Why do we need to verify the crowdlenders’ identities?


FundedByMe has just launched its new product, loan-based crowdfunding, which is also known as crowdlending. This service enables savers and private investors from nearly all over the world to become lenders and benefit from the growth of Swedish small and medium businesses.

How to do it? It’s easy! Creating an account takes only a few minutes. However, after the registration is complete, FundedByMe has to verify the identity of each lender. This is done in order to provide both entrepreneurs and lenders with a transparent and secure environment. It also complies with international regulations.

Documents need to be veryfied by peer-to-peer lenders

In order to verify the lenders’ identity, FundedByMe asks the users to upload their IDs or passports on their accounts. FundedByMe later passes on the data to an external payment provider, MangoPay, which then verifies the lender’s identity. However, the personal data provided by the lenders to FundedByMe and MangoPay will only be used in order to verify the lender, as well as in the rare case of default. The lenders’ personal information will not be passed on to any other external actors.

After your identity has been verified, you can start lending straight away!

Interview with Spanish Investor, Jose Luis Minguez

Interview with Spanish Investor, Jose Luis Minguez

Introduce yourself – what is your background, passions and ‘day job’?

My name is Jose Luis Minguez and I was born in Bilbao, a middle-size warm and cozy city in the northern coast of Spain. Married to Maria, no kids. Ten years ago we moved to Barcelona for professional reasons.

My academic background is a degree in Chemical Engineering. I have been working for the same employer since 22 years ago, a multinational company in the chemical manufacturing industry. My job covers the field of environmental management. Working in an international atmosphere has allowed me develop an open-minded spirit and improve my language skills.

My passions are finance, both in the field of analysis and as an active trader of equities and derivatives; science & technology; the on-line world, especially new business models and tools.
I am fascinated by innovation and trends, trying to spot “the next big thing” (imagine investing in Google or Amazon at their inception?)
And, as “less serious” hobbies, I love good meal and wines, being with friends and sport cars extreme driving experiences.

How did you first get familiar with crowdfunding and why does it appeal to you?

Crowdfunding literally “showed up” on my screen while my usual web diving through financial and business websites.
Of course, my first contact was with classical reward-based crowdfunding.
But finding equity crowdfunding was kind of discovering a hidden treasure. The dream of every “wanna-be-entrepreneur-but-never-dared-to”! Suddenly, I was able to participate in the initial development of a start-up as a micro-investor. And I had plenty of opportunities to do so! So I digged and invested in different platforms, and finally I came across FundedbyMe.

Which project(s) on FundedByMe did you invest in? What made you want to get involved?

I have requested shares for the following projects on FundeByMe. For the time being, all of them are either in open round phase or pending for funds transfer.

Brokerstars: In my opinion, the mix of social on-line gaming plus financial world may be explosive.

Samastah: The world is moving towards a downsizing trend, in which wellbeing is not measured just by wealth. The variety of concepts and products developed around this view make this project very appealing.

I like locals: An innovative app for active travelers who are seeking for original ways of discovering the cities they visit, far from the typical tourist.

Yescredit: Credit crunch during the financial crisis has proved that innovative solutions in the microfinance industry are needed. Moreover, Estonia is the best example in its transition to a free market economy and I expect great things happening in this country in the following decades.

And, finally, FundedByMe: What else to add? My talk with Miguel Angel Trujillo, Spain country manager, convinced me (if I was not already!) that FBM is one of the best positioned European platforms for the equity crowdfunding exponential growth in the following years. Figures are proving we are right.

I also signed up for Frily and Kippy, which unfortunately did not get their funding target and did not get through. I wish their entrepreneur teams find the necessary capital to make these promising startups a profitable reality.

What do you expect to get out of these investments on the long run?

Of course, what we all expect is the highest return on our investment, either by dividend or through acquisition by another big player in its industry.
But there is always more than just creating wealth. I think that, in the deepest of my entrepreneurial mindset, I feel excited by the possibility of closely following the full development of a company in its way from a start-up to an established successful company, and what I can learn from it for potential personal ventures.

What is the most important tip you’d give other investors considering crowdfunding?

First of all, do your homework: do your own research.
This is all about kind of becoming micro venture capitalists, so we must behave almost like professional VCs.

