Crowdfunding Has Swiftly Come Ashore in Finland
Having provoked much discussion and produced some wild success stories in other parts of the world, crowdfunding is now coming rapidly ashore as a new financing form in Finland. In the autumn, the financing problems of the ‘Senja teaches you Swedish’ book project were widely discussed in the media. The stern decision of the Finnish National Police Board in that case also affected the development of the Finnish crowdfunding market. Nevertheless, in a short time this form of financing has come a long way and the list of successful Finnish crowdfunding projects continues to grow at a rapid pace.
What Is Crowdfunding?
The idea of crowdfunding is to arrange a campaign in which funding is collected by developing networks of relationships, through Internet-based services, in order to collect from those in the network a predetermined minimum sum which is usually used for financing a specific project or the operations of a startup company in general. Additionally, the funds obtained by this method can be collected to finance the development of products or other projects. The project or the planned product will only be carried out if the predetermined minimum sum is obtained via the crowdfunding campaign.
If the project is carried out, those who contributed receive the promised consideration, for example a product or shares in the company. Accordingly, crowdfunding can be roughly divided into two parts: non-equity crowdfunding, such as reward-based or donation-based, and equity crowdfunding. Large amounts of financing can be collected through small donations from a large group of people.
Avoiding the Pitfalls in the Finnish Legislation
In other parts of the world, crowdfunding has been used to raise finance for charity targets and to support arts projects. In Finland, the decision of the National Police Board restricts this kind of activity: collecting money without consideration and for charity (donation-based) requires a money collection permit.
However, reward-based crowdfunding is possible in Finland without a money collection permit. Even in these cases the project must be planned with a structure that ensures that the Finnish Money Collection Act will not apply. Furthermore, it is to be noted that an authorization to act as a credit institution is required if repayable funds are received from the public.
Additionally, in terms of permissibility and feasibility, it is important to ensure that the arrangement takes into account e.g. the restrictions imposed by the consumer protection laws and that the prospectus requirements under the Finnish Securities Markets Act are avoided. If shares or other securities are offered to the public in connection with crowdfunding, a prospectus must be prepared, with certain exceptions mainly related to the value of the offer or the number of investors.
It pays to be especially careful when using foreign crowdfunding services, because these tend to encourage participation in donation-based crowdfunding. On the other hand, foreign services allow wider access to the financing available on the international market.
So It Works in Finland As Well
In spite of a public stir over the topic in the autumn, crowdfunding also works in Finland's market, provided that it is carefully planned. There are only a few successful crowdfunding projects at present in Finland but the number continues to increase at a fierce speed. The Wishbhone earphone cord organiser and the Iron Sky film are good examples of the possibilities of crowdfunding. The ‘Senja teaches you Swedish’ case has also come to a happy ending. The key point when designing crowdfunding in Finland is to meet all the demands set by the Finnish legislation in order to avoid bumps in the road. For this reason, foreign methods of conducting crowdfunding projects cannot be directly copied in Finland.
For Whom Is It Suitable?
Crowdfunding is an interesting financing form particularly for small and medium-sized companies. In the present market situation, traditional financiers, usually banks, are under stress and less willing to lend, requiring those seeking financing to be more innovative than before. The modern business world has more private, small-scale investors than before whose wealth is not sufficient for angel investments but who still want to participate in the financing and developing of startup companies. Furthermore, these investors look for more interesting alternatives to traditional equity and mutual fund investments. Crowdfunding has proved to be especially useful for business ideas which include an ideology or charity aspect.
It will be interesting to observe the further development of the crowdfunding market and the growing use of equity crowdfunding as awareness of this financing option increases.