Andy Field: Hello, everybody. Welcome to the GECA podcast brought to you by the Global Equity Crowdfunding Alliance. We’ve termed the series the Crowdfunding Chronicles, and I’m your host, Andy Field. I lead the GECA steering committee. And this podcast series is your go to source for insights into the world of crowdfunding, from policy changes to global trends and everything in between.

Today’s episode is particularly interesting. As we dive into the story behind a significant milestone for crowdfunding in Europe, and that’s the introduction of the European Crowdfunding Service Providers Regulation or ECSPR. This regulatory framework has essentially created a unified set of rules for crowdfunding platforms across Europe and our guest, our special guest today, has been instrumental [00:01:00] in making this happen.

So joining me is Oliver Gajda. Oliver is the executive director of Eurocrowd, and Eurocrowd played a key role in the ECSPR. We’re going to explore how Eurocrowd influenced this historic regulation, the process that led to its development, and what it means not only for Europe, but potentially for the global crowdfunding ecosystem.

And Oliver, welcome to the podcast. It’s a pleasure to have you here.

Oliver Gajda: Andrew, thank you very much. I hope I can fit the shoes that you, , laid out in your introduction.

Andy Field: It’s always a good introduction.

Andy Field: Okay, so yeah, so let’s, let’s jump right in. So for many in our audience, ECSPR represents a turning point for the company.

for the crowdfunding sector in Europe. , so to start with, can you share how Eurocrowd became involved in the process of developing what is essentially a unified regulatory framework? What was the starting point?

Oliver Gajda: Yeah, it’s actually a really good question because, , I don’t think there’s necessarily a starting point.

You know, when we started, that was in back in [00:02:00] 2011, 12, the first ideas of somehow creating a network and didn’t quite know which way to go. And at some point we put out a white paper that basically came out of, you know, different interactions, different stakeholders, and then crowdsourced with, I think, more than 50 people providing input.

That, at that time, you know, we had the financial crisis 2008 2009, , basically address the key issues that the economy was facing, you know, job creation, innovation, funding of small companies, at a time where policy was, let’s say a bit, a little bit disappointed about the way banking and another financial instruments had worked.

in and after the financial crisis. And so there was some some hope for innovation, I think, on their level. And that just started a discussion, right? So there was no real interest in creating a law at the point. But we were able to kickstart this discussion, [00:03:00] following on some other kind of general policy discussions on the idea of climating SME’s at the time. And we kept on it, we had some members that were very active at the time that had started into this market with the idea of being pan European rather than French or German or whatever.

And so that, that had a lot in, in basically creating drive and over from 2012 on over the next. for years, repeatedly putting forward small studies, data, engaging with individual discussions with policymakers in Brussels to keep this alive. And at the same time, we were very lucky that we had an outgoing commission that, you know, within the last year of their, them being in, in office, they wanted to do something innovative and quick results.

So we were quite interesting, at least to be looked at. And so crowdfunding became one of the first kind of [00:04:00] aspects of what we would now call the broader fintech area that actually achieved in the political discussion and crowdfunding in Europe.

Andy Field: Wow. So, yeah, I mean, so, I mean, that’s fascinating. Could, can you walk us through the process of getting from those sort of initial ideas to the actual legislation coming into force?

I mean, how long has it taken? I think we’ve got a rough idea from the dates you’ve mentioned, and what were some of the key steps that Eurocrowd took along the way to make this happen?

Oliver Gajda: Yeah, I, I mean, , it’s really good. I don’t know, of course, all the details either, but I have a, an idea. And so from, from our end, it was just really, The interest of a small number of crowdfunding platforms to operate Pan European.

And we, we drift this drove this idea home, but you know, we have the experience from venture capital market, which is nationally regulated under European directive. You always have the shortcomings of, you know, company law and tax law. You know, [00:05:00] investment funds often are, you know, national structures that like to operate in their languages.

