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Crowdfunding is a means of raising finance from a large number of people (the 'crowd') who are prepared to invest in your business or project. You can generally use crowdfunding to raise sums of between €20,000 and €200,000. It is becoming quite popular in the Netherlands and several platforms exist for this purpose. To stand out on a crowdfunding platform, you have to prepare an interesting proposition. How do you do that? Read this checklist to find out.
1. Write a plan
What do you need funding for? Your business plan should explain that clearly. How much money do you need, and how much of that do you want to raise? Put these numbers in the financial part of your business plan. Be realistic: often, you will need several sources of external funding, to raise the amount you need. You can also put together a package of funding sources, by yourself or with the help of a financial advisor or banker. This is called a funding mix. The business plan is the basis for your business as well as for your crowdfunding campaign.
2. Determine the return on investment
Think about the return on investment you can offer your investors. What is realistic? Come up with a good offer to spark interest. There are several methods, some of which you can combine:
- Equity: investors buy shares in your company and receive a dividend (a compensation that depends on the profit you make).
- External capital: the investors extend a loan. Together, you agree on the interest rate and the runtime of the loan, within legal margins. A startup carries a high risk profile, and that means you will have to offer a higher interest rate. The crowdfunding platform can give you advice.
- Convertible external capital: this external capital is a convertible obligation loan, that you can convert into equity capital. It is a loan that you can turn into shares.
- Rewards or counterpart: you offer your investors a counterpart in the shape of a product or service. Think of something playful, to attract attention. Note: you have to pay VAT on the value of the counterpart.
- Donation: your investors donate money, not expecting anything in return. Remember that you may have to deal with gift tax, if the sum donated exceeds a certain amount.
3. Choose a crowdfunding platform
There’s quite a choice of platforms where you can pitch your product, service, idea, or business to the general public. Some platforms aim specifically at a sector, like hospitality (horeca in Dutch), culture or sustainability. Others use a more generalistic approach. The rules also differ from platform to platform. Most platforms offer loans, but some work with donations or shares-for-capital. Some platforms will make a full assessment of your project plan, including an analysis of your business plan and financial prospects, and charge you for it. Others will only do business with companies that can prove they are creditworthy.
AFM licence and exemption
As the number of platforms grows, more and more regulations are being developed. AFM, the supervisory Dutch Authority for the Financial Markets, can give out a licence to a platform if it acts as a financial advisor or investment enterprise. A platform can also receive an exemption (this means it doesn’t need a licence). Find the full list of AFM-registered platforms on the AFM website (in Dutch only).
Crowdfunding platform lists
The Crowdfundmarkt and Fundwijzer websites (both available only in Dutch) offer a list of crowdfunding platforms in the Netherlands. The sector association Nederland Crowdfunding offers an overview of their member platforms.
You can also approach several international platforms. Worldwide, there are now thousands of platforms, collecting billions in funding. Kickstarter.com and Indiegogo.com are examples of large international crowdfunding platforms. Ulule.comis a well-known European platform, that focuses on creative, innovative and societal projects.
4. Prepare a good pitch
Pitching your idea to potential investors is crucial, so be sure to prepare well. What do your investors need and want to know, what will make them say yes? Tell them about yourself, be passionate about your business idea, tell them how your product is going to make the world a better place, and for whom. Explain the risks and return on investment, so they can balance the pros and cons. Use inspiring images and record a video pitch. Last but not least: keep it short and sweet. Check crowdfunding platform websites for ideas and examples of good pitches.
5. Mobilise your network
You can start mobilising your existing network before the kick-off of your crowdfunding campaign. Tell them you are looking for financing for your business, and that you are going to launch a campaign. Tell them when and where the kick-off will be. Your network are the ambassadors of your plan, and a good touchstone for your campaign: if they are not interested, you’re doing something wrong. It is also a great way to collect your first investors. One way of mobilising your network is organising a launch party to generate awareness.
6. Start your crowdfunding campaign
Once your campaign goes live, use every waking moment to tell people about it, both offline and online. Make your story personal, and show people you are giving it 100%. Use social and conventional media to promote your campaign.
7. Stay in touch with your investors
If all goes well, you will have raised the sum you need by the end of your campaign. A new phase is about to start: you can begin to realise your goals. It is important that you keep the communication lines with your investors open. How are you progressing? Honour your promises: give your investors their compensation. Tell them how things are going, even if your plans meet with diffculties and it takes longer than expected to start turning a profit. Transparency is key.
- Compare the terms and conditions of different funding parties. You don’t want to end up making the wrong decision.
- If you receive an offer for funding, read it carefully (small print especially). A clear contract and recommendations by reliable advisors can help you pick the right proposal.
- Think about the financial flow in your company: when is there likely to be a need for (additional) funding? Will your own capital suffice? Plan ahead if you want to raise extra external capital.
Facts and figures
Crowdfunding per year
The total amount raised by crowdfunding is still rising. The website CrowdfundingCijfers.nl (in Dutch) reports:
- 2012: 14 million euros
- 2013: 32 million euros
- 2014: 64 million euros
- 2015:128 million euros
- 2016: 170 million euros
- 2017: 223 million euros
- 2018: 329 million euros
In the first half of 2019, over 6,000 crowdfunding campaigns yielded 203 million euros, just in the Netherlands. Ninety percent of that amount was awarded to businesses. Loans are the most popular form of crowdfunding.
This is why entrepreneurs choose crowdfunding
- They simply need the money;
- Crowdfunding gains them funds as well as clients, plus they receive feedback and ambassadors;
- Crowdfunding platforms have clear criteria and usually operate fast;
- By using crowdfunding, entrepreneurs remain independent from banks for their financing needs.
Source: www.geldvoorelkaar.nl Research - July 2018.
Trends: sustainability and real estate
The fastest growing markets in crowdfunding in 2018 were sustainable energy and real estate. Platforms focusing on these markets also grew faster than others. This trend is set to continue.
Webinar: Financing your business in the Netherlands
Watch the Business.gov.nl webinar Financing your business in the Netherlands to learn more about writing a financial plan, pitching to investors, and crowdfunding. In this webinar, experts from the Netherlands Chamber of Commerce (KVK) and Netherlands Enterprise Agency (RVO) plus several entrepreneurs talk about their recommendations and experiences.