Switzerland is home to several crowdfunding platforms generating millions of francs from peer-to-peer financing. swissinfo.ch looks at how the online phenomenon is taking root.
Recent projects in Switzerland, such as the revival of a legendary watchmaking company, the building of a humanoid robot or the recording of a Frank Zappa-inspired album have revealed the power of the internet to generate the funding that traditional means might not provide, or no longer provide.
In just five years, the number of crowdfunding platforms has increased by 600 per cent according to crowdsourcing.org, the industry website of crowdfunding and is set to expand several-fold in the coming years.
There are presently an estimated 550 crowdfunding sites in the world that generated CHF1.42 billion in 2011 (US$1.5 billion). In Switzerland, there are at least six, four of which are less than two years old.
But crowdfunding is a generic term that covers two very different kinds of enterprises.
Donation crowdfunding allows people to microfinance causes, ideas, artists or projects that appeal to their beliefs and values. In return, crowdfunders receive symbolic or sentimental rewards, like signed albums, entrance tickets or the pride of helping a child in Africa.
Equity raising or lending platforms, on the other hand, perform like start-up incubators or capital injectors and are open to investors looking for financial or material rewards. In the absence of clear regulations (see infobox), there is however mounting concern about the naivety of neophyte investors, as well as the possibility of fraud.
There are two financial modes in crowdfunding:
“All or nothing”: Most platforms require thatthe funding target be reached before the funds can be used. If the target is not reached, collected funds are refunded in full, sometimes minus a credit card commission if this mode of payment was used.
“Keep it all”: other platforms, but none in Switzerland, allow funds to be used even if the targets are not reached.
Crowdfunding the art scene
“In Switzerland we’re sometimes slow to come on board, but we’re quick to catch up,” Johannes Gees, one of founding partners of the successful donation crowdfunding platform, wemakeit.ch, told swissinfo.ch. Gees is a media artist inspired by technology.
Although exclusively dedicated to art, music, film, design and other creative projects, wemakeit.ch generated CHF1.5 million during its first year in 2012 with a success rate of 65 per cent for its projects. It is just behind the number one European site, startnext.de.
Gees attributes part of the success to the fact that the Swiss have a long tradition of community funding. Choirs, sports clubs and neighbourhood projects are often locally funded. “We are just providing the tools to pool the resources,” he explained.
Rea Eggli, another of the founding partners of the platform, has identified a big shift in arts consumption: “Instead of accessing information when it’s already mainstream, people enjoy discovering projects and helping them happen,” she said.
Sibylle Stoeckli, a young industrial designer from Lausanne, successfully financed her Global Design Research field project thanks to wemakeit.ch. Her target of CHF10,000 was reached within 30 days and she is currently on a mission to compare the criteria of design sustainability from five continents.
“I would never have been able to finance this project otherwise,” she told swissinfo.ch in a phone call from Asia where she is completing the first leg of her research.
But it would be a mistake to think that you just put your project online and let things happen, Stoeckli warned. She found that it took all her efforts to reach the funding target on time, to first present the project in a compelling way and then sustain a high level of communication with funders.
Experience appears to show that a clear strategy and hard work is important if a project is to be successful. If a strategy hasn’t worked, people largely tend to go back to the drawing board.
Although crowdfunding was originally conceived as a tool to boost and facilitate existing projects, it is rapidly turning into a wand: new ideas and projects are being inspired by the very potential that crowdfunding offers, thereby fostering new areas of creativity.
“Crowdfunding can transform consumers into creators and participators,” Gees observed.
100-days.net is yet another example of a thriving Swiss crowdfunding platform, but instead of aiming for a local clientele, it has created a platform that can be used anywhere, by anybody and for any kind of project.
“We put more than two years into developing our platform,” Romano Strebel, who also co-created the Ron Orp community-building newsletter (170,000 readers), told swissinfo.ch. Their personalised dashboards allow monies to be raised through a variety of channels, including on mobile phones and expressed in different currencies.
“Finance is a great way to connect people and crowdfunding is suitable for all sorts of ventures in all kinds of fields,” Strebel said.
“It’s an idea accelerator. We see a lot of new worlds now that we didn’t even know existed,” he added.
In just a year, 100-days.net has raised more than CHF600,000 for the projects presented on its platform, and 55 per cent of those projects are successfully completed.
According to Strebel, average donations in Switzerland tend to be more than twice those in the United States, CHF125, as opposed to CHF50. “The Swiss have more money, but they also like to dedicate themselves to a project or a cause,” he said.
The web’s answer to venture capitalism
Whilst the above platforms function on the principle of donations, C-Crowd was created in 2011 to raise equity for business projects. Although founder Philipp Steinberger’s original plan was to include charities and small commercial projects, he has now decided to concentrate on businesses. “This is our USP, our unique selling proposal,” he told swissinfo.ch.
After years of securing growth capital for young companies with requirements of CHF2 million plus, Steinberger was looking for a more efficient and less time-consuming way to help entrepreneurs, including those with lower requirements.
Amongst C-Crowd’s success stories is the recapitalisation of a young bespoke tailor in Zurich. CHF550,000 was secured to allow SuitArt AG to operate a franchise system and expand to eight cities in Switzerland, including Aarau, Cham and Winterthur. Investors are also offered a 20 per cent discount on a suit.
C-Crowd applies a severe screening process however. It has also obtained assurance from FINMA, the Swiss Financial Market Supervisory Authority, that it is operating within the boundaries of the present legislation.
Although there is a general consensus that crowdfunding is an area of great promise, especially in times of economic restrictions, there is also the fear that it is developing too quickly and that legislation, so far, has not been able to keep abreast of consumer protection.
Switzerland: FINMA, the Swiss Financial Market Supervisory Authority, considers that crowdfunding is already covered by present legislation that dispenses intermediaries (the platforms) from obtaining authorisations to practise, as long as they do not use the funds raised for their own purpose. On the other hand, it issues guidelines to protect “unqualified investors” against fraudulent start-ups. In the event of fraud, the matter no longer rests with FINMA but falls under criminal law.
US: The JOBS Act (Jumpstart Our Business Startups Act) was signed by President Barack Obama in April 2012 to encourage the funding of small businesses, but until regulations are drafted by the Securities and Exchange Commission, more than 2,000 crowdfunding websites (not necessarily platforms) have sprung up just to take advantage of the legal hiatus.
Britain: The Financial Services Authority (FSA) has issued a warning against crowdfunding: there is no guarantee investors will receive a return on funds. In fact, investors could lose all of their money, “as the majority of startup businesses fail”. Furthermore, dividends are rare and investments can be diluted if more shares are issued. Lastly, as in all online transactions, a risk of fraud cannot be excluded. The FSA recommends that only sophisticated investors who understand the risks take part in crowdfunded schemes.