And so here we had the digital aspect, the possibility to keep money flowing through, you know, an online service. So this was really one of our arguments. And that was one thing that the commission liked as well. But initially the market wasn’t big enough. So for us, that meant really nonstop studies. We did.

together with a number of law firms in partnership with Osborne Clark at the time, three times an analysis of all EU regulatory frameworks regarding crowdfunding. , and we, we shared this free of charge to policymakers. So this, this was a really good discussion point for them. , these were huge documents.

we did market studies. We, shared the data. And so we, had a number of people in different directed journals at the commission that were interested in crowdfunding that, that thought the idea was good, [00:06:00] but low level policymakers, mostly, you know, the initial push from the commission came from the top level.

When the outgoing commission left back then, famously, Michel Barnier, who then later negotiated Brexit, was in charge of the financial market and created a big conference in Brussels in 2013, which now out of nowhere on an industry that didn’t really existed because that was something that potentially could change how, you know, small companies are being financed.

So with this kind of in mind, we had a lot of policy level people in the European Commission that worked on this, even though the top level in the commission within the next commission had no interest in crowdfunding. that, that happens as well. So you could say that the big movement stored for a long time, but we were able to feed information into the lower levels.

And , with Brexit, we had a change in certain, high level positions within the [00:07:00] commission and afterwards found a much more open commission to this topic, which then had identified by that time through the information they gathered and studies they received from us and other people, had identified that.

What crowdfunding is nothing really particularly new, right, other than you collect money from individuals and distribute it to the internet, that the cross border issue was really a hurdle that could be addressed within crowdfunding because it was a digital service. So it was not about whether the platform is located.

And that is what the commission used to draft an idea for a new law. And so they asked us to do a study to deliver on that. aspect, especially specifically on operational and legal challenges, which we did again, together with some partners, provide to the commission on that basis, they were able to argue for the need for a new directive or law.

[00:08:00] Yeah. at the beginning, that was something they would, would still decide. And that was put forward. I mean, they decided 2017. So five years after we published our first white paper. And then published as a proposal in 2018. So for us, this is a five to six year journey of not knowing if something would come out of it, repeatedly working, persevering, you know, relying on members to share knowledge and help us to finance ourselves.

Yes.

Andy Field: Wow. I mean, a monumental effort. I think it could be said any, any particular milestones in that time period or challenges along the way that, that particularly stood out to you?

Oliver Gajda: Yeah, I think really, I mean a monumental effort at it was, you know, it was fun at the time. It was also challenging to sustain as an organization.

but as a small NGO representing a market that was at that time. not [00:09:00] relevant. It was quite interesting to see that we had a lot of support from the established financial market players. So, so the associations for venture capital, private equity, banking, we’re actually happy to discuss and exchange ideas.

And that was a really fruitful time and be, you know, engaged in this, was very important for us to, to have them buy in and, and their expertise as well. So that I think, helped us to keep going for a long time. and on the other side, it’s, I think it’s maybe underestimated in this, these whole discussions, but the low level policy.

officers at the commission that worked on the case basically kept believing that this was interesting. we would have given up if we wouldn’t have had these people within the commission. at the time where we had the change of commissioner and the topic was moved from the [00:10:00] kind of basically the main agenda and fintech was rolled into it became far more important.

Soon we had crypto coming and you know, all areas that to skate much faster than crowdfunding. Sure. And we would never have had any, any success if we wouldn’t have had the people in the commission that would have sought the connections with us, would have worked with us and, and, you know, encouraged us basically to continue.

Continue. So I think that that’s the, these two things, the support from basically, areas that we didn’t really expect support from at the time really, really helped us to keep going for the first six years. Yes.

Andy Field: Yeah, really stand out positives, actually. thank you for sharing that. So, so, ECSPR has now been in place for some time.

What do you think has been the sort of the looking, looking back over the last couple of years? What’s been the sort of the immediate implications for crowdfunding in Europe? And then maybe looking beyond Europe. Do you feel that it could serve as a model for other regions globally? [00:11:00]

Oliver Gajda: So good question. The first question is, so what has changed?

you know, what, what we had before is what you basically have probably everywhere else in the world, you have a regulatory framework that is written or not written for crowdfunding or partly written for crowdfunding in every member state in the European Union or in other, in the other country. And, But ECSPR has brought to this is that it largely harmonizes the way crowdfunding platforms operate.

