organisations and individuals to collect contributions from the crowd. The big financial potential can be seen in the rapid growth of donor based crowd funding, that has a three times higher growing rate with 444 percent compared to equity based crowdfunding. Each year businesses and foundations donate nearly 60 billion to nonprofits organizations, but donation-based crowdfunding platforms allow reaching the power of the individuals. ^[48]

There are two different types of donation-based crowdfunding: charity crowdfunding and rewards crowdfunding. On the one hand is the donation-based charity entrepreneurship, in which not-for-profit organizations are the only sustainable organizational structure to access donations. On the other hand donors give money to support a business, so that the entrepreneur can carry the project forward, as they expect to become future consumers and get large community benefits. ^[49] This implies that crowd funders do not expect any financial rewards from their investment and finance the project without sharing the profits with the entrepreneur, but a small compensation for the contributors with a copy of what should be built, a t-shirt or just a thank you is possible. For the fundraiser as for the donor it is important to read the Terms of conditions for fees and privacy politics. The fees for starting a fundraise can go up to 15% of the donation that is given, also the requirements to be allowed for raising a campaign are diverse by platform; they can be from proofing to be a company for over two years to just start the project right away because of a certain occasion. ^[50][51][52]

The target audience of donation-based crowdfunding platforms are primarily individuals tough Corporate Social Responsibility (CRS) of enterprises and private foundations would provide economic potential that will certainly be addressed in the near future. For an appropriate platform the problem, how individuals and enterprises are provided an equal status with their donations in fulfilling the goal would have to be solved.

Analyzed Platforms:
1. Global Giving (USA)
2. Watsi (USA)
3. Fundrazr (Canada)
4. GiveForward (USA)

Reward based platforms

Reward-based Crowd funding platforms are especially used in the field of the so called creative industry such as music, literature, film, theatre, games, product and graphic design. It attracts a large number of people because these platforms can make an entrepreneur, a designer, a producer out of everyone who possesses a computer with Internet access, a bank account and has the time and skills to serve a camera and to run social media work. Customers also need a sales talent because they are going to advertise their products by themselves. Of course it is already appealing that the creator who stands behind the product is a person like you and me or even an acquaintance of yours. Further it makes someone thinking that if anyone can do it, I should try it too. That makes it a rather successful concept.

In general a new customer of the platform with the idea of a prototype or the wish to produce a record of music runs through several phases to reach the final aim, which means the needed financial support for the production. Users of the prevailing platform or other people attracted by the customers advertising work prepay a certain amount of money to get some goodies often related to the product or the final product itself. The prepaid money belongs for the most part to the creator to realize the desired product, but only if the defined total was reached. Thereupon supporters get their rewards. Otherwise their money will be returned to their bank accounts.

Investigated platforms

1. INDIEGOGO (USA)

2. Pozible (Australia)

3. ArtistShare (USA)

4. Kickstarter (USA)

5. Startnext (Austria)

6. ES GEHT! crowdfunding.at (Austria)

INDIEGOGO (USA)

Indiegogo is an online crowdfunding venue for people and entities seeking to raise funds for their own Campaigns and to contribute to the Campaigns of others. Campaign Owners can offer gifts or rewards in the form of tangible items or intangible services (collectively, "Perks") to Contributors. Indiegogo was created by Danae Ringelmann, Slava Rubin, and Eric Schell, launched on 2008 /USA, which supports many categories : Animals-Art -Comic -Community -Dance -Design –Education- Environment- Fashion -Film Food –Gaming- Health –Music- Photography –Politics- Religion -Small Business -Sports Technology -Theater -Transmedia -Video/Web and Writing. Donors, investors, or customers who are willing to order a project or a product can donate and receive a gift depending on the offered Perks^[53].

