European Commission Supports Crowdfunding to Finance Startups - Global Trade Magazine
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  May 12th, 2016 | Written by

European Commission Supports Crowdfunding to Finance Startups

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  • Crowdfunding remains relatively small but is developing rapidly in the EU.
  • Crowdfunding has the potential to be a key source of financing for SMEs.
  • EU member states have begun to put in place national frameworks to support the growth of crowdfunding.

The European Commission has published report on the European Union crowdfunding sector, part of the Capital Markets Union Action Plan.

Supporting innovative ways of connecting savings to growth and diversifying the funding sources for European businesses is crucial to improving growth and job creation in Europe, the report said.

Crowdfunding is an open call to the public to raise funds for a project. Crowdfunding platforms are websites that enable fundraisers, be they individuals or businesses, to interact with investors and donors. Financial pledges can be made and collected through the platform.

The report found that crowdfunding remains relatively small but is developing rapidly. If appropriately regulated, it has the potential to be a key source of financing for SMEs over the long term. EU member states have begun to put in place national frameworks to support the growth of the sector and ensure investors are appropriately protected.

These national frameworks are broadly consistent in terms of the objectives and outcomes they seek to achieve, but are tailored to local markets and domestic regulatory approaches. As crowdfunding remains largely local and the sector is changing rapidly, there is no strong case for an EU level framework at this juncture.

“We are keen to support the development of crowdfunding models as a source of financing for entrepreneurs with bright ideas, startups, and other SMEs,” said EU Commissioner Jonathan Hill. “Our focus is on promoting best practice, appropriate investor protection, and consistency of national regimes. We will continue to monitor market and regulatory developments closely.”

Crowdfunding is still small but growing fast in Europe. Based on available data, approximately $4.8 billion was successfully raised through crowdfunding platforms in 2015 in the EU, compared with $1.8 billion in 2014. In 2015, $4.7 billion was raised through crowdfunding models that entail a possible financial return for those contributing the funds – for example, through equity investments or loans.

The UK has by far the largest amount raised and number of projects funded through crowdfunding among EU member states. Crossborder project funding is still limited and crowdfunding remains a regional or local phenomenon to a large extent. Several member states have already introduced or are planning to introduce domestic regimes on crowdfunding. These domestic rules aim to support the development of this source of funding, while addressing key risks that may arise, notably for investors.

The commission will keep developments in the sector under review, and meet twice per year with regulators and the sector. This will ensure the commission is able to respond in a timely manner if further steps to support regulatory convergence are needed, both to promote the development of the sector and to ensure appropriate investor protection.