Andy Field: Yeah,

Oliver Gajda: it doesn’t harmonize tax law or company law and so on. But of course, you know, how does a platform operate? How’s the supervision working? And it even carries the notion that a platform is you know, removed from national border. So it doesn’t matter where you are located. That is where your oversight happening as a platform.

And you can operate across Europe without interference from any other regulator, [00:12:00] which is, it’s really quite unusual. It’s I think one of the, if not the only financial service that has this kind of freedom. In the regulation. So this is a huge, huge step forward. What I think we may be overestimated was the willingness and the ability of platforms to take advantage of that.

Andy Field: Right.

Oliver Gajda: So what I mean is that most crowdfunding platforms in the, the 10 years before this law was basically published and came into effect, had established national presence, national market, national expertise. And we’re quite happy operating in the markets. And so for them now to move to a new regulatory regime that is definitely more costly, partly more rigorous.

So you need to have more compliance and feed without necessarily wanting to change the business model that I think has been a quite a big challenge [00:13:00] for many of them, but we need to see. on the other hand, and that’s what we’re still waiting for. It creates opportunities for every new player, downscaling from other financial services.

And I think that is what we are going to see more and more over the next few years. Players that want to exploit the pan European opportunities and maybe bring different professional backgrounds into the market. And that will create competition and more scale and more, more transactions.

Andy Field: Yeah. Yeah. That, that makes perfect sense.

Do, and, and just to, to that, the second point, do, do you think, I realize it’s personal opinion, but do you think that looking beyond Europe, you know, this model could, you know, this could serve as a model for, for other regions?

Oliver Gajda: True. , so at the time when it was negotiated between the European Commission, the parliament and the council, was the time when we also had Brexit happening.

Sure. , and [00:14:00] therefore the rule setting was basically a little bit protective. So we, we don’t have this third country regime where, you know, countries that are friendly with Europe can also apply this. And I believe, for a platform that wants to operate in Europe, it’s easily enough to come here, but it’s still, you know, an investment and it’s time and effort.

for other countries to replicate the law. I don’t know if it makes sense, because the framework here is really on the cross border activities. But if you scale it down and say, okay, you know, we look at the supervisory way and, you know, what the requirements for platforms, I think that that indeed could be something that, you know, can be used.

We were involved in, in some studies for non EU countries where they actually looked at exactly this and where, [00:15:00] you know, from the regulatory side, there wasn’t that much difference in how they wanted to approach it anyway. So this, this could have been used as a blueprint. It hasn’t in that case in hindsight.

So I think that that for sure is something that will happen anyway, if the market here in Europe skates a bit more. And I think this is where we are right now waiting for platforms to really make use of it and to become significantly bigger so that they can be showcased as an example abroad. And then, you know, the positive aspects of that will spill over for now, I don’t think that is going to happen.

I mean, not, not in the short term. Certainly not in the short term,

Andy Field: yeah, yeah. Okay, yeah, that, that makes perfect sense, thank you. , so for any of our listeners who may be entrepreneurs or investors, what do you think this has meant for them? How will the, well, how has the regulation, how potentially will it change the landscape for people who are looking to raise funds or invest in crowdfunding [00:16:00] campaigns?

Oliver Gajda: now this is my personal opinion. You have different, had different regimes and, you know you may have actually felt that they were better than the new one. Yeah. That, that can, can personally be the case. what you have here now is as, both as an investor or as a, an SME that looks funding is that you’re no longer restricted on your national market.

Yeah. So you can. invest across Europe on any platform. Okay. That’s language. You may have to, you know, you know, refrain from investing through platforms that don’t offer a language. You, understand that you speak, but in theory you can, and there is quite a few options already that, you know, you can feel happy with.

the same goes for, for any SME. , if, if you find that in, in your, you know, European member state, there is no crowdfunding platform or none that you do trust or want to work with. it’s possible to [00:17:00] go abroad and find a platform as well. So that is incredibly positive. what has to come with that is of course, that the platforms that now have basically since November last year, they are forced to apply the new rules.

and many have waited until the last few months to make the transition. What is really missing is that they professionally apply the new rules. There’s, of course, some time where, you know, also the regulators need to get behind it and platforms need to get used to it. But in one or two years, I think the prudential rules and the transparency rules will be fully applied and platforms will be Comparable across member states and so for an investor or for an SME looking funding, you should then be able to expect the same level of, you know, disclosure on platforms, the same level of clarity where you find information and what type of information.

