Crowdfunding Vs. Crowdlending Vs. Crowdinvesting – What’s the difference?
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3 mighty buzz terms and lots of confusion. As always with Investing Hero, lets break it down and start with the basics.
And no, you’ll be pleased to hear I won’t be copy/pasting the same graphs from the latest Lucerne School of Business report that every media outlet has done.
But if you haven’t read it already, its a great read to get a deeper overview on the Swiss lending market.
What is Crowdfunding?
If you’ve heard of Kickstarter or Indiegogo, you’ll be familiar with the concept of crowdfunding.
A simple crowdfunding definition – You pledge a small stake of cash, along with many others into an idea, product or new gadget with the expectation you take the project from concept to reality.
One famous crowdfunding Switzerland example was in 2016, when the ski resort Saas-Fee embarked on a crowdfunding campaign – offering an annual ski pass for 222CHF instead of the usual 1050CHF, if 99,999 people backed the project. Which they did.
At scale these small individual contributions add up.
They enable the creator to reach enough capital in order to move the project forward. From needing machinery or materials to finish a prototype – the crowd help make this happen.
I’ve bought RFID proof wallets, long life battery packs and cute little board games involving angry cats through crowdfunding platforms. It was a manageable addiction.
To offset the guilt of buying silly boardgames, I’ve also committed to donation-based crowdfunding.
These operate on the same model – leveraging the crowd to fund a goal, but for more worthwhile causes.
Instead of gadgets and board games, you are funding people in third world countries for all manner of ventures.
From buying a 25kg bag of rice to sell at the local market in Bolivia, to buying new bike parts for a dude in Kenya to cycle into town to sell fish.
Seriously, I helped fund that. Which is pretty cool.
I’d recommend using Kiva.org and setting the account to ‘auto invest’ repayments in order to fund new loans. If you do nothing else after reading through InvestingHero, open an account on Kiva.org and put some money into it.
Commit a few swiss francs to make these social projects happen.
Ok, so you get the concept of crowdfunding and crowddonating.
Let’s move on.
Crowdinvesting in Switzerland
Crowdinvesting was born from the concept of Crowdfunding.
Crowdinvesting, aka ‘crowdsourcing’ or equity-based financing, follows a similar model to funding outlined above, with the caveat you’ll be investing and expecting a certain financial return on the profits generated from your capital you’ve committed.
Crowdinvesting platforms in Switzerland are an interesting mix.
Crowdhouse for example, which invests in housing and building projects has a minimum investment of 100K CHF, which according to their website, will generate a relatively conservative 6.4% return on average.
🧠 Brain fart alert
Why spend 100K at Crowdhouse, when you could buy the globally diversified Vanguard VNQ ETF which has higher returns? Some might call me crazy.. but I look forward to Crowdhouse responding in the comments below.
Outside of property, the landscape for crowdinvesting is still quite green in Switzerland compared to the likes of Gemany, the UK, and the US – Switzerland isn’t exactly booming or leading the charge .
That said, services such as Lend.ch, Cashare and Crowd4Cash are well established and a lot more accessible to investors with smaller amounts of capital to invest.
The returns won’t be huge – but it’s an interesting avenue to diversify a portfolio.
More reviews to come on these guys in the future.
Outside of Switzerland in the Eurozone you have a few more options, with potentially higher returns.
Being in Europe means that it’s relatively straight forward to open accounts with the likes of Mintos and Envestio, which are among the market leaders.
You simply open a free account, verify your identify and then make a Transferwise payment to fund the account – all done in a day.
With Mintos you can invest through a huge market place into personal and business loans, set the investing strategy on autopilot and receive monthly interest as the loans are paid back. It’s really very simple.
Envestio on the other hand has everything from more volatile cryptocurrency mining projects returning 22%, to solar and smart building businesses looking for a seed round of investment.
What about Crowdfunding vs Crowdlending?
Crowdfunded loans or ‘Peer-to-peer lending’ (P2P lending) follow a similar trend with the masses contributing small amounts towards a goal, in this case supporting a loan application.
P2P loans have a lot of benefits for the applicant – startups for example needing the capital, can sidestep the traditional process with a bank and secure the funding they need directly via a crowdlending platform.
Should you jump on the crowd investing bandwagon?
From an investment point of view, it’s a very interesting area of potential opportunity.
Outside of Switzerland, the promise of 10-20% through the likes of Mintos is certainly very appealing.
But as always – with any good return comes a good dose of risk.
Risk not only in the volatility of the investment itself, but consider your capital will be held in jurisdictions that have less than squeaky clean track records in maintaining banking liquidity.
Would I put millions into Mintos? Maybe one day, but not yet.
But that said, a small portion of your investing portfolio could certainly be allocated through these platforms to generate some good return and diversify your portfolio. Whilst also gaining confidence in using the platform.
For example, why not:
- Crowd fund some cool design/art/music projects you like on Kickstarter.com.
- Crowd donate 0.5-1% of your net income into Kiva.org.
- Crowd invest in a few cool business projects on Lend.ch, Envesito and Mintos.
Getting started is fun, you can help others and with the invest & lend options see some solid returns on your capital.
In-depth reviews on the providers mentioned in this article are coming soon – so watch this space.
Looking to learn more about how you could free up over 250K CHF in the next 10 years? Check out the blog post to read more and start planning your budget today.