The 28 countries of the European Union are a very long way from offering a homogeneous regulation environment for crowdfunding. This is particularly true of equity crowdfunding which touches on multiple heavily regulated areas of finance such as investment advice, securities trading, retail banking and corporate finance.
Few European countries have, like France, issued new regulations that are specific to investment crowdfunding. Most have, like Germany and the UK, rather tried to fit crowdfunding into the existing legal framework of capital investment and granted exemptions such as simplified prospectus. In the Review of Crowdfunding Regulation published at the end of 2014, the chairman of the European Crowdfunding Network, Olivier Gadja, goes as far as claiming that a harmonized single European market for crowdfunding “may even be further [away] than last year [in 2013]”. The reason? As crowdfunding was taking off, growing 100% or 200% a year in leading markets such as France and the United Kingdom, entrepreneurs and finance regulators have pragmatically negotiated legal frameworks at country level.
The result is now a hodge podge of disparate regulations that may make European equity crowdfunding harder to navigate than the traditional banking sector – after all the latter has years of European harmonization work behind it!
In this context, setting up an equity crowdfunding platform with pan-European ambitions is a daunting task.
Yet, that is exactly what a team of three entrepreneurs are setting out to do by launching Raizers, a new equity crowdfunding platform with a presence in France, Switzerland and Denmark. I spoke with Grégoire Linder, one of the co-founders.
Grégoire: We believe that there is a strong demand for crowdfunding investment at the European level.
Crowdfunding is about offering more and better opportunities to retail Investors, giving them the ability to participate in the capital of startups and small companies with high growth opportunities. This means giving them access to investing in companies outside of their own country. Investors who are ready to take risks should be able seize international opportunities and diversify their investments outside of their home country. This is part and parcel of the democratization of capital investment through crowdfunding.
From the point of view of the businesses seeking to raise capital through crowdfunding, it is also important for them to be able to address European investors. Performing small businesses don’t serve only their local country. On the contrary, they expand as quickly as possible into other countries throughout Europe. They can only benefit from having investors in every market they serve.
Therese: What made you choose the three countries of France, Switzerland and Denmark?
Grégoire: Our choice has been guided first by how we built our team. To be truly pan-European, you have to be represented in the countries you serve. It is necessary to know the local environment and communicate in local language with investors and businesses. We are an international team of three cofounders with complementary skills. I am based in France and have a rather general management experience, Maxime Pallain is based in Switzerland and has a more financial background and Jesper Fjordbak is based in Denmark and is more digital.
The countries we’re operating in are at different levels of maturity, which will allow us to roll out progressively.
In France, equity crowdfunding has already emerged. We’re one of the five equity crowdfunding platforms [1 ] that areregistered as “Conseil en Investissement Participatif (Crowdfunding Investment Advisor)”, the new company status that was created by the crowdfunding regulation that went into force on October 1st, 2014. We’re up and running in France with a first investment opportunity.
In Switzerland, there is no fully digital and open equity crowdfunding platform yet. Existing initiatives are more online business angel clubs than open crowdfunding platforms. There is not either a specific regulation or a project of regulation for crowdfunding. We’re working towards launching the platform in the first half of 2015 with a status of intermediary within the existing regulatory framework.
The Danish market for crowdfunding investment has been hampered by regulation, or rather by the lack thereof. There currently is no equity crowdfunding platform there. But this should change soon because crowdfunding at large, for example Kickstarter, is now growing fast in Denmark; and because the Danish government is expected to release a favorable crowdfunding regulation, similar to that of France. This could happen as soon as February. We would then be able to launch in the summer.
Grégoire: British competitors like Crowdcube and Seedrs are certainly the most advanced equity players in Europe. Together they do more business than the entire rest of Europe. At any point in time Crowdcube lists more investment opportunities than all French equity platforms together. Both Crowdcube and Seedrs are going international. They offer to British investors the opportunity to invest in foreign businesses, and they are open to foreign investors as well. Seedrs claims that one in three of their investors comes from outside the UK. Crowdcube has opened shop abroad by launching Crowdcube Spain and Crowdcube Poland last year.
But we’re not afraid of the competition. The equity crowdfunding market is still emerging. There still is plenty of unsatisfied demand because banks are not doing their job: they’re not lending enough money to small and midsize businesses and they’re not offering high-growth investment opportunities to small retail investors. Hence, there still is plenty of room for new entrants like us. We’re intending to differentiate ourselves by specializing in the financing of B2C businesses that the general public can more easily relate to.
As European entrepreneurs, we can’t wait for the perfect, harmonized regulatory environment to operate internationally. We’re used to dealing with cultural diversity and regulatory complexity. It is the cost of doing business here.
[(1) The five French equity crowdfunding platforms registered as CIP are WiSeed, Anaxago, Sowefund, Lumo, Raizers.]
Therese Torris is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She started covering crowdfunding and P2P lending as a Forrester Research director when Zopa was created in the United Kingdom. She publishes a French personal finance blog, Le Blog Finance Pratique and curates crowdfunding and peer-to-peer lending news on Scoop.It.