Crowdfunding innovative ventures in Europe – The financial ecosystem and regulatory landscape (SMART 2013/0074)

The study identified the main crowdfunding models, the market development and trends, the positioning in financing market, the potential for innovation, the success factors for campaigns, a regulatory state of play in Europe and in some third countries, and the perspectives for an evolving regulatory landscape. The study provides initial concepts for self- or co-regulation in the sector in order to spur the development of the industry, whilst enhancing consumer protection and transparency.

The objective of this study is to provide a state of play of the crowdfunding industry in Europe with a particular focus on equity-based crowdfunding and its regulatory aspects, as the impact of regulation on this model is most complex and demanding compared to the other crowdfunding models. After detailing the different crowdfunding models and introducing some of its variants, market trends in the sector and the potential of crowdfunding for R&D are discussed. The success factors of a crowdfunding campaign and the interaction of crowdfunding with other actors in the finance market are analysed. Furthermore, the report details the regulatory aspects related to equity-based crowdfunding from a European, national but as well international perspective and a legal perspective on each variant of equity-based crowdfunding is given.

The study provides an initial consideration for a scorecard aimed at monitoring the market development of equity-based crowdfunding including an assessment of the regulatory framework.

The study concluded on a lack of transparency for an investor potentially interested in equity-based crowdfunding. Many platforms lack clear and transparent information on the type of investment instrument and the rights that are acquired by the investor. In particular, the process of exiting an investment is rarely detailed, whilst successful exits contribute to the success of crowdfunding.

Based on a thorough assessment of the most impactful initiatives and extensive engagement with stakeholders, the study defined three recommendations for further actions:

1. A quality label could serve as an effective solution to address some transparency issues and improve investor protection rapidly. It would provide transparency, good business conduct and education. It could be governed by industry association or network of associations. The EU could be instrumental in providing a forum for all actors within and outside the sector;

2. In terms of harmonisation of national regulation, it is better to install a balanced set of measures, providing sufficient investor protection but allow platforms to operate in a workable framework. It is also recommended to foster a strong European industry association which can with the aid of national association have a concerted effort to improve harmonisation (such as the European Venture Capital Association for Venture Capital);

3.  A European regulation should be investigated as a means of last resort, as a regulation would override existing national laws with immediate effect, ensuring harmonisation and transparency.

The recommendations and analysis from this report will feed into the Commission’s ongoing work to support entrepreneurship and improve the innovation investment climate, and in particular the work of the Crowd Funding Stakeholder Forum which has been set up by the European Commission.


Check for the full report and executive summaries in EnglishFrench and German.