Executive Summary

GECA recently hosted a roundtable discussion on Maximising ECSPR’s Impact, focusing on key issues such as SME funding, regulatory convergence, and the future of crowdfunding. Moderated by Andrew Field (GECA), the discussion featured industry experts Janine Donoghue (Green Crowd, Ireland), Nik Makris (Brikbee, Greece), Richard Austwick (BMS Group, UK), Clive Reffell (Crowdsourcing Week, UK), and Konstantin Boyko (Lenderkit, Netherlands).

The conversation centered on leveraging the European Crowdfunding Service Providers Regulation (ECSPR) to bridge SME funding gaps, achieve regulatory convergence, and build investor trust. Experts explored challenges, opportunities, and strategic insights to scale the equity crowdfunding sector, including:

  • Addressing SME funding gaps, particularly in sustainability and innovation.
  • Strengthening investor confidence through transparency and regulatory alignment.
  • Positioning equity crowdfunding as a viable complement to traditional financing.
  • Overcoming market fragmentation and expanding cross-border operations.

This report distills the roundtable’s key discussions into practical strategies for stakeholders, aiming to unlock ECSPR’s full potential and accelerate equity crowdfunding growth across Europe.

Context: The state of play for Equity Crowdfunding in Europe

The European crowdfunding market, despite significant growth, remains underdeveloped in equity funding, accounting for only 6% of total crowdfunding activity. ECSPR, introduced in November 2021, aims to harmonize regulations across member states, creating a unified market for investment- and lending-based crowdfunding. However, slow adoption and persistent regulatory disparities have limited its potential impact.

Key Statistics:
  • €600M in crowdfunding securities raised in 2023 – a testament to the growing relevance of the sector.
  • 65% of total crowdfunding funding through loans, highlighting a reliance on debt-based instruments.
  • 159 authorized crowdfunding platforms across the EU, with significant activity in France, the Netherlands, and Lithuania.

The discussion underscored the need for a coordinated effort to make equity crowdfunding a viable financing solution, particularly for SMEs in sustainability, digitalization, and innovation.

Unlocking ECSPR’s Potential for SME Funding

Bridging the Funding Gap

Participants emphasized the potential of ECSPR to address the €800 billion annual funding gap in the EU for critical sectors. Equity crowdfunding can complement traditional financing methods, but its growth depends on:

  • Investor Education: Many SMEs and potential investors remain unaware of the benefits and mechanisms of equity crowdfunding. Janine Donoghue noted that outreach to financial brokers and advisors could bridge this gap.
  • Targeting Niche Markets: Platforms like Green Crowd (Ireland) have demonstrated the efficacy of niche approaches, (for example, they focus on renewable energy projects). These specialized platforms can attract mission-driven investors and address underserved sectors.
Hybrid Financing Models

Nik Makris proposed some thinking around hybrid instruments blending equity and debt characteristics, such as mezzanine debt or preference shares. These products could offer investors clearer exit strategies, increasing their appeal compared to traditional equity models. Real estate and shipping were highlighted as sectors where such instruments could thrive.

Building Investor Confidence

Transparency and Standardization

Investor trust remains a cornerstone of crowdfunding growth. ECSPR’s provisions for standardized disclosures and risk warnings were debated. While some participants doubted their efficacy, they acknowledged their potential to align investor expectations and reduce information asymmetry.

  • Smart Contracts and Escrow Mechanisms: Clive Reffell highlighted the role of blockchain-based platforms in ensuring staged payments based on performance milestones. Such mechanisms could mitigate investor losses and enhance accountability.
Combating Negative Perceptions

Public skepticism about equity crowdfunding persists, with accusations of inflated valuations and inadequate due diligence. To counter this, platforms must:

  1. Strengthen Due Diligence: Platforms must rigorously vet projects to avoid defaults and fraud.
  2. Launch Awareness Campaigns: Unified marketing efforts by industry communities like GECA could reshape public perceptions and showcase success stories.

Achieving Regulatory Convergence

Challenges of Fragmentation

The roundtable identified regulatory inconsistency across member states as a significant barrier to scaling crowdfunding platforms. While ECSPR provides a framework, local regulators’ varied interpretations and licensing timelines hinder convergence.

  • Case Study: Greece: Nik Makris shared that the 14-month process to obtain a license disrupted business planning. Such delays are unsustainable for smaller platforms and discourage cross-border expansion.
Proposed Solutions
  1. Regulatory Knowledge-Sharing: Konstantin Boyko and others suggested establishing working groups to share best practices and align regulatory interpretations.
  2. Centralized Resources: It was suggested that ESMA could play a greater role in creating shared resources for regulators, reducing disparities in experience and expertise.

The Path to Scalability: Overcoming Market Barriers

Market Fragmentation

Fragmented markets, driven by linguistic, cultural, and economic differences, complicate cross-border operations. Participants advocated for:

  • Localized Partnerships: Platforms should collaborate with local entities to bridge knowledge gaps and access untapped markets.
  • Pooled Resources: Collective marketing and technology initiatives could lower entry barriers for smaller platforms.
Developing a Pan-European Secondary Market

Liquidity remains a critical challenge for equity crowdfunding. A pan-European secondary market could provide investors with exit opportunities, enhancing the sector’s appeal. This initiative would require collaboration between regulators, platforms, and financial institutions.

Strategic Recommendations for Stakeholders

For Platforms:
  • Invest in investor education and transparent communication.
  • Explore innovative financing instruments, such as hybrid models and smart contracts.
  • Focus on niche markets to build competitive advantages.
For Industry Bodies and Policymakers:
  • Conduct pan-European awareness campaigns highlighting crowdfunding’s potential.
  • Facilitate partnerships between platforms to share best practices and resources.
  • Advocate for regulatory clarity and alignment at the EU level.
For Regulators:
  • Streamline licensing processes and reduce approval timelines.
  • Foster regulatory harmonization through structured knowledge-sharing initiatives.
  • Encourage the development of secondary markets to enhance liquidity.

A Unified Vision for Equity Crowdfunding

The GECA roundtable marked a pivotal step in aligning stakeholders around a shared vision for the future of equity crowdfunding. By tackling regulatory fragmentation, investor skepticism, and market barriers, the sector can unlock its full potential as a critical tool for SME funding and economic growth.

GECA and its supporters are uniquely positioned to lead this transformation, leveraging ECSPR to foster a thriving, inclusive, and scalable crowdfunding ecosystem.

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