Smart Crowdfunding: an alternative to bank loan?

Entrepreneurs are discontented because banks are granting less and less credits. In comes a new form of financing: Crowdfunding.

There is an air of revolution among the entepreneurs, gathered in the house of members of industry in Vienna. They feel betrayed by Austrias support system in general and by its banks specifically. „We are in a situation where SMEs (small and medium-sized enterprises – editor‘s note) won‘t even ask a bank for loan“, one of the participants expresses his frustration. „So, who can we turn to?“

The answer, many hope, lies in tonight‘s keynote speaker, Reinhard Willfort from the Austrian Crowdsourcing Network (ACN). Together with the „IV lower Austria“ the ACN organized tonights discussion to present crowd funding as an alternative to known creditors. The concept is still new to many managers in Austria. But they are catching up because crowd funding promises fast and unbureaucratic support. „Bragi“ a start-up for smart wireless headphones, based in munich, made two million Dollar in only ten days. More then 10,000 supporters were contributing to the project. New forms of crowd funding, like „crowd investing“ or „crowd lending“ are already on their way to become a popular business for investors.

But boundaries are still high in Austria. Investments of more then 250,000 Euro would need a prospectus – which generally costs around 350,000 Euro. „I would like the idea of financing a part of my company through crowd funding“, says Bruno Schachner, Manager of prototype manufacturer „BS-Modelshop GmbH“ after tonights presentation. „But a good 3D-printer costs me already 120,000 Euro. And a good laser-sinter even 600,000 Euro. It just wouldn‘t be worthwhile to pay so much money to make a prospectus“, he says.

Nontheless crowd funding has big potencial, says Herbert Kling of the opinion research institute „meinungsraum.at“. A representative study launched by „Smart Cities Consulting“ shows that municipalities are „very open-minded“ concerning crowd funding. Almost 70 percent of inhabitants and mayors in cities with a population of more then 5,000 people in Austria, would like the idea of financing municipal projects through crowd funding. „To make full use it‘s potencial we would need to improve the overall conditions“, Kling says. For example: Investments can be far bigger in other countries of the European Union before they would need a prospectus.

But crowd funding also has some general flaws when it comes to financing a project idea. Project leaders have to put their cards on the table if they want to convince a broader mass of their idea. „Somehow it‘s the easiest form of industrial espionage“, one participant says. „It would be better not to be afraid of competitors.“ But investors also take a risk. If the idea doesn‘t work, the money will be gone. And also the legal situation is not always clear. Austrias most prominent example is Heinrich Staudinger, founder of the shoe brand „Waldviertler“. When his bank refused to give him a loan, he turned to friends and customers to lend him money. The supervision of the financial market in Austria (FMA) applied for an injunction, because only banks would have the right to permit loans. Heinrich Staudinger now fights the decision in the Higher Administrative Court.

But there are also positive examples. Since last year the company „Grüne Erde“ (Green Soil) is partly financed through crowd lending. Still without having a conflict with the FMA. In contrast to Heinrich Staudinger the managers of Grüne Erde have declared their contract with crowd lenders a „qualified subordinate loan“. Which means that in any case of emergency banks and other creditors will be paid off first. Investors can conclude a contract between 2,000 and 50,000 Euro for a minimum term of five years. The annual interest is five percent. This makes clear that crowd funding is not only meant for start-ups.

„The most important factor is trust“, says Herbert Kling of meinungsraum.at. „The closer a poject is linked to the sphere of life of an investor the more trust you have. And with this the change for investments is higher.“ This would be especially easy for companies or products which are able to build a community.

Background Information to the event:

Discussion organized by the Industriellenvereinigung Niederösterreich and the Austrian Crowdfunding Network (ACN) to promote crowd funding for companies. Keynote-speaker was Reinhard Willfort, initiiator of Austrias first platform for crowd investment „1000×1000“.

It was moderated by Benjamin Kuscher, ACN member and expert in the field of alternative forms of financing.

Speaker: – Michael Gebert – Organizer „Crowd Dialog“ – Reinhard Willfort – initiiator of Austrias first platform for crowd investment „1000×1000“.

Podium: – Herbert Kling – meinungsraum.at – Sonja Kerschbaum of „Kerschbaum und Partner“ attorney‘s office – Linette Heimrich of Munichs chamber of industry and commerce. Specialized consultant for crowd sourcing and financing – Herbert Rohrmeier-Lewis of the advertising agency „Lobster“ – Niels Mitschke (Austria Wirtschaftsservice)