Entrepreneurs Thrive with the Rise of Crowdinvesting in the Western Balkans

By: Sandra Rodic

In the dynamic landscape of the Western Balkans, small and medium-sized enterprises (SMEs) often encounter a significant hurdle in their growth journey: securing financing. The traditional route of obtaining a bank loan, with its demanding requirements and rigid terms, can be a formidable challenge for SMEs, especially those lacking substantial guarantees or assets to pledge. This, combined with the lengthy process and limited availability of alternative financing sources, often leads to a drain on creative energy and stifles potential innovation.

Enter crowdinvesting, a game-changer in the realm of SME financing. Crowdinvesting, also known as crowdfunding, has gained immense popularity as a fundraising technique, allowing businesses and individuals to raise funds through online platforms from a large number of people, in exchange for equity, shares, or rewards.

Ventu.rs — the first native crowdinvesting platform in the Western Balkans

In 2020, with the support from USAID, the first crowdinvesting platform in the Western Balkans was launched in Serbia. Ventu.rs represent a major change and breakthrough in SME financing, after a decade of stagnant financial markets in Serbia, characterized by a lack of innovative Fintech solutions and limited access to diversified finance. The platform is an innovative and long-awaited fintech solution, suitable for financing and investing in micro and small-sized companies and start-ups. Ventu.rs offers SMEs a fresh approach to financing. Unlike traditional bank loans, which often require a long financial management track record and substantial collateral, crowdinvesting focuses on the business model and entrepreneurial skills of the owner. This shift in focus allows promising businesses to access capital based on their future potential, rather than past performance.

In the Western Balkans region, where the financial landscape is slowly evolving, the introduction of crowdinvesting represents a significant step toward a more diversified financial environment. Recognizing the transformative potential of this approach, CATALYZE and its partners support local businesses with the necessary tools and knowledge to embrace crowdinvesting and showcase success stories that demonstrate how crowdinvesting can fuel growth and innovation. USAID CATALYZE Engines of Growth Western Balkans Activity will support five crowdinvesting campaigns through ventu.rs in 2024. This support includes technical assistance to selected companies to ensure their crowdinvesting campaigns are well-prepared and successful.

What makes crowdinvesting more attractive compared to traditional bank lending?

Crowdinvesting is a financial marketing product that enables companies to raise funds for their growth. With the help of a crowdinvesting platform, companies can offer investors the opportunity to invest in their business and finance new projects. These investments take the form of subordinated loans that do not affect the company’s credit rating. In addition to this, there are several other benefits of crowdinvesting for both investors and companies.

1. Flexible Criteria: Unlike traditional lenders, crowdinvesting platforms like Ventu.rs do not require a long operating history or multiple financial reports. Instead, they prioritize a sustainable business model and the entrepreneur’s vision.
2. Future-Oriented Assessment: The platform’s assessment is primarily based on the company’s future business and repayment capacity.
3. No Collateral Required: Collateral such as bills of exchange or mortgages is not necessary for crowdinvesting, making it more accessible to a wider range of businesses. With currently six active campaigns and many more successfully concluded, Ventu.rs features campaigns for varied businesses and industries: from local agribusinesses, pet shops, companies that build accessibility infrastructure, to IT co-working spaces.
4. Flexible Repayment Terms: Loan repayment and interest payments can be postponed under certain conditions. This is particularly useful for companies in their early stages, as their operations can be volatile. In the event of a bad year and a negative business result, the contract allows for the postponement of interest and principal repayment until the next positive period (or until the loan’s maturity).
5. Flexible Use of Funds: The funds obtained through crowdinvesting are not tied to a specific purpose, providing businesses with the flexibility to allocate capital where it is needed most.
6. Complementary to Bank Lending: Crowdinvesting does not hinder future lending by banks. Instead, it is treated as entrepreneur’s capital, allowing for a more diversified financing strategy.
7. Democratization of finance: Crowdinvesting allows anyone with an internet connection to invest in a project, regardless of their financial standing. Essentially, crowdfunding eliminates the need for an intermediary in the financing process, such as venture capitalists, banks, or angel investors. In doing so, it provides a more accessible and open capital marketplace.
8. Higher return on investment: For investors, crowdinvesting offers the potential for a higher return on investment than other types of investments, such as savings accounts or bonds.

“An incredible amount of capital is currently sitting in low-interest savings accounts. Imagine the potential if that capital were invested in companies. Not only would it generate higher returns for investors, but it would also stimulate economic growth. This is exactly what crowdinvesting provides.”

Beyond financial and legal benefits

In addition to these financial and legal differences, crowdinvesting also provides marketing benefits that financing through bank loans cannot offer.

Promotion and Publicity: The crowdinvesting campaigns promote the business through the platform and other digital channels, generating publicity for the company. Crowdinvesting can offer a level of validation for a project, as the support of many individuals can be seen as an indication of its potential success. This marketing aspect sets crowdinvesting apart from traditional financing methods, offering businesses a unique opportunity to gain visibility and support.

Community Building: The company gains a community of investors who can become customers, supporters, and brand ambassadors. It provides a platform for entrepreneurs to test the market demand for their product or service in a low-risk manner. Crowdinvesting campaigns can create a sense of shared purpose and drive collective action. This can lead to increased visibility and awareness for the project or cause, as well as opportunities for collaboration and networking.

“Crowdinvesting has the potential to serve as the cornerstone of the entire corporate financial world. Investors can actively participate in the process, access the company’s business plan, communicate with the founders, and do all of this without needing any specialized knowledge. Additionally, they can receive input from the founders, attend specific events, and even try out the product, making the entire process enjoyable and engaging.”

Crowdinvesting is a valuable alternative to conventional lending and can be a powerful tool for small businesses and startups looking to raise capital. It offers companies access to capital and a wider pool of potential investors, while investors have the potential for a higher return on investment and the opportunity to support causes they believe in.

To promote this alternative financing method and educate the market, the USAID CATALYZE EoG Project provides technical support to selected companies that want to use this instrument to finance their business.

The latest crowdinvesting campaign prepared with CATALYZE EoG support is currently open. The campaign aims to raise capital through the public to expand the Curry Souls chain in Belgrade. Curry Souls, an Asian street food restaurant, is already well-established in different locations around the country Within just a few weeks, more than 20 investors have backed the business reaching almost 80% of the campaign goal. For all interested Serbia-based investors who would like to support this business, the campaign is open until mid May 2024. For more information on the business and how to invest, visit: https://ventu.rs/campaigns/curry-souls/

At Ventu.rs, you can also learn more about crowdinvesting. Potential investors can browse through interesting investment opportunities, while SMEs can register their project for a campaign.

Sandra Rodic, a seasoned fintech expert with two decades of experience, champions financial inclusion, particularly for SMEs, through her work with USAID, the World Bank, and UNDP. As Senior Fintech Expert for USAID CATALYZE EoG, Sandra leads efforts to implement embedded lending and data-based financing solutions in Western Balkan economies.