Participatory financing platforms: financing or investment?

In recent years, an increasing demand of financing from small and medium-sized enterprises together with a change in the trend of business models (as a consequence of the boom in business entrepreneurship, technology innovation and in models based on, what is known as, collaborative economy), has favoured the emergence of a system that allows to obtain funds through other alternatives to traditional banks: crowdfunding.

The crowdfunding phenomenon began with simple fund raisings over the internet to develop projects of all sorts. However, it has evolved and has become more complex.

This system is also known in Spain as microfinance, and it consists in getting those people who need money to develop their project in touch with others who are willing put money into those projects. Getting people in touch and disseminating the project itself is usually done via a website or using other electronic means.

The following elements always appear in crowdfunding:

  • A cause or project that needs financing.
  • A person or company trying to gather funds for such project, known as developer or promoter.
  • The people or companies who collectively put in different amounts of money to finance the project, known as investors or sponsors.
  • An organisation that gets developers and sponsors in touch through an internet based platform. This platform provides the necessary information so that whoever is interested may contribute economically with a certain project.
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