Crowdfunding for innovation: is the fragmented European market a challenge for operating cross-border?
The crowdfunding4innovation.eu study identifies several challenges to be addressed for crowdfunding for innovative SMEs to flourish, one of these challenges is the lack of unified crowdfunding market.
The crowdfunding market is growing rapidly. According to a new industry report released by the Cambridge Centre for Alternative Finance, the total European online alternative finance market grew by 92% reaching €5,431m (it grew by over 150% a previous year). Over 9,400 start-ups and SMEs across Europe (excluding the UK) obtained €536m of funding through alternative finance in 2015, mostly through debt-based funding solutions (€349m) followed by equity crowdfunding (€159m).
It is no wonder that the growing popularity of alternative finance led several European countries to look into regulating of the market. Until now, 8 European countries introduced bespoke crowdfunding regimes regulating either/or equity and lending platforms (Austria, Spain, France, UK, Italy, Germany, Portugal, Finland), with Belgium introducing crowdfunding exemption in its prospectus regime. None of these provisions are specifically addressed to cater to crowdfunding for research and innovation.
Fragmented national regimes create legal uncertainty as to what rules apply to which forms of crowdfunding and can prevent some platforms from operating cross-border. The first study results show that 45% of platforms declare investors and fundraisers from a range of countries. Yet, to be able to officially perform the operations in another country, platforms need to either set up a subsidiary in another country or merge with a locally operating platform.
The lack of an EU regulatory framework on CF and the fragmentation in national regulatory regimes are seen as the main impediments for the development of cross-border operations by stakeholders’ interviewed throughout the course of the study.
Although equity crowdfunding platforms are regulated under the Markets in Financial Instruments Directive (MiFID) and therefore can benefit from a passport to carry out services throughout the EU. This requires significant investment on the part of the crowdfunding platforms. Moreover it does not apply to other crowdfunding models.
Thus, there is a call for European policy action in support of cross-border operations with discussion ranging from soft coordination measures at EU level to EU-wide harmonisation. Should the EU:
- impose a specific European legal framework for crowdfunding regulating equity/lending platforms? Or
- facilitate harmonization of national rules through coordination and activation of Member States without imposing European legislation? Or
- simply facilitate the creation of a cross-border network of platforms for science and innovation projects? Or
- produce guidelines and recommendations helping platforms and investors to operate?
What do you think? Do we need a unified legal framework for crowdfunding? If yes, which model should it be built after?
Share your thoughts and ideas below in comments or send an email to firstname.lastname@example.org.