The Motivations and Implications of Retail Investors Investing Across Borders

As financial technology continues to evolve, the rise of cross-border crowdfunding and investment opportunities has opened a new frontier for retail investors. Historically, angel investors and venture capitalists were the primary sources of early-stage funding for startups, with geographical proximity playing a significant role in investment decisions. However, today’s retail investors can now participate in cross-border equity crowdfunding (ECF) with the click of a button, diversifying their portfolios with international ventures. But what motivates these investors to take on the added complexities of foreign markets, and what implications does this trend have on the global funding landscape?

Fragmented Capital Markets: Barriers and Opportunities

Cross-border investments have long been constrained by fragmented capital markets, particularly within regions like the European Union (EU). Each country in the EU operates under distinct tax regimes, legal frameworks, and regulatory standards, which limit the ease with which retail investors can support ventures in neighboring countries. While regulatory initiatives, such as the EU’s Capital Markets Union (CMU), aim to create a more integrated financial ecosystem, significant hurdles remain.

For instance, tax incentives that encourage local investing often disincentivize cross-border participation. The UK’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer generous tax breaks to investors, but these benefits are restricted to domestic investments. As a result, retail investors may be less motivated to invest internationally, where such financial advantages are unavailable.

This fragmentation has led to a preference for local investment opportunities among angels and retail investors alike. Many cite ease of access, lower risks due to proximity, and the ability to personally monitor and engage with investee companies as reasons for their home-country bias. In many cases, information asymmetry—a lack of sufficient, reliable data about foreign ventures—also plays a role in this localized approach.

However, as crowdfunding platforms mature and scale, they are offering retail investors an alternative route to international markets, facilitating greater transparency and making investment opportunities more accessible. These platforms present a solution to the fragmented capital market by leveraging technology to bridge gaps in information and communication across borders.

Crowdfunding as a Bridge to Cross-Border Investment

Crowdfunding has emerged as a popular mechanism for overcoming traditional barriers to early-stage financing, particularly for retail investors. Equity crowdfunding (ECF) allows individuals to buy shares in startups or growing businesses, often with smaller ticket sizes compared to venture capital or angel investments. Retail investors, once sidelined in these early rounds of financing, can now contribute to global ventures via platforms that transcend borders.
This has led to a significant scaling of the audience for early-stage investments. The global crowdfunding market, particularly strong in Europe with the UK leading, has demonstrated rapid expansion. According to Polaris Market Research, from a valuation of USD 19.86 billion in 2023, the market is projected to grow to USD 22.12 billion in 2024 and is expected to reach USD 72.88 billion by 2032. During the forecast period from 2024 to 2032, the industry is anticipated to record a compound annual growth rate (CAGR) of 16.1%. This substantial growth underscores the increasing appetite for alternative investment vehicles. As crowdfunding platforms continue to expand internationally, they bring together a diverse pool of investors and startups from different regions, enabling cross-border participation in ways previously unimaginable.

Investor Motivations: More than Just Financial Returns

Research into the motivations of retail investors in equity crowdfunding reveals that financial returns are often not the primary driver for participation. In fact, studies show that intrinsic factors—such as emotional engagement, novelty, and a desire to support innovative ventures—play a crucial role in motivating cross-border investments.

In emerging markets like Malaysia, for instance, non-financial motivators such as trust, aesthetic appeal, and the emotional value of supporting a project outweigh traditional investment incentives like risk-adjusted returns. This trend aligns with the broader behavior of millennial investors globally, who are increasingly interested in investments that resonate with their values, whether that’s social impact, environmental sustainability, or technological innovation.

A study by M. Rajeswari and R. Magesh in India further highlights this trend, showing that younger, lower-middle-income investors are drawn to the equity crowdfunding model despite its higher risks, because they see it as a way to participate in the entrepreneurial ecosystem and make a difference, even if financial returns are not guaranteed.

Cross-Border Crowdfunding: The Role of Investor Attention

While crowdfunding platforms can scale their audience globally, attracting cross-border investments requires capturing investor attention. The “Attention Across Borders” study by Markku V.J. Maula and Anna Lukkarinen highlights the importance of investor attention in securing cross-border investments. Their research found that campaigns receiving international attention are significantly more likely to attract foreign investments.

