Framework for European Crowdfunding

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* Policy paper: A Framework for European Crowdfunding. By Oliver Gajda et al. European Crowdfunding Network, 2012



Martin Bryant:

"A Framework for European Crowdfunding lays out a plan for how new regulation, education programs and research could strengthen crowdfunding’s place in the EU economy, helping SMEs to raise capital and create jobs.

Although European crowdfunding sites like Seedrs, BloomVC and Eppela – not to mention US sites like Kickstarter – are an increasingly popular way for new and existing companies to raise money for new projects, the authors of today’s paper argue that the EU could be taking action to aid this process.

It recommends pan-European laws covering consumer protection via operational and financial transparency practice, financial control, security of information and payments, platform functionality, and operational procedures. An educational forum is also called for, with the aim of educating stakeholders, funders, and entrepreneurs about crowdfunding, and proving guidance on fraud and risk – perhaps even testing funders’ knowledge of what they’ll be getting into. Meanwhile, the paper’s authors believe that “transparent and open” academic and third-party research would drive competition and innovation within the industry.

The paper was written by a group of academics and crowdfunding specialists and is supported by a variety of crowdfunding companies from across Europe, as well as organizations such as the European Association of Development Agencies and UK innovation charity Nesta.

The paper is being distributed to European Commission officials today and one of its authors, Oliver Gajda, says that he will be in Brussels to meet the Commission about it in November." (


Statement of Purpose

"The 2008 financial crisis crippled the global economy. For Europe, the recovery has been tenuous, witnessing the lack of confidence in the sustainability of individual nations, and dwindling trust in the financial services and banking industry.

While the strategy for economic recovery has focused on fiscal policy and the banking system, the brunt of the financial burden is placed on small businesses and entrepreneurs. These groups are left without funding for their businesses, without the security of a bank loan, and without access to credit lines from the financial services industry. To contextualise the gravity of this problem, we would like to point out that the 23 million small and medium sized enterprises (SMEs) in Europe represent 99% of businesses. Thus, access to capital for SMEs is critical for sparking job creation in Europe.

Today one of the most promising tools to help enable economic growth, job creation, and innovation is crowdfunding. We believe crowdfunding is one of the most viable means of funding new ideas, small business and job creation across Europe. It is a highly democratic tool that is posed to have a disruptive impact on community, start-up and consumer finance by allowing value creation on many levels, not just financial.

It must be the civil and ethical duty of European politicians and citizens to find a solution to the economic crisis. We believe the crisis provides an opportunity for much-needed change. Change, albeit disruptive, if managed well, is a guarantor for innovation. Crowdfunding can play a part in this and we would like to ask policy makers as well as market players to collaborate in order to enable the provision of funds and non-financial support to innovative and creative projects, start-ups and SMEs accross Europe." (


Matthias Klaes:

It is more than five years ago now that the first ripples of the current financial crisis started spreading across the globe. What initially looked like a problem largely confined to the North American sub-prime mortgage sector soon affected most advanced economies in the Western hemisphere. In Europe in particular, uncertainties resulting from a general squeeze on retail credit have been acerbated by recurring threats of systemic disruption in the financial and monetary spheres.

Virtually overnight, small and medium sized enterprises have thus found themselves at the sharp end of diminished access to credit. They are joined in their plight by all those organisations and initiatives in the cultural sector who experience a period of almost unprecedented financial restraint, while private households even in good financial standing may struggle to gain access to reasonably priced loans.

The economist Joseph Schumpeter spoke in a similar context of the “gales of creative destruction“ unleashed during an economic crisis. New forms of economic activity may gain foothold and begin to disrupt established ways of doing business. Crowdfunding is arguably the most visible instance at present of such a reshaping being under way. As a phenomenon, it prompts us to revise our understanding of and approaches to small to medium scale fundraising across most economic activity.

This report is thus very timely indeed. As the authors describe in comprehensive detail, crowdfunding may take many forms. But it is clear from their survey that we are witness to the rise of a new kind of investor, a new kind of entrepreneur, and a new kind of intermediary, who are all coming together in novel ways of channelling funds to innovative projects and SMEs.

The authors also do not hesitate to point out that crowdfunding, as a disruptive technology of financial intermediation, comes with a set of challenges that policy makers cannot afford to ignore. In its many forms, crowdfunding often straddles boundaries between different regulatory approaches and frameworks to financial intermediation and investing. This is particularly true in a European context where common regulatory approaches to financial intermediation have displayed a marked tendency to lag behind the establishment of the common market itself. Questions have also been raised regarding consumer and investor protection in this context.

As we are gaining a deeper conceptual and empirical understanding of the issues involved, the framework presented here not only seeks to move the discussion along with a number of concrete policy proposals, it also seeks deeper engagement with the various stakeholders. A call for further research is thus one of its key pillars, alongside joined up regulatory thinking and targeted educational initiatives.

In this light, I commend A Framework for European Crowdfunding to your attention. It deserves the widest possible readership and debate, and should facilitate a step-change in approach and coordinated response to what clearly has the potential of turning into a lasting reconfiguration of an increasingly important dimension of financial intermediation in Europe and beyond." (


"This paper is structured to give a concise overview of the state of crowdfunding in Europe, with the aim of establishing policy and a distinct framework for the European crowdfunding industry, efforts which we believe will aid in the economic recovery of Europe. Research shows the majority of job creation comes from small and medium sized businesses, which account for 99% of all businesses in Europe. The vast majority of these have ten or fewer employees.

These are also the businesses that have been most impacted by the economic crisis, and as such, need better access to capital in order to do what they do best: innovate, create jobs, and restore stability. One of the most promising solutions for restoring capital to entrepreneurs and SME is crowdfunding, defined as the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.

In its various forms, crowdfunding allows entrepreneurs and SME to solicit capital from funders, using social networks and crowdfunding platforms to finance their businesses and projects. There is currently no established policy in Europe for crowdfunding and we believe it is of the utmost importance to create crowdfunding legislation to remain competitive in a global market.

Last year, Europe raised around €300 million or one third of the world market, considering all types of crowdfunding. At the end of 2011, there were around 200 crowdfunding platforms active in Europe. Their number is expected to increase by 50% by the end of 2012.

For SMEs and entrepreneurs, not only can crowdfunding provide start-up capital, it espouses several nonfinancial benefits: validation of product features, market segmentation, price and demand, pre-sales and customer feedback as well as word-of-mouth marketing and a stable, committed shareholding structure.

The European Commission stated its aim to support the business environment for SME’s and promote successful entrepreneurship; we believe crowdfunding should be integrated into that aim in the near future.

To maintain the integrity and proper ethics of crowdfunding in Europe, we believe it is essential to create a framework of best practices and suggest a three pillar approach.

- The first pillar is regulation; until legislation is enacted, crowdfunding intermediaries should establish criteria focusing on the following categories of consumer protection: operational and financial transparency practice, financial control, security of information and payments, platform functionality, and operational procedures. These will assist in fraud prevention and detection and will signal credibility to individual funders.

- The second pillar is education; for crowdfunding to flourish, we believe a pan-European educational forum is necessary to educate stakeholders, funders, and entrepreneurs on the benefits of the industry, and the different business models of crowdfunding. These forums will provide a reasonable and fair guide to protect the financial interest, exposure and diversification of funders and investees across multiple crowdfunding business models. This needs to provide guidance around fraud, risk explanations and potentially the testing of funders’ knowledge.

- The third pillar is research; we believe the industry should drive academic and third party research. We believe crowdfunding operators should provide data sets to further industry research; the industry needs to find a transparent and open approach. Public reporting and research will drive competition and innovation within the industry. Finally, European, national and local legislators and policy makers should join forces to establish crowdfunding-enabling legislation in Europe. In this paper, we outline a number of potential policies and regulations which we believe offer a good starting point for a broader discussion. We hope to see many of these thoughts adopted for the benefit of the European economy." (

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