The European Securities and Markets Authority (ESMA) has published a report addressing crowdfunding in the EU.
Not too long ago, the EU approved new rules addressing online capital formation. European Crowdfunding Service Provider regulation (ECSPR) allows a platform approved by the relevant authority in its home country to sell securities across the EU. An issuer could raise up to €5 million in a securities crowdfunding offer.
While the ESMA crowdfunding report was released last week, unfortunately, it uses data for the whole year of 2023 – instead of 2024 – and thus, the data is a bit outdated.
The report information gleaned by a sample of providers indicates that over € 1 billion of crowdfunding occurred in the EU in 2023. Loan-based or debt crowdfunding was the most common form of financing, accounting for 82% of the funding raised (the report separates loans (65%) and debt (17%) for some reason)*.
Equity or shares accounted for only 6% of the financing.
ESMA shared that the average amount raised per loan-based project was around a third of that for debt-based and equity-based projects.
Most investors were deemed to be retail at 87%. There were 159 ECSPR-approved platforms at the end of 2023 (but data from only 98 platforms was used for the report).
France (€ 292 million) was the top market for online capital formation, followed by the Netherlands (€ 291 million). Many markets, including France and the Netherlands, had established regulatory regimes in place before ECSPR approval.
Of the 98 investment crowdfunding platform, 81 offered a single type of funding model, and the rest had two or more.
ESMA states that in total, 53 of the providers offered loan-based crowdfunding services, while 30 provided debt-based crowdfunding, 25 equity-based, and 17 other funding types. Around 65% of the funding raised was in loan-based projects, followed by debt-based projects (17%) and equity-based (6%).
The average amount raised per loan-based project was around € 15 000, with debt-based projects € 53 000) and equity-based projects €46 000.
The report does not address how the EU can improve online capital formation. Potential recommendations include raising the funding cap to €20 million or more, tax exemptions for investors, integrating professional investors, tokenization, and enabling secondary transactions.
The report is below.
*ESMA differentiates debt-based crowdfunding differs from loan-based crowdfunding in that only the former involves a transferable security. Typically, for a fee an investor in a debt-based crowdfunding scheme can sell their stake to another investor on the platform.
