Equity crowdfunding is an alternative business finance model that began in the UK with the platforms Crowdcube in 2011, and then Seedrs in 2012. Economies were still reeling after the 2007-9 global financial crash, and banks had much less inclination to lend money to business startups. Interest rates were also particularly low, and retail investors were hungry for opportunities to beat the low returns available from high street financial service providers. Equity crowdfunding brings the two parties together in a mutually beneficial process whereby privately-owned, early-stage businesses attract the personal funds of everyday retail investors through offering equity. Today, individual platforms in any EU country can now apply to raise funds from across the whole EU, and there are signs of consolidation among smaller platforms. Find out more about the top equity crowdfunding platforms in Europe.
What is crowdfunding?
For anyone new to the term, crowdfunding is a collective way of raising money for projects by asking a large pool of individuals for a small amount of money.
Reward crowdfunding (as conducted on platforms such as Kickstarter and Indiegogo) can be used as a stand-in retail channel, though without providing the customer retail protection that exists in many countries. Entrepreneurs can offer new products to early adopters who are keen to be at the leading edge, and receive payment for them before even going in to production. However, while there have been some phenomenal successes, the product suppliers may fail before delivering the goods, or the final goods may turn out to fall short of expectations.
In equity crowdfunding, investors are offered shares in privately-owned businesses, not a product or item. Equity crowdfunding platforms are the marketplace where the two parties meet and trade. Startup founders access funding they don’t have to repay if the business fails, and there could be good returns for personal investors – though they are never guaranteed. Investments in startup businesses can be even less reliable than speculative pre-orders for goods that maybe don’t yet exist: nine out of ten startups fail in their first ten years.
Market considerations
If the high failure rate of startups alone isn’t enough to cause concern, market disruptions and global inflation post-Covid led to market value adjustments among many startup businesses that are still at an early stage of their development. Poor investment returns across the whole sector reduced investor enthusiasm for new opportunities. Although the impacts of this were felt hard throughout the venture capital sector, it was also broadly reflected within equity crowdfunding: many platforms did less business in 2022 and 2023 than in previous years. This has slowed down expansion plans, led to staff layoffs, and brought about consolidation among some of the smaller players.
At the same time, however, the growing number of platforms authorised under the new ECSP Regulations to run crowdfunding outside their national barriers and across the whole European Union is a tremendous opportunity. ECSPR, or European Crowdfunding Securities Provider Regulations, enables a platform to list securities (equity in privately-owned businesses) and sell them across the European Union. Issuers may raise up to €5 million in a given funding round within a 12-month timescale. Some leading U.S. equity crowdfunding platforms saw an opportunity to access Europe through investing in their UK counterparts.
On the other hand, many equity crowdfunding platforms in Europe are small and this leads to expectation that a period of consolidation or exits may be on the way. The European Crowdfunding Market Report 2023, released in January 2024, informs us that 42% of equity platforms expect to either merge with another platform or be acquired by another platform in the near future. There are signs it has already started.
Top Equity Crowdfunding Platforms in Europe
Ranking platforms on a statistical basis of the total amounts of money raised, or the number of successful projects hosted, is difficult because there is no reliable, independent arbiter to provide this data. Several countries, including the UK and Germany, have crowdfunding trade bodies, but they do not report such information.
Even if the data was available, should we base our assessment on the rear view mirror of historical performance in what might turn out to be a period of future turbulence?
Other factors to decide a “top platform” include an easy-to-use interface; a credible Due Diligence process; a transparent fee structure; a secondary market; a high success rate; and authorisation to trade by their country’s financial regulator.
By whatever selection criteria that are used, the list has to include the UK’s Seedrs and Crowdcube. The two of them virtually created the sector, and between them have over an 80% share of the UK market. They are also both active throughout the EU.
Seedrs
Inside Seedrs’ London office
In its 2023 annual report which was released in January 2024, Seedrs said it had participated in 266 crowdfunding rounds totalling over £353m, with 88 campaigns raising over £1m. 72% of businesses doing their first Seedrs round last year were either B2B or a mix of B2B and business to consumer (B2C). This bucks a widely-held perception among startup founders who believe crowdfunding is only a real consideration for businesses with consumer products.
