The European Commission has thrown its support behind crowdfunding as an essential component for assisting Capital Markets Union (CMU).
In a 3 May report, the Commission says that broadening access to finance for innovative companies, start-ups and other unlisted firms – including SMEs – is at the heart of the continent’s CMU Action Plan.
“On average,” it notes, “around 60% of start-ups survive the first three years of activity, and those that do contribute disproportionately to job creation.
“Young firms account for an average of only 17% of employment, but they create 42% of new jobs. Therefore, the success of these firms is crucial to the future of jobs and economic growth in Europe.”
However, the report points out, securing investment finance is “challenging” for such firms amid current economic conditions – particularly when they attempt to move out of the start-up phase and into expansion.
That said, significant progress has already been made on the Investment Plan for Europe – unveiled in late 2014 – which aimed to mobilise €315bn of public and private funds between then and 2017.
The initiative – which, according to recent media coverage, has so far unlocked €82bn of new investment – was built around three pillars:
The report notes: “As stated in the CMU Action Plan, the Commission’s top priority is to stimulate investment to create jobs and increase Europe’s competitiveness.” With that in mind, it notes CMU’s role will be to “reinforce the third pillar of the Investment Plan for Europe”.
In that context, according to the report, crowdfunding “is one of many technological innovations that have the potential to transform the financial system. Therefore, [it] warrants consideration as part of our broader approach to fintech and the digitalisation of financial services, which is being looked at further in the Green Paper on Retail Financial Services”.
To promote the growth of crowdfunding while ensuring that investors are protected, the report adds, EU Member States “have put in place a range of measures to regulate [the segment] – either using the EU legislative framework, where appropriate, or via national regimes.
“These national frameworks are broadly consistent in terms of the objectives and outcomes they seek to achieve, but are tailored to local markets and domestic, regulatory approaches. Given the predominantly local nature of crowdfunding, there is no strong case for EU-level policy intervention at this juncture.”
In conclusion, the report says: “Crowdfunding is still relatively small and needs space to innovate and develop. Given [its] dynamism… and the potential for future cross-border expansion, it will be important to monitor the development of the sector and the effectiveness, and degree of convergence of, national regulatory frameworks.”
The Commission will structure that monitoring around twice-annual meetings with policymakers, regulatory authorities and industry stakeholders.
EU commissioner for CMU and financial stability Jonathan Hill said: “As part of our work to improve the funding conveyor belt for businesses, we are keen to support the development of crowdfunding models as a source of financing for entrepreneurs with bright ideas, start-ups and other SMEs.
“Our focus is on promoting best practice, appropriate investor protection and consistency of national regimes. We will continue to monitor market and regulatory developments closely.”
Prominent business group EBN – a network of more than 160 EU innovation centres, accelerators and start-up incubators – welcomed the report’s positive tone.
“We are very happy with the support shown by the European Commission to crowdfunding initiatives all across Europe,” said CEO Philippe Vanrie. “Many of our members are already working day-to-day with their start-ups to leverage crowdfunding, making clear that this is an increasingly significant financing model.”