European Commission: Public Consultation On Crowdfunding – Frequently Asked Questions

See IP/13/906

1. What is crowdfunding?

Crowdfunding is an emerging alternative form of financing that connects directly those who can give, lend or invest money with those who need financing for a specific project. It usually refers to open calls through the internet to the wider public to finance specific projects. Promoters of an initiative can collect funds directly; however, a web-based intermediary, a so-called ‘crowdfunding platform’, will often assist in publishing campaigns and collecting funds. In exchange they often charge a fee. While calls for funds to the public are not new, the phenomenon of using the internet to directly connect with funders emerged recently. Crowdfunding can take many forms, ranging from simple donations or rewards-based schemes through to pre-sales, peer-to-peer lending and investments in equity.

2. How widespread is crowdfunding in the EU?

The practice is becoming more and more wide-spread since the financial crisis, as banks’ lending activity is reduced and access to finance is more difficult. In 2012 crowdfunding in Europe saw an estimated 65% growth compared to 2011 and reached €735 million¹. This figure is promising compared to the shrinking European venture capital market of €3 billion², although it stays modest if compared to the European initial public offering (IPO) markets (in the range of €16.5 billion)³.

3. What are the benefits of crowdfunding for the economy?

In the context of SMEs' finance ecosystem, it appears that crowdfunding may respond to the needs of many small start-ups that do not manage to access bank finance, venture capital or reach the stage of IPO. Crowdfunding could thus contribute to bridging the finance gap for small firms and innovative projects and usefully complement other sources of finance. Better access to finance for small businesses would promote entrepreneurship and ultimately contribute to growth and job creation.

Crowdfunding creates opportunities to turn larger groups of people, who otherwise would not have access to traditional channels of finance, into small-scale entrepreneurs. It introduces competition to other sources of finance, and as it is often used by innovative, artistic and social projects, it promotes innovation, culture and social entrepreneurship.

4. What are the risks of crowdfunding?

Some of the most relevant issues for all crowdfunding models are:

• risk of fraud (when the money collected is not used for stated purposes)

• advertising and advice by promoters or platforms may be misleading

• how platforms treat payments, whether reclaimable contributions are returned.

5. Why this public consultation?

The aim of this public consultation is to explore how EU action, including a range of soft-law measures, could promote crowdfunding in Europe. Crowdfunding has many promising benefits that fit with the objectives of the European Commission. The Entrepreneurship 2020 Action Plan (see IP/13/12) aims to increase the level of employment through reinforcing entrepreneurship across Europe. It invites Member States to "assess the need of amending current national financial legislation with the aim of facilitating new, alternative forms of financing for start-ups and SMEs in general, in particular as regards platforms for crowd funding". See also MEMO/13/393 - Improving access to finance for SMEs: key to economic recovery.

Responses to the Green Paper “Long term financing of the European economy” (see IP/13/274) also confirmed that crowdfunding – alongside many other initiatives – can play a role in promoting access to finance for sustainable and inclusive growth. The European Council in its June 2013 conclusions emphasised the need to develop alternative sources of financing in close cooperation with Member States. The workshop on crowdfunding of 3 June 2013 organised by the European Commission in Brussels confirmed that it was timely and necessary to assess where European action could add value to nurture the growth of this new form of financing, while ensuring an adequate level of protection of contributors.

6. Who should answer?

Anyone with an opinion on crowdfunding is invited to fill in the questionnaire by 20 December 2013. People who might contribute to, or launch, a campaign, crowdfunding platforms, national authorities, academics, associations and all other interested parties are encouraged to answer.