Registry and privacy policy
Launching a campaign, sign up and contribute to a campaign is free and the minimum age for registration is 18, for the ages 13-17 they also could register and use the Services with the consent and supervision of their parent or legal guardian who is at least 18 years old, provided that the parent or legal guardian also agrees to be bound by the Terms and agrees to be responsible for the use of the Services. Indiegogo offers two funding models :Flexible and Fixed Funding. In case of reaching the goal with either a Flexible or Fixed Funding campaign the inventors keep what they have raised, but be charged a fee of 4% of the funds. If the campaign is Verified Nonprofit, the platform fees would decrease to 3%. If the inventor doesn't reach the goal within the deadline in case of a Flexible Funding campaign, inventors also keep funds they raised, but be charged a fee of 9% of the funds. And in case of a Fixed Funding campaign, all of the contributors will be refunded but there would be an additional payment processing fee of 3-5%, depending on the payment options. $25 wire fee charged once when non-US campaigns have raised funds in USD via Direct Credit Card. The funds are wired in one lump sum to a non-US bank account after the campaign has ended and additional currency exchange fees may also apply. Campaigns raising funds in EUR (€) or AUD (A$) will be able to accept contributions via PayPal only. In addition there are no additional fees to create and use an Indiegogo Partner Page. The Website offers a publicly accessible blog. Any information you provide in these areas may be displayed publicly and read, collected, and used by others who access them.

Appearance of the platforms
Indiegogo features campaigns on the main homepage, category pages, blog, newsletter, and social media pages. Campaigns earn featured spots by staying active and the system measures a campaign activity with an algorithm called gogofactor^[54]. 224 countries & territories. 5 currencies. 4 languages offered by the Platform. Display on the Indiegogo Partner Gallery is limited to Partners who have accumulated a minimum of 3 campaigns that have amassed a total of $15,000 in contributions between them. Indiegogo uses many type of cookies which are Strictly necessary or essential cookies, Performance cookies, Functionality cookies, Advertising and targeting cookies.

Who is behind the platform
More than 100 organizations have Partner Pages on Indiegogo. Current Partners include the American Film Institute (AFI), Fractured Atlas, Startup America, Google, Whole Kids Foundation (non-profit arm of Whole Foods), the Architecture for Humanity, Stanford, The American Red Cross, and many more. For credit card funds raised in USD, Indiegogo will be able to send money to any non-U.S. bank account via bank-to-bank wire transfer. For credit card funds raised in CAD($) or GBP (£), Indiegogo will only be able to send money to a bank account located in Canada for CAD($) or UK for GBP (£). Contributors from outside the US will only be able to contribute if they own a US-issued credit or debit card for now. Apple announced that support for international credit cards is planned for 2015. There are 3 options for managing payments: Standard Payment Management Each campaign is a separate funding entity. The campaign owner raises money and receives disbursement payments from Indieogogo. Partner Managed Payments (Fiscal Sponsors) The money raised through each campaign can go directly through to the Partners PayPal account. The Partner is then responsible for disbursing funds to the campaign owners (most often used with Fiscal Sponsor Partners). Non-profit payment management Campaigners who are raising money for a 501(c)^[55] can choose to raise money directly for a non-profit organization The money raised through each campaign can go directly to the Partners non-profit account. This will only apply if the NPO has a PayPal account. Otherwise the for-profit partner model is applied.

Risks and criticism
In general there are many risks by using any type of Crowdfunding Platforms regardless of how organized or how creative the campaigns are, however there are main three risks may we consider which are the Market risk, Execution risk and the Financing risk^[56]. Indiegogo is valuable for mitigating all of these risks. When people fund an idea or product on Indiegogo before it actually exists, it’s a testament that they really want it, demonstrating reduced market risk. And data collected from an Indiegogo campaign is real market data, not just hypotheticals from a focus group. Also the legal responsibility for ensuring that a given project isn't fraudulent or otherwise illegal falls squarely on the funder's shoulders, Indiegogo doesn't guarantee that Contributions will be used as promised, that Campaign Owners will deliver Perks, or that the Campaign will achieve its goals. Indiegogo does not endorse, guarantee, make representations, or provide warranties for or about the quality, safety, morality or legality of any Campaign, Perk or Contribution, or the truth or accuracy of content posted on the Service. Indiegogo is not responsible for the performance of PayPal or any third party credit card processing services.

