Through the auction process, companies will be financed by the group of investors who demand the lowest interest/return rates. For each funding request or investment opportunity, investors decide how much they want to invest and define their minimum interest/return rate. At the end of the auction period, the amount to be financed will be completed starting with the bids of the investors who demand the lowest interest/return rates until the total amount is reached. The final interest/return rate, applied to all investors, is set by the interest/return rate associated with the first bid left out and not necessary to complete the total amount to be financed.
For instance, suppose there is a funding request of 1000€ and 5 investors want to invest 400€ each (totaling 2000€ in investment intentions doubling the requested amount of 1000€) with the following minimum interest/return rates:
Investor A: Bids 400€ at 4%
Investor B: Bids 400€ at 5%
Investor C: Bids 400€ at 6%
Investor D: Bids 400€ at 7%
Investor E: Bids 400€ at 8%
Investors A and B will fulfill their bids entirely, and investor C will get the remaining 200€ necessary to complete the requested 1000€. Since the bid of investor D is the first to be completely left out and not necessary to complete the requested 1000€, that is the bid that will set the interest/return rate all other investors need to match, and therefore the final interest/return rate is set at 7%.
For more information, please contact Daskapital at support@daskapital.eu.
