I published a blog a few months back asking the question as to whether or not the arrival of Kickstarter in Belgium would “kick start” crowdfunding here https://economy2dot0.com/2015/06/23/crowdfunding-in-belgium/. I partially answered by saying that Belgium doesn’t need Kickstarter to grow. Numbers from Look&Fin, one of Belgium’s biggest platforms and primary operator in the lending space now confirms that.
It takes 3 years
Last year I worked on a business plan to launch a crowdfunding platform. As part of that, I took a look at how this business was developing outside of Belgium. One of my conclusions was that it takes 3 years before you start to see real lift-off in terms of amounts of funding on most platforms. If you take a look at KissKissBankBank for example, this curve is very clear (http:/www.kisskissbankbank.com/en/stats).
I received the latests figures from Look&Fin and surprise surprise, we are now in year 3 and we are seeing the same trend as the amount they have raised this year almost doubles what was raised in the previous two years (see graph).
It’s also important to note that this increase has happened before we can really see the impact of recent government announcements which are designed to encourage people to use their savings to support the growth of local businesses (the famous start-up plan from Alex De Croo http://www.decroo.belgium.be/fr/découvrez-tous-les-détails-du-plan-start.)
At the end of last year, KPMG published a report on the growth of crowdfunding in Belgium http://www.kpmg.com/be/en/issuesandinsights/articlespublications/pages/crowdfunding-belgium-2014.aspx. I believe some of the projections in that, can now be favourably reviewed upwards. To be frank, there are a lot of platforms and more and more independent experts working in this space. Given that on average, the service provider may take about 8-10% of the funds raised, if we hit 6 million by 2016 that would only leave about 600keur to be split between about 50-100 people so it wouldn’t be sustainable as a business. I expect it to grow faster than what was projected in this report.
Advice from one investor to another
I have helped create crowdfunding campaigns and have contributed to them also. If you are thinking about doing so, there are a few things I would share with you based on my experience:
The platform – in the case of lending and equity, the platform is very important. Their job is to screen the projects which are proposed and do a due diligence on their ability to pay back what they borrow and help in the valuation process. Clearly some will do this better than others. We don’t have enough track record in Belgium (in my humble opinion) to see what happens to the companies which receive the money after 3-5 years. Therefore, the best indicator is the strength of the team behind the platform. Some platforms are started by “IT geeks” with no finance or marketing background while others have strong experience in that area. Do a little research before you invest.
This ain’t the stock market – in the past, some of us may have invested in listed companies and I remember already 15 years ago when colleagues of mine regularly checked on bloomberg to see how the company was performing. In most cases, the companies which you will crowd fund are either start-ups or young companies so this isn’t an option. The platforms will provide you with some dashboard and info but don’t forget, this is “capital a risque” so invest small amounts to begin with and don’t invest what you cannot afford to lose.
Motivation – a lot of crowdfunding is a result of people investing in ideas they like, people they know and/or businesses they understand. You need to know why you do what you do. In my case, I want to use my savings to directly impact the local economy and I no longer trust the banking system to do that on my behalf. If I get it wrong, I will take responsibility and not blame anyone else.
Patience – getting the product you “bought” via crowdfunding and in some cases receiving the first repayment, doesn’t always happen according to schedule. Again, many of the companies are start-ups or young companies so they have many operational issues to resolve once they get the money from crowdfunding. As a result, delays may happen so you need to understand this rather than get frustrated by it.
Here is a funny video to help explain P2P finance to those of you that are still on the learning curve: