Federal State Educational Budgetary Institution of Higher Education «Financial University under the Government of the Russian Federation» Department of Corporate Finance and Corporate Management Discipline: «Corporate Finance» ESSAY on the topic: «Crowdfunding and Crowdinvesting: problems and opportunities» (topic of the essay) Student: group №IFF22-1m Ekaterina Grischenko Victoria Solovyeva (Student’s name and surname) Lecturer: E.V. Kornilova ________________________________ Moscow 2023 CONTENTS INTRODUCTION.............................................................................................................................................. 3 MAIN PART ...................................................................................................................................................... 4 CONCLUSION .................................................................................................................................................. 7 INTRODUCTION A brand-new industry called fintech started to emerge and actively develop globally in 2015 as a result of technology advancement. The entire banking industry was turned upside down when new businesses aggressively started using information technology for their own objectives. Banks now must contend with competition from the newest fintech startups and tech giants, which have already established themselves as powerful players in the financial services market, in addition to competition from one another. Let's examine the volume of worldwide investments made in fintech to determine the extent of the new industry's influence on the banking sector. This sum was around $164 billion in 2022. Russia has not yet given the growth of a new financial industry significant attention, in contrast to the majority of wealthy nations worldwide. In Russia, there were $78 million in investments in fintech businesses in 2022. Fintech is still one of the most attractive areas for investment, despite the very insignificant indicators. How can fintech be developed in Russia and attract Russian investors? This topic is the most important one right now since current, improved technologies are taking over and eroding the prominence of traditional investment strategies. MAIN PART To start, it's important to comprehend the financing options available to fintech businesses. The three main methods for funding fintech firms are crowdsourcing, online asset trading platforms, and venture investing. The most successful and established strategy is venture capital investing. Nonetheless, crowdfunding has been growing quickly in recent years. Crowdfunding is when a group of people work together to donate money voluntarily to a cause or business. There is still no clear definition of crowdfunding from the perspective of the financial industry. Nonetheless, this technology is becoming more and more popular every day. Undoubtedly, the COVID-19 pandemic and the ensuing challenges in the economies of wealthy and developing nations caused a drop in investment in 2020–2022. Nonetheless, it is anticipated that by 2027, global crowdfunding transaction volume would have doubled. Generally speaking, there are various kinds of crowdfunding; some entail a cash return, while others do not. A variety of crowdfunding, which involves the financial nature of the reward, is crowdinvesting. The economic value of crowdinvesting is the chance for individuals as well as venture capital firms to take part in funding fintech startups. The crowdinvesting funding model is straightforward: a business seeking investments uploads information about its operations on a particular platform, and utilizing a public offer, only recruits investors who have a strong level of interest in the project and confidence in its success. Table 1 lists the principal benefits and drawbacks of this investment strategy. Table 1. Advantages and disadvantages of crowdinvesting. Disadvantages Advantages The risk that the borrower won't carry out Fast and easy fundraising method. its obligations and plans is the most significant one. Platforms should alert all users to any potential risks for this reason. Potentially high risk of fraud. Mobilization of free capital of citizens within the country. Lack of professional expertise. Way around IPOs and corporate red tape for startups. Low liquidity – limited exit opportunities Company and product marketing. for small businesses. Public reaction to unsuccessful cases, Demand testing. non-return of funds. Leakage of ideas, openness. Diversification of funding schemes for start-ups and use of funds for the people. Democratization and acceleration of financial relations. Simplification and increase of transparency of contractual relations. The high likelihood of non-return of funds as well as potential equity losses, the lengthy term of the investor's involvement in the project, and the idea leakage as a result of the platforms' openness are thus the most significant drawbacks of crowdinvesting. Crowdfunding, however, offers a number of benefits as an investment strategy, including the entrance of a variety of economic agents into investment activities, the acceleration of financial interactions, the expansion of technology and innovative development, etc. As for the growth of crowdinvesting in Russia, it happens extremely slowly, much like the growth of the overall fintech industry. Russians have both the willingness and the money to invest, but there is no effective regulation in place, and there are also few high-quality trading platforms available. Several factors contribute to the slow growth of crowdinvesting in Russia in general. For instance: Legislative issues. Due to the lack of a legal framework, the investor is not protected from the risk of fraud or non-return of funds. Availability of less risky instruments. There are a large number of ways to invest with less risk: mutual funds, real estate, bank deposits, etc., which are more popular with investors. Lack of successful cases. At the moment, there are still few real examples of companies that would successfully raise investments with the help of crowdinvesting. Wrong ideas. Few people in our country realize that you can become an investor without having millions of rubbles. No tax incentives for investors. The presence of tax incentives for micro- investors could give impetus to the development of this type of investment. Lack of good quality platforms. There is no such platform on the Internet where you could make a small investment online in 1-2 clicks. Crowdinvesting in Russia is fast becoming an everyday event despite all of the issues. Through numerous internet platforms, a growing number of people are taking part in project finance. The growth of crowdfunding as a whole should be the first step in the development of crowdinvesting. A research by the crowdfunding business Crowduniverse found that 71% of the consumers it polled were aware of crowdfunding, 21% had some knowledge of it, and only 8% had no idea what it was. Only 4% of users are frequent sponsors, 21% have given at least a few times, and 17% of people polled have given at least once to a crowdfunding project. The Crowduniverse study also found a trend in Internet users' greater allegiance to online fundraising in general and crowdfunding in particular. Just 4% of respondents still have an unfavorable opinion of this way of financing, compared to 51% who are in favor of it and 41% who are neutral. CONCLUSION Crowdfunding is often a modern technique to raise finances. Crowdinvesting, a type of crowdfunding, has benefits and drawbacks just like other types of investment. In general, both foreign and Russian investors are more interested in this kind of crowdfunding. The variety of crowdinvesting models makes it possible for each investor to select the best alternative. As for Russia, while slowly, there are changes in the attitude of investors towards the usage of this form of investing. Crowdfunding in general and crowdinvesting in particular can be developed through time and used as a tool for growth and profit. To accomplish this, rules governing the crowdinvesting market must be implemented. Moreover, additional internet platforms must be developed, as just one is now well-developed in Russia. Offering tax incentives to investors is crucial. The population's increased financial literacy should be the most crucial weapon for development since it will enable people to realize that investing money is not necessarily risky and that substantial savings are not required. With the aid of these modifications, the Russian crowdinvesting market will expand more quickly, perform better, and be able to compete with international markets on volume. 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