Andy Field: Hello everybody. Welcome to the latest episode of the GECA Podcast, the voice of Global Equity Crowdfunding. I’m Andy Field Steering Committee lead of the Global Equity Crowdfunding Alliance, and this podcast is where we speak with the leading voices shaping the future of capital raising across borders.

Today I’m joined by Karsten Wenzlaff. Karsten’s, a leading voice in digital finance and crowdfunding. He’s also Secretary General of the German Crowdfunding Association, a board member of the European Digital Finance Association, and most recently he’s joined us here at GECA as a member of our steering committee.

Now, Karsten’s been deeply involved in the design and implementation of the European crowdfunding service providers regulation or E-C-S-P-R, as it’s known, a landmark piece of legislation that aims to harmonize crowdfunding across Europe. So today we’re gonna be talking about his journey, the lessons that we can learn from Europe’s approach and what motivated Karsten to bring his expertise to GECA. So welcome Karsten and it’s great to have you here on the podcast.

Karsten Wenzlaff: Yes, thanks so much. I really enjoy it. And thanks for all that you do at GECA.

Andy Field: Oh, no problem at all. It’s, it is great to have you on board and I think actually we can jump straight in with the questions, the Q&A if you like. So you’ve, long time been a, central figure in Europe’s crowdfunding ecosystem. And I’d love to know a little bit more about your journey, how you first became involved in crowdfunding and digital finance.

Karsten Wenzlaff: Yeah, I was working as, a sort of volunteer at the campaign of Barack Obama in 2008. And he was one of the first politicians to really use crowdfunding and massive online donations in his campaign. And that got me interested in all of these topics of digital fundraising, but also community building. It’s, it was all about not just gathering money, for the purpose of just financing a project, but really about creating a community of people who are enabling an entrepreneur.

And, that led me to reach out to a number of the platforms, which started in around 2010 and 2011 when Kickstarter had a big, like a massive, discussion in Germany. And, what happened was that, we had created a, informal exchange between the platforms and I was just interested to facilitate this exchange because I wasn’t running my own platform. They saw me as the neutral moderator of this group of German crowdfundings. And, this was called the German Crowdfunding Network, which was just an, like an informal association. And then in, 2014, there was a law which was trying to support consumers and increase consumer protection.

But, it, at the same time would’ve made it illegal to use crowdfunding. So this was, very difficult for the whole industry. We had a couple of equity crowdfunding platforms by this time and lending based crowdfunding, and they all came and then they said, Karsten, you have some background in organizing and campaigning and working in politics. So then they asked, do you want to be the Secretary General of the crowdfunding association where the platforms become members and pay for this? And yeah, that’s what we did. So next year, we are going to be celebrating our 10 year anniversary. Actually, we were founded in 2015. But the official registration was in 2016.

So that’s why we are gonna have a big party in Frankfurt next year. And, and since then, it’s been a really interesting journey because I was early on, involved with European Commission and shaping the E-C-S-P-R, as you mentioned, we had, a what was called the European Crowdfunding Stakeholder Forum, which was essentially a way for the commission to understand the market and, discuss some proposals on the regulation. Yeah. And, then, through that I met a lot of people who are also involved in crowdfunding still, the steering committee member, Florence de Maupeou, for instance, who’s really active and that, and we decided that we need to work closer together, on equity crowdfunding.

On lending crowdfunding as well. And, if, so we created a, also like a working group where all of us met every month and still meeting every month to discuss things which are happening in the ECSP space. But eventually we thought, okay, we need to also have another, we need to have a formal European way of working together. So we joined the European Digital Finance Association, which is a FinTech advocacy. But we fitted in really well. Our proposition to this FinTech organization was we have lots of expertise in crowdfunding and, we know the ECSP really well, but we don’t have a big umbrella organization on the European level for the associations.

And we joined forces and this is essentially the story how I ended up in the European crowdfunding ecosystem and the German one.

Andy Field: Amazing. I guess that’s, so it is coming up to 10 years now that you’ve been involved, certainly in the German Association and you played leadership roles now in both, obviously the German Crowdfunding Association, but also the European Digital Finance Association, which you just mentioned, that you’ve got involved with your now part of the leadership team of that organization. So what have been your main priorities? Just fairly quickly, what have been your main priorities in these roles and what impact have you seen in that sort of, in that 10 years?