Equity based platforms

Equity crowdfunding adopts making investments through individual investors seeking to invest for an eventual financial return in the business, usually through web-based platforms. In this model, individuals who fund,may become owners or shareholders. Equity crowdfunding is also referred to as crowd investing^[57]. Crowdfund investing is a new funding opportunity for small businesses and startups that holds tremendous potential, but it's not a free-for-all. Entrepreneurs, business owners, and investors alike should know the legislative boundaries set by the JOBS Act (which opened the door to this funding resource in 2012)^[58], the risks involved in this type of funding, and the potential rewards it offers both to companies and their supporters^[59].

Who is adressed
Because equity crowdfunding involves investment into a commercial enterprise, it is often subject to securities and financial regulation. If the business succeeds, then its value goes up, as well as the value of a share in that business. Coverage of equity crowdfunding indicates that its potential is greatest with startup businesses that are seeking smaller investments to achieve establishment, while follow-on funding may come from other sources. Investment crowdfunding can be debt-based or equity-based, or can follow other models, including profit-sharing and hybrid models. The term equity crowdfunding is often used to describe crowd investing into both debt and equity based instruments when they are offered on an equity crowdfunding platform^[60].

Registry and privacy policy
Anyone can participate in contributing money to a crowdfunding campaign but only accredited investors can participate in equity funding. There's 8.5 Million Accredited investors in the US, defined by the SEC as someone who makes $200K a year or has a net worth of $1M, excluding the value of your primary residence.If you want to raise money via crowdfund investing ^[61], you must meet some requirements set in the JOBS Act. Here are the key provisions that affect how small businesses and entrepreneurs can use this funding opportunity: Funding is limited to $1 million per year. This limit for crowdfund investing allows for sufficient seed money or early-stage investment for most businesses, while avoiding the unintended consequence of having larger organizations use this asset class as an ATM^[62]. Funding occurs on an all-or-nothing basis. This provision means that the entrepreneur or business determines upfront the financial goal for a crowdfund investing campaign, works diligently to accomplish that goal, and either succeeds (and receives the full amount) or fails (and receives nothing, despite whatever investment pledges have been made)^[63].

Personal Data
Money can be solicited only from people who are connected to you via a social network. You can't post an ad to raise money for your startup idea on the radio, in a newspaper, in a magazine, or on television. Instead, you can solicit funds from people who know you by using an online funding portal to reach out to people with a general notice on your social networks. The people in your social networks may then extend your solicitation to people they know, which offers you more layers of possible investors. The Securities and Exchange Commission (SEC) regulates how you can direct people to your funding pitch (on your online portal) using Facebook, LinkedIn, Twitter, e-mail, and other online networks. Visit the SEC to find the most up-to-date information on the regulations at play. Only SEC-registered websites and broker-dealers can host crowdfund investing campaigns. The JOBS Act mandates that anyone seeking crowdfund investments must do so via an SEC-registered website or, in some cases, through a broker-dealer. The websites, known as funding portals, help the SEC make sure that a company seeking funds has disclosed as much information as possible so investors can make informed decisions. They also prevent a company from getting any of the funds unless it hits its stated campaign goal. If you're going to seek crowdfund investment support, you must use one of these SEC-registered websites (or a broker-dealer). Doing otherwise will land you in trouble^{[64] [65]}.

Appearance of the platforms
Since the marketing target is high value in the equity crowdfunding, the appearance is very smart and full of information, there are many suggestions for the company to attract the investors. As example: “Promote your company broadly through fully integrated social media & advertising tools "website" You should create a video, Even if it is a simple 1-2 minute, homemade video of the founders discussing their vision and business plan. Early-stage investing is a very personal endeavor and evaluation of the management team is a cornerstone of the due diligence undertaken by any investor. Also the advertisement is very popular in many of these Platforms and the cookies designed in a way of matching interests of the registered part.

