A single European crowdfunding market is about to emerge

The Italian crowdfunding investment market is worth 503 million euros, + 172% in 12 months. What changes for platforms with the new community rules

Equity crowdfunding (Getty Images) November 10, 2021 will be the day on which the single European crowdfunding market will officially be born. A historic date for a sector that is still very fragmented by many national regulations, but which is now ripe for a new phase, under the banner of harmonized community rules and international growth.

But even if November is now one step away , the real day one of the European regulation 2020/1503 on crowdfunding service providers - definitively approved in October 2020 - will be on 10 November 2022. This is because the law provides that any member state can request an extension of one year, before the entry into force of the new rules. And the request for an extension is a practically certain scenario.

The arrival of the new European regulation is the counterpart to the results of the sixth Italian report on crowdinvesting of the Politecnico di Milano, the main national observatory on the trend of the crowdfunding, both in terms of equity (risk capital) and lending (loans between individuals or companies). The photograph taken by the research team led by Giancarlo Giudici is that of a sector that continues to grow strongly.

In fact, between July 2020 and June 2021, the 79 Italian crowdfunding platforms raised a total of 503 million euros, with a growth of 172% compared to the previous year. Then, minibonds issued by startups and SMEs and placed via crowdfunding literally exploded. A sector that started only a couple of years ago and which - according to Politecnico data - has collected 22.3 million euros in the last 12 months, with an astonishing growth of 696%. An interesting signal, which demonstrates the desire of Italians to start investing a part of their savings again, perhaps using alternative channels to traditional finance and choosing to directly support the productive fabric.

What will change for crowdfunding

But returning to the innovations introduced by the European regulation, which apply to both equity and lending, many things will change for Italian issuers, platforms and investors. The declared objective of the Commission and Parliament, in fact, is on the one hand to create a single and more competitive market and on the other hand to safeguard potential investors, especially non-professional ones.

First of all, it will be enough to obtain the platform license in one Member State to be able to operate and collect money in all other States, subject to simple notification. Today in Italy at least 79 platforms operate and many of these are medium-small in size. They are companies whose main source of revenue is generally a (small) percentage of the total collected from the campaigns they host. Put simply, many of these platforms collect insufficient volumes to at least break even between costs and revenues. Let alone to be able to compete on an international scenario.

For this reason it is reasonable to expect consolidation operations, mergers and acquisitions between national operators in the coming months. Then there is the issue of new operators: a certain framework of rules and a broader and growing market will in all likelihood attract new players with ample initial resources, perhaps active in contiguous sectors (such as banking) or in other crowdfunding markets. more mature (like the English one). Also in this case, therefore, it is reasonable to expect a certain concentration of platforms in the medium-long term.

According to a first estimate by Angelo Rindone of Crowdcore, a company that develops software for crowdfunding platforms, the adaptation of the existing platforms to the European regulation, will cost “between 20 and 60 thousand euros per platform only for the mandatory requirements. But the total expenditure could be much higher, because the entire due diligence and user experience part of the current platforms