Ten years later, equity crowdfunding market has matured. This is one of the main conclusions of a recent article published by the scholarly journal Venture Capital to celebrate its 20th birthday.
His author, Armin Schwienbacher, one of the most reputed within the academic community, pointed out the main achievements including the evolution of platforms’ business models to improve their due diligence process to the presence of the first unicorns such as Revolut or BrewDog.
However, there is still much to do in order to strengthen this new form of fundraising for the most innovative ventures.
1. Customer Service
“One major challenge is to ensure that crowd investors get a proper risk-adjusted rate of return on their investment,” Schwienbacher writes, since, if on the one hand “it is not surprising to see many of these start-ups to fail” on the other gaining a better understanding of how crowd participate in campaigns would benefit platforms to further adjust their action to alleviate the retail investor exit problem.
In this regard, as initiatives to develop a secondary market have not proved ot be particularly successful, he claims, blockchain could offer a way to go.
An additional challenge the author sees is related to the improvement of efficiency and profitability of platforms themselves. According to his view, platforms have a scalability issue being stuck in between local regulatory barriers and cultural and language reasons.
“While the European Union have tried to propose a harmonized equity crowdfunding regulation early on, ultimately each member state has developed its own national regulation. In this context, the new initiative of the European Commission on the ‘European Crowdfunding Service Provider Regulation’ is most welcome”, Schwienbacher argues.
3. Value Added
Finally, for equity crowdfunding to become a valuable source of entrepreneurial funding in the long run, it needs to generate some distinct economic value-adding.
In fact, if on the one hand, the extra funding provided by equity crowdfunding complements the lack of business angel finance in Europe, on the other, it remains to be shown that it has fostered democratic access to finance for entrepreneurs.
Not to mention, Schwienbacher concludes, the role equity crowdfunding has in continuously promoting entrepreneurship among new generations.
All in all, this thought-provoking article, which mainly focuses on Europe, confirms the view of several business leaders and helps all of us in gaining a valuable perspective to move to the next phase of this journey. One in which education, technology and regulatory developments will play a pivotal role to strengthen the sustainability of the market as a whole.
Schwienbacher, A. (2019) ‘Equity Crowdfunding: Anything to Celebrate?’ in Venture Capital: An International Journal of Entrepreneurial Finance – 20th Anniversary Issue, 21(1), pp. 65-74.