Karsten Wenzlaff: Yeah, so in the European Digital Finance Association, I mostly work as Research Director because I have this background also in alternative finance research. I’ve been teaching there. I’ve worked with the universities like Cambridge together. We’ve published a number of reports and so that’s why I decided I wanted to strengthen the connection between the crowdfunding platforms and the researchers, because I think it’s really important that the data which the platforms have is used to explain better what works on the platform and what doesn’t, what works about this market and what doesn’t. And researchers often, they have really good ideas, but they lack this access to data.

So that’s my view and I, we’ve, the impact on just this specific area is really phenomenal. We have a conference, which all of us meet. It’s called the International Conference on Alternative Finance Research. This year it was in Norway. Next year it’s going to be in Malaga and Spain. And this is where practitioners meet the researchers to discuss what is happening in the crowdfunding space. So that’s the really, the impact that I think has been achieved getting these two worlds, which sometimes think quite differently together into one space.

Andy Field: Yeah. And that can often be very difficult. I can appreciate that. Fantastic. Okay, what, so you, a couple of months ago, you very kindly accepted the invite to join the GECA Steering Committee. We obviously recognize your great experience in the European industry, certainly and actually further afield as well. So what do you hope to contribute to the global conversation that we’re having? And, I think we’re having more and more of those as the sort of the days go on actually with GECA. How do you feel you are going to contribute to that?

Karsten Wenzlaff: First of all, I want to really say that I actually benefit from this quite a lot because I learned so much, just by interacting with the other experts. And, I have told so to my members, I said, if you are just to understand what is going on in the other ecosystems, across the Atlantic Ocean, but internationally as well, it’s important to become part of that conversation. And since GECA is a very open format, in that sense, there’s no, yeah, there’s if you want to contribute, you can.

Andy Field: Yeah.

Karsten Wenzlaff: I find it really helpful to learn. So that’s important. And then, in terms of what I would like to do, I think there’s, I’m fully aligned with the vision of GECA, which means to create a truly global crowdfunding ecosystem.

Andy Field: That’s right. Yeah.

Karsten Wenzlaff: So I imagine, three crowdfunding campaigns that I would like to see. I would like to see a startup, maybe in the area of deep tech or quantum computing, which uses crowdfunding by maybe a platform from the United States, a platform from Germany and a platform from Singapore jointly raising enough money to really drive the innovation and have the crowdfunding, the equity supporters be part of the, I would like to see this. And the second thing which I would like to see is I would like to see more of projects where people invest into renewable energy and the transition into a climate friendly energy production.

And it should be those people, like in the colder countries in the north, they might have more money to invest in the global south, where actually would make sense to create these kind of projects. And so I would like to see more of these global financing flows for renewable energy. And and then the last thing, what I think is also important is, I understand that crowdfunding, when it started, it was very much about just the retail investors, just small tickets. But nowadays, I have the feeling that crowdfunding becomes more and more also an interesting opportunity for institutional investors.

So I think especially public institutional investors, people who want to make it easier to facilitate certain investments into specific areas. And this is also, I think, very important that we try to showcase best practices how we have public money flowing into innovative, but sometimes risky investments. And, but helping the crowd to both understand the risk they’re taking, but also maybe taking away a little bit of the fear of maybe these projects if they are too big or going across borders bringing the public investment side and the private capital together on these platforms would be one of my missions as well.

Andy Field: Great. Great. That’s very clear. Yeah, and I think obviously there are going to be some challenges around that, which is obviously one of the things that GECA is trying to certainly identify and then address. Now just moving on to Europe. Europe has already made a start in its efforts to harmonize the crowdfunding regulation, certainly through, we’ve already mentioned that E-C-S-P-R. Now for those less familiar with E-C-S-P-R, could you briefly explain what it is and why it matters?

Karsten Wenzlaff: Before the E-C-S-P-R, if you were operating a crowdfunding platform in one country and you had to, wanted to open up another office in another country, you would have to get a local license and in some European countries there wasn’t even a specific license. There was no regime in place, so people had to play around with all kinds of other licenses, like stock broker license, brokerage licenses, etc. And the E-C-S-P-R now makes it possible that once you get the license in your home country, from your regulator, then you can passport your services into all of the EU member states.

