Policy brief

How to make crowdfunding work in Europe

Crowdfunding markets around the world have experienced significant growth rates in recent years, but many questions remain open on their proper design

Publishing date
27 March 2019

Crowdfunding markets around the world have experienced significant growth rates in recent years. With an aggregate amount of almost €50 billion raised worldwide between 2010 and 2017, crowdfunding has attracted increasing economic, political and regulatory attention on the international level. However, many questions remain open on the proper design, implementation and feasibility of these markets, of which there are four general types: debt, rewards, equity, and charity (ranked by their respective volumes). The first three types of crowdfunding are comparable to existing sources of traditional financing and either complement or substitute for these sources. Investors thus expect returns or other financial benefits from these types of crowdfunding. The fourth type – charity-based crowdfunding – is purely philanthropic.

The United States and United Kingdom are responsible for the majority of crowdfunding transactions. The share of European Union markets (excluding the UK) is still low, with negligible cross-border activity. We argue that the lack of a clear and consistent regulatory framework in Europe is a major obstacle to the development of these markets. The European Commission proposed in March 2018 a set of measures aimed at addressing the major shortcomings of the current regulatory framework and employing instead an EU-wide regime (European Commission, 2018b).

The Commission’s proposal moves in the right direction to provide a solid basis for the development of crowdfunding markets in Europe, but has at least three major shortcomings that need to be addressed. First, an EU-wide framework needs to have a precise and transparent legal definition of crowdfunding activities, eliminating any legal confusion for investors, enterprises and platforms. Second, such a framework requires a clear stance on investor protection. We suggest including in the proposal a more refined requirement for agents who want to invest more than a certain threshold amount to undertake a ‘qualified investor test’. Third, the proposal would limit crowdfunding offers to €1 million per project over a period of 12 months. We argue that this threshold is too restrictive and should be raised to €5 million in order to enable the frictionless development of investment-based crowdfunding in Europe.

About the authors

  • Jörg Rocholl

    Professor Jörg Rocholl, PhD, is president of ESMT European School of Management and Technology in Berlin and a member of the economic advisory board of the German Federal Ministry of Finance. He is also the deputy chairman of the economic advisory board of the Deutsche Welle, research professor at the Ifo Institute in Munich, and Duisenberg fellow of the European Central Bank (ECB). Professor Rocholl graduated from the Universität Witten/Herdecke, where he earned a degree in economics (with honors). After completing his PhD at Columbia University in New York, he was named an assistant professor at the University of North Carolina at Chapel Hill. Prof. Rocholl has researched and taught at ESMT since 2007 and was appointed president of ESMT in 2011. Since 2010 he holds the “EY Chair in Governance and Compliance”.

    Declaration of interests 2017

  • Dmitry Chervyakov

    Dmitry, a Russian citizen, worked at Bruegel as a Research Intern in the area of Global and European Macroeconomics. He holds a Bachelor’s and Master's Degree from the Freie Universität Berlin in Economics, with a focus on Econometrics and Macroeconomics. Prior to joining Bruegel, Dmitry worked as a Research Assistant in the Macroeconomics and Forecasting departments at the DIW Berlin.

    Dmitry’s research interests are time series analysis, empirical macroeconomics, monetary policy and inflation expectations. In his Master’s thesis, Dmitry employed a high dimensional factor model in order to analyze potential structural breaks in the US.

    He is fluent in German, Russian and English, and has some basic knowledge of French.

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