the bankruptcy of a model?

French crowdfunding platforms collected more than one billion euros in 2020. A record amount that continues to grow. Yet the promise of finance for all has yet to see the light of day. And several platforms have shut down. Why such a rout?

The idea of ​​appealing to crowds to finance a project is not new. As early as 1883, the American government employed him to collect the funds necessary for the construction of the pedestal intended to house the Statue of Liberty. A century later, the appearance of the Internet breathes new life into the process: it suddenly becomes possible to raise funds from millions of internet users through online platforms.

And the first results are there: more than 20million dollars collected on the Kickstarter platform, the world’s number one crowdfunder, to finance the connected watch Pebble Time, the second most funded project behind the game Star Citizen (300 million dollars collected).

So very quickly, crowdfunding platforms are multiplying. We count today almost 205, in sectors as diverse as agriculture, art and real estate. A sign of the dynamism of the sector, the amounts collected were multiplied by 6 since 2015. And according to the annual barometer of Participative Finance France, the historic milestone of one billion euros in fundraising was reached in 2020. In total, more than 17,000 companies would have benefited from this alternative method of financing.

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Serial bankruptcies

However, there was breakage along the way. And if the young crowdfunding industry now seems to have won its place alongside traditional players in the financing landscape, it has not been without difficulty.

The short history of crowdfunding is indeed punctuated by failures and bankruptcies. In 2019, the difficulties of the British Funding Circle, a crowdfunding giant, had, for example, destabilized the entire sector. If Funding Circle coughs, everyone catches a cold, summarized the leader of a French competitor.

The platform ultimately survived. But not all were so lucky. Lendy, Ma belle tribu, Commeon, Bolden… Several platforms have permanently closed their doors. Most often, without making too much noise. Others have disappeared by the game of mergers and acquisitions. Launched at the end of 2014, the Finsquare platform was, for example, absorbed by Lendix in April 2016.

In October 2018, the liquidation of Unilend, pioneer of crowdlending, had in particular caused a lot of ink to flow. Strike by too high costs, the platform could no longer make ends meet. Going to find private lenders, as Unilend did, extremely expensive in advertising: the cost of acquisition is 300 or 500 euros per lender, explained Olivier Goy, the boss of the October lending platform, questioned by Bank Review.

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Faults galore

From its inception, the young crowdfunding industry came up against the difficulty of controlling the risk of default by project promoters. Nearly one in ten financed companies (9.5%) no longer reimburse their chances, i.e. an explosion in the default rate of more than 120% since our February 2017 study, alerted 60 million consumers, for example, in a press release dated November 2018.

Not to mention the scams. Indiegogo, a crowdfunding heavyweight on the other side of the Atlantic, had, for example, hosted the UbuTab fundraising campaign: a digital tablet for multimedia lovers. The project leaders had requested $36,000 to manufacture this product. The product never saw the light of day, much to the chagrin of its 152 contributors. Since, the company disappeared without a trace. And all refund requests have gone unheeded.

An exceptional case, according to Kickstarter, for which the majority of fraudulent projects do not reach maturity. The American giant specifies however that the responsibility for verifying the viability of projects lies with the users. Sunny Bates, member of the board of directors of the platform, specified for the American information site polygon that Kickstarter could contact the fraudsters, even join in possible legal proceedings. But, by his own admission, the approach is of little interest to the saver, the average amount of contributions ($71) often not justifying the initiation of long and costly legal proceedings.

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Buyouts the chain

The platforms also suffered from the fierce competition. That of the banks, first of all, who began to lend a hand in a historically low interest rate environment. But also from other platforms: in the absence of real barriers to entry, offers quickly multiplied in a market that has not quite taken off yet.

Between takeovers and bankruptcies, the crowdfunding lines have moved a lot in recent years, as the sector is structured. A necessary evil? Since its inception, the market has become much more professional. And today it doesn’t have much to do with the crowdfunding of the early days.

Some platforms have strategy change, by approaching institutional investors. This is for example the case of October. Others have gone all out on real estate crowdfunding, which channels 561.17 million euros in 2020, i.e. more than 50% of the total collection.

Finally, others have been bought out by traditional players. La Banque Postale, for example, acquired KissKissBankBank and Lendopolis, while Socit Gnrale acquired Lumo, a specialist in sustainable crowdfunding. The Leetchi platform has, for its part, joined the fold of Crdit Mutuel Arka.

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