You do not have to ask for permission. You have to take care. For instance, there’s things about communication and language, etc, which are still localized, but for most of the platform operation, you have one regime which you can use to operate in a lot of the countries. And the great benefit is also for SMEs, especially for SMEs in smaller countries, they can now use platforms which have a bigger investor community because they operate across borders. I often see startups especially who will use the equity crowdfunding also as an introduction, like for their marketing and finding new customers. Not just investors, but new customers as well. And for them, of course, it’s helpful to have a big community out there.

Yeah. This is essentially the big benefit of the E-C-S-P-R and then the, for the platforms also, the E-C-S-P-R has a very long text, etc, but when we did, when we’re discussing this with the European Commission and the European Parliament, we also emphasize that often for a platform it’s easier to have regulatory clarity where they know, okay, in order to do this, they need to do this and this. Rather than having regulatory uncertainty where they have to invest heavily to pay lawyers or consultants in order to understand if they’re doing this correctly or not. So therefore the, it’s a big text, but I think it’s possible to get through it. And, I think also the associations on the national part, they now really try to help also new platforms to be compliant because they don’t want the new platforms to create any issues in the market because this would have a negative impact on the reputation of everybody.

So everybody is trying to help, getting everyone else into a good shape to be able to have a good compliant crowdfunding regime.

Andy Field: Okay. So the benefits are fairly clear, but from, I suppose you were involved in the design of E-C-S-P-R and to a certain extent the implementation as well. So from your perspective, what have been the biggest challenges? Probably more so in the implementation of E-C-S-P-R rather than the design. But I’m sure there were some challenges in the design as well.

Karsten Wenzlaff: In the design there were lots of debates about, for instance, the limit. And there are countries where the government said that the 5 million Euro threshold, which is there right now, is too high. And there were other countries where they said, why don’t we go for 8 million or even higher. So in the end, this was essentially a compromise to go to 5 million euros, but this is something to be evaluated right now, and I think it’s going to change. It’s going to be increasing its scope, etc. So that’s, that was good in the design. Then certainly, the challenge in the design is that still, of course, the text has to be implemented by the national regulators, and we have seen national regulators, which have done a very, we’ve been very quick and very favorable.

But some of them also have been a little bit pushing against it. So as an example, in the E-C-S-P-R, if you as a platform, if you apply to your regulator, then within three months you should have a positive or negative answer. Yeah. And, because you don’t want to be hanging around in limbo for forever. Essentially this is not what happened in some countries. The regulator was able to process these licenses application within six weeks, and then they had the license, everything was fine. And in other countries it took them sometimes 18 months because they were going back to the platform, asking for more information and then would drag this process along.

Yeah. So that’s one of the challenges but this is also something what we are doing. So by the time I think this podcast will be published, we will have released a report which talks about the challenges in implementation and we are listing country by country what the regulators are doing well and what they’re not doing well and we are, yeah. And so this I think would be helpful to put pressure on those regulators, which are a little bit dragging their feet. And, also showing that some regulators are very much up to the speed of the game and they’re trying to solve the issues having dialogue with the platforms, giving them guidance, etc.

And you can see this in the data, you can see that when you have a regulator whose very much trying to get this workable and has this dialogue with the industry, then platforms are going to move to that jurisdiction because they will know that this regulator listens to them and that they can get things done. And if a regulator continues to stall and to keep it difficult, then people are moving out of the country and moving to a different. So it’s having an impact.

Andy Field: Yeah, absolutely. Yeah. So this is a report presumably from European Digital Finance Association.

Karsten Wenzlaff: Yeah.

Andy Field: And it’s going to rely, and you’re doing a lot of the hard work if you like, you’re doing a lot of that research to help the regulators, and I suppose it’s going to rely on the regulators’ willingness to learn from each other and understand what other regulators are doing well, and like you say, and what perhaps could do with some work and some changes. So it would be interesting to see how they, how the regulators across Europe react to that report.