Risks and criticism
Crowdfund investments are high risk. On average, 50 percent of new companies fail within their first year, so these investments should be only a small part of your overall financial portfolio. If you're completely risk averse, you have no business investing in small, private companies at all. If, however, you can tolerate volatility and risk in a small portion of your portfolio for the sake of potentially receiving some significant financial returns, a crowdfund investment may make sense^[66].

Investigated platforms
1. Green rocket
2. Seed invest
3. Crowd cube
4. Crowd funder
5. Early shares
6. Syndicates
7. Equity net
8. Our crowd

Lending based platforms

Lending based crowdfunding is structured like a bank credit. There are three actors involved: The Borrower, The Lender, which means people (the so called crowd) who are investing their money, and the platform. Usually, when there is a discussion about crowdfunding or peer2peer lending, there are just the two actors: Borrower and Lender under the highlights of researchers. The interests, that the platform itself and its subcontractors have, is neglected. But if you are willing to finance and present a project with this structure you need to have a close look what the platform itself does, how it acts and look at the interests behind it. The platforms, that were investigated in this research:

1. Zopa (UK)
2. Lending Club (USA)
3. Ratesetter (UK)
4. smava (Germany)
5. auxmoney (Germany/Austria)
6. bankless24.de (Germany)
7. ThinCats (UK)
8. Zencap (Germany)
9. Finmar (Germany)
10. Lendico.at (Germany/Austria)

Lending based Crowdfunding works like that:

You register to a platform, either as a person with an idea or need, for which you want to get money from a crowd, or as a person who wants to invest his/her money in a start - up project; and get it back with interest rates between: 5-12 %. The Lender has to reach the fixed amount, in a certain time window; if not the Borrowers get their money back. Usually the Crowdlending platforms use the take all or nothing prinicple, which means, that if you reach the predetermined amount you get all the money that ist on the account, if not it flows back to the Borrowers/Investors. If the stipulated amount of money is reached, the Borrower has to pay back the money in a given time to a given interest to the Investors.^[67]
The Legal background is not always that clear. Most Peer2peer Lending Platforms cooperate with ordinary banks, to verify the accounts of the assigned people and to check the credit worthiness of the registered Borrowers.^[68] The Platforms are just agents that bring together people with different interests, but the involvement of the bank is usually not promoted or even hidden.
Some of the platforms make very clear where in the process of the funding and from whom they take money. At some of the websites you have to register first to find out which fees they have. For example at bankless24 there is no statement to find about the fees.^[69]

Registry and privacy policy

Personal Data
Due to the legal base of the country, the platform is launched in, there are as many different conditions. But in General you could say, that all platforms work with registration.
For Crowdlending they need very sensitive Data and you have to present those to the platform. Required forms require not only your gender, your age, your name but also your earnings, your debts and your wealth. But also where it comes from, how much expenses you have per month and so on. The platform gives this information to the cooperative bank, who will check your credit-worthiness. But to get a Loan from the Public, you also have to publish a lot of these data on the platform itself, so ,that the crowd can check your trustworthiness and think about their investment properly.^[70];^[71];^[72];^[73];^[74];^[75];^[76];
This is something, that needs to be considered when creating a internet - ID, since the Lending - websites cannot guarantee for the most secure keeping of your data, which they say explicitly in their website policies.
That is not the biggest problem, since a lot of banking business is done in the internet nowadays, but what if the platform is not so careful with that data? If they are short on money and they spare in terms of security and encryption of data? And the next thing, that needs to be considered is, that behind the platform is the bank, that gets your files anyway.

