What is crowdfunding?
How does crowdfunding work?
Crowdfunding is an alternative way of financing a project. Not all (start-up) entrepreneurs can access traditional investors easily. Crowdfunding offers them a way of attracting large numbers of smaller investors who believe in their venture.
How does it work? A project must generate sufficient interest within a certain timeframe. The underlying investors, or 'believers', then each put a (small) sum of money into the project. If the entrepreneur succeeds in raising enough money within the predetermined timeframe, the crowdfunding is successful and the entrepreneur can get started. If the minimum amount is not raised in time, the project will not go ahead and you will get your money back.
How can you take part in crowdfunding?
You can participate in crowdfunding via Bolero, the online investment platform for DIY investors. Bolero Crowdfunding screens each project before giving it a place on the platform. This selection process reduces the risk for potential investors.
Before you can invest in a crowdfunding project, you must complete an ‘investment knowledge and experience test’ as well as a questionnaire that gauges your ability to bear losses. Both the screening and the questionnaires help Bolero Crowdfunding reduce your risk.
Let’s suppose you then find a project on the Bolero crowdfunding platform that you want to support: what do you do next? As mentioned above: the first important condition is that the project has raised the necessary funding in time; only then will the project go ahead. If you invest, you are actually investing in a (subordinated) bond.
You will receive a set number of units in return for your investment, and the agreed repayment schedule starts. There are several options here. Sometimes entrepreneurs choose an annual or monthly repayment, or sometimes they opt for a lump sum redemption at the end of the term. You will also receive interest in addition to the repayment of your investment.
Why choose crowdfunding?
Through the funding you provide, you invest directly in the economy and help develop new technologies or create additional jobs. You can support a diverse range of projects, from online tools or sustainable innovations to real estate developments.
Those who already invest know that it's best not to put all your money into one type of investment. Crowdfunding allows you to invest in different sectors with small sums of money, bringing diversity to your investments and ensuring you spread your risk. In principle, you can invest through Bolero from as little as 100 euros, up to a maximum of 25 000 euros per project.
By investing through the Bolero Crowdfunding platform, you only pay withholding tax on your gross interest, but no entry or exit charges. Important to note: early exit is not possible.
What are the risks?
All investments involve risk. With a (subordinated) bond such as the one you will be investing in through crowdfunding, you need to consider the following risks:
- There is a high default risk: a company's chances of success are difficult to gauge in advance. That means there is a high risk of losing your entire investment. This is because you are investing in a (subordinated) bond whereby the preferential or secured creditors are paid as a priority if the company runs into difficulties.
- There is a high liquidity risk: you cannot sell your bond, which you purchased by participating in a crowdfunding project, early. That’s because there is currently no market for it.
- There is a risk of late repayment: in exceptional cases, if the company gets into turbulent waters, it may request a deferral of payment from its investors.
- There is no interest rate risk: this risk does not apply with crowdfunding because the interest rate is fixed in advance and cannot be changed.
