Both peer-to-peer (P2P) marketplace and equity crowdfunding have some commonalities, using the “many to one” concept of connecting many investors to an investment, and vice versa. However, there are vast differences between the two:
Product Structure
P2P Marketplace:
Debt – in the form of a loan
Crowdfunding:
Equity- shares of the company
Tenor
P2P Marketplace:
Your choice. Usually between 6 to 48 months
Crowdfunding:
Long term. Shares in a start-up are typically illiquid and cannot be resold till market demand develops
Return
P2P Marketplace:
Regular returns in the form of interest along with principal repayment
Crowdfunding:
No regular returns as dividends. You get shares, the value of which depend on marketability and liquidity of the shares
Safety
P2P Marketplace:
P2P platforms carry out credit checks on borrowers and assign them ratings. You choose your desired risk level
Crowdfunding:
Due diligence is completely up to the investor and it is up to the company to decide what information they provide
Level of Risk
P2P Marketplace:
Typically lower risk than equity crowdfunding
Crowdfunding:
Relatively high risk and low liquidity
Where Does My Money Go
P2P Marketplace:
All types of parties, individual and institutions that are seeking to consolidate debt, business expansion, fund expenses. Who you lend to is up to you
Crowdfunding:
Usually start-ups to fund an idea that they hope will be converted to a marketable business
Credentirals
P2P Marketplace:
P2P platforms analyse and verify credit union scores, assets, existing debt and income profiles
Crowdfunding:
Any company can seek funding. Usually no credentials provided outside of marketing materials and business plans
