Startups jump on the crowdfunding train

Adrián Espallargas

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Soon look for investors. Through an ‘equity crowdfunding’ website, the startup aims to raise one million euros until the beginning of July and, so far, it has already captured 879,680 euros. “We are creating a digital platform for real estate agents to do their jobs more efficiently,” he says. Diego paradinas, CEO of Prontopiso, a company in which anyone can currently invest through the Fellow Funders website.

Prontopiso is one of the many startups that seek resources through the ‘equity crowdfunding’, one of the different mechanisms of ‘crowdfunding’, or collective financing, that exist. «This system falls within the alternative investment. It is a way to democratize investment in startups, “he says. Stéphan L. Houses, chief strategy officer of Fellow Funders, a platform in operation since 2017. Equity crowdfunding allows companies to obtain financing in exchange for giving a part of your business to new partners. In this way, the company receives resources and investors buy a stake in the startup that they hope to sell at a higher price in the future.

“We decided on this route because there are many real estate agents in our network who want to be part of the company. Thus, we wanted to give them the opportunity to invest in our business “, says Paradinas, from Prontopiso, a company created in 2017 and which has more than 1,700 registered agents.

In Spain, there are some thirty participatory financing platforms registered with the CNMV. One of them is Fellow Funders, a company that since it was created has raised 21 million for 41 projects. Another is Startupxplore, a platform that in 2020 got two million for 15 projects. «Last year they invested 170 million euros in Spain through ‘equity’ crowdfunding, ‘lending’ and reward mechanisms ”, he says Nacho Ormeño, CEO of Startupxplore.

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Collective financing in Spain is regulated in the Law 5/2015. There are several types of ‘crowdfunding’, but mainly there are four modalities that are the most important. The ‘equity’As we have discussed, it allows a company to finance itself and an investor to own a business. The one of ‘lending’ offers loans to companies that do not have access to bank loans. The one of reward It consists of selling a product before having developed it and, finally, that of ‘real estate’ seeks to attract many investors to buy a property and then sell or rent it.

170 were the millions financed in 2020

“The ones with the lowest risk and profitability are real estate, while those of ‘equity’ are those that offer greater risk but also greater profitability”, says Maisons, from Fellow Funders. It is estimated that nine out of ten startups do not reach three years of life, making it a risky investment. However, if it goes well, it can be an extremely profitable trade.

Companies that turn to crowdfunding are in different stages of maturity. It may be that they have been operating for a few years and need a new round to boost their growth, or that they are still in a very early phase and still do not have enough income to obtain a bank loan. «It is an ideal tool for companies in the initial stages or that need to raise capital quickly», Says Ormeño, from Startupxplore. Uploading the project to a ‘crowdfunding equity’ website allows for more exposure in the media, social networks and also helps to expand the network of contacts to develop the business.

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In order to launch a crowdfunding campaign, project leaders have to go through a number of different filters, which each of these platforms have, before publishing it on the web. In this way, the professionals of these platforms review the viability of the project and decide if it is an idea that deserves to be shared with their network of investors.

The lack of liquidity of participations in startups is one of the great challenges faced by investors in ‘equity crowdfunding’. In order to liquidate the position, investors have three main exit routes. The first is that the company goes public and they can sell their securities, the second is that in the following phases there are investors who want to enter the company and want to exit the minority and, the third, is that the company wants to make a buyback of shares.

«The great pending issue in Spain is that many of these companies end up going publicMaisons says. For his part, Ormeño, considers that the great challenges ahead are to improve the existing regulation and ensure that the market is consolidated. “Currently there is a set of platforms doing different things. I believe that the market will end up consolidating ”, he concludes.

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