Crowdfunding: “Small brooks make big rivers” by Djamchid ASSADI*
The reluctance of conventional finance has visibly marginalized the financing of small and / or young innovative firms following the 2006-2008 financial crisis. This trend was aggravated by the narrowing of public aid for drastically reducing budget deficits. In this context, financing has become selective for the benefit of leading firms and those presenting guarantees for the return on investment on a short-term horizon.
By opening the way for small investors, crowdfunding turned out to be an alternative method of financing modest innovators and those whose motives were deviating from the reassuring guarantee sought by conventional investors.
Small investors unable to participate in conventional seed capital offers for lack of small amounts they could invest, have turned to projects that did not interest the venture capital and angel investors. Young and poor innovators also found funding from their loved ones and individuals who shared the same values for examples in projects related to arts or to academic research.
Crowdfunding has become a financing instrument for innovation. However, the different types of crowdfunding, credit, donation, equity and reward, do not represent the same interests for different levels of innovation, break-up or improvement, and different areas of innovation, ranging from creative industries to high technologies.
For a breakthrough innovation in high technology, which lasts seven to ten years between the invention and the market, the ceiling of one million euros of capital or social capital debt, legislated in France, is very far from needs. Crowdfunding then appears as a complement to conventional finance rather than a substitute. While for the improvement of an innovation or the launching of cultural innovations, crowdfunding could indeed secure funding.
Another major advantage of this type of innovation financing resides in testing the acceptability of the project on the market. In addition, by directly linking the project and the individual cybernauts, the visibility and reputation of innovation were significantly strengthened.
*CEREN, EA 7477, Burgundy School of Business – Université Bourgogne Franche-Comté