EuroCrowd, a pan-European association advocating on behalf of online capital formation in the EU, sees investment crowdfunding as playing a key role in supporting the EU’s capital markets objectives.
The key aspect to creating the European Union was the free movement of goods and services, including financial services. The EU is a market of over 300 million individuals, this single market creates a powerful economy that can compete globally with other developed nations. Yet, in some areas such as entrepreneurship and innovation, the EU has fallen behind some other jurisdictions like the US.
Last year, former ECB President Mario Draghi published a document warning that Europe needs more growth and improved productivity. His report outlines three areas for action to “reignite sustainable growth.”
The report claims, “Europe must profoundly refocus its collective efforts on closing the innovation gap with the US and China.”
“Europe is stuck in a static industrial structure with few new companies rising up to disrupt existing industries or develop new growth engines. In fact, there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.”
The second call for action is a plan for “decarbonization and competitiveness,” the third area is to increase security and reduce dependencies. While you can argue that all recommendations are essential, the first is probably the most pressing concern. Improving an innovation-driven economy requires structural change across all EU member states – if they want to match the ecosystem of the US – not to mention China. Public policymakers, private entities, and individuals must collaborate to enable areas of improvement.
Not too long ago, the EU approved new rules to enable EU-wide securities crowdfunding. A platform licensed in one member state under ECSPR [European Crowdfunding Service Provider Regulation] may list securities offerings and sell them across all other member states. Access to risk capital is key to fueling the creation of private firms. Online capital formation can be an effective way of accomplishing this goal.
In a statement distributed last November, EuroCrowd advocated for crowdfunding to be leveraged further to grow EU capital markets and improve competitiveness.
“EU capital markets continue to lag behind global competitors in key areas, including access to finance for corporates and SMEs, Fintech ecosystems, and market liquidity. The EU faces an annual funding gap of €800 billion to support critical initiatives in sustainability, digitalisation, defence, and innovation. Addressing this gap requires bold structural reforms to deepen capital markets and mobilise untapped pools of capital, such as €11 trillion in household savings.”
EuroCrowd believes investment crowdfunding can help mitigate the current shortcomings. The group says that to remain competitive; the EU must act decisively to “unify its fragmented markets, harness innovative funding mechanisms like crowdfunding, and mobilize its vast financial resources. ECSPR offers a promising pathway to expand market-based financing for SMEs, contributing to the EU’s broader objective of creating a resilient and globally competitive capital market.”
The group outlines the following recommendations:
- Leverage Crowdfunding Potential: Strengthen the implementation of ECSPR on member state level (regulatory convergence) co to enhance SME access to equity and debt funding, ensuring broader geographic and sectoral coverage.
- Mobilise Retail Savings: Channel household savings into productive investments through incentives, education, and integration with crowdfunding platforms under ECSPR.
- Encourage Capital Pooling: Address disparities across member states by harmonising regulations and promoting cross-border investment opportunities.
- Expand Fintech Ecosystems: Support digitalisation and tokenisation trends, where the EU has already captured 20% of the global tokenised bonds market.
- Drive Structural Reform: Establish a unified capital market system to reduce reliance on bank lending, improve market liquidity, and attract global investment.
Risk capital and private markets have struggled globally in recent years. Yet, with the change in the Administration in the US, investment crowdfunding platforms are more optimistic about the environment for online capital formation. As more supportive policymakers replace less helpful individuals, and Congress is poised to enact legislation to support access to capital, the US may see improvements in capital formation. This is the path to prosperity and job creation. Perhaps the EU will do the same, pursuing policies that free up capital and incentivize risk-taking and entrepreneurship, and, as EuroCrowd believes, maybe online capital formation can be leveraged further to support the EU economy.