Three’s a crowd: Don’t get lost in the crowdfunding, crowdlending, and crowdinvesting terms

Crowd is the etymological pillar of the concepts that make up the P2P (peer-to-peer) economy. As the title says, this article is a guide to the different forms of participatory financing, in style since the new technology boom and regulated by Spanish legislation since 2015.

Types of participatory financing, or crowdfunding:

• Equity-based crowdfunding, crowdinvesting or investment crowdfunding. This financing formula offers investors a proportional stake in profit, or shares of the company being financed, depending on the amount provided as a loan. An example of a crowdinvesting platform is AngelList.
• Rewards-based crowdfunding. This is the form of crowdfunding that has reached the media and general public the fastest. As an incentive to invest, the company or project seeking funding provides a series of physical rewards that vary according to the amount provided. One example of a rewards-based crowdfunding platform is Indiegogo.

• Lending-based crowdfunding or crowdlending. This type of participatory financing involves lending money, setting an interest rate on the loan. Grow.ly is an example of a crowdlending platform.

• Donation-based crowdfunding. This may be the oldest model, and is most appropriate for companies or organizations with charitable purposes, as donations receive nothing in exchange. GoFundMe is an example of a donation-based crowdfunding platform.

Participatory financing, regulated since 2015

Of all the types of alternative financing, only crowdinvesting and crowdlending are regulated by the Corporate Financing Law, which entered into force in the second quarter of 2015.

The first thing the law did was limit the amount that can be donated, distinguishing between accredited investors and unaccredited investors.

Investors are understood as:

• Companies or funds with assets worth at least one million euros.
• Business worth at least two million euros and in-house resources worth at least €300,000
• Individuals with annual income over €50,000 or estate worth more than €100,000.

Unaccredited investors, which include all those who do not have accreditation, are limited to investing €3,000 per company and €10,000 per year and platform.

This law also set limits on the companies that use these platforms as a source of financing. According to this law, companies can only keep 125% of the amount requested in these platforms, with a maximum amount of €5 million for accredited investors and €2 million for unaccredited investors.

Finally, the law stipulated the requirements to create participatory financing platforms. Since 2015, a minimum of €60,000 in capital is required to establish the platform. They are supervised by the National Securities Market Commission (CNMV) and their business is monitored and regulated by the Bank of Spain as a lender.

You can read more about crowdfunding in the following ebooks:

• P2P Finance, an alternative ecosystem
• Crowdfunding, a financial alternative

Clear language: Alternatives to crowdfunding

Fundéu BBVA recommends using terms like collective financing, grass-roots financing or micro-funding when referring to crowdfunding.