An Unexpected Application of Crowdfunding

Nowadays, the crowdfunding has become a very accessible and common way for start-up firms to raise substantial initial funding to launch new innovative business ideas. However, the use of crowdfunding practices seems not to be attractive to start-ups only. Indeed, crowdfunding practices start to be incorporated at the root of new innovative business models, for instance in the real estate industry. Here is an illustration of how building house companies can effectively benefit from crowdfunding uses with the presentation of a real case launched in 2014.

The crowdfunding platformTo begin with, it is important to distinguish two different business models in the house building industry, since the crowdfunding can only be relevant within one of the two. The first business model consists of the situation when the firm already have a certain client and is creating a project especially tailored to the client’s requests and budget. Since the client is paying as the construction goes on, the firm uses directly this entry of money to cover the construction costs and typically does not need any extra funds. The second business model is the situation where the firm undertakes the construction of a house on an acquired land, without having any clients prior to the construction. When the construction is finished, the firm put the house on sale on the regular market. This latter business model required construction firms to raise funds themselves to cover the costs throughout the construction phase. The firms typically use to issue debt to raise funds for such common projects. An interesting alternative to debt consists of the crowdfunding. One of the lead pioneers in this practice is Blavier, a Belgian company that has recently launched its own crowdfunding platform called ConseilB+. Here is how it works in practice.

Prior to the construction of a certain house without potential client, ConseilB+ announces a crowdfunding campaign on their own website for the construction of this particular house. The implementation of the crowdfunding campaign is relatively similar to how big platforms such Kickstarter and Indiegogo present individuals’ projects to be fund. As illustrated below, a fiction image of the house is presented, as well as the duration of the funding campaign (usually two months) and the fund limit to be reached (usually 99,000€ since Belgian regulation on crowdfunding does not allow more than 100,000€ funds for each project). Any individuals can go on their website and invest a minimum of 1000€ into this particular house project. If the 99,000€ is reached within the two months duration, the construction get started directly after, if not, all the investors get their money back. When the house gets sold (usually 12 months after the funding campaign took place) the investors get back their investment plus the interest according to an important interest rate of 6%.

The Blavier company is the first to propose this innovate business model in Belgium that results in a true win-win situation. On the one side, individuals can make investments at much more important interest rates than those of their saving account, for a very low risk involved. Indeed, real estate market is known to be stable and investing in houses is particularly safe. On the other side, the use of crowdfunding allows Blavier company to get partially rid of their independence to bank in financing their projects. This subsequently enables the company to keep their operation running and construction teams working, even within the absence of potential clients and the non-availability of bank investments. Crowdfunding concept has probably not finished surprising in unexpected domains!

The platform:

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