In 2021, U.S. platform Republic announced its acquisition of Seedrs in a $100 million deal. The deal created the first operator to offer investment opportunities in privately-owned companies in both the United States and Europe.
In October 2023, Seedrs announced its Dublin office had gained authorisation to offer equity investment opportunities throughout the whole European Union. Companies seeking investment can now use Seedrs to raise up to €5 million in Europe and up to the equivalent of €8m in the UK.
The platform is known for its secondary market, where investors can buy and sell their shares without relying on a company IPO or trade sale to release a return on investment.
Crowdcube
Crowdcube has helped raise over £1.4 billion for more than 1,300 mission-driven businesses and built up a community exceeding 1.7 million members. Here are some key developments in recent years.
- In April 2022, Crowdcube’s regional office in Barcelona, Spain, was authorised to trade under the European Union’s ECSP Regulations. Companies seeking investment can now use Crowdcube to raise up to €5 million in Europe and up to the equivalent of €8m in the UK.
- VCTs are investment companies introduced by the UK government in 1995 and listed on the London Stock Exchange. Though with a typical minimum investment between £3,000 and £5,000, thousands of retail investors are usually excluded from the asset class. In March 2023, Crowdcube linked with Octopus investments to give investors registered with Crowdcube a minimum entry level of £500.
- In July 2023, Crowdcube partnered with SeedLegals to make it easier for companies to combine raising from Crowdcube’s investor community alongside using SeedLegals for getting SEIS/EIS approval (which gives tax benefits to UK investors), issuing share options to employees, securing R&D cashbacks, plus the legal contracts for running their business.
- November 2023: Crowdcube acquired the secondary liquidity platform Semper to help more founders, employees, and early shareholders to sell company shares as a personal exit before the company executes its own exit.
Companisto (Germany)
Established in 2011, this Berlin-based platform connects investors with innovative startups. The platform serves both retail investors with a minimum investment level of €250 (it used to be €1,000), and angel investors with a minimum investment level of €25,000.
The platform claims a network of more than 80,000 investors in total, who between them have made investments exceeding €50 million. It has a strong focus on sustainability and social impact.
Its secondary market allows registered investors to buy and sell among themselves the shares of companies that used Companisto.
Funderbeam (Estonia)
Launched in 2014, Funderbeam positions itself as a global startup marketplace and caters to an international audience. The platform offers a broad range of European investment opportunities.
Since May 2023, the Irish-based venture private equity group VentureWave has owned a majority stake in Funderbeam, which has seen the platform more towards the institutional VC, family funds and angel investor sector.
Spreds (formerly MyMicroInvest, Belgium)
Spreds focuses on equity and loan crowdfunding for campaigns planning to raise between €50,000 and €1,000,000. The platform fully believes in the multi-faceted power of the crowd to help validate a business concept and demonstrate consumer interest, while experienced investors help to examine the valuation of a company and the potential returns on investment
It has a community of over 456,000 investors who must make a minimum investment of €100. Since 2011 it has closed almost 300 successful campaigns.
Other equity crowdfunding platforms in Europe can be found among the members of the UK Crowdfunding Association or at CrowdSpace, the German Bundesverband Crowdfunding, and the European Crowdfunding Network. Many equity platforms concentrate on trading or developing real estate, a sector that has its own AREIP (Association of Real Estate Investment Platforms).
Final thoughts
Overall, the ECSP regulations are a significant step towards a more unified and vibrant crowdfunding market in the European Union. The anticipated outcomes point towards increased access to capital for businesses, a boost for innovation, and a more attractive investment landscape for Europeans.
At the same time, inflation and the cost of living crisis have put personal disposable incomes under pressure. Several platforms are moving more to the lower end of institutional investors and developing stronger links with VC microfunds, family funds and angel investors.
What’s your opinion on the current trends within the crowdfunding sector in Europe, from the point of view of either an investor or an entrepreneur?
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