It could be interesting and rewarding to understand how peer-to-peer crowdfunding and investments work. There are a number of different models, but they revolve around the concept of using the internet to link people who have money to people in need of money or crowdfund each other for bigger funds.
The earliest forms of peer-to-peer transactions were philanthropic – merely introducing people with a great idea to people who wanted to see it come to fruition badly enough to contribute to its development. These nominal contributions can add up to enough funds to get an idea off the ground – often taking the form of micro-sponsorship of artistic events like theatre productions, films, or similar. These types of fundraises were made popular by sites like Kickstarter and Indiegogo, and are generally referred to as “crowdfunding” raises, which differentiates these sorts of raises from investment funding.
Modern peer-to-peer investing works on almost the same principle, and also includes a range of different forms and investment strategies. Broadly speaking, they can be divided into equity, or debt investments;
Equity investments through peer-to-peer (“P2P”) generally involve early-stage or start-up businesses seeking investment or fund raising build the business. By making a contribution you become a shareholder in the business, and are then eligible for capital gains if the business becomes a success. .
P2P crowdfunding are serious business – across the UK it’s estimated that P2P transaction amounted to over £1 billion in 2014. In the US in December, the biggest P2P platform – Lending Club – launched an initial public offering on the NASDAQ at a US$5 billion valuation, quickly spiking to US$9 billion on opening day.
This is truly a unique opportunity and there is no better time than now to get started!