Crowdfunding supporting 'innovative' business ideas

Crowdfunding can bring innovative technologies to the market, which can maintain 'competitiveness', 'restore growth' and 'foster job creation' across Europe, explains Oliver Gajda.

By Oliver Gajda

30 Sep 2014

To remain globally competitive, Europe needs to continuously innovate and create new goods and services. Key enabling technologies, such as nanotechnology, biotechnology, photonics or semiconductors, are playing a strong role in our future and they will help turn Europe into a low carbon, knowledge-based economy. But while the European Union has good research and development capacities in areas of key enabling technologies, the union is lacking a positive track record of transferring research into commercial products, services and goods.

One of the main reasons is the lack of entrepreneurial innovation. Money is scarce these days, at least for innovative entrepreneurs in Europe. The financial crisis of 2008 has drastically slowed the global economy and reduced funding sources for entrepreneurs, innovators and small business.

Still, it is young, entrepreneurial companies that are the engines of job creation in Europe and as such, access to capital for SMEs is as critical for sparking job creation in Europe as it is for the transfer of innovative research knowhow to the market.

Enter crowdfunding. The growth rate of crowdfunding is second to none when it comes to funding types for innovative and creative business ideas. In some of Europe's major economies, such as Germany, where traditional sources of early stage investment such as venture capital and business angels have been recovering, crowdfunding is about to reach similar levels with equity and quasi-equity investments.

"Crowdfunding offers an interesting and new perspective to help launch innovative technology products and services. It can enable entrepreneurs to raise capital inside and outside of their own network"

Crowdfunding is a collective effort of many individuals who network and pool their resources to support efforts initiated by other people or organisations. It can be utilised to obtain ideas, collect money, and solicit input on the product, overall fostering an environment of collective decision making and allowing businesses to connect with potential customers.

Crowdfunding offers an interesting and new perspective to help launch innovative technology products and services. It can enable entrepreneurs to raise capital inside and outside of their own network. At same time, it can reduce risks as crowdfunding allows entrepreneurs to gain market validation at low cost through direct market feedback and create effective and value for money social marketing.

The attention generated by successful crowdfunding campaigns will attract prospective customers, potential investors from traditional institutions and media. Crowdfunding can therefore help to market, but also to generate proof of concepts, by creating sufficient demand at an early stage.

The cost of crowdfunding can be comparably low, but should be taken seriously. Usually a campaign carries a commission for the platform between three per cent and 10 per cent of total funds raised, interest rates for loans, small additional admission fees and the cost of running the campaign.

Considering the lack of traditional funding, and the prospects a crowdfunding campaign can offer, it does not surprise me to hear of crowdfunded ideas, sometimes multi-million euro investments into innovative businesses, across Europe. More and more we see investments that are building on technology solutions and addressing topics of general concern, such as internet privacy, renewable energy and smart communication devices.

Crowdfunding is a dynamic and innovative way of testing and funding product ideas and market demand. It can play a significant role in bringing innovative technologies to the market and generate opportunities for later stage investors. Only by allowing many innovative ideas to be tested and launched, will we be able to remain internationally competitive, restore growth in Europe and foster job creation, while at the same time addressing our many societal challenges.

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