And I think that will make it, much, much better. [00:18:00] But even without that, the security that you should feel as an investor or as a company to raise funding and knowing that your partners are supervised by a financial service authority, that they are, you know, required to have certain credential safeguards in place, including insurance and so on, is a huge step from every national set of rules that we had before.

And so that alone should basically give an impetus. To, be positive and, and be more active on the market. , and it should also for platforms be, you know, a marketing label. But I know from, from practice of speaking to platforms that it becomes. complicated to explain this to investors or to SMEs because they never cared about regulation, right?

They, they didn’t know the law before. They don’t know there’s a new law. They, they don’t really dive into this. So there’s a lot of I think, educational efforts necessary in the next one to two years for [00:19:00] platforms to really take advantage of that.

Andy Field: Yeah. Yeah. Yeah. Well, that’s, I mean, it’s really encouraging to hear from a, from an investor and from a business who’s looking to, to, you know, to gain investment that I think that’s really encouraging to hear.

So thank you for that. before we wrap up, we’re nearly at the, we’re nearly at our time limit here. have you got any practical tips for crowdfunding platforms, entrepreneurs, or investors, or any, indeed anybody, any stakeholder industry to navigate the, the regulatory landscape in Europe? Is there anything in particular that you’d point out there?

Oliver Gajda: no, I, look, I, it’s, I mean, even though it’s a really nice piece of law, I assume it’s also very complicated. And what I know is that, platforms all really without exception had to spend a lot of time in adjusting to the legal requirements. You know, involves sandboxes with regulators, discussions. If you don’t have an in house lawyer, it really requires [00:20:00] a dedicated law firm that is quite expensive.

Yeah. And so for the investor, this should be actually very promising because there’s a significant effort into the professionalization and the safeguarding of your interest as an investors being put into these platforms. so that, that I think is, is that, otherwise I’m not sure you need to understand legal issues as an investor, but you should of course make sure that the platform also does a good job as you had to do before, right?

How do they communicate? How do they source ideas? What type of due diligence, what are the, what are the structures of their investments? You know, we need to assume that regulators are not yet. fully on top of this market and that there are still some practices that, you know, over the time will kind of improve.

But, but for platforms, I think as long as you, as they are regulated under ECSPR, that is an absolute positive. There are in some countries still national markets outside of this regulation. [00:21:00] It’s largely Germany and Austria. I cannot see this, survive for much longer. But it depends on the, the national legislator, so it might continue one or two years.

But here you would have basically a choice between ECSPR and nationally, you know, regulated crowdfunding platforms in all other member states, it doesn’t actually make a difference. You only have this. And as a small retail investor, it is the only way to invest directly into startups that stay on an efficient.

And scalable way. Yeah. So that’s, that’s really, really good.

Andy Field: Fantastic. Oliver, thank you so much for sharing your valuable insights, your opinions with us today. It’s clear that ECSPR represents a big step forward for crowdfunding in Europe. And it’s actually exciting to think about how that could ripple into the, you know, the effects of that could ripple globally as well.

So, for those listening, if you’re involved in the crowdfunding space, whether it’s a platform operator, [00:22:00] entrepreneur, an investor, the changes we’ve discussed today that are already in place, they will have had a significant impact on the way you do business. , just be sure to keep an eye on how ECSPR is implementing itself and, and how it can benefit you.

And Oliver, thank you so much again for joining us. it’s been a pleasure having you on and thanks for taking the time to speak to us.

Oliver Gajda: Thank you very much, Andy.

Andy Field: Pleasure. No problem. And thank you to everyone for listening, for tuning into the GECA podcast. , stay tuned for future episodes. We’ve got several coming up in the near future.

We’ll continue exploring the evolving world of crowdfunding and the innovations that are shaping its future. So thanks very much. And we’ll speak to you soon.