What is crowdfunding?

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Crowdfunding presents individuals and organisations with an opportunity to launch fundraising campaigns online and gather financial support from a large number of people.

Creative professionals and cultural organisations can use crowdfunding to raise money online for any idea or project and simultaneously build up communities and improve visibility.  

Out of around 600 crowdfunding platforms in Europe, about 150 of them focus on or are open to hosting cultural and creative projects. Crowdfunding for cultural projects has become very popular and many creative professionals and cultural organisations are using crowdfunding for their fundraising, marketing and communication activities. But how does crowdfunding work and how do you get started?

Here is what creative professionals and cultural organisations should know about crowdfunding.

 

Platforms

Map of crowdfunding platformsWith hundreds of crowdfunding platforms in Europe, it is important that creative professionals and cultural organisations find the right platform for their project. To facilitate this, we have created an updated list of platforms operating in Europe that allows you to check and compare different platforms. The platform map, which can be viewed also as a list, is regularly updated and includes information on platform characteristics, such as focus, model type, language and location.

To see the list go to platform map.

Do you know a platform that is not on our map? Let us know by filling in the form on the platforms map page.

 

 

 

Funding models

Crowdfunding stands for a variety of different ‘fundraising’ models. Crowdfunding can take the form of charity, when people donate to an individual, project or organisation; pre-selling, when people donate towards the creation of a specific product, such as CD, design, gadget etc.; as well as the form of investment, when people lend money to individuals or organisations with interest rate or invest money in exchange for company shares.  

Crowdfunding modelsDespite the lack of a consistent taxonomy, crowdfunding models can be categorised under:

  • Donation based: donating small amounts to meet the larger funding aim of a specific project while receiving no financial or material return in exchange
  • Reward based: donating small amounts to meet the larger funding aim of a specific project with the expectation of receiving a tangible (but non-financial) reward or product in return
  • Peer-to-Peer lending (subdivided into consumer and business lending): borrowing from a number of lenders via an online platform, each lender lending a (small) amount in return for financial compensation
  • Equity based: invest in a business via an online crowdfunding platform in return for a share in the business

Some platforms focus only on one model (e.g. donations), while others offer mixed options (e.g. rewards, equity).

Finding the right funding model for your project is an important step for a successful campaign. Please consider these different models carefully before launching a campaign.

 

“All or nothing” or “Take it all”?

Most crowdfunding platforms have an “All or nothing” model but many also allow for “Take it all” (only available for donation-based funding). But what is the difference?

“All or nothing” means that if the funding goal of the campaign is not reached, all the contributions are returned back to the backers.  Although risky, this model shows backers that you have done your study and know exactly how much money is needed to realise a project. Any penny less would just not do. Say for instance a musician wants to buy a new Violin, whose cost is €150.000. If (s)he raises €50.000, (s)he would still not be able to make the purchase.

“Take it all” on the other hand, means that even if you do not reach your target amount, you can still keep the amount donated into your campaign. To take the same case again, the musician would keep the 50.000 and think of other ways to compliment that amount for the Violin. In other words, the campaign goal does not have to be met.

The model of fundraising must be decided before the launch and cannot be changed after the start of the campaign.

Please note that platforms apply different charges depending on the model you chose. Usually a higher percentage is charged for “Take it all” than “All or nothing”.

 

Costs

It is important to understand all the cost related to a crowdfunding campaign before you get started.

Here is a list of costs to be consider:

Platform Hosting Fee:

Some platforms, although not all, charge an initial cost just for hosting your campaign. This cost varies from €0-300 and will be charged to all projects, be that successfully fundraised or not. Ask platforms what fee applies to them before starting the campaign.

Success fee:

The majority of crowdfunding platforms are for-profit organisations. If a project is successfully funded, platforms will take a percentage of the total amount raised. The percentage varies from platform to platform and ranges between 3% and 12% of total raised.

Please note that the success fee will vary depending on the fundraising model chosen. For instance, a higher fee is usually charged on the “Take it all” model. There are also platforms that charge no success fee, however these are rarer.

Coming soon: A new platform map characteristic to allow creatives and cultural organisations to compare platform fees will be added to our website. Follow us or visit the website frequently to stay up to date.

Payment processing fees:

Crowdfunding platforms work closely with payment providers in order to facilitate money transfer from your backers into your campaign. However, the payment providers apply their own service fee for every transaction made. Usually this fee is on average 3%. For instance, for every €100 donation/investment, only €97 reaches the campaign. 

Check with your platform what type of payment provider they use and ask about its transaction cost per pledge.

 

VAT

In 2016, the EU VAT Committee concluded the following conclusions on the VAT treatment of crowdfunding activities

  • Donation Crowdfunding: no VAT applies to freely given donations for which no benefit is given in return.
  • Reward Crowdfunding: according to the Committee, the transaction where the backer receives, in exchange of financial contribution, a non-financial reward in the form of goods or services by the project owner is VAT taxable, provided that there is a direct link between the supply of goods or services and its corresponding consideration collected by way of crowdfunding, and that the entrepreneur is a taxable person acting as such.

However, when the open market value of the good or service supplied by the project owner to the backer is lower than the financial contribution and the benefits deriving from such good or service are negligible or totally unrelated to the amount of the contribution, in this case the transaction can be treated as a donation and therefore not taxable.  The VAT will be chargeable upon receipt of the payment.

  • Equity Crowdfunding: when the investor receives in exchange of a financial contribution a financial
  • case to this guideline is when the financial reward received by the contributor of a crowdfunding campaign from the entrepreneur takes the form of participation in future profits by means of intellectual property rights.
  • Lending Crowdfunding: when a contributor to a crowdfunding campaign receives a financial reward in the form of interest payments on a loan, such transaction is exempt to VAT payment.

The VAT Committee has also stated that the fundraising services provided by crowdfunding platforms to entrepreneurs are VAT Chargeable.

It should be taken into account that these are not legally binding decisions and it is up to each Member State to adopt rules on this topic. Please check how VAT works in your country.