Crowdfunding in The Netherlands? Not without risks

We read a lot about all the wonderful innovative ideas and products that are being realised thanks to crowdfunding: from 3D printers to archaeological excavations, and from CDs to be released to donated breast enlargements.

The phenomenon of crowdfunding is becoming more popular by the day. Various online platforms offer the opportunity to present ideas to a wider audience. The world-famous Kickstarter is also active in the Netherlands.

What if the target capital is not achieved?

The news regularly reports on the successes of crowdfunding in the Netherlands. But what happens if the target capital is not achieved? What about the costs, for example?

In most cases, it is an “all or nothing” situation. Half of the target capital will not result in a “half product”. There are a few exceptions in the case of donations for a specific charity.

What is the legal situation if the target capital is not achieved and what about the costs?

In crowdfunding, a distinction must be made between the main agreement and the user agreements.

The main agreement

A conditional agreement is concluded between the lender and the borrower via the crowdfunder. Only when the condition (achieving the target capital within the set period) is met will the main agreement come into effect.

This is known as a suspensive condition. Sometimes a slightly different construction is used: the resolutive condition. If the capital is not raised, the main agreement is dissolved.

Broadly speaking, there are four different types of main agreements, which are related to the chosen form of crowdfunding:

  1. The gift/donation agreement,
  2. the sponsorship agreement,
  3. a loan agreement
  4. a participation/investment agreement.

If the target capital is not reached, no main agreement is concluded.

The user agreement

The user agreements relate to the use of the platform and the facilitation of cash flows. The user agreements are concluded between the borrower (the person who wishes to raise capital for their project) and the crowdfunder, and between the crowdfunder and the lender.

The borrower often pays a percentage of the incoming funds as a “user fee” to the crowdfunder. Various constructions are possible here. For example, the borrower often pays an additional percentage or sum if the target capital is reached.

The lender also often pays a percentage in addition to the donation, loan provided, etc., to the crowdfunder in user fees. In general, this percentage is considerably lower than the percentage that the borrower has to pay to the crowdfunder.

Please note: if the target capital is not reached and the main agreement is therefore not concluded, the user agreements do remain in force. The costs paid to the crowdfunder on the basis of the user agreements therefore remain due. These are not refunded to the borrower or the lender. These costs can sometimes be considerable.

So, however attractive the concept may be, it is important to realise that crowdfunding in the Netherlands is not without risk. Would you like to know more? Please contact us.