Equity Crowdfunding: A Global Snapshot

Crowdfunding platforms are growing in their size and sophistication exponentially throughout the globe. Their benefit transpires through the growth in the collaborative economy, where investors are able to support budding entrepreneurs. With over $60,000 raised hourly through crowdfunding to support business start-ups in 2014 (TheCrowdDataCenter) and the number of small business loans dropping 32% since 2008 (TABB Group), countries are increasingly recognising the need for and importance of alternative business funding.

As a fast growing, multi-billion dollar industry, crowdfunding enables the simultaneous independence and interconnection with traditional funding sources. With $2.7 billion raised in 2012, $5.1 billion in 2013 (The Crowdfunding Industry Report) and a projected amount of $17 billion in 2015, crowdfunding is reinventing the way companies are able to create investor interest and business traction. Crowdfunding platforms facilitate this by generating exposure to the broader market and investor base.

The key crowdfunding platforms include (by amount of capital raised, sourced from The Crowd Cafe):

  1. FundingCircle (Debt funding, based in GBR, raised $58,100,000)
  2. Fundrise (Debt & equity funding, based in USA, raised $31,000,000)
  3. OurCrowd (Equity funding, based in ISR, raised $25,000,000)
  4. Angellist (Equity funding, based in USA, raised $24,000,000)
  5. CircleUp (Equity funding, based in USA, raised $23,000,000)
  6. Mosaic (Debt funding, based in USA, raised $11,000,000)
  7. RealtyMogul (Debt & equity funding, based in USA, raised $9,500,000)
  8. FundersClub (Equity funding, based in USA, raised $6,463,000)
  9. SeedInvest (Equity funding, based in USA, raised $5,230,000)
  10. Seedrs (Equity funding, based in GBR, raised $4,568,000)

Despite the leaders of the market being located in the US, UK and Europe, countries such as Canada, New Zealand and Australia, as well as Asia are slowly starting to pave their way into the crowdfunding market. As legislation continues to be passed and advocated by the EU, platforms are rapidly expanding throughout Europe. 

A support for crowdfunding activity is also evident in Asia, with SeedAsia being launched in China, CrowdBaron in Hong Kong and a Eureeca platform in the Middle-East. In spite of the growing nature of crowdfunding worldwide, regulatory frameworks slowly trail behind. In order for crowdfunding to gain momentum and enable to open a new realm of global opportunities, supportive legislation is vital in order to facilitate the growth of investment-based crowdfunding platforms. However, keeping the balance in regulatory frameworks is vital, as too much burdensome regulation can limit the growth and profitability of crowdfunding platforms.

The current regulatory environments are:

  • Development of the Jumpstart our Business Start-ups (JOBS) Act 2013 allowed the “general solicitation” of private placement share offerings and encouragement of small business funding by easing regulations. The JOBS Act permit’s non-accredited investors to participate in crowdfunding markets, however limits their exposure.
  • UK: Crowdfunding is currently regulated by the Financial Services and Markets Act (2000). Equity crowdfunding providers require the approval of UK’s Financial Conduct Authority (FCA). However, the FCA has been consulting on new regulation to prompt a better understanding of crowdfunding risk and allow investment-based crowdfunding to be accessible to a wider audience.
  • Europe: Crowdfunding laws depend on national regimes. Nevertheless, the European Commission is urging countries to update the laws in order to facilitate the opportunity for SMEs to raise capital and create job opportunities.
  • Australia: Current laws make equity-based crowdfunding illegal and require burdensome disclosure and compliance requirements, making crowdfunding unfeasible. In March 2014 CAMAC has released a report, which prompted a legislative initiative to facilitate crowd sourced equity funding (CSEF).
  • New Zealand: The crowdfunding market is currently regulated by The Financial Markets Conduct Act 2013. New Zealand companies are able to raise up to $2 million worth of capital through a licensed equity platform within a 12 month period.

As the crowdfunding market is projected to reach $17 billion globally by 2015, it comes at no surprise that countries and regulators are beginning to recognise the importance of facilitating an environment that supports, and not confines, crowdfunding activity. The future for crowdfunding is bright, but it is in our hands to understand what defines crowdfunding, how the current laws shape crowdfunding potential and what works best for entrepreneurs, investors and our communities.

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