The European Crowdfunding Market Survey 2023 has been published by a consortium of European entities, including the University of Agder’s School of Business and Law – Center for Crowdfunding Research, LenderKit, and CrowdSpace. In past years, the Cambridge Centre for Alternative Finance (CCAF) has published a comprehensive report on online capital formation. This new report focuses solely on Europe but provides important insight into the development of the market. As the EU is now migrating to a pan-European regulatory environment under ECSPR [European Crowdfunding Service Provider Regulation], the industry is in a period of transformation.
The inaugural report covers debt and equity, as well as “noninvestment” platforms. As CI typically does not cover rewards platforms (e-commerce) and donations (charity) as applicable to the online capital formation sector, we will focus on the securities section of the report.
In the forward, Professor Rotem Shneor, well-known in the global crowdfunding world and a longtime supporter of the industry, said the report presents research into the current state of the industry in Europe, addressing “questions relevant for all key stakeholders including platform managers, fundraisers, backers/investors, as well as regulators and educators.”
“Unsurprisingly, public interest in crowdfunding continues to grow thanks to its potential to aid and serve individuals and businesses, carrying promises of more democratized finance and improved access to badly needed finance in a variety of sectors. This is especially true at times when traditional actors become more apprehensive while overlooking important segments in the economy.”
LenderKit CEO Konstantin Boyko called the research a “preliminary step towards more comprehensive research and a commitment to exploring the evolving crowdfunding landscape in greater detail.”
As defined by the researchers, equity crowdfunding is inclusive of real estate ownership, revenue/profit sharing, invoice trading, and debt-based securities, along with digital assets (STOs/ICOs). It is a bit disappointing that securities crowdfunding was saddled by the label “equity crowdfunding” when it falls short of the reality of the ecosystem.
Lending, as defined, includes peer-to-peer for both consumers and businesses, as well as property. Mini-bonds and microfinance fall under this category.
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So what do we learn?
- As of March 2023, there are 594 platforms operating in Europe, with some operating in multiple countries. 49 were equity platforms and 58 were lending platforms
- The average funding volume across the platforms stands at €19 million (2022), increasing from €16 million in 2021
- Lending or debt platforms averaged €24 million in 2022 compared to €19 million in 2021. Only 22% of platforms reported more than €50 million in lending volume
- As for equity-crowdfunding, which typically includes other types of securities, the average platform generated €15 million in funding. Just 6.7% of the platforms reviewed reported over €50 million in funding volume (2022).
- The UK represents the leading market with top rankings on licensing, public knowledge, and volumes per capita
- 68.6% of equity and 61.8% of lending platforms report a partnership with a traditional financial service firm
- 81.6% of equity platforms and 65.5% of debt platforms are licensed. Licensed platforms tend to be larger
- As of the Spring of 2023, 48% of equity platforms had not yet applied for an ECSP license. Similarly, 56% of lending platforms had not yet applied for an ECSP license.
- Investment platforms apply much more stringent filtering where in equity, only 10% of campaigns are onboarded, while in lending, the share stands closer to 16% in 2021 and 14% in 2022.
- The share of large-scale equity platforms with 200+ funding rounds increased from 6.4% in 2021 to 9.1% in 2022
- For lending platforms completing more than 200 funding rounds, the sector share increased from 17.8% to 24.7% from 2021 to 2022
- The number of equity investors declined by 18.7% between 2021 and 2022, and the number of lenders in lending models increased by 29.6% during the same period
- 60% of equity and 64% of lending platforms built their crowdfunding software in-house
- Asset tokenization (digital assets or digital securities is in the R&D pipeline of 21% of lending platforms and 18% of equity platforms. This is followed by secondary trading (19% and 16%) and crypto payments (12% and 8%).
When looking at European geography, the countries with the most platforms (including noninvestment) are as follows:
- Germany – 113
- United Kingdom – 100
- France – 96
- Netherlands -60
- Switzerland – 49
Some points of interest
In 2022, in France, 40.2% of funding was for real estate crowdfunding. The difficult economic environment caused this percentage to tank in 2023
In the UK, the government is very supportive of Fintech overall, and new legislation for “Public Offer Platforms” may foster a new generation of platforms that will focus on larger, more established “scale-up” companies.
Some of the proposed changes for ECSPR include:
- Incorporate consumer lending
- Increase the funding cap from the current €5 million. The paper did not indicate where industry insiders would like to see the funding cap, but it must be at least €10 million.
Like the US, there are many platforms competing for a nascent industry in Europe – including the UK. As most platforms are small, this makes one expect a period of consolidation or exits may be on the way. The report shares that 42% of equity platforms expect to merge with another platform in the future or be acquired. Of the 58 lending platforms, 15.5% have already engaged in an M&A event, and 53.4% expect to in the future.
The report incorporates a good amount of information and is a must-read for any industry insiders or policymakers interested in online capital formation and supporting entrepreneurship and innovation. The industry is very young, and it will continue to iterate and change for many years. What is missing in the report is a survey of which platforms are generating a profit, making the operation sustainable. And, of course, investor returns. Perhaps in future reports, we will receive this information.