This is not an easy-money new thing. Be psychologically and financially prepared to lose all your investment. Make small investments only with money you can afford to lose.
But, at the same time, dream of a 50x or 100x investment. These things happen from time to time in the VC world so, why not to us?

Are there any new investment rounds on FundedByMe that you have your eyes on at the moment?

1st Move and Rentecarlo sound very appealing to me. Both clean technologies and the so-called “collaborative economy” are great drivers in emerging trends. Let´s hope regulators do not interfere too much!



Are Crowdinvestors Small Business Angels?

Casper Headshot (2)

A Crowdfunding Thesis conducted by Casper Arboll and Balthasar Scheder, both are Crowdfunding Researchers at the Copenhagen Business School, in Denmark.

The crowdinvestor is a new type of individual engaging in early-stage funding of unquoted companies via equity crowdfunding portals. Previously, non-accredited or inexperienced investors were prevented by legislation from investing money into unquoted businesses.

The democratization of start-up finance raises the question of how crowdinvestors compare to more established or experienced early-stage investors commonly known as business angels. Recent research shed light on this question with interesting implications for stakeholders in the crowdinvesting ecosystem.

The majority of investors is male, holds a higher education degree, has prior experience in stock market investing, is fairly wealthy and is highly interested in entrepreneurship. This is in line with observations by the FCA, which reports that crowdinvestors,”[…] tend to be high-net worth individuals with investment experience” (FCA, 2013). In this regard, it appears that crowdinvestors can be considered small business angels.

1. Motivation

Crowdinvestors motives are well aligned with what we know about BA motives. Despite the fact that monetary motives play an important role for both, we clearly see a continuing transition from monetary towards non-monetary motives from BAs to crowdinvestors. Instead of evaluating an investment opportunity from an economic point of view, crowdinvestors seem to be attracted by businesses they believe will satisfy their non-financial motives, such as involvement in an entrepreneurial company, fun or the possibility to extend ones professional network. This may also explain why crowdinvestors often invest in businesses even though financial information provided by entrepreneurs is criticised. Trade-offs between financial- and non-financial returns, as described by several studies on BAs, seem to be even more prevalent in crowdinvestors’ decision-making (Wetzel, 1981; Sullivan, 1994; Tymes & Kramer, 1983). This has important implications for legislation in particular. The main concern of legislation is the investor’s protections. As some legislators explain, “to invest” is “to engage in any activity in which money is put at risk for the purpose of making a profit” (BAND, 2014). Contrary, research suggests that making a profit may not be the predominant incentive for this new type of investor (Arbøll & Scheder, 2014). These are investors who make their “due diligence”[1] from the customer or human point of view rather than from a pure financial perspective. This is where the true disruption of crowdinvesting can be found: Within the democratization of investment and the emergence of a new type of investor, who is investing based on a broader perspective.

2. Rationale

Crowdinvestors are rational to the extent to only invest money into crowdinvesting that they can afford to lose without negatively impacting their lifestyles. Investors understand the risks involved and are well aware of the high likelihood of losing the money invested via this channel. In this regard crowdinvestors’ are similar to BAs, who only invest to a degree where it does not become substantial to their financial standing. In both cases, the term “play money” appears appropriate to classify money channelled into early-stage ventures (Mason & Harrison, 1996). Certainly, given their status as accredited investors for BAs the definition of “play money” is relative since they invest much higher amounts than the average crowdinvestor, but the logic behind deciding on the amount is the same.

Additionally, research shows how crowdinvestors’ evaluation of the merits of an investment opportunity is grounded on similar investment criteria, such as the business idea, characteristics of the market, entrepreneur and his team and financial information (Arbøll & Scheder, 2014). Nonetheless, the evaluation of these aspects is undertaken within a very short time frame, usually less than one day and often within a few hours. The online-based nature of crowdinvesting and the existence of platforms as intermediaries, standardizing most of the time-consuming and costly procedures allow for an extremely streamlined investment process. This is where the major differences between BAs and crowdinvestors can be found. Investment decisions in the context of crowdinvesting are barely informed on what is known from more professional informal investors as “due diligence”. In fact, most investors confide that their investment process is in no regards based on due diligence (Arbøll & Scheder, 2014). Crowdinvestors inform their investment decision based on the basic information provided in the pitch and not on extensive background checks, financial audits or the like. Actually, many crowdinvestors describe their investment decision as based on intuition or gut feeling.