Cookies
The second thing about data security that is important. Every platform listed here, uses Cookies. They are tiny pieces of codes, that report, what a website user does and how his click - and surf - behaviour is.^[77] This information is in most cases researched by Google Analytics, a Google - daughter, that informs the website about your interests and movements, so that they can specialize and personalize the ads and if necessary change the website in the interest of the customer.^[78] Or at least the platforms argue with the interest of the customer. What Google Analytics does with all that freely collected data is to sell it. You can easily forbid your browser to use Cookies, but as a result of this, in most cases you cannot use most websites properly. The information that is collected about you, is big business for some companies, if you are ok with that or not is another question.^[79];^[80];^[81];^[82];^[83];^[84];^[85];^[86]

Lending Club as they present themselves

Zopa, the biggest Crowdlender in the UK

Zencap a 10german platform, launched by the founders of Zalando.de

Who is adressed

The target audience of Crowlending are people between 25 to 50, that already have spare money, that they can invest. People who are willing to take risks and into new media.

Appearance of the platforms

Since Crowdlending stands for big business and innovative financing systems, most of the websites are designed really dignified. They appear as trustworthy and clean, but still stylish and modern. Usually there are videos, where the company lets a start up or an investor talk about their experiences with crowdfunding, and how they were successfully using this new system. Most websites work with pictures of successfully looking young buisness achievers in their early 30ies, whereas Lending club has just comics, when other use real photos.
For calculating your intererst rates, when planing to borrow, you have to sign in and register to the platform, which is already a obstacle to get the knowledge you need. The useabilty of the investigated platforms however, is quite good, they have a simple and obvious navigation without too many decorating items.
The look is related to banks and other institutions trading money, but still less formal and aseptic, to attract also younger investors and of course start - ups. Crowdlending and Crowdfunding try still to be under the disguise of beeing an idealistic and new innovative concept, when there is usually a big industry behind it. This attitude reflects in the appearences of the websites. Parameters for that are the colours that are usually very pure,like bright orange or bright green or for more seriousity pastel colors. The other thing are of course the people on the pictures, like already discribed earlier.

Who is behind the platform
Usually the platforms are structured like ordinary companies. They were often founded by people, who come from legal or banking buisnesses or have already a background in the internet market. An exmaple are the founders of the german platform "zencap"; the two Samwer - brothers, that launched "Zalando",a online marketplace, to Germany. ^[87]
The CEO of Lending Club, the biggest Lending platform in the UK is Renaud Laplanche, a former lawyer in business right, who later founded his own software company. This was the stepping stone for Lending club, because he found difficulties in getting a bank credit for his start - up company.^[88]

Risks and criticism

Lets do a theoretical calculation how much a Platform - company needs for maintenance of the website and for wages of their employees: Let's say they get 4,400 Euro per month including the higher wages of the managment. If there are eight wages to pay that's 422.400 Euro/ per year. Then there is the rent for the office building, materials and IT and legal Services: let's say 10.000 Euro per month that's 542.400 without Advertising. Probably the sum is in between 600.000 Euro and 700.000 Euro expenses per year. This is a lot for a two/ three year old company. If the platform now has a positivly mediated project to the amount of 100.000 euro and they take 10% provision, they get 10.000 euro. This money must cover the expenses of the validation process of the positive project and the ones that were refused in that time.^[89] Under this aspect it's interessting how the tiny platforms act and where they spare money. The biggest player on the Crowdlending market could probably earn this much, but what about the others? There is a risk behind this; if the platforms don't have the time to check and verify the projects as detailed as possible this is a risk for the customer. Especially in lending based Crowdfunding there is a need to be sure, that on one side the Lender can pay back the money and on the other side the customer can rely on the given information about the project. If not it could be bad for both sides - the Lender can go bancrupt and the Borrower can loose his investment. Another fear is, that professional investors are invading the Lending based Platforms. People who are working in financial trade and the stock market, or have another kind of education or experience in Investment buisnesses. They discovered a new way to benefit of the crowd with Crowdlending.^[90]
This is what Renaud Laplanche himself says about this developments:

The institutional investors we have at Lending Club are not credit hedgefunds–they’re long-term, patient investors: pension funds, insurance companies, endowments, foundations.^[91]

