Crowdfunding in France: The Question of the “Crowd”

Crowdfunding is an alternative way to finance projects over the Internet, from movies, books, albums, applications, games to start-ups and firms. Crowdfunding platforms expanded since the development of the “sharing economy”. Ordinary people are encouraged to fund directly projects through online platforms. We identify three main forms of crowdfunding that dominate the scene nowadays. In the first form, individuals are often offered a reward in exchange of their funding: the donation- and reward-based crowdfunding. In the second form, individuals lend some money to an entrepreneur and can get interests: the lending-based crowdfunding. At last, individuals purchase equity securities issued by an entrepreneurial firm: the equity-based crowdfunding.

The firsts French crowdfunding platforms appeared in the late 2000’s. They were mostly donation- and reward-based platforms dedicated to cultural projects. Crowdfunding has showed a rapid growth every year in terms of money raised and number of funders. In 2014, the French state wanted to ‘‘make France the pioneer of crowdfunding’’ and promote its growth by authorizing the lending-based and equity-based crowdfunding up to 1million € per project. Since then, the pioneers’ platforms were joined by numerous new platforms, particularly in these two sectors.

All platforms don’t share the same vision and definition of crowdfunding. The world of crowdfunding is heterogeneous on several aspects. We propose in our presentation to discuss the question of the ‘‘crowd’’ based on a cross qualitative methodology: on one side an ethnographic observation of meetings of the most important French association of crowdfunding platforms, and on the other side, interviews with funders, employees, users and partners of platforms in France.

How big or how small is the “crowd” on these platforms? Data on crowdfunding is scarce and platforms don’t easily communicate on key figures. Reward-based crowdfunding platforms gather the 95% of funders, far ahead of other types of crowdfunding platforms. At the same time, the average number of funders per campaign is at least four times more important on the lending-based and equity-based platforms than on the donation- and-reward-based ones. This can be explained by the high number of projects financed on donation- and reward-based platforms and by an average amount of campaign higher on lending platforms, and even more on equity platforms. The notion of ‘‘crowd’’ is mostly present on the donation- and reward-based and lending-based crowdfunding. But the notion is absent on equity-platforms. How to explain this? What does the “crowd” mean for the platforms and the projects leaders?

The “crowd” is sometimes seen as something positive or a problem. For the donation- and reward-based “funding, platforms and project leaders want to get a lot of funders. It means more members on the platform and more money to fuel the project. But the number of funders starts to be a problem after campaign’s success: when the project leader has to deliver the rewards to the funders. Our interviews with artists or entrepreneurs reveal the difficulty to deal with a high number of funders. They must handle a big demand that isn’t often planned. The lending-based crowdfunding is the sector where a big amount of funders seems not to be a problem. There is no reward to send back, except a financial interest – when there is one – managed by the platforms. For the equity-based platforms, a big amount of investors will cause a problem of management shareholders. The capital will be too diluted and this will make the future fundraising more difficult. This concern is also evident among traditional actors of investment, like Business Angels and investment funds, who would be interested to invest after a crowdfunding campaign. The founders of the equity-based platforms are well aware that a big amount of shareholders is a problem because they often come from the world of venture capital and investment.

The founders of the platforms try to overcome the following paradox: they launch a website that allows funding by several funders even as their high number would create a handicap for future business financing stages. They overcome the problem in different ways. Some of them chose not to sacrifice the idea of the “crowd” by allowing a lot of people to finance the projects. They propose to become a shareholder starting at 100€. When the campaign is successful, they create a holding gathering the new shareholders. The important number of investors is transformed in a unique moral person, which will ease the future management of shareholders. Others equity-based platforms chose a different strategy. For them, a high number of funders are not desirable from the beginning. That’s why they fix higher the minimum amount of investment, around 1,000€ or even 2,000€ depending on the platform or the project.

We’ve seen the different visions of the “crowd” on crowdfunding platforms and we will now describe the characteristics of the “crowd”. We show that the firsts platforms were for project to be funded by individuals. But with the development of lending-based and equity-based platform, the boundary between “ordinary people” and traditional investors tends to be blurred because they can both invest on a same project presented on a platform. At the same time, platforms maintain boundaries between them thanks to diverse financial instruments.

Furthermore, the traditional investors often participate to the pre-selection of projects to be funded impacting directly the selection of funded projects. This is one of the reason that can explain why 50% of projects are accepted on donation- and reward-based platform and around 3% on loan or equity-based platforms. The process of selection of projects on the platform reduces more or less the possibility for a funder to choose a project he will finance, as platforms and partners in the finance industry have already made the selection. This raises the question of the ‘‘wisdom of the crowd’’ and underlines the major contradiction of crowdfunding which occurs both as an alternative to traditional financing methods and as a revival of capitalism.