Knowledge Centre

Equity crowdfunding is a tool that democratizes ideas, their development, their circulation, and their realization; it puts business people and their potential funders (investors) into direct contact. It is an inclusive tool, as the strength of a project, of an idea, is validated by a heterogeneous public of potential consumers.

Every equity crowdfunding platform in the world hosts, on its own website, dozens of projects and ideas that need funding.

A shares

Class A shares refers to a classification of common stock that is accompanied by more voting rights than Class B shares, usually given to a company’s management team

Angel Investors

Investors who provide investment and other support to early-stage businesses

Beneficial Shareholder / Owner

Is any person, company or other institution that owns at least one share of a company’s stock

Convertible Equity

An equity investment where money is invested in a company in exchange for shares to be issued at a later date. The share issue is generally triggered by the company raising finance from other investors. In return for investing early, the convertible equity investors receive a discount on the price of the shares issued to the other investors

Convertible Note

A debt investment where money is invested in a company with the expectation that the debt will “convert” into shares issued at a later date. The share issue is generally triggered by the company raising finance from other investors. Before the conversion, the investor is paid interest

Crowdfunding

The funding of projects or ventures by raising money from a large number of people, usually online. The three main types of crowdfunding are equity, debt and rewards/donations

Crowdinvesting

It is a subset of crowdfunding, where widespread financial investors can directly respond to a fundraising call for a project through an Internet platform, in return of a capital remuneration

Dilution

A reduction in the ownership percentage of a share in a company caused by the issue of new shares

Diversification

An investment strategy that involves mixing the amount, values and kinds of investments within a portfolio to spread risk and minimise losses

Dividends

The distribution of a portion of a company’s profits to investors

Equity

Shares or other securities that represent an ownership interest in a company

Equity Crowdfunding

A type of crowdfunding that enables multiple investors to a buy shares, or other equity interests, in a company, usually through an online process

Equity Platform

Websites that allow for an exchange of ideas and money and facilitate solicitation and investment. Platforms enable enterprises to advertise themselves as investment opportunities and help the public find such opportunities.
Equity crowdfunding platforms have helped democratise the investment process by opening the door to a larger pool of potential investors dubbed “the crowd”

Exit

The event when investors may be able to cash in and sell their shares, such as an initial public offering (IPO) or trade sale.

Derivative

It is a financial instrument whose value derives from the trend of another asset that may be an action, a public or private debt security, a raw material, a market index, a currency, and so on. Derivatives in general can be defined as contracts

Fully Diluted

All the shares of a company in issue, plus all shares which are the subject of options or other contractual rights to be issued in the future (regardless of whether the right has vested)

Fund

An investment opportunity that seeks to raise money to be invested across multiple businesses. Funds campaigns are commonly used to invest in businesses participating in accelerator programmes and competition winners

Growth-Stage

The stage that a business is at when it has passed its seed or initial stage, has established proof of concept and is looking to grow

Initial Public Offering (IPO)

The first time that a company’s shares are available for public purchase by means of a listing on a stock exchange. This process is also known as going public or floating

Invest

 

Investing is currently one of the many strategies for managing savings. In equity crowdfunding, money is paid into a given project in exchange for a percentage of the company’s shares. The company’s success results in the acquired shares increasing in value. The shares may be sold for a profit, or dividends can be paid. On the other hand, if the initiative is unsuccessful, all or at least part of the investment risks being lost. Equity crowdfunding affords investors direct assessment of the projects to be funded, choosing new or expanding enterprises that are believed to have potential to grow or develop

Overfunding

When a pitch has reached 100% of its funding target the business may choose to overfund. This is where the company can choose to accept further investment in exchange for releasing more equity

Options

Options are contracts through which one party, upon payment of a consideration (premium), acquires the right to buy or sell, at or before the expiration date, a certain amount of the underlying asset at a pre-determined price (price of exercise)

Pre-emption

(Also called anti-dilution) A contractual provision which requires the company to offer its shareholders the chance to purchase additional shares to maintain their percentage of equity in advance of further shares being issued

Post-Investment

The period of time after an investment has been made in a company

Portfolio

A group of financial assets such as shares, property or bonds, held by one person or entity

Risk

The potential for losing something of value. With equity investment the main risk to the investor is losing all the money invested. The investment’s risky nature makes it necessary – or, better, appropriate – to diversify the companies being invested in. In fact, each investor, after having assessed the amount available to be paid in, should distribute this sum among multiple projects and not risk all their capital in a single one. If a large part of the companies being invested in goes bankrupt, the small percentage that is successful repays all the capital paid in, with considerable earnings

Shares

An ownership interest in a company which entitles the shareholder to certain rights, for example a share of profits or dividend payments from the company. Shares are also referred to as “stock”

Secondary Market

A market where investors purchase shares from other investors rather than from the company that has issued the shares directly

Seed-Stage

The initial stage of a business, where it is looking to create a minimum viable product establish proof of concept

Sophisticated Investor

A kind of investor who is considered to have enough investment experience and knowledge to assess the risks and benefits of an investment opportunity

Subscription Agreement

An agreement between a company and investors purchasing shares in the company. It sets out the terms of the share purchase and details certain rights and obligations of the company and the investors as shareholders

Tag-Along Rights

A contractual obligation which gives minority shareholders the right, but not the obligation, to join a transaction where shares are sold by majority shareholders, on the same terms, valuation and conditions of the majority shareholders

Term Sheet

A non-binding agreement addressing the basic terms and conditions under which an investment will be made in a business. A term sheet often serves as a template to develop more detailed legal investment documentation

Tax Relief

To invest in crowdfunding guarantees tax relief, each country organizes it according to their own policy and law

Valuation

The monetary worth of a business as determined by considering both qualitative and quantitative factors