Karsten Wenzlaff: For sure, and I think it’s partially already happening. I mean we had this working group, for as I said, I mean we started with this, I think in, back in the 2015, 16 or so, and, but working on the ECSP also continuously since then. And so one of the, we had a meeting with all of the platforms and with the different associations and we asked, so what is the cost of licensing? How much do you actually have to pay both to the regulator? And also in legal fees. And we just compared, and we saw that in some countries you would have to pay 15,000 euros just to obtain the license and in others you would pay 300 euros.

Andy Field: Yeah.

Karsten Wenzlaff: And so just by doing that, you could say, it doesn’t seem to be fair.

Andy Field: Not a level playing field. Yeah, exactly. Yeah. Totally. Yeah.

Karsten Wenzlaff: Yeah. So this has changed already. So the countries in which there were these high licensing fees have reduced their fees, which is great. And so we already had an impact for the industry, and for sure. And the report I think is going to be especially helpful when we look at different interpretations of the law. And I think the regulators are not trying to do to be hurtful on purpose. It’s more that they come from a certain legal framework in which they have a certain interpretation of what it means to be compliant with a certain text.

And then, there is no mechanism on the European Union to battle this out, essentially we have to bring the regulators together and then, that already helps them to understand that maybe that they are going a little bit too much in one direction or the other direction. So that’s what we do. And then the commission, of course, they also look at this and see whether or not there will be any changes which they need to make to the legal framework. Yeah. Whether they need to clarify anything. And that’s going to be very interesting. We said in the report, we want a, we want to achieve a 1 trillion euro crowdfunding industry per year, which means we want 1 trillion euros to be on the platforms every year and, to get there, we need certain changes in the legal framework as well. And so we are pushing for that right now.

Andy Field: That’s, yeah, that’s really interesting. And we’ll make sure our supporters are aware of when that report’s published as well. So make sure everybody can view at least the headlines from that report. Okay. That’s interesting. So if we take that to the global lens now, so we already know that crowdfunding is, it should be inherently global. Entrepreneurs, investors cross borders digitally every day. What lessons from Europe’s E-C-S-P-R process design and implementation do you think are most relevant for other regions across the globe?

Karsten Wenzlaff: Yeah. So I think one of the things which the European Union did at the very beginning of this whole process was to develop four scenarios and put them essentially in front of everybody. Also, not just the industry, but also the regulators, governments, and also like consumer protection agencies and etc. What kind of scenario do you envision and essentially the choice which was given was that, one option could be to create an opt-in regime where you can choose between your national crowdfunding regime and a European one.

So, this was something which was discussed for a while. But in the end it didn’t come to that scenario because everybody said, if you have a crowdfunding platform, it should be clear to the investor how this platform is regulated.

Andy Field: Regulated, yeah.

Karsten Wenzlaff: So having two regimes at the same time is a little bit difficult. So that was one thing. Then the second thing was to create a sort of best practices regime where the European Commission would only identify which of the national crowdfunding laws are working best well, and promote that, etc. But, in the end, this was also rejected as a scenario because we said, we actually need a little bit more reliability on that. And we want not just, just some best practice recommendations, which are not binding. We want something binding.

Andy Field: Yeah.

Karsten Wenzlaff: And then, the question was to create a harmonized regime at the European level, which would be supervised also by ESMA and EBA, which are the two regulators for the industry. And so essentially create a regime where everything would be under the same framework and there would be no deviations. And this was also rejected because this was going too far because then the crowdfunding platform said, actually, the way, we want to interact with our local regulators because they also know our markets really well.

Andy Field: Yeah.

Karsten Wenzlaff: Etc. So what we end up, what the last scenario is essentially what we have right now. We have a European framework, which is implemented by the national regulators. It has these, it’s causing frictions of course, but the reason why this was also was quite beneficial because in the end, the local regulators have this ownership of the crowdfunding industry as well. So they, so that’s in my view, really important for the long-term development of this industry. So if I would expand this to the global market, I think what we need to do is we need to think in scenarios. We need to think about like how can we achieve easy wins through platform collaborations.

