Improving the Role of Equity Crowdfunding in Europe's Capital Markets

Abstract

Crowdfunding is a growing phenomenon around the world, however, there are several different models of crowdfunding. Despite the hype, equity crowdfunding is still the smallest. Due to exemptions in legislations, Europe has been at the forefront of this market development. Equity crowdfunding is more complex than other forms of crowdfunding and requires the proper checks and balances if it is to provide a viable channel for financial intermediation in the seed and early stage market. It is important to explore this new channel of funding for young and innovative firms given the critical role these start-ups can play job creation and economic growth in Europe. In this paper, we assess the potential role of equity crowdfunding in the overall seed and early stage financing market and point out the potential risks of equity crowdfunding. We describe the current state of play in this nascent industry considering both the innovations introduced by market players and existing regulation. Finally, we discuss the policy implications from our analysis recommending that the current patch-work of national legal frameworks related to equity crowdfunding is addressed.