What is the current state of crowdfunding in the EU?
First, we don’t have accurate data on market trends [yet]. By the end of February we’ll have a study conducted by Cambridge University, so that should give a good indication of where the market is today. Right now there is a lot of speculation about the potential size and about projects.
Some markets are developed more than others in specific areas of crowdfunding. If you look at the UK and what they call peer-to-peer lending, or crowdlending – this has scaled incredibly to markets of about roughly one billion pounds over the last few years. We see that equity transactions also happen very well in the UK and they also happen in Germany with quasi-equity; it’s not quite the same scale but in fact close to the UK market. And then we see countries where is hasn’t taken off, countries where there are only five or so platforms that are up and running, and hope to launch their first projects.
How can the differences between individual countries be explained?
There’s no platform there that you’d think is a big player in Europe, [although] they may be big players in their own country, in their own language, in their own community.
[Some] countries are too small, they have maybe two platforms and there’s no competition. If you think of Austria or countries like Belgium, there is something happening – there are four, five, maybe more platforms sometimes, but mostly the niche has no real competition; the market itself may be too small to attract enough investments. So these markets haven’t scaled. They exist and the platforms survive and they do great things, but they are having a hard time scaling.
You also see that certain types of crowdfunding work better in some countries than in others. So, reward-based crowdfunding works extremely well in France and also in the Netherlands, where there are also donation-based models. In the UK, it’s not as significant compared to the other markets. In Germany as well you have, of course, donation-based and reward-based crowdfunding but there’s only one major German platform that you come to think of. There are others but they haven’t scaled that much. So even the big markets are not really developed.
How about further east (in Europe), has there been any progress there with regard to crowdfunding in the past years?
From zero to something is progress – and in percentages it’s incredible progress. There were thoughts about crowdfunding in Poland and the Czech Republic only two or three years ago, so it’s not like they didn’t think about it or didn’t see the opportunities in crowdfunding platforms as well – maybe not as many as in France or in the Netherlands but there are crowdfunding platforms that try to make their living, but none of them has really made a mark so that you would recognise it on a pan-European level. [In fact], it’s the same for Austrian, Belgian, or Luxembourgish platforms – there’s no platform there that you’d think is a big player in Europe, [although] they may be big players in their own country, in their own language, in their own community.
To what extent should crowdfunding be regulated?
Crowdfunding is basically regulated already, whether you want it or not, because it touches upon existing regulation: money-laundering, EU money directives – and other European directives that then get translated into national laws. Crowdfunding today has to find its way in an already regulated market within the regulation that is not designed for [it]. That makes it, in some countries, extremely difficult to actually operate properly in some types of crowdfunding.
We’ve seen that some countries have created national regulation as far as possible under the European framework. Italy was the first country that had a very strict regulation, and maybe a bit cautious about linking crowdfunding to institutional investors. So you have to have an institutional investor on your side, if you’re doing crowdfunding transactions and they have invested a certain amount, which of course complicates things. In other countries, like in the Netherlands or in the UK, the attitudes towards investing are more lax.
In how far is the EU involved in those regulations?
With crowdfunding, the Commission was so quick to pick up the topic, if you will, before the industry was created, so they were right there when the industry started.
In each of these countries, you have platforms developing models and processes that are fixed to their national regulations – and they will try to operate and scale in these regulations. The EU, which is of course the Commission, the Parliament, the Council, they all have certain aspects being involved in this discussion; so they have to find a possible solution that they agree on and could potentially create a level-playing field across Europe. And that needs to be done, if you will, before national markets establish themselves within national regulations. Because once that is happening, the national government will try to protect its industries against the European directive.
With crowdfunding, the Commission was so quick to pick up the topic, if you will, before the industry was created, so they were right there when the industry started to evolve and that gave them the advantage to understand what’s going on. Having acted as they did, creating a discourse between institutions, creating the Stakeholder Forum, doing surveys, writing opinions, asking lots of other authorities to issue opinions: This has moved the understanding of what crowdfunding can do much further.
How realistic is the creation of a single EU market for crowdfunding?
It is realistic, it is I think something we want and everybody should want. This is why we created the EU. Having a single market doesn’t always necessarily mean that everything is the same for everybody. Certain frameworks are the same and within that you have differences. [Having] some approach for crowdfunding is vital in order to allow platforms to scale, but also in order to allow citizens to raise money wherever they want in Europe, as well as to invest money. So if I as a German would like to invest into a Dutch renewable energy project through a crowdfunding platform I should be allowed to do that. But in many cases today, I am not allowed to do that; this is very restrictive. If the European institutions manage to liberate this market in a transparent way that protects the customers, there’s a good chance that we can mobilise some of these resources that we sit on in some countries so they are reinvested them in the economy – not as consumption but as an investment.
What are the next steps for the crowdfunding scene in the EU?
[To clarify], I think there is no crowdfunding scene as such. There are people that use crowdfunding to run projects, and really make good use of it, do it successfully several times; for them this probably becomes a very good way of funding new ideas. On the other hand, there are people that invest in these projects, because they want to push forward ideas either by friends or by others, which they think are innovative or just should be done. There is a core of people who do projects again and again, and people who invest in projects again and again. And this I think will grow. This is probably the most important part of growing the market and the support of the wider audiences.
There were always platforms that were driven by enthusiasts, who saw that crowdfunding could change the world, and they were probably some of the first ones to do it. Then you have other platforms that were created opportunistically, by people that come from the finance world, [that have to do] with equity or lending. They saw it as a business opportunity. Only now we see a third phase – it comes in phases, where you have downscaling of existing financial institutions. Banks have opened up their own crowdfunding platforms, or banks collaborate with crowdfunding platforms, or venture capital funds have opened up crowdfunding platforms.
The interest we have on that level from stock exchanges and from banks and other institutional investors shows that there is certain maturity in the market now. I think this will potentially change the market to a degree where crowdfunding is no longer the domain of crowdfunding platforms, but also of financial institutions that might use these structures to serve their own clientele.