What is crowdfunding?
Crowdfunding is a method of funding a project or venture by raising monetary contributions (usually small amounts) from a large number of people (investors), typically via the internet. Crowdfunding usually involves three participants: (i) the operators of the crowdfunding platform, who set the conditions for the functioning of the platform and determine the requirements for accepting a project; (ii) investors, who provide money to finance individual projects offered through the platform; and (iii) applicants, who request the funds needed to implement their projects.
What projects may be financed?
The types of financed projects can vary from development of new technologies, works of art and cultural events, to private real estate purchases or loans to buy a car or other consumer goods.
The traditional crowdfunding model is donation-based crowdfunding, which is used to raise funds, mostly for charitable or other public purposes.
However, the most popular crowdfunding model is reward-based crowdfunding, which is a model based on economic compensation. This compensation may be either material (e.g. vouchers to restaurants, films or music albums, books or theatre performances) or financial.
The next crowdfunding model with financial consideration – equity-based crowdfunding – is a platform mediating investment interests in business corporations or to a particular asset when the contributor becomes the owner of that asset, or of an interest in a company. This model is most commonly used by start-ups and businesses in the IT sector.
The last crowdfunding model – debt crowdfunding (also known as peer-to-peer lending and crowdlending) – is a fast and easy way for both individuals and businesses to raise the money they need, when they need it. Debt crowdfunding works by collecting donations with the promise to pay them back later. It is usually used by businesses that need capital and that prefer to pay back the funds rather than give out equity.
New projects established during the COVID-19 pandemic
During the COVID-19 pandemic, the focus of crowdfunding collections in the Czech Republic has adapted to market demand. Investors helped fund the production of face masks or ventilators and also supported self-employed people affected by the government measures. Several interesting projects to support businesses were established in the Czech Republic:
A well-established Czech crowdfunding platform introduced its own special category called Antivirus. This category was created to help businesses in tourism, hairdressers, owners of cafés and restaurants, and other people who are most affected by the current government measures. For every CZK 100 (approx. EUR 4) for self-employed people, the platform sent a contribution to a charitable association that buys the equipment necessary to treat COVID-19.
Save Your Pub
Another COVID-19 crowdfunding project is the Save Your Pub project, where pubs and restaurants that need help can register. People then help the business by choosing the value of the voucher and directing the contribution in this value to the selected location. Once it reopens, people can use their vouchers.
Tickets to Nothing
COVID-19 also had an impact on the artistic sphere. Theatres, concert halls, galleries, clubs and individual artists can participate in the Tickets to Nothing project. People can choose which venue or ensemble they want to support and then buy a ticket to the virtual place of their choice in the reservation system.