3. Due-Diligence

While it is evident that crowdinvestors consciously neglect conducting formal due diligence, some sources critique that the possibility for crowdinvestors to conduct due diligence are nonetheless limited. Ludwine Dekker (2014) for example stated recently, “Even if crowdinvestors want to double-check their investment, this is often hard. Most investors understand their money is put into a high-risk-high return project, they don’t know what makes a company flawed and when they do, they don’t have the tools to do so […].” (Dekker, 2014).On the same subject, Bill Payne pointed out, ”Experienced angel and venture capital investors spend lot of time independently evaluating the investment opportunities. This due diligence has been shown to radically improve their returns on investment – helping investors pick the right new companies to fund. It does not appear that crowdinvestors will have the opportunity or the experience necessary to choose better investments.” (Payne, 2011). On average BAs conduct 20 hours of formal due diligence prior to investing (Wiltbank, 2009). Despite the fact that these concerns certainly deserve critical reflection, many crowdinvestors appear to understand that given the comparably low investment amounts (i.e. a low equity share being acquired) spending much time on informing their decision would be irrational. Based on our insights crowdinvestors value the straightforward investment process providing them with the opportunity to engage in crowdinvesting as a hobby and the chance to easily diversify their portfolio by making several investments in different ventures.

Next to the absence of formal due diligence Hornuf and Schwienbacher (2014) point out that, “Differences stem from various sources, such as variations in financial contracting, differences in securities regulations, active involvement of investors, the resulting degree of information asymmetries as well as potential exit strategies.”

The market structure of crowdinvesting suggests that the way financial contracting takes place differs from angel investing. While crowdinvesting largely relies on standardized contracts provided by the platform and leave no space for negotiations or amendments in the offer, negotiation of terms and conditions is an integral part of the BA investment process (Mason, 2008). Whether crowdinvestors ultimately suffer extensive financial losses by engaging in crowdinvesting remains to be seen (Hornuf & Schwienbacher, 2014).

4. Complementarity

Despite interesting insights the question whether crowdinvestors are “small” BAs cannot be answered unambiguously as the boundary between the two types of investors is vague. Yet, knowledge on crowdinvestors is scarce and further research is required to provide a well-grounded answer to this question. Additionally, it is important to keep in mind that crowdinvesting is still at an infant stage of its adoption in society, attracting what is known as “innovators” and “early-adopters”, who obviously are primarily people with some level of familiarity of entrepreneurship or finance. This is why it is important to conduct related studies going forward to understand if and how inexperienced or non-accredited investors will engage in crowdinvesting.

Given conjectural knowledge it is fair to imply that similarities between crowdinvestors and BAs are evident, while structural differences, i.e. size, stage and context of the investment, are too significant to misconceive crowdinvestors as BAs. Crowdinvestors is a stand-alone investor type and should be regarded as such, despite resembling BAs to some extend.

Instead of comparing both types of investors along their similarities highlighting the opportunity to complement each other is critical to convey the true potential of crowdinvesting. Crowdinvesting will most likely not replace investments from BAs and instead of conveying crowdinvestors competing with BAs evident complementarities should be embraced (Moritz & Block, 2013; BAND, 2014). Hornuf and Schwienbacher (2014) suggest co-investing between BAs and crowdinvestors can have several benefits. One advantage is that crowdinvestors may rely on the financial skills and monitoring abilities of BAs, which furthermore provide hands-on advice (“value-added”) and lend their reputation to the entrepreneurial firm (Hsu, 2004; Ferrary & Granovetter, 2009). In return BAs can leverage the crowd that may complement what BAs can contribute. The wisdom of the crowd may reveal novel information to the benefit of traditional investors. Furthermore, knowledge of a diverse set of individuals can also be leveraged as a resource to solve problems or develop solutions, similar to the idea of crowdsourcing.

