HelpTheCrowd Academy



About HelpTheCrowd
About Crowdfunding
Equity Crowdfunding on HelpTheCrowd
Debt Crowdfunding on HelpTheCrowd
Types of costs in Crowdfunding for investors

About HelpTheCrowd

Who are we
How do we want to help?
We hope to do our part to increase investors’ knowledge and understanding of Crowdfunding. We want to make it easier for investors to discover and compare Crowdfunding platforms’ services and investment opportunities. We hope that this will make it easier for investors to make better-informed decisions.
What’s our business model?

Investors, entrepreneurs and crowdfunding platforms pay nothing to use the basic functionalities of HelpTheCrowd. It’s free for platforms to be on the approved platform list, and to make offers available, and for investors to browse these offers. What Crowdfunding platforms and entrepreneurs can do is advertise on our website.  
We want to bring products that we know benefit investors in traditional asset classes to Crowdfunding. Our first product, the subscription based Equity Crowdfunding Analytics tool is how we make money. This tool enables investors to analyse live deals and trends in Equity Crowdfunding. 

Which offers are added to the database?
Only offers from Crowdfunding platforms that are part of the Platforms Database are allowed on our platform. If you represent a platform and want to be added to the database, let us know through platforms@helpthecrowd.com. Some Crowdfunding Platforms use our API to add offers automatically and ensure optimal data quality. If you represent a platform and want to start using our API, go to api.HelpTheCrowd.com. Members of HelpTheCrowd can use this link to submit offers for inclusion in the database. If the platform that hosts the offer is approved, and certain requirements are met, our support team will add it to our database within two business days. We accept business investment opportunities only. We reserve the right to decline your request if the Crowdfunding platform or the Investment Opportunity does not meet our criteria, or if the offer violates any legal or ethical standard. Opportunities that involve lending to consumers are not allowed on HelpTheCrowd.

About Crowdfunding

Definition of Crowdfunding on HelpTheCrowd
HelpTheCrowd uses the following definition of Crowdfunding: “Crowdfunding is the process whereby different investors finance a business together, with the aim of creating a profit. Equity Crowdfunding is where a business offers investors the opportunity to become co-owners of the company. Debt Crowdfunding is where investors do not become co-owners of the business, but simply lend money to the business.” HelpTheCrowd is here for investors. We do not deal with donation- / reward- / product-based crowdfunding.
Risks of Crowdfunding
Investors should understand that crowdfunding is risky. Startups and young companies have a very specific risk profile. It is very hard to determine which companies will be successful, or even exist a few years after their launch. Companies looking for money via Crowdfunding are often very young, or still at the startup stage. A lot of these companies fail. Investing in companies that fail means the investor loses all, or a substantial part of the initial investment. More mature companies can still fail. Even very big companies can fail. Companies that are financed via Crowdfunding are no exception. There is no deposit guarantee scheme in Crowdfunding. Investors’ money is not protected by the government. Selling your investment and getting your money back is often not possible (see Liquidity risk).
Liquidity risk
Some platforms offer the opportunity to sell an investment. Others explicitly do not. It’s likely to be harder to sell crowdfunded investments than it would be to sell a ‘normal’ share. This kind of risk — that the investor may not be able to sell their investment, or only sell at a very distorted (low) price — is called Liquidity Risk. In moments of great panic in the market, selling securities may be even more difficult than described. These are also often the moments investors are most keen to sell their investments. This makes the problem even worse and the risk even greater. In nearly every scenario, nobody has the obligation to buy back your investment. Especially not at levels the investor may like. It could very well be that there is no possibility to exchange your investment for cash until such time as the company the investor invested in is acquired by another company. This may take any number of years.
Types of Crowdfunding
There are many forms of crowdfunding. The the most common types are: Equity-based crowdfunding: Investors purchase a part of the shares of a business and become co-owners. Debt-based crowdfunding: Investors lend money to a business Reward-based crowdfunding: Investors lend money to a business and receive a particular service or product in return. Donation-based crowdfunding: Investors donate money, no strings attached,to a project or service in the hope of making that particular initiative possible. In return, the investor receives nothing (tangible). On HelpTheCrowd we only show offers from the first two types of crowdfunding, Equity-based and Debt-based.
How do investors make money from Crowdfunding?
In the case of Equity-based crowdfunding, the investor becomes a co-owner of the company. As an investor, you will only make a return in case those shares increase in value and you are able to sell your shares at this increased value. This happens in situations where the company is sold. The company you invested in can either be sold to a different company, another investor, or ‘to the public’. This last example is called an Initial Public Offering (IPO). Another way you can make money is when the company decides to pay out a part of its profits to the shareholders. This is called paying a dividend. Companies are usually relatively mature before they start paying dividends, and some companies never do. It usually takes quite some time before a company goes public or is acquired by another company. Therefore, even if an investment turns out to be successful (profitable), it will still take a very long time (years) before investors actually get their initial investment back, plus profits (if there are any).

Equity Crowdfunding on HelpTheCrowd

About Equity Crowdfunding

There are three legal types of Equity crowdfunding commonly used in Europe. Nearly every equity crowdfunding platform in Europe uses one of the three methods below, or a variation thereof. Through platforms you can see which one of these three most closely resembles what the platform is doing. 

Full descriptions and explanations are available to review on every Crowdfunding Platform. The below is a general overview for educational purposes only.

Holding company

The investor does not directly acquire a share in a particular company. Instead, the investor becomes a shareholder in some form of Holding Company that receives a share of the actual company.

Example:

Company ABC is looking to raise 100,000 EUR.
In return, Company ABC is offering 25% of all their shares.

The investor decides to invest 10,000 EUR, equal to 10% of the financing need. The investor therefore receives 10% of the shares of Holding Company ABC, which in turn holds 25% of the shares in Company ABC.

Crowdfunding via Holding Company

 

In the above example, the investor provides 10% of the required financing. All the financing is  first invested in Holding Company ABC. Next, Holding Company ABC invests in Company ABC.

Holding Company ABC receives 25% of the shares in Company ABC in return for the 100,000 EUR.  

Direct participation

The investor directly acquires a share in a particular company. The investor becomes a shareholder of the actual company.

Example:

Company ABC is looking to raise 100,000 EUR.

In return, Company ABC is offering 25% of all their shares.

The investor decides to invest 10,000 EUR, equal to 10% of the financing need. The investor therefore receives 10% of the equity stake on offer, meaning 2.5% of the shares in Company ABC.

Crowdfunding via Direct Participation

 

Profit sharing agreement

Company ABC is looking to raise 100,000 EUR.

In return, Company ABC is offering to pay holders of the Profit Sharing Agreement 25% of all distributed dividends. In addition, should the company be acquired by another company, or should the company go public, holders of the Profit Sharing Agreement will receive 25% of the purchase amount.

 

Crowdfunding via Profit Sharing Agreement

Debt Crowdfunding on HelpTheCrowd

About Debt Crowdfunding
The debt crowdfunding space is very diverse. There are as many different types of loans to invest in as there are crowdfunding platforms. These platforms differ according to the details outlined below, amongst other things. The main differences concern either how investors are paid over the lifetime of the loan, or what happens in case of default. A default occurs when the Business cannot keep the promises it made when it got the loan. This effectively means the business is unable to pay either the interest rate or the original amount, either in full or in part.
Characteristics of the loan
Maturity How long until the Business repays the loan. Interest Rate What is the interest rate the Investor receives (on an annual basis). Payment frequency How often does the Business make an interest payment? In case this is twice a year, the Investor receives half the stated Interest Rate every six months.
Status of the loan
In the event of a default, the debt investors would become owners of the assets of the Business. These assets would usually be liquidated (sold), and the investors would be entitled to the proceeds (if any) of these assets. Depending on the country and the specific circumstances, debt investors are not always the first to receive any of these proceeds. The government often comes first, and sometimes employees will be paid something as well. This list can be significantly longer, depending on the particular circumstances. Investors are repaid according to the status of the particular loan they invested in. Investors that invested in senior debt will be repaid first (after the examples mentioned above). Investors in subordinated debt are paid after all the investors that invested in senior debt are repaid.

Types of costs in Crowdfunding for investors

Up-front fees
Up-Front fees. These are fees that investors pay on day one, typically upon successful completion of the deal. If the business is fully funded and the deal goes through, investors have to pay a specified percentage to the Crowdfunding platform. 

 Example:
 You indicate you want to invest 1000 EUR in Company ABC through Crowdfunding platform XYZ. The platform charges 1% Up-Front fees.

Upon completion of the deal you must transfer your investment + 1% to the Crowdfunding platform. This means you pay 1010 EUR of which 10 EUR goes to Crowdfunding platform XYZ, and 1000 EUR goes to Company ABC.
Annual fees
Annual fees. These are fees that investors need to pay every year. For instance, especially in the case of debt crowdfunding, investors receive an annual interest payment minus a specified percentage withheld by the Crowdfunding platform.

 Example:
 You lend 1000 EUR to Company ABC through Crowdfunding platform XYZ. The platform charges 0.90% per year.

 Additional specifics of the loan are: 

Annual interest payments
 6% interest

 Assuming no defaults, you receive an, annual interest of 6%, of which 0.90% is not paid to you. Company ABC pays 60 EUR interest. 9 EUR go to Crowdfunding platform XYZ, and you receive 51 EUR.

Success fees
Success fees. These are fees that investors pay only in case of a particular positive performance of the investment, for example, upon payment of dividends, or when the company is acquired by a competitor. In the case of an acquisition, investors sell their shares for a particular amount. The Crowdfunding platform returns to investors their initial investment plus profits, but minus a specified percentage. 

 Example
: You invest 1000 EUR in Company ABC through Crowdfunding platform XYZ. The platform charges a 10% success fee.

 Years later, Company DEF buys Company ABC. The value of the investment has increased to 1500 EUR. 

 The pre-cost profit of the investment is 500 EUR. The Crowdfunding Platform XYZ receives 10% of this profit (50 EUR). You receive your initial payment plus the profit, 1450 EUR in total.