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What Crowdfunding platforms do in times of COVID-19 image

What Crowdfunding platforms do in times of COVID-19

This is a joint article written by Karsten Wenzlaff and Ronald Kleverlaan (Crowdfunding and Alternative Finance Experts from Germany and the Netherlands)

The role of Crowdfunding for transparency in combatting #covid19

The Crowdfunding industry is well aware of what economists call externalities – the fact that behavior of some people has unintended impact on other people. Positive externalities can be observed on the Crowdfunding platforms every day due to the willingness of people to join their forces. These days, everyone becomes aware of the impact other people have directly on our lives, health, financial situation, liberties. Crowdfunding platforms were very quick in meeting the challenge of channeling funds to those places where they are needed. Governments are now pumping billions and most likely trillions of dollars through the banking system into the economy. The alternative finance industry should not be ignored when creating the right response to the Covid19 pandemic. Crowdfunding platforms have developed mechanisms to screen projects and carry out due diligence. They are required to prevent money-laundering, ensure that there is no fraudulent behavior on their platform, that funds are not used for terrorism financing, that conflict of interests are avoided. They create transparency where transparency is needed, given the fact that so much demand for financial support has been created in the last two weeks.

Donation-based Crowdfunding

In Germany, the donation-based platform Betterplace and its Friendraising equivalent have hosted a large number of crowdfunding campaigns fighting the #Covid19 pandemic and its social consequences. One campaign exemplifies the need for donation-based crowdfunding: #Strassenspende. A charity in Germany raises donations for homeless people which do not receive any donations on the street anymore because everyone stays at home. The volunteers distribute 20 Euro bills to homeless people on the streets – a simple and effective way of helping first-hand. That is the power of crowdfunding - it creates streams of finance to people who often have no other access to finance. What could governments do? They could support the donation-based platforms by reimbursing transaction fees, because essentially it will allow more donations to flow. They could also facilitate partnerships between municipalities, regions and platforms which encourage local donations to local projects. For instance, the platform Helfen.Berlin which collects donations for companies in exchange for gift certificates is a private initiative from the start-up industry, but it charges around 3% in transaction fees. The city of Berlin (and other cities) could easily support this initiative by covering these costs. This form of #civic_crowdfunding will be an important pillar in creating regional demand and financial support. But the donation-based platforms are not just facilitating donations. Betterplace, for instance cooperates with UnitedweStream.Berlin, an event which supports the Music Clubs in Berlin by raising donations for an online streaming event. Betterplace also supports the Corona Foundation of, a platform for community-based activities and neighbourhood networks which also provide local company profiles. These are just some examples of how one platform in Germany brings their technology to new initiatives to fight the economic impact of the Coronavirus.

Reward-based Crowdfunding

The same is true for reward-based crowdfunding platforms. The Danish Platform, the French platform Ulule, the Dutch platform Voordekunst and the Swiss Platform, and the Polish platform PolakPotrafi have all created landing pages to facilitate crowdfunding campaigns and provide additional resources for the project owners. In the last couple of days, more than 30.000 creators joined the crowdsustaining platform Patreon. The German crowd-sustaining platform Steady, which functions like the platform Patreon, but with a focus on media and blogs, has offered free tutorials on how to create subscription-based revenue models. Steady reports that business acquisition has doubled in the last few days. The German reward-based Crowdfunding platform Startnext opened the platform to SMEs which could pre-sell services and goods – SMEs such as local bars and restaurants, creative studios. The platform waived the transaction fees and supported more than 300 companies to raise more than 500.000 Euros. The Dutch platform CrowdAboutNow offers the same services for SMEs to enable them to pre-sell products and services . What could governments do? Some, such as the City of Berlin, are enabling the access to webinars, in this case with the Crowdfunding Campus. The support could go way beyond that. A lot of SMEs may not apply to receive the wide range of support measures given by the government, because the application procedure is too tedious or too complicated, or simply because the SME does not fit into the support categories. But the governments could easily match the contributions from the crowd, for instance pledge that for every Euro in pre-sales the government contributes 0.25 Euro up to an amount of 1000 Euro. Therefore, if an SME raised 4000 Euros from the crowd, it would receive an additional 1000 Euro.