Etc, or very maybe simply, where we simply recognize each other’s crowdfunding frameworks as equivalent. Like you have this yes, principle based regulation where you say, okay, even if the law itself is different, it still is trying to achieve the same thing. So it’s the same principle. So therefore we will recognize each other’s frameworks. So that could be in the second step. So first platform collaborations within that framework. Then the second step would be trying to recognize each other’s framework. And then of course it would be interesting to develop criteria for passporting where you, when you are recognized already, you have an easier way of operating in another country. So passporting some of your services into another country would be really interesting. And then the last thing of course, but this will be really difficult to achieve, is to have a harmonized framework for a global equity crowdfunding campaign. And there’s no global rule maker in that sense. There’s no global legislation, which can bring this about. But what I would envision as a like for that, for the future maybe that the way it could work is that if you are a fully licensed platform in one jurisdiction, then you can offer crowdfunding service in another jurisdiction as well.

And by doing that would be the passporting aspect as well. But you could do this for campaigns which are truly global.

Andy Field: Yes.

Karsten Wenzlaff: So you would need local partners for your global campaign. And this would ensure that you would have a like a good use of the local ecosystem, but you would also be able to achieve this global reach. So what I mean with local partners, for instance, one of the things which we could talk about is that, like the platforms in Europe for instance, they are required to be audited once a year in terms of compliance. So we could say that, if you are trying to get a global crowdfunding platform, you need to have and want to operate in many jurisdictions.

You need to ensure that you are still compliant with the local jurisdiction and you need to find some sort of auditing to show that you are making an effort here. And so that could lead to these kind of global regimes eventually.

Andy Field: Yeah, that makes sense. And actually it follows on from a round table discussion we held recently and, it was yourself and we had Jenny Kassan, from the Crowdfunding Professional Association over in the States. We have Bruce Davis on from the UK crowdfunding association. And I think at the end of that, one of the sort of discussion points that we had was that this benchmarking exercise to almost establish a way for regulators to recognize each other’s frameworks is something that actually we need to make a, we make a start on. And I think we’ll have some more discussions around that in the future.

Karsten Wenzlaff: Yeah.

Andy Field: So that was, that’s really interesting and I guess that sort of leads me onto my next question, which is how you see GECA’s role in fostering that sort international alignment, or at least the cross pollination between regions. You already answered that question giving a range of possible ways that GECA could help in that. And I think in all of those scenarios, given the people that we have within the organization and supporting the organization, that discussions could be had and we could facilitate those discussions to help bring some of those about.

So just to move on to just the last sort of little bit about global collaboration. What do you think the biggest opportunity is right now for global collaboration in crowdfunding? And we’ve already mentioned the sticking points, but where would you see the biggest positive, the biggest opportunity?

Karsten Wenzlaff: So I have to say for instance, that even though I think I’m fairly informed about the US framework, they’re still small things, which I don’t know, obviously. And so for me, the GECA, you know, the different formats that you have developed are very relevant to get these sometimes also details right and understand like what are the issues, like for instance, the things we talked in the round table, how do disclosure documents, how do they have to be published and do they have to be validated by the regulator or not? Or do they have to be valid. Who’s liable for them in the end? So that’s really helpful to understand because it, it also, when I then talk to the German regulators or the European regulators, I can, I can say that, look, it’s, this is the way it’s being done in the United States in Singapore and India. And, tell them how they are benchmarking against these kind of comparisons.

Andy Field: Yeah.

Karsten Wenzlaff: So that’s really helpful already to have. So this kind of exchange of knowledge and just contributing to this almost like a library of knowledge about equity crowdfunding. But I think also, I want to see, I want to see platform collaborations as a first step. I would like to bring my members in Germany to meet with platform members from other countries, exchange with them it’s not gonna be easy in terms of maybe getting them all into one room somewhere, but just getting them into virtual workshops and exchanges would be very helpful.

And then the last thing, which I think is also, maybe an interesting idea for the future is, when platforms are trying to do these global projects, they sometimes lack the, or they would like to have someone else externally say that this is a good proposal for their investors. And we have some examples where we had, for instance, the African guarantee fund they were taking, or the Swedish guarantee funds, they were saying, this is a good project and we will guarantee some part of the investment.

Andy Field: So yeah.