DIY platforms

DIY or Do It Yourself Crowdfunding is an alternative trend in the crowdfunding sector. In this model the crowdfunder decides not to use a third party or popular crowdfunding platform but chooses instead to run the entire project by him/herself, some of our investigated previous platforms already have a DIY option.Another possibility is to attend a DIY - Crowdfunding advisory website, that helps you to create your campaign; or to get a plugin for Wordpress. Some of them are: IgnitionDeck, Astoundify, and WPMU DEV Crowdfunding. They enable you to raise money for a project embedded in a blog. This model is popular for a range of reasons, most important is saving the Platform Fees and avoid their rules. ^[92][93]

Being your own platform - The case of Heinrich Staudinger

Heinrich Staudinger was born in the year 1953 in Vöcklabruck, Upper Austria. He founded the GEA-company and is majority shareholder of the self-governed shoe factory Waldviertler Shoes in Schrems, Lower Austria, since 1991. Shoes, bags and furniture are produced there as well as mattresses. He also publishes the journal brennstoff and organizes the GEA-Akademie. ^{[94] [95]}

He stopped trusting in his bank when the credit limit for the company was shortened without giving any reasons. 2003 the factory was free of debt and had a good credit standing. Staudinger decided to ask friends and relatives to invest in the company who received interests as well. Later also employees and customers made investigations through the GEA Sparverein. According to Staudinger they are not interested in making more and more profit but to create jobs and just work there. Until 2012 the factory developed well.^[96] They could create over 150 places of employment and achieve a huge photovoltaic system for the workshop. Depositors always knew what the money was used for and they were also informed of the stage of development. But these conditions shouldn’t last very much longer…

FMA (FinanzMarktAufsicht, english: supervision of the financial market)

"Der FMA (der FinanzMarktAufsicht) ist bekannt, dass der “GEA Sparverein” Gelder von Kunden entgegengenommen hat und dafür Zinsen an die Kunden bezahlt wurden bzw. werden. Überdies ist der FMA bekannt, dass für die Finanzierung einer Solaranlage ebenso Kundengelder entgegengenommen wurden. Wer Bankgeschäfte ohne die erforderliche Berechtigung betreibt [...] ist von der FMA mit Geldstrafe bis zu 50.000 Euro zu bestrafen.” ^[97]

"The FMA is aware of the fact that the “GEA Sparverein” received moneys from customers and that for paid respectively will pay interests to the customers. Furthermore the FMA is aware of the fact that for the financing of a solar equipment also moneys of customers were accepted. Who runs bank deals without the necessary permission [...] has to be punished by a fine of up to 50.000 Euros form the FMA.”

Heinrich Staudinger resisted paying the fine and he is still fighting against this kind of treatment. According to him private loan agreements are an essential tool for small and medium-sized businesses.^[98] Within the whole criminal proceedings it became clear that this direct way of loan agreements is only legal with a bank charter or a so-called Nachranklausel (english: subordinated clause). That means that as a company it is only possible to receive loans directly from private persons in a legal way if you are a bank or if depositors sign another contract which informs them about their risks. With their signature lenders agree that the repayment of the loan is not anymore possible in the case of insolvency and furthermore that in case of a bankruptcy matter claims in respect of a loan are taken in consideration after not-secondary claims in respect of a loan are fulfilled.^[99][100] GEA/Waldviertler regards this method as a possible way to cope with the situation, but they insist of changing the current law.

Bürgerinitiative – local initiative

To realize a lasting change in the legal basis a local initiative was founded. It’s called “Wir sind viele” (We are many) and it requires the general liberty of direct credit granting. That for a legislative proposal was formulated.^[101] Heinrich Staudinger regularly stages events and symposiums around this topic.

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95. ↑ http://oe1.orf.at/programm/378316
96. ↑ http://w4tler.at/fma
97. ↑ http://www.w4tler.at/wp-content/uploads/2012/09/geaalbum64.pdf
98. ↑ http://w4tler.at/fma-vs-gea/mitteilungen
99. ↑ http://w4tler.at/privatdarlehen
100. ↑ http://w4tler.at/14114/fma-vs-gea/offener-brief
101. ↑ http://www.wirsindviele.at