Equity-based Crowdfunding

Of course, these sums are small compared to what can be raised on equity- and lending-based Crowdfunding platforms. It is too early to see the impact that Covid19 will have on those startups, real estate and renewable energy investment financed on equity platforms. Start-ups might have a difficult time in the next couple of weeks, although some business models in electronic retail or electronic services might scale much quicker. But other startups might have a hard time, so we would not be surprised to see the insolvency rate going up. In real estate equity-based crowdfunding, it depends on each location, at least in Germany and the Netherlands, it is not expected that housing prices and rents will decrease immediately, so the case for investing into real estate through crowdfunding platforms might still be there. For renewable energy projects the investment case continues to be strong, because the climate crisis needs continued investments into solar and wind. For all three types of equity-based crowdfunding, the investments have a long-term perspective, the payout is in the future, and at that time the markets and economies might have recovered. So investors which took a hit in the stock market might look for these platforms to diversify their portfolio, so at least in the medium-term we should see increased investor appetite. The equity-based Crowdfunding platforms in Germany, the Netherlands and in Europe have responded to the challenge by increasing their capacity to on-board SMEs. The Austrian-German platform Conda created the #condahilft-Landing page and promised to reduce the fees on all SME funding rounds on their platform. In many countries, we can see that the investors don’t only want a financial return, but want the projects to succeed. In the Netherlands, all the large equity-based crowdfunding platforms announced that their investors will agree to a grace period between 3-6 months in which the project or company doesn't need to pay the interest and does not need to repay their loans. Aescuvest, an equity-based crowdfunding platform based in Germany with a focus on health startups created a fast-track for start-ups and companies with liquity needs developing measures against Covid19 and is currently in the process of partnering with other equity-based Crowdfunding platforms in Germany. Fundedbyme, a Swedish equity-based Crowdfunding platform, has opened its platform to include donations as well, which is a sign of the shifting business models of platforms. CrowdDesk, a white-label Crowdfunding service provider, has opened up its product ONE STARTER to SMEs to raise funds up to 100.000 Euros from investors. Another good way to support crowdfunding platforms is to give them access to guarantee funds. The German platform Ecoligo.investment set up a guarantee fund to secure interest and loan payments to the crowdinvestors who fund the projects. This fund will be initially funded with 50,000 € from ecoligo, which will cover payments that are upcoming in the next months. In the Netherlands the banks have access to a guarantee fund if loans get into default. This week the Dutch crowdfunding platforms will also get access to these funds, providing additional support for individual crowdfunding investors. This will create additional support for companies which are now in need for attracting additional funding. For governments, the activities of equity-based Crowdfunding platforms provide a very good opportunity to support growth. Equity-based crowdfunding platforms use the increased need for finance to stack their project pipeline with more startups. Just like in reward-based crowdfunding, matching funds could be used to leverage public spending for startups and at the same increase the liquidity of start-ups in weathering the impacts of the economic crisis.

Lending-based Crowdfunding

The same argument can be made for lending-based crowdfunding. At the moment, many lending-based Crowdfunding platforms in Germany and the Netherlands, actually in all of Europe, are conducting internal stress-tests to assess the default possibility under the expected economic downturn. Some platforms, such as Kapilendo, are providing information to SMEs on how to access public support, but also for investors. Some of the lending platforms in Europe have announced a freeze on repayments, but there is not yet evidence that governments are supporting lending platforms to recoup these costs. There is anecdotal evidence that investor appetite is decreasing on lending-platforms throughout Europe, with investor forums advising to shift peer-to-peer investment back towards cash and other more liquid assets and investors not willing to invest in new loans because of the uncertainty in the market. The numbers of people and companies seeking loans have increased on the platforms – the increased supply and decreased demand for investments into loans made it necessary that the owners of loans had to provide substantial rebates in order to sell off their portfolio. The interest rates on new loans have increased at many lending-based crowdfunding platforms. For the platforms, the next couple of weeks might be quite difficult, since often their fee structure is based on the repayment of the loans, not just on the intermediation. To build trust for investors it is important to make sure that there will be similar guarantee schemes for crowdfunding investors that are also available for banks. Some governments already provide (first-loss) guarantees for these banks. These should also become available for crowdfunding platforms and their investors. Another way of supporting these platforms and to build trust is to create co-funding schemes in which the government will create a fund to co-fund individual loans backed by private investors. What could governments do? Lending-based crowdfunding are equipped to facilitate much needed liquidity to companies of all sizes, but especially to medium-sized companies in a growth stage. Governments could start by subsidizing the fees, thus making lending on the platforms more attractive for both investors and loan takers. A higher impact would be achieved if governments would create a first-loss guarantee of 50-90% of the loan, such as currently being developed by the Dutch government.


At this stage, it is important that governments talk to the Crowdfunding platforms and its associations. The African Crowdfunding Network has provided an infographic, outlining what the crowdfunding platforms are already doing in their countries. It is to be expected that the European Crowdfunding Network and the member state associations are actively pushing towards support from the government for the Crowdfunding ecosystem in Europe. At the German Crowdfunding Association, where Karsten works, this is taking place, and the same is true for the Stichting MKB Financing, which Ronald chairs. The next month and weeks promise to be very interesting for all of us in the industry. Notes: Thanks to the founders and employees of Crowdfunding platforms which are sharing their views with us, thanks also to the researchers in our alternative finance research networks with which we currently explore how to facilitate research on these developments. Bron:
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