ast month, The European Council published a big institutional file regulating the inner workings and legal status of crowdfunding service providers. The document gives a much better legal framework for regular crowdfunding, and equity crowdfunding campaigns, which can open up new avenues for investors and startups.

The law is a much-needed breath of fresh air. Countries in Eastern Europe were, for a really long time, reliant on legal entities incompatible with modern means of raising funds. While that’s not bound to change too quickly, and entrepreneurs from a lot of countries still rely on SMB, limited responsibility type entities to build their startup, the regulation can open up new avenues for development.

Platforms like SeedBlink, a Romanian equity crowdfunding platform, can now have a clearer foundation for their activities. But let’s dig deeper.

What Does The Regulation Say?

First, it mandates all member states to formally recognize crowdfunding platforms:

“A legal person that intends to provide crowdfunding services shall apply to the competent authority of the Member State of establishment for authorization as a crowdfunding service provider.”

In and of itself, that’s a big step forward. There’s no telling when all member states will comply, and to what extent that compliance will be beneficial, but the intent of the law is clear.

Besides a better framework, The EU recognizes the high risk usually associated with early seed investments or disruptive ideas that have the chance of going downhill. That’s why the law has a lot of consumer protections, like:

“1. Crowdfunding service providers shall, before giving prospective non-sophisticated investors full access to invest in their crowdfunding projects, assess whether and which crowdfunding services offered are appropriate for the prospective non-sophisticated investors. 
2. For the purposes of the assessment pursuant to paragraph 1, crowdfunding service providers shall request information about the prospective non-sophisticated investor’s experience, investment objectives, financial situation and basic understanding of risk in investing in general and in the types of investments offered on the crowdfunding platform, including information about:[..]”

And of course, all the ratifications and “asterix” clarifications you’d expect from European law, especially regarding the institutional involvement of member states in the application of these new regulations. If you’re interested in giving it a read through, you can find it here.

And we’re bound to expect ratified versions in the coming years, and different levels of implementation for all member states.

But the law opened up a very interesting discussion.

What is equity crowdfunding?

And why is it such a big deal?

Startups need investment to scale.

Sure, you can bootstrap anything into the stratosphere if you’re in the right market and mindset, but for most of us, financing rounds are important.

Investments, in general, are really important. Whether we get them after bugging our friends and family, or get them from a big fund, they’re vital.

Equity crowdfunding is one of the means you can access funds for your startup.

Basically, you get financed by the crowd online, and they get securities. The companies raising capital are usually private companies, and the entrepreneur has a lot of leeway in dictating the terms of the investment, at least when compared to a classic investment round.

It’s a viable system.

And even if it’s not as prevalent, it’s growing fast.

One of the hurdles, however, even in the United States, is regulation. States are not always quick to adapt to new market trends, but the EU just took a big step forward with this piece of legislation.

So Who’s In On The Game?

As we said, equity crowdfunding is attracting a lot of attention.

In the UK alone, there are 41 platforms for equity crowdfunding and since its beginnings, about £130 million have been raised in this manner.

Go over the pond and the numbers get mind-boggling. So it’s clear that there’s a lot of potential for this type of platform, and the EU sees that too. It’s obvious from the reasoning behind the new piece of legislation:

“Crowdfunding is increasingly an established form of alternative finance for start-ups, small and medium enterprises (SMEs), typically relying on small investments. Crowdfunding represents an increasingly important type of intermediation where a crowdfunding service provider operates a digital platform open to the public in order to match or facilitate the matching of prospective investors or lenders with businesses that seek funding, without the crowdfunding service provider taking on own risk.”

But it’s not just the EU council that’s hyped about this opportunity. A lot of equity crowdfunding platforms cropped up throughout the years, and here are the best ones you can use to get investments for your startup if you’re from the Old Continent:

Your country not on the list?

If you have a killer startup idea and you want to give equity crowdfunding a try, you can always just register for a digital citizenship in Estonia and go for Funderbeam.

But we wanted to dig a bit deeper into this whole equity crowdfunding deal. That’s why we interviewed Andrei Dudoiu, CEO of SeedBlink, and you can listen to the full podcast episode here.

We spoke at length about his experience in this world, and you’ll also get some tips on how to raise capital using equity crowdfunding.

So now we pass it on to you.

What do you think?

Is equity crowdfunding a great way to raise capital? 

Or would you stick with the classic VC or Angel Investor?

May 12, 2020

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