A new perspective

Traditional banking vs. Different factors work in each one’s favor. Transaction value worldwide Strong point Weak point THE BIG PICTURE Current and predicted funds Bank Crowdfunder raised through crowdfunding. Traditional banking vs. crowdfunding Extra liquidity in market Transaction value Crowd-basedCrowd funding is among the fastest growingfunding segments in the financial industry. Different factors work in each one’s favor. Which funding alternatives are available? And might one be right for you? Trust worldwide Strong point Weak point Advanced technology Current and predicted funds How it works % Bank Crowdfunder raised through crowdfunding. Personalized services $11.9 Extra liquidity in market billion Crowd-basedCrowd funding is among the fastest growingfunding segments in the financial industry. Regulated Which funding alternatives are available? And might one be right for you? Trust Established legal status Advanced technology How it works % Security Personalized services $11.9 Privacy protections billion Regulated $5.3 Niche market billion Entrepreneur Moderating organization Donors or investors Established legal status Strong distribution networks Seeks funds from the crowd to Usually a platform that provides Provide small sums of money to Security Independent from existing network operators finance a project, cause or information about funding collectively support their chosen Privacy protections venture. opportunities and facilitates project, cause or venture. Emerging market contexts $5.3 the contact between parties. Niche market billion Entrepreneur Moderating organization Donors or investors Helps unbanked poor 2018 2023 Strong distribution networks TypesSeeks of funds crowdfunding from the crowd to Usually a platform that provides Provide small sums of money to Entrepreneurial finance a project, cause or information about funding collectively support their chosen Independent from existing network operators venture. opportunities and facilitates project, cause or venture. Emerging market contexts DONATION-BASED LENDING-BASEDthe contact between parties. EQUITY-BASED Helps unbanked poor 2018 2023 Success Entrepreneurialfactors for crowdlending TypesIndividuals of crowdfunding make charitable Individuals give loans, not donations, with the expectation of the Individuals invest in a donations to support a loan being paid back, with interest, which can then be re-loaned. project in return for a stake good cause, with no Potentially the most disruptive for supplanting the role of banks. in the business, similar to DONATION-BASED LENDING-BASED EQUITY-BASED expectation of receiving Examples: , Ripio Credit Network. There are two main kinds: the way stock or venture For borrowers For lenders Borrowers are more likely to win Default rates are lower when loans: anything in return. capital works. Examples: financing when: Examples: GiveForward, Peer-to-Peer (P2P): AngelList, , Success factors for crowdlending Individuals make charitable Individuals give loans, not donations, withPeer-to-Business the expectation of the(P2B): Individuals invest in a FirstGiving, GoFundMe. Platforms match lenders and . donations to support a loan being paid back, with interest, whichEnables can then people be re-loaned. to lend to project in return for a stake borrowers, often for the established businesses or good cause, with no Potentially the most disruptive for supplanting the role of banks. in the business, similar to They’re in the same geographic Support purpose of setting up a even to co-invest with For1. borrowers For lenders expectation of receiving Examples: Kiva, Ripio Credit Network. There are two main kinds: the way stock or venture region as the lender. education, microenterprise, depending Borrowers are more likely to win Default rates are lower when loans: anything in return. government funds. capital works. Examples: housing or on their preferences: financing when: Examples: GiveForward, Peer-to-Peer (P2P): Peer-to-Business (P2B): AngelList, EarlyShares, personal use. They’re women. FirstGiving, GoFundMe. Platforms match lenders and Enables people to lend to Crowdcube. 2. borrowers, often for the established businesses or They’re in the same geographic Support purpose of setting up a even to co-invest with 1. INITIAL COIN region as Their the lender.funding needs are education, REWARD-BASED microenterprise, depending 3. Active: Lenders want government funds. OFFERING (ICO) humanitarian (related to health, housing or on their preferences: detailed information on education, housing or personal use). personal use. Individuals give with the the borrower so they Individuals purchase shares 2. They’re women. expectation of getting of an enterprise in the form can pick who they want For non-humanitarian enterprises, something in return, to invest in. of a virtual currency like Involve one person INITIAL COIN borrowers are more likely to win financing: usuallyREWARD-BASED in the form of € bitcoin or ethereum to gain 3. Their funding needs are rather than a group Active: Lenders want OFFERING (ICO) goods or services rather Passive: Lenders access to deeper, more humanitarian (related to health, of borrowers. detailed information on than money. Examples: indicate the level of risk liquid secondary markets. education,• the housing less they or askpersonal for. use). Individuals give with the the borrower so they Individuals purchase shares , RocketHub, they are willing to • the faster they repay it (shorter expectation of getting can pick who they want of an enterprise in the form . assume and are For non-humanitarianterms, regular intervals).enterprises, something in return, to invest in. of a virtual currency like Involve one person allocated an enterprise borrowers• the are better more their likely reputation to win financing: and the usually in the form of € bitcoin or ethereum to gain rather than a group accordingly. lower their credit risk. goods or services rather Passive: Lenders access to deeper, more of borrowers. than money. Examples: indicate the level of risk liquid secondary markets. • the less they ask for. Indiegogo, RocketHub, they are willing to • the faster they repay it (shorter Kickstarter. assume and are terms, regular intervals). sources: “Crowdfunding Entrepreneurial or Humanitarian Needs? The Influence of allocated an enterprise • the better their reputation and the Signals and Biases on Decisions” by M. Moleskis, I. Alegre and M.A. Canela. “Crowdfunding accordingly. lower their credit risk. Success: The Case of Kiva.org” by M. Moleskis and M.A. Canela. “Could Crowdfunding Be Right for Your Business?” by Christian Eufinger. Statista (accessed Dec. 2018).

38 | IESE Business School Insight | Winter 2018