Alicja Sławińska
ORIGINS AND CHARACTERISTICS OF THE CROWDFUNDING MECHANISM
Crowdfunding, or so-called crowdfunding, is an alternative, modern method of raising money for any
investment using an online platform tool. This solution is extremely popular worldwide and is gaining
more and more allies not only from the IT sector. The value of crowdfunding is the international reach of
the business initiative, provided the business initiative is presented in a way that is accessible and
transparent to a wide audience.
“Crowdfunding is a financial technology solution that guarantees small and medium-sized enterprises
access to an alternative form of funding (…) and is implemented through a crowdfunding platform, which
is a web-based solution designed for an open audience by a crowdfunding provider to conduct
crowdfunding collections.1”
In practice, an investor solicits financial support from members of the online community (donors) in
exchange for, for example, shares or stocks in a flagship project. Donors are not obliged to fund the
project in a regular and predetermined way, and all transactions take place on a voluntary basis. The
majority of start-up developers use an external source of investment, which in the case of the developer
business model is not questionable.
LEGAL LEGISLATION OF CROWDFUNDING IN POLAND
The institution of crowdfunding in Poland was regulated by the Act of 7 July 2022 on crowdfunding for
business ventures and assistance to borrowers1 (hereinafter: ‘the Act’) – the normative act entered into
force on 29 July 2022. The Polish law system accordingly implements Regulation (EU) 2020/1503 of the
European Parliament and of the Council of 7 October 2020 on European providers of crowdfunding
services for business ventures and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937
(hereinafter: the “ECPS Regulation”)2.
On 24 October 2023. the Government adopted the Draft Law on Amendments to the Law of 7 July 2022
on crowdfunding for business ventures and assistance to borrowers3 (hereinafter: the “Draft Law”), which
was referred to the Parliament on 3 November 2023. In the matter of crowdfunding, the Draft Act welds
Polish law to EU regulations.
An important and practical note – “After 10 November, all entities that still wish to provide crowdfunding
services will be required to obtain a new authorisation issued by the FSA, pursuant to Article 12 of the
ECSP Regulation.4”
CROWDFUNDING PLATFORMS
Crowdfunding is a contemporary and easy way to invest in business projects with potential, including
development ventures. The primary tool for handling crowdfunding is an online platform.
One of the more popular crowdfunding platforms is Kickstarter – “Each crowdfunding project is
independently created and executed by the person behind it. (…) This is because Kickstarter operates on
the principle of ‘all or nothing’. This means that if the creator overestimates his or her capabilities and
does not ultimately succeed in raising the anticipated support, he or she will not receive a penny.1” It is
worth adding that within the Kickstarter platform:
(i) the creator sets the parameters of the investment (goal or deadline) himself,
(ii) it is not dedicated to share deals, which remain entirely with the creator.
A platform dedicated in Poland to the development sector, among others, is Crowdy as a debt loan
crowdfunding application. Due to the nature and mechanism of the platform, companies operating using
the platform are required to provide adequate collateral for the loans taken out.
Other platforms intended for crowdfunding include Findfund, Beesfund or Zrzutka.
MECHANISM AND TYPES OF CROWDFUNDING IN THE REAL ESTATE SECTOR
An example of a real estate crowdfunding model used in a development project is investment or equity
crowdfunding (“equity crowdfunding”), in which donors receive shares in a construction project company
in exchange for financial support (raising capital from a dispersed group of small investors). “The ECPS
regulation refers to equity crowdfunding, i.e. crowdfunding in which an investor receives securities issued
by the project owner, e.g. bonds, shares or investment certificates1 , in exchange for a contribution.”
The operating vehicles for equity crowdfunding are either capital companies (joint-stock company, simple
joint-stock company) or partnerships with elements of capital regulation (limited joint-stock partnership),
of which the simple joint-stock company is the optimal solution due to the flexibility of handling and
selling shares. As of 10 November 2023, share crowdfunding in a limited liability company has been
banned.The developer, as an operational entity and with the relevant operational resources (‘know how’) to make a
successful investment, is the beneficiary of additional profit through, for example, being a holder of
preference shares or share options.
“For many projects, equity crowdfunding fundraising is a stage prior to a stock market debut. Very often,
after a successful share issue, larger investors appear on the equity crowdfunding platform ready to invest
the next tranche of money.2”
The institution of debt crowdfunding, on the other hand, is another form of community-based borrowing
of money. The pattern of how debt crowdfunding works in practice is as follows: investors invest money
in a given business project, and in the future they will receive a return of the invested money plus
applicable interest. “Debt crowdfunding assumes a return of capital after a period of 2-3 years, together
with a predetermined fixed interest rate, usually paid quarterly.3”
Crowdfunding in the debt crowdfunding model is a popular solution involving property development
companies or other companies with stable and traditional financing. The risks that accompany debt
crowdfunding relate to the insolvency of the lender. This is dictated by the collateral provided to potential
investors through the establishment of a mortgage, registered pledge or voluntary submission to
enforcement. The aforementioned legal instruments, which constitute an open-ended catalogue of
securities, aim to make the return of invested capital and the expected profits plausible. Consequently, the
risk is minimised to the point of non-recovery of the invested capital in the event of bankruptcy of the
virtual platform operating the venture.
THE SPECIFICS OF REAL ESTATE CROWDFUNDING
In the real estate sector, investing in individual development projects generally requires a significant
amount of capital. The concept of crowdfunding offers an alternative to traditional financing in property
development projects, as it also allows those with less capital to invest through crowdfunding. An
example of such a business initiative is investing in the acquisition of a flat to be extensively renovated
and ultimately rented out (‘flipping:).
As a result, the developer, as a professional real estate operator, presents the development project via the
crowdfunding platform to a wider circle of interested parties and offers to acquire equity or debt
instruments in the development project. In turn, interested parties can get involved in several different
investment projects (residential or commercial) without having an abundant portfolio. Thus, investing in
the property development industry has become affordable for every citizen, and the widening circle of
investors should always be read as a positive phenomenon or business trend.
Getting involved in property development ventures requires a lot of monetary capital. Not only does
crowdfunding open the floodgates for any potential investor, but it also makes it possible to raise monetary resources in a short period of time, in a dynamic manner with international reach. By verifying online platforms free of charge, anyone interested can obtain valuable information about interesting investment intentions and projects.
“When deciding whether to invest via a platform, the first thing to pay attention to is the type of property,
the types of fees, the payback period, the reliability of the platform, completed investments, investor
feedback, methods of protecting shareholders’ capital, access to information on the progress of the work
and the possibility of exiting the project ahead of time.1”
SUMMARY
Crowdfunding is a new and aspirational method of raising capital with an international reach, which is
still undergoing consolidation. The Polish legislative source continues to be transformed to meet the needs
of the domestic market while implementing European standards to safeguard investors. A progressive
trend should be noted, as after the entry into force of the Act, the interests of investors are supervised by
the Financial Supervision Commission. One might be tempted to say that crowdfunding has had a
successful debut – it is important to note that no significant fraud using crowdfunding platforms has been
reported to date.
At present, crowdfunding is mainly dedicated to smaller and medium-sized investors and, as such, is not
in competition with the stock market, but an alternative and affordable solution to the capital market. The
crowdfunding mechanism also opens up a path to the real estate market for those with less financial
resources. Crowdfunding platforms
In conclusion, crowdfunding represents an alternative source of funding for investment projects, with
considerable potential for expansion on the capital market in the future.
