Crowdfunding Markets

Crowdfunding markets and their  peculiarities : Armenia and the World

Crowdfunding is a way in which people, organisations and businesses, including business start-ups, can raise money through online portals (called crowdfunding platforms) to finance or re-finance their activities. Money is subscribed mainly by individuals but also by institutions. Some crowdfunding activity is unregulated, some is regulated and some is exempt from regulation.

In order to continue their activities, entrepreneurs and individuals with innovative ideas,  initiatives with certain social targeting and businesses in need of funding,  start a crowdfunding campaign on crowdfunding online platforms for recruiting financial means. Based on the suggestions made by the platform and the funder  the investors provide financial resources, expecting a certain compensation, of course, with some exceptions.

And what options does the crowdfunding market suggest to investors for this activity?

The campaigns implemented through crowdfunding platforms with the allocation of free monetary resources suggest the investors the following options:

  • provision of financial means in the form of non-refundable donations (donation based): an Armenian example of this option can be the money raised during the Humanitarian Award ceremony ‘’Aurora’’,
  • provision of financial means for a certain reward (reward based) which in essence differs from the first type as the compensation for invested funds is carried out through rewards, usually through a service or product,
  • crowdfunding through capital investments (equity based) in which ‘’entrepreneurs are able to raise money for their business by selling off part of their company to outside investors in exchange for capital.‘’ [1]. Due to this option the investor gets the chance to become a business shareholder. In this case we are dealing with ‘’crowdinvesting’’ which has its own place in the stock market but stands out for its features,
  • Debt based or Loan based crowdfunding, in which investors lend money (including with debt securities) to companies or individuals  through the platform in order to get a certain interest rate back  with the money invested later.

What is the global crowdfunding market like?

According to the data from The Crowdfunding Center, the average index of the success of crowdfunding campaigns (in this case of being fully financed) is 22,6% [2]. Those companies, which are able to recruit 30% of the required money within the first week after appearing on the platform are more likely to recruit the required money wholly in comparison with the ones  which are not able to have that result.

During 2020-2023 in the alternative financing segment, which also includes crowdfunding, envisages to have 11% of Compound Annual Growth Rate for transactions, reaching $20,000.2 million. In this segment the largest share goes to crowdfunding with transaction value of $8, 537 billion. Crowdfunding has increased the global economy by $ 65 billion and according to some estimations by 2025 its market price will reach $28,8 billion.

 Countries , such as China, USA, Great Britain, Australia, Canada which are developing and implying  effective legislative mechanisms of crowdfunding investment funds for a few years  are taking the lead among the countries that use crowdfunding as an alternative source of funding. For instance, in 2015 in China Internet Plus initiative was launched, which was targeted to boost  the digital economy while creating an opportunity for traditional financial institutions and alternative sources of funding such as crowdfunding, to operate  through internet technology and also integrate internet finances with other sectors such as logistics, production, social security.

According to the research by Cambridge Centre for Alternative Finance, the image created as a result of alternative financial transactions in Europe in 2017 is as follows:

-2nd picture-

Bank of Finland as the source

One of the  interesting facts in this picture is that Finland is able to maintain  its positions with 2 components. Neighbouring Georgia is in leading positions in Europe in terms of  its market growth of alternative financing.Armenia, despite the similarity of different economic indicators and financial markets of RA and Georgia, is in the 27th place.

Some of the most prominent crowdfunding platforms are Kickstarter, Indiegogo, GoFundMe etc. However, launching crowdfunding campaigns on such platforms is a quite  difficult and costly process (platform fees, marketing, legal, accounting and other expenses) but the chances of attracting financial resources are higher.

What makes  this market special?

1) In general, the international experience shows that the interest rates offered through debt crowdfunding are higher than that of bank loans, as for instance, banks prefer the initiatives that are less  risky and can  or will be able to provide a higher liquidity.

If we take the example of Finland,  we will see the picture is as follows:

Table 1. Lending in Finland [3]



Interest rate The average duration of months Bank lending Interest rate The average duration of months
To businesses 8% 21 To businesses 1,6% 55
To individuals 12% 32 To individuals 4,8% 75


2) Some of the peculiarities of this market are the secondary market limitations which are currently in the developing phase and have already made preliminary attempts. However, this restriction  continues to give rise to contradictions for the emerging  markets due to the fact that it affects the liquidity of investments. The online version of the market and the transparent activity allow  the investor to form a clearer picture about the ongoing activity of the program. Let’s also take into account the fact that while making investments there are almost no incurred expenses.

3) In crowdfunding markets we deal with ordinary investors which makes marketing and the development of legislative regulations difficult for countries where these markets are just beginning  to develop.

The thing is that in financial markets the activity is realized through investment funds by those who are familiar with the current state  of financial markets, have some  knowledge. ‘’The RA law on investment activities’’ also defines the professional investor concept as ‘’a customer who has appropriate experience and knowledge to make self-determined investment decisions and to assess the risks arising from them’’ [4]. As in crowdfunding markets we are mostly dealing  with ordinary investors the risk level increases not only in the perspective of business failures but also in the perspective of inefficient allocation of free monetary resources which is a result of incorrect investments of ordinary investors and which can affect the financial stability of the market.

