Together We Can Help: How Crowdfunding Works and What it Can Do

On March 12 and 13 the Faculty of Economic Sciences at HSE hosted Professor Cristina Rovera of the University of Turin who delivered two lectures about crowdfunding. ‘Russia and Italy can share our experiences, activities, and professional research,’ the Italian professor noted. ‘Last year, Professor Irina Ivashkovskaya (HSE) came to Italy to teach Corporate Finance. This marked the beginning of a profitable relationship, and I hope it turns into something long-term.’

This time around at HSE, Cristina Rovera gave a survey lecture on ‘World and European Crowdfunding’ as well as a lecture devoted specifically to Italian start-up experiences with Crowdfunding World and European Crowdfunding, as well as Italian Crowdfunding and P2P lending.

HSE launched its own crowdfunding platform for student projects in 2018. Each year, HSEcoins will be awarded to students and later, to HSE staff members. HSECoins can be transferred to student projects via the HSEcoin section on the HSE Family website. Creators of student projects can purchase goods and services for the equivalent amount in roubles through the Student Initiative Support Centre. The HSEcoin-rouble exchange rate is set annually by the university.  In 2018, six student projects successfully raised funding through this new platform.

As Cristina Rovera noted, crowdfunding is getting more and more attention worldwide. Start-up crowdfunding campaigns are not only actively developing but supported by law in the US and China. In 2012 start-up companies in the US received the right to raise up to $1 million through crowdfunding without filing any papers or reporting the sale of shares; creators of videogames were able to raise $3 million for two new videogame projects. In Russia, crowdfunding has financed the publication of books, documentary films, the calendar production, and a large number of philanthropic projects.

Cristina Rovera discussed the ways in which crowdfunding is developing in different countries and the initial conclusions of her research. In Italy, for example, start-ups can raise money through equity crowdfunding. In June 2018, 181 Italian start-ups used crowdfunding to raise funds. These companies comprised 85% of Italian start-ups. By June 30, 2018 there were 225 equity campaigns that raised funds totaling 33 million euros.

As for the most effective crowdfunding methods, Cristina Rovera gave the following advice: ‘To execute a successful campaign you should raise money from people who know you, because it is a question of confidence. This means you should start with a small market and THEN focus on a bigger market. Also, set a short timeframe for your funding campaign. If your idea is interesting, you will be able to raise money immediately. A short campaign is a better than a long one.’

One example of this is the Italian start-up Winelivery, which raised more money than needed with two short campaigns of only 102 and 45 days, respectively.

Professor Rovera also emphasized the importance of selecting a target goal in line with your objective. Do not ask for too much money. If your goal exceeds the demands of the project, people will notice, and they will not trust you.

You should also have a plan for what you will do in case you do not meet your target amount. For example, let’s say you want to raise 100,000 euros, but your raise only 60,000 euros. What do you do? Will you reimburse the investors or will you try to forge ahead with the start-up? You can also set a limit. You can say, for example, ‘I will reimburse all capital if I raise less than 50,000 euros.’

Keywords, images, and videos that spark an emotional response from viewers also increase the probability of success. Internationally, crowdfunding has been used to successfully raise funds for musicians, photographers, independent film directors, and so on—all of which implemented these tools. Therefore, videos and images are clearly effective.

In terms of public attitudes towards crowdfunding, Professor Rovera drew upon the words of German economist Hans Herman Hoppe: ‘In the most fundamental sense we are all, with each of our actions, always and invariably profit-seeking entrepreneurs.’ ‘This is why,’ she noted, ‘we have so many donation and reward platforms in the world, but the most profitable platforms are lending ones. I hope lenders will understand the technical nature of the project. But I am not sure. There are a lot of people who do not understand the risk and the return. That is why the platforms usually say: "Pay attention. You cannot be sure of the returns. Use diversification!" Crowdfunding is new and not specifically regulated in many countries. It can be a risk for many people. So ask for good information before lending money!’

Professor Rovera concluded her talk with an example of the most extraordinary crowdfunding campaign she has seen. The above-mentioned Italian start-up Winelivery is a wine shop founded in October 2015. Based in Milano, Turin and Bologna, the company provides home delivery of wine and beer that can be ordered online. What makes their service unique is that they guarantee delivery within 30 minutes from the moment the order is placed, 7 days a week from 10 AM to 2 AM. Winelivery has its own warehouses and makes its deliveries by scooter. So far, there are no European competitors. The start-up exceeded its target funding goals in both of its two funding campaigns:

• The target amount of Winelivery’s first campaign was 50,000 euros, and it collected 150,000 euros (exceeding the target by 300%).
• The second campaign’s target was 150,000 euros, and it collected 400,000 euros (exceeding it by 267%).

Such success is, so far, unrivaled.