Karsten Wenzlaff: Thereby and, this is in my view, a very easy way of supporting the industry. So what I would like to organize or to see on the GECA level is that we bring these kind of institutions together with the platforms, and the platforms can say, look, we don’t, maybe we don’t need your money primarily, what we need is a way of making sure our investors increase their appetite for risk, that they feel more confident, etc. And there’s all of these global partners like the the development banks, the guarantee funds, there’s a lot of big global FA partners.

However, right now they, right now they only focus on these huge scale investments. So if you want to raise a fund for a 500 million project in Africa, then you will have all of these institutional investors and public institutions on your doorstep, and they will try to help you with that. But if you do it for a small scale, maybe like a 1 million, 2 million, 5 million investment. It’s very difficult to get them even to even talk to you because they say, it’s not worth it. And the reason is not so much because they don’t want to, but simply because they’re not familiar with what the platforms do.

So we, as GECA what we can do is we can bring them together and give them a little bit more background information so that the step of interacting with the platforms isn’t such a big step anymore for them.

Andy Field: Yeah.

Karsten Wenzlaff: And that trust is built. The transparency’s there everything that seems to come up in every conversation that we’re having when we’re talking about collaboration, actually.

Andy Field: So yeah. That makes perfect sense. Okay. So, we’ve probably got about four or five minutes left. If we look ahead five years, how do you imagine that the crowdfunding landscape’s gonna look both in Europe and globally?

Karsten Wenzlaff: I truly hope that we get to close to the 1 trillion in terms of volume. Of course. Yeah. I do think there is right now a process where platforms are merging and consolidating, but this is normal because when the ECSP framework came up, everybody was trying to get the license. And so it is a lot of work to operate an equity crowdfunding platform. It’s not sufficient to just get the license and get a software. Like getting a good software is also helpful and we have in GECA people who are providing excellent crowdfunding software. But I just wanted to say, I think that it’s all about building that community of investors and that’s challenging.

And we will see platforms merging and then I think we will also have more institutional collaborations as I mentioned because in the European Union there’s certainly a drive by the current leadership of the European Commission to mobilize more private capital through public funding as well. And so it’s gonna come and the platform’s are going to benefit from it. And then on the global level, in terms of GECA, I think hopefully we see, at least, like a couple of dozens great examples of platform collaborations like for joint financing rounds, where we, where the platforms finance the same startup, maybe through an SPV, which is being set up in each jurisdiction and that contributes to the same startup in the end or something like that.

So I would like to see really a couple of good use cases for these global collaborations, but it would be really happy if we can get, if we can say that we have made it possible for the regulators and the platforms to come together.

Andy Field: Yes.

Karsten Wenzlaff: And exchange this way. So if we have created this dialogue, I think this would be also a perfect outcome for our very ambitious agenda. But I think, I think with a network that you’re building, I also have a really positive feeling about this because there’s so many competent, and knowledgeable and energetic people there. It’s fun to be part of GECA.

Andy Field: No, that’s great. And I, yeah, and I couldn’t have put it better myself in terms of summing up what we’re trying to do here. It is ambitious. We know there’s a lot of work to do. But there has to be a start made somewhere. And, we’ve done that I think over the past 12 months, and we’re really pushing forward now. Karsten, that’s pretty much all we’ve got time for. I just wanna say thanks for sharing all of those insights today and, we’ll have future discussions I’m sure and your work in Germany, across Europe, and now with GECA it’s really highlighted in the importance of what we just talked about actually, which is that collaboration piece, harmonization and vision in building the future of crowdfunding. Thank you very much Karsten. Really appreciate it.

Karsten Wenzlaff: Absolutely. You’re welcome. Thanks so much. It was fun.

Andy Field: Yes. Thanks so much and for our listeners, today’s conversation reminds us that while the challenges of global crowdfunding are very complex, we think they’re also they’re also solvable when people come together to share their knowledge, their expertise, and align their efforts. Thanks again, Karsten. And thank you all for tuning into the GECA podcast. Stay with us for future episodes as we continue to explore the people, the policies and platforms that are unlocking the true potential of Crowdfund Without Borders. And please make sure that you follow GECA on LinkedIn. Visit thegeca.org to learn more about our mission and our growing supporter base and how you can get involved. Thanks everybody, until the next time.