For this reason, the concept of  ‘’capital requirement’’ occupies a special place  in the legislative regulation of developed countries with a crowdfunding market. The European Consumer Organisation offers [5] a maximum investment of 3000 euros in one program which, however, has its own drawbacks. For instance, in Portugal if the annual income of an ordinary Investor is lower than 70.000 euros,  the investor can make an investment of maximum 3000 euros within a year in one investment program [6], whereas if the investments are made by corporations, then there is no limitation. However, for instance, the USA clearly highlights the limitations of both ordinary investors and legal entities. One of the peculiarities  of these arrangements is that it gives an opportunity to make investment diversification. Studying the appropriate legal  regulations of the USA, the restrictions are applied in the following way: if the investor’s annual income or net assets are smaller (lower) than $107,000, then the investor is given the opportunity of investing  a maximum of 5% of the annual income or net assets within a year in one crowdfunding program (for more detailed information, please visit the website).

4) The satisfaction of the minimum capital  requirement refers not only to the investors but also to the platforms.

If we take the ‘’RA law on venture funds’’ it is stated  that the minimum amount  of the statutory capital of the venture funds is set at 500,000,000 (five hundred million) AMD [7]. Meanwhile in crowdfunding markets the international practice accepts a capital limit of 50,000-100,000 euros [8], which is several times smaller than the figure above. We think the reduction of the current limit will make it easier to create a crowdfunding platform in the RA as even in the conditions of 500 million AMD  there are already  3 venture funds in Armenia.

The crowdfunding market in the RA

The crowdfunding market in the RA, in fact,  has not yet been formed either as a special component of the market or as a special category of the legislative field despite the fact that the crowdfunding market has existed as a main alternative financial source globally since 2009 [9]. The crowdfunding in the RA has been mainly social so far. Weareayo and One Armenia are particularly active Armenian platforms . However, as already mentioned, those are basically social and public campaigns, therefore, we deal with crowdfunding for  donations or  rewards while to turn the investment environment and crowdfunding into a significant indicator of economic development Loan-based and Equity-based alternative types of financing are needed.

The statistics of Indiego platform show that Armenian investors are in the top ten with their activity. At the beginning of  2020, Forbes magazine referred to the Armenian startup ecosystem with the caption ‘’Welcome To The World’s Next Tech Hub: Armenia’’. It is remarkable that the main character of the article was the initiator of creating the “Volterman” smart wallet, Narek Vardanyan who is one of the Armenian successful entrepreneurs  to recruit more than $1 million through Kicstarter platform. With his and Gevorg Poghosyan’s co-creation operates The Crowdfunding Formula which has been added to the list of the best marketing companies in the field of crowdfunding by Indiegogo. However, because of the absence of a non-local crowdfunding platform it is difficult for startups emerging in Armenian market to make enough expenses to start a campaign on international platforms and succeed and also for ordinary investors to allocate free funds on international platforms. In particular, one of the problems is that RA financial markets don’t offer enough options to convert free cash from savings into investment. Though in the case of deposits we have a low risk level and ‘’insurance’’ of risks, the high-risk crowdfunding platforms can boost high-yield performance.

The Central Bank of the Republic of Armenia has already started working to create platforms and develop the market. In CB’s annual Isahak Isahakyan Scholarship Competition ‘’The disclosure of mechanisms for possible regulation of crowdfunding’’ research-analytical work topic has been involved since last year. A number of issues related to the attraction of capital, including the possible prospects of crowdfunding, were among the topics discussed during the workshop “Investment in Capital and Capital Markets” establishment of a favorable legislative and institutional environment” organized by the Ministry of Economy of the Republic of Armenia in December 2019.

Summing up we can say that the legislative regulations of this market and their optimal options  require quite  long work which, however,  has been largely overcome in the case of leading countries with this market, and  Armenia, is in a somewhat favorable position in this regard as there is an attempt to create these markets even in less economically developed countries (such as Georgia) which can follow the international experience and legislative regulations.

Armenia has favorable conditions to develop the crowdfunding market and to become a part of financial markets which is particularly based on the strategy adopted by the Central Bank and the Stock Exchange of Armenia. It is to create favorable conditions for the development of this market on one hand and on the other hand to provide free funds (3 trillion 568.207 billion AMD [10]) in RA which can be converted from savings in form of depositions into investments.

The development of effective mechanisms is also every important, as it will provide  a space for the information about the placement, role and opportunities of these markets in the programs aimed at increasing financial literacy (CBA ‘’ The month of my finances’’, The implementation of activities of the Ministry of Education and Science aimed at financial literacy).




  1. Burkett, E., 2011. A Crowdfunding Exemption-Online Investment Crowdfunding and US Secrutiies Regulation. Transactions: Tenn. J. Bus. L.
  2. Cumming, D and Hornuf, L., 2018. The Economics of Crowdfunding: Startups, Portals andInvestor Behavior
  3. Kapanova K., 2012. Crowdfunding as a book-publishing model for fiction and nonfiction. A snapshot of Kickstarter publishing projects
  4. European Crowdfunding Network AISBL, 2017. Review of Crowdfunding Regulation
  5. Order No. 47-L of the Minister of Education and Science of the Republic of Armenia of November 28, 2019, URL:// (04.12.2020)

Author: Hayk Kalantaryan © All rights reserved.

Translator: Mariam Badalyan