By Owen Bennett
As access to commercial bank loans remains a challenge for startups and micro-enterprises, alternative forms of financing are growing in prominence. Despite being more popularly known for its financing of pipedreams and novelty projects, the crowdfunding phenomenon is becoming a powerful source of investment for new and growing enterprises in Europe. But with diverging approaches to this new financial instrument across the EU’s Member States, the European Commission may soon seek regulatory harmonisation for the sector.
In general terms, crowdfunding refers to open calls to the public, generally via the Internet, to finance a project. The crowdfunding of micro-enterprises and startups has grown exponentially in recent years, and the Commission estimates that per annum fundraising through crowdfunding platforms will soon top one billion euro.
Unsurprisingly, national governments have adopted divergent and in some cases conflicting regulatory approaches to the sector. This causes headaches for platforms, many of which operate in an online borderless context. And with the new European Commission making the realisation of a true Digital Single Market a major policy priority, it is likely that the harmonisation of crowdfunding regulation across the European economy is near the top of the agenda.
Tentative movements in this regard have already taken place, with the Commission’s 2013 public consultation on crowdfunding serving as a means of testing the waters on the matter. A 2014 communication Unleashing the potential of Crowdfunding in the European Union pointed to the existing divergences in regulation at a national level but stopped short of any promise of new EU-level regulatory responses. In parallel, a European Crowdfunding Stakeholders Forum has been established under the Commission’s auspice. While its terms of reference do not include a policy dimension, it is likely that industry stakeholders will use the space to highlight the problems of a fractured regulatory environment.
The Commission’s Digital Single Market strategy in May could well set out a roadmap for EU level regulation of the crowdfunding sector. Indeed, given the new Commission’s emphasis on growth, jobs, and the digital economy, it will be surprising if it does not seek harmonisation as a means to further exploit the potential of the crowdfunding phenomenon.