Special credit to Casper and his fellow researcher Balthasar from the Copenhagen business school for sharing their thesis on business angel and crowdinvestor. Casper is also working as an employee for FundedByMe in the Denmark office.

Crowdfunding Investor profile – Angie Skazka

My favourite thing about crowdfunding investor Angie Skazka is that this case proves again that anyone – even a student – can become a business angel and invest to become part of the next big thing. We asked Angie to participate in our popular crowdfunding investor profile session and convince you why you too should consider this modern type of investment!

Angie Skazka is a crowdfunding investor on FundedByMe

Angie, introduce yourself – what is your background, passions and ‘day job’?

I am 24, Russian-Swedish. I graduated from Ural Federal University as an engineer (5 years) of Industrial Automation and Control Systems. Then I spent 2 years at Real Time Soft, Yekaterinburg, as a SCADA designer and automation developer. At that time I created automated dispatcher systems for ridiculously huge and dangerous ore-processing plants. Particularly enjoying creating user interfaces, I then switched my focus entirely to it by studying on my own and working part-time as a UI-designer in Ocean bank, Moscow. I designed user interfaces for online payment agent Robokassa (Russian analog of Klarna), which are used nowdays by over 10k customers per day and over 22k merchants overall. I also did a year of PHD in Russia, but I quit because I hate research.

Now I am a master student of EIT ICT Labs, studying Interaction Design with first year at KTH and second year in Aalto University, Helsinki. My professional interests include user interface design, infographics, graphic design and entrepreneurship. I aim to build awesome interaction for specific usage contexts and enjoy creating cool data visualizations.

Currently I am a co-founder and usability troll at RunTroll, a real-time multiplayer game that makes it fun to run (I mean physically, with your legs). I believe that entrepreneurship is a way to bring more long-term value to society, and my social aim within RunTroll project is to get people away from computer and TV screens to exercise and be healthy. I spend my free time in Solna climbing center or out in mountains, traversing the snowy peaks and glaciers.


How did you first get familiar with crowdfunding and why does it appeal to you?

Daniel the CEO of FundedByMe gave a guest lecture at KTH in one of our courses. Crowdfunding appeals to me because I can invest small amounts of money and get equity in early stage companies before they became ridiculously expensive. Also openness, involvement, connection to startup frontier, networking.


Which project(s) on FundedByMe did you invest in? What made you want to get involved?

I invested in FundedByMe and Nerdy by Nerds. The first one has a great idea and promising return, the other one is cute. Unfortunately I missed fire alarms by Elinnovation.


What do you expect to get out of these investments on the long run?

I want to sustain myself with return on investments and run my own creative projects without a need to work for money. I want to learn how to invest, get experience, get a network so that I can possibly work or cooperate with people involved in startups.


What is the most important tip you’d give other investors considering crowdfunding?

A crazy one: don’t spend weeks of your time to do a proper evaluation. Instead go for quantity with small sums. As long as the revenue model is clear you are pretty much fine to go.


Are there any new investment rounds on FundedByMe that you have your eyes on at the moment?

Yes, I am looking mainly for physical stuff: Garpenbergs castle is interesting, Mutewatch already proved their idea with sales, and Rosey is quite close to me since I am a (former) automation engineer.

Crowdfunding Investor Q&A – Meg Charles-Horn

There is no better way of getting the facts about crowdfunding than from a crowdfunding investor – someone who passionately believes and supports it. When I recently ran into Meg Charles-Horn, who invested in the recent FundedByMe Equity round, I asked her share her views with us. Meg was happy to comply!

Meg Charles-Horn is a crowdfunding investor on FundedByMe

Can you briefly introduce yourself, Meg? What is your background and what are you currently working on?

I moved to Stockholm from New Delhi, India about 18 months ago where I was doing strategy for a foundation focused on building schools in rural India for girls.  I am a US-trained telecom/corporate lawyer and have worked as a partner at a major US law firm, Head of Strategy of a Telecom start-up and have held leadership roles in a global telecom company as well as the GSM Association in London.  I am always looking for new challenges and opportunities to excel – both personally and professionally – and I am passionate about sharing my experiences and knowledge to help others achieve their goals.  With the transition to Stockholm, which is such a vibrant entrepreneurial community, I decided it was time to use my knowledge, experience, skills and a little money to help create new companies. Currently I am an investor in two US-based start-ups – one is Keoyo where I am co-founder. We make ‘@holla’, a social communications app that will launch next month.

FundedByMe is not only my first Swedish investment, but it is also a “passion investment”.  I fervently believe in FundedbyMe’s mission to democratize investment and create a financial path to help people to pursue their dreams.  As an investor, I believe that FundedByMe’s platform and business model will be successful because it is pioneering in an area that has huge potential for growth.


How did you first get familiar with crowdfunding and why does it appeal to you?

When I decided to focus on becoming an Angel Investor, about two years ago, I began researching to learn about the options available to find early stage companies in need of smart money.  This was coincidentally the time that Kickstarter started making noises in the US and then of course, the US Jobs Act came into focus.  As I mentioned earlier, I believe in the democratization impact of crowdfunding both for investors and the businesses or projects that can now find funding that would otherwise never get the opportunity to come to market.


Which project(s) on FundedByMe did you invest in? What made you want to get involved?

So far I have only invested in FundedByMe on FundedByMe, because it was easy for me to understand the technology platform, the market opportunity and business model.  I am currently considering at least two more investments in areas that I am not as familiar – retail fashion and design.


What do you expect to get out of your investments on the long run?

Like all investors I expect, or certainly hope, to get a positive return.  Obviously, investing in an early stage company is always risky.  Any goal for an equity investment other than a positive return is secondary because if the business cannot sustain itself, it will simply die.  That said, the secondary goals can be very important from societal value perspective and have significant impact in the decision to invest.  I believe this is why Kickstarter and traditional crowdfunding have so far been unusually successful.


What is the most important tip you’d give other investors considering crowdfunding?

For equity crowdfunding, even though the amounts can be relatively small, I would suggest people invest when they understand how the business will make money and develop sufficient knowledge about the sector so that they understand the risks that the company has to overcome to be successful. Then they should assess the people involved and decide whether they think those people can execute the plan they have laid out.


In other words, don’t just blindly follow the crowd.

Crowdfunding investor Q&A – Dan Kopparhed

We love sharing success stories with readers of our blog and, through them, tell the story of how crowdfunding can help entrepreneurs and investors work together to create the next big thing. Today we are thrilled to introduce one of the early FundedByMe crowdfunding investors, Dan Kopparhed in an entertaining Q&A session.

Dan Kopparhed FundedByMe investor

Please introduce yourself
My name is Dan Kopparhed, age 35, Swedish, background as a quite hard-core tech geek but with a broad range of interests that have been even more broadened by the trials of entrepreneurship. Been studying quite a lot and I started doing a PhD in ICT (perhaps I will finish one day). Started my first company in 2005 with the explicit goal to learn about running my own business (doing consulting). I have started three more small companies after that, two of which had/have employees. One of the companies I had to file for bankruptcy (painful but good learning experience). I haven’t “succeeded” with my businesses yet, but I keep trying, so I suppose at least I don’t give up easily at setbacks. I was working full time as a self-employed entrepreneur for about 2 years, but last year I decided to take a step back from the active operation of my “main” business, instead relying on my partners to run the operation at this phase. I still manage primarily the finances and accounting but that work is small enough so I can have a full time job.

How great that you can have a cooperation with your partners like that. What is it you moved on to at the moment?
Currently my day job is as an architect at Ericsson. However, my head is full of great ideas, and I continue working on some of them on the side whenever I have time. At some point I will probably return to being an entrepreneur full-time again. Since most of my time is spent in front of a computer it is lucky I discovered at least one more physical hobby in the form of Ju-Jutsu (Japanese martial art) which I enjoy a lot.

How did you get familiar with equity crowd funding, and why does it appeal to you?
I first heard about equity crowdfunding from FundedByMe and immediately thought it was a great idea that might work very well in Sweden if executed properly. In Sweden many people own stock in public companies, so we have a broad public acceptance for owning shares (i.e. not just for the rich) and with the ease enabled by Internet stock brokers, I think this trend has continued. However, there has been no service to enable a similar accessible solution for the public to invest (small amounts) in private companies like startups. It also facilitates discovering investment opportunities that one would probably not even know about otherwise. It is great that basically anyone can afford to take part, sharing both in risks and gains, and it is so much more personal than the stock market. Additionally, if the company takes advantage of the social aspect they can gain so much more than just money through their crowd-investors. When done “right” it feels like being part of a family – you get emotionally invested as well.

So which crowd equity investments have you made thus far?
I have “crowd-invested” in two companies so far. One is FundedByMe and the other is Virtuous (Vodka) Spirits.

Why did you invest in these companies?
I invested in FundedByMe because I believe in the idea of crowdfunding in general and equity crowdfunding in particular. I was one of the (small) backers from the early beginning, after meeting Daniel Daboczy at the first IDD event, so I had already a bit of emotional connection on top of believing in the business idea. Thus, I wanted to have at least a small share in this. I invested in Virtuous Vodka because I think they have found a very interesting niche in the market and I like the product concept and presentation a lot. I really think the team has the right ideas and approach to establish a great new product for both the Swedish market and for export. And considering that this is Sweden… lets just say alcoholic beverages are not a small market. After trying the actual product I was even more sure :).

What do you expect to get out of these kind of investments on the long run?
Basically, I expect to see my investments grow, although as an entrepreneur myself I know the risks involved. But I also hope to have a more personal relationship with the companies for no other reason than that I enjoy building new products and companies (even if I have a very small role). Hopefully I can help out somehow. Also, it is always nice to get to know new skilled, ambitious and inspirational people. From a pragmatic view, especially as an entrepreneur, I have come to realize you can never know too many people and you never know who is going to be important in your future.

What is the most important tip you would give potential crowd investors?
I think you should invest in what feels “right” for you, meaning the team and the product/service. Of course it helps if you have good insight into the particular target market but relying purely on logical reasoning and number crunching will probably mean you miss all the truly great “disruptive” ideas, since these by definition defy the common belief of what is “good” business. Numbers are quite useless for analyzing an early-stage (Startup) business since much can only be based on guesses (qualified or not). Things will change, as they must in a Startup business. Thus, intuition and experience is probably your best guide.

Investor Interview: Sebastian, a new FundedByMe investor

Meet Sebastian, one of the newest FundedByMe crowdfunding investors. Tell us about yourself!
I am an 31 year old jack of all trades, academically my background is in economy and management with studies on bachelor, master and MBA level at Umeå University, Sweden, Universidade Nova, Portugal and Harvard initiated INCAE in Costa Rica. Work-wise I have done just about everything from commercial long line fishing, correctional officers work, financial investment and a range of consultancy positions regarding economics and management. The entrepreneurial perspective has always been a big part of my life with several of my own ventures and companies throughout the years. Currently I am the CEO and funder of NaturalGoods.se, the company that launched the revolutionary product SoyMaster, a beautifully clever little machine that allows you to make soy-, wheat-, almond-milk and many other types drinks at home in just a matter of minutes.


How did you get familiar with equity crowdfunding, and why does it appeal to you?
As I have a strong interest in microfinance the logic behind crowd funding was something that very early seemed logic and scaleable to me and I have familiarized myself with the concept through various organisations take on it such as Kiva, Kickstarter and others. My eyes have been on FundedByMe since the very beginning since I love the concept and I really saw potential in the team behind the company. Being able to meet Daniel Daboczy for a chat in connection to a lecture in 2011 only spurred my interest further. Crowd funding appeals to me in many ways both through the recognition and confirmation that comes out of many people showing that they believe in you and your idea directly with their hard earned money which is so much stronger than just kind words, but also as as crowd funding often functions as a platform for the entrepreneur to reach both potential clients and future partners, advisors or suppliers in the process.


Have you ever done a crowd equity investment? And if so, in which company?
No, my first investment is in FundedByMe as the round closes shortly.


Why did you invest in FundedByMe?
Because I love the idea, have strong belief in the team behind and see a prosperous outcome in the long run with the investment, in traditional financial terms but also, and maybe more importantly, through being able to be a part of the creation of something great. Being involved in the buildup, if only by investing a small sum, of a great company is a reward in itself, a story to tell and to be proud of and in this case the company will enable others ideas to bloom as well, which is a huge bonus!