What actually is "crowdinvesting"? EFNW GmbH, an Institute affiliated with the University of Oldenburg, has published a study on the phenomenon. The authors have found that the "fun investor" of the past has been joined by professional investors.
In crowd investing, small private investors provide equity capital via a web-based platform to support innovative start-ups. Unlike crowdfunding, the investor receives a profit share from the financed company. EFNW GmbH, an Institute affiliated with the University of Oldenburg, has now analysed this new form of financing for start-ups and published the study "Future prospects in crowdinvesting - an analysis of developments in Germany between 2011 and 2014". It has just been published online and, in addition to current figures on financing volumes and market shares, also provides insights into the behaviour of crowd investors for the first time.
"Among other things, we found that the class of multiple investors with comparatively high average investments of more than EUR 1,000 is currently growing the fastest," says Dr Heike Hölzner, Managing Director of EFNW GmbH. At the same time, the return expectations of crowd investors are comparable to those of business angels - i.e. investors who invest in start-ups at a very early stage and provide support in the form of expertise. Most of the crowd investors estimated their achievable returns at a maximum of 20 per cent per year. "So we are no longer just dealing with 'fun investors'. Over the years, there has been a clear trend towards professionalisation," emphasises Hölzner.
The study, which was funded by the German Savings Banks and Giro Association, is based on a multi-method approach in order to analyse crowdinvesting as comprehensively as possible. Among other things, the researchers analysed a data set of more than 25,000 individual investments made on the Seedmatch and Companisto platforms. They were able to prove that between 2012 and 2014, around 60 per cent of all crowd investments were made by multiple investors. Overall, the majority of investors invest large and rather small amounts early on. Higher amounts are invested when it is clear that an investment will actually materialise.
The researchers were able to characterise a total of five different types of crowd investors: The "fun investor" is driven by the joy of innovation. They invest an average of 25 euros and usually finance a large number of start-ups. The "product disciple" invests in a few selected start-ups whose products or services they are convinced of. Friends & Family" investors identify with the founding team, which they support with comparatively high start-up funding. They do not expect a high but positive return. In contrast to this is the "yield investor", who invests amounts starting at 250 euros. Their primary goal is to achieve a return that is higher than the interest income from traditional investment products. Compared to the "yield investor", the "crowd angel" is more involved with the start-ups, primarily in a supportive capacity. The average investment amount is 5,000 euros.
"With our study, we want to contribute to a better understanding of the crowd investing phenomenon and provide impetus for the current debate on necessary forms of regulation, but also further developments of this innovative and high-potential form of financing," Hölzner continues.
"With numerous new findings, the Oldenburg study provides a systematic overview of the dynamically developing crowdinvesting market," emphasises Christin Friedrich, Managing Director of the crowdinvesting platform Innovestment. Torsten Müller, co-founder of the start-up Tame, summarises the start-up scene's need for crowdinvesting research: "For us, financing via crowdinvesting was an important building block, but not every start-up is equally suitable and successful. This is where scientific research can help us to understand market characteristics and investment dynamics in advance."
The EFNW Institute is one of the three pillars of the University of Oldenburg's Start-up University, for which the University of Oldenburg received an award from the Federal Ministry of Economics and Technology in 2011 as part of the EXIST IV programme. Together with the endowed professorship Entrepreneurship and the Start-up and Innovation Centre, the EFNW supports students and employees of the university in implementing their start-up ideas. The EFNW is particularly active in the fields of business model development and financing and offers a wide range of coaching and consulting services to both start-ups and established companies.