Following a successful pilot, the crowdfunding platform SEEDS was officially launched on Monday, 25 November. Crowdfunding is a system in which an entrepreneur seeks to attract a large number of relatively small investors, who together raise the money needed by the business. Private individuals will shortly be able to invest directly in businesses that appeal to them via the website http://www.seeds.nl. Investments start from as little as €10.
In a pilot carried out in 2012, three businesses were financed via SEEDS. During the pilot, roughly 300 businesses expressed an interest in this form of funding. Partly because of this demand from the market, ABN AMRO decided to formally continue the SEEDS crowdfunding platform.
Crowdfunding as an addition to other funding methods
The bank does not regard crowdfunding as a substitute for more traditional forms of lending, but it can offer a useful alternative in certain cases. With crowdfunding, investors decide for themselves which company they want to invest in. ABN AMRO is using SEEDS to explore ways that different funding instruments might be able to reinforce each other.
Added value of crowdfunding
In addition to raising finance, crowdfunding offers other benefits to both businesses and investors. Crowdfunding enables an entrepreneur to test the market at an early stage to see whether there is a demand for the envisaged new product or service. This also fits in with the business model of start-ups and innovative companies which go to market at an early stage with new initiatives. And investors also often want to invest not just for financial motives, but also because of a commitment to the objectives of the business, for example. These committed investors can also act as a customer panel and as ambassadors for the business.
Although the amounts involved in crowdfunding are relatively small, investing in companies is and will always be a risky business. Not every company will achieve its goals, and that can mean that the investor receives a lower financial return or even loses their investment entirely.
Set against this risk is a high degree of investor commitment to the business. Investors may be entitled to receive the product or service in which they are investing. And if the business achieves its sales targets, the investors will have a right to a financial return.
From Monday, 25 November, businesses can register their interest at http://www.seeds.nl. An assessment will then be made of how appropriate crowdfunding is for each registered business/entrepreneur, and how well-founded the business plan is. SEEDS does not express an opinion on the feasibility of the business plan or the quality of the entrepreneurs. With crowdfunding, that judgement is left to the public (the crowd). Investment will be possible from the start of 2014.