Freedom of choice: Financing in the digital age

You have probably at least once caught yourself thinking that you “invented Facebook before Zuckerberg,” but for some reason he became a billionaire. This is because the idea itself today costs very little, it is much more important to be able to implement it. And this is often impossible to do without major start-up investments. To get a loan for the development of a startup in a bank, you need to collect a pile of documents, agree to pay huge interest, and yet it is not a fact that they will give you the money. Alternative loans, like crowdfunding, P2B and P2P loans, give a chance to brilliant ideas. The pros and cons of new financing methods were discussed at the International Strategic Forum on Intellectual Property IPQuorum.

Crowd Effect

The growth of technological capabilities of mankind, on the one hand, and our needs, on the other, gives rise to hundreds of business ideas and niches for new projects. Sometimes they do not reach large venture investments, but they still require investments, and here, for example, crowdfunding comes to the rescue. The word directly speaks of a possible way of getting finance: it is collective financing of projects in which money for creating a product or service comes from its consumers. In gratitude, after starting the project, investors receive what they were collecting money for (for example, a book or a gadget), a percentage of the profit from sales, merchandise (T-shirts, movie props), the author’s signature, or a personal meeting with the authors.

Natalia Ignatenko, PR Director of Russia’s largest crowdfunding platform “”, spoke in detail about this money-lending scheme. She emphasized that crowdfunding is not only a way to get money for promotion, but also to study your audience and test the idea before launching the product. “This is a test of strength: if people react sluggishly, perhaps it is worth changing the concept of the product or the way of its presentation. After all, cash voting is the most honest,” says Ignatenko.

Thanks to crowdfunding on”, the world saw a new album Spirit of “B-2” band, a photo album “Apart” about the events on the Maidan, in the Crimea and Donbas, and a community “Dissernet” for anti-plagiarism in academic papers. In total, more than 1 billion rubles have been collected on this platform in support of technological, social, cultural, and business projects. The average bill is 300,000 – 500,000 rubles, but there are eight-digit numbers when an idea attracts significantly more funds than anticipated.  For example, 18-year-old Mikhail Samin planned to raise a little more than 1 million rubles for the publication of the Russian translation of the book “Harry Potter and the Methods of Rational Thinking”, but in 3.5 months he received over 11 million rubles. This campaign was the most successful in the history of Russian crowdfunding.

Not all projects are selected, Ignatenko warns: “To get to the site, you need to clearly articulate the goal of the campaign and set the time frame for which the author plans to collect the necessary amount. It is better not to overestimate, as the money goes to the author only if the full amount has been collected for the indicated period. Otherwise, all funds are sent back to investors. This condition protects investors and makes the crowdfunding tool transparent.”

From Person To Business

Quick money without collateral and at interest, often less than banking, allows you to find crowdlending. In this case, it is a loan; the borrower and the investor communicate directly and agree on the terms using a special online platform.

One of the options for crowdlending is the so-called P2B lending (“person to business”), when an individual gives a loan to a business project. This instrument is especially attractive for small businesses. It is difficult for small companies to get a substantial loan from banks, especially in the current economic climate. According to the Adizes Institute, 57% of small businesses feel the impact of the banking crisis on the availability of borrowed funds. 63% believe that it has become more difficult to get a loan at state-owned banks today, and in the opinion of 55%, more difficulties have arisen with loans from private banks.

At IPQuorum Armen Minasyan, Director of the Business Department of “City of Money” crowdlending platform spoke about the specifics of P2B lending. The term of loans in the City of Money ranges from 3 months to 3 years, the average loan amount is 1.2 million rubles; the largest amount given so far is 15 million rubles. The entire procedure is done online using the electronic signatures of both parties to the transaction. “Bank lending to small and medium businesses in Russia is very poorly developed, there are no appropriate technologies, everything is complicated, long and expensive Crowdlending is a very trendy story, a quick and easy alternative that any startup can use. Now banks have already begun to understand this and are actively looking towards alternative lending,” Minasyan assures.

At the same time, he admits that there are many risks in the crowdlending model. The main one is unpaid loans, or the risk of default. In order to minimize this risk, the City of Money conducts its own scoring of potential borrowers, assigns a rating to the project, and qualifies to collect funds on the site only those who have high scoring. The very process of seeking financing lasts on average no more than one or two days. The City of Money itself makes between 10% and 30% of all investments on the site.

“We are an anchor investor and risk no less than other participants. So, carefully checking borrowers is in our interests,” Armen Minasyan said.

From Person To Person

Problems with bank lending can arise not only for legal entities, but also for individuals. For such cases, there is also an alternative – P2P lending: a private investor lends to another private person using an online platform for the transaction. The name of this variety of crowdlending is derived from the English “peer to peer” and explains itself the main principle of its operation.

According to Alexander Sukhotin, Chairman of the Board of Directors at CoFi crowdfunding platform, problems with obtaining a loan do not always indicate the unreliability of a potential borrower, and bank refusals are often unfair.

“The fact is that banks, while evaluating the reliability of a client, almost never take into account the value of intellectual property – they are not interested in intangible assets that cannot be touched. The sphere of intellectual property began to emerge relatively recently, and the Central Bank does not risk entering into this territory,” said Alexander Sukhotin.

Crowdlending platforms are a more flexible tool, therefore, getting funds by proving the existence of intellectual property rights is easier here.  The procedure is also attractive: no visits to the office are needed, everything is online, the collected amount after finding the investor is transferred to the personal account of the borrower within 15 seconds after the transaction is approved. But no one has canceled the cons: P2P sites are not required to fully identify clients as banks do, but their risks are comparable to those of banks. Therefore, it is important for P2P services to find a middle ground between tight control and flexibility, says Alexander Sukhotin, and in the future to establish cooperation with the Central Bank.

Despite all the pitfalls, the niche of alternative lending in the digital era is ready for a boom. According to FinTech report, in 2017, the global alternative lending market reached $ 380.6 billion and continues to grow rapidly. The process of registration of loans available online, a flexible approach to valuation of assets of the borrower, high technological level and a growing trust between the participants of the process, – all these are signs of a new business model, which very soon can seriously push the mastodons in the classic banking market.