This attention is often driven by targeted marketing efforts and the involvement of team members who share a nationality with potential investors, a factor known as co-nationality. For example, ventures with diverse teams may have an easier time attracting international backers because their team composition resonates with a broader audience.

However, once attention is captured, traditional barriers like geographic, cultural, and institutional distance become less relevant. Instead, platforms and ventures must focus on maintaining this attention through sustained engagement, transparency, and effective communication. Digital platforms like Invesdor, a European equity crowdfunding platform, have shown that with the right marketing and visibility, ventures can successfully secure cross-border investments despite the complexities of distance.

Policy Interventions and the Path Forward

As retail investors become more involved in cross-border crowdfunding, policy interventions are essential to ensure a level playing field and protect investors from the risks associated with international ventures. Harmonized regulatory frameworks, such as those being pursued by the EU under its CMU initiative, are crucial for scaling cross-border investment opportunities. These regulations aim to reduce the friction caused by legal, fiscal, and governance disparities between countries, making it easier for retail investors to participate in foreign ventures.

Platforms must also play a key role in educating retail investors about the risks and opportunities of cross-border investments. Tools that facilitate automated portfolio diversification, along with secondary markets to exit investments early, can help reduce risk and increase investor confidence. Furthermore, robust risk-assessment tools and transparent reporting mechanisms are necessary to mitigate the information asymmetry that continues to plague cross-border investments.

In addition to policy support, there is a growing recognition that angel networks and syndicates could help retail investors navigate cross-border deals. These networks could serve as intermediaries, building trust between investors and foreign ventures, while offering local expertise and due diligence that retail investors may lack. Angel groups that operate internationally, like Keiretsu Forum, have demonstrated that a chapter model—where networks in different countries operate under the same umbrella—can facilitate cross-border collaboration and investment more efficiently.

Scaling the Audience for Cross-Border Crowdfunding

The scaling of crowdfunding platforms into the international arena marks a pivotal shift in the global investment landscape. Cross-border crowdfunding not only democratizes access to high-potential ventures but also opens the door to greater financial inclusion. By allowing retail investors to participate in early-stage financing across borders, these platforms provide an alternative to the traditionally exclusionary world of venture capital and angel investing.

For entrepreneurs, the implications are profound. Successful crowdfunding campaigns often rely on a mix of domestic and foreign investments, with studies indicating that 40% of successful campaigns in Europe depend on cross-border capital to meet their funding goals. For startups seeking to scale globally, attracting international investors through equity crowdfunding can be the first step toward entering new markets and expanding their business beyond local borders.

For retail investors, the opportunity to participate in cross-border crowdfunding offers a chance to diversify portfolios and support ventures that align with personal values, but it also comes with challenges. Navigating regulatory environments, understanding foreign markets, and managing currency fluctuations are just a few of the hurdles that investors face. However, with the right tools and support from platforms and policy-makers, these barriers can be mitigated.

The Future of Cross-Border Investing

As crowdfunding continues to mature and expand across borders, it is reshaping the way retail investors think about early-stage financing. No longer bound by geography, investors can now engage with ventures around the world, motivated not only by the prospect of financial returns but also by emotional and social factors.

The implications for the global funding ecosystem are significant. Cross-border crowdfunding is democratizing finance, enabling retail investors to play a more active role in the entrepreneurial landscape and offering startups a new avenue for raising capital. For policymakers and platforms alike, the challenge lies in creating the right infrastructure—harmonized regulations, investor education, and risk management tools—that allows cross-border investing to thrive, while protecting the interests of retail investors and ensuring the long-term sustainability of this new financial model.

As the global crowdfunding ecosystem evolves, the next decade could see retail investors become major players in cross-border venture funding, potentially transforming how startups raise capital and scale globally. The future of cross-border equity crowdfunding will depend on the ability of platforms, policymakers, and investors to adapt to this new reality, embracing both the opportunities and the risks that come with investing across borders.

Closing Thoughts and Upcoming GECA Initiatives

In addition to exploring the current dynamics of cross-border crowdfunding, GECA (Global Equity Crowdfunding Alliance) is currently undertaking its own research among UK investors to delve deeper into their attitudes towards overseas investments. This research aims to uncover the motivations, apprehensions, and preferences of investors when considering funding opportunities beyond their domestic borders. Stay tuned for the revealing findings and insights from this study, which promise to enrich our understanding and strategies in the ever-evolving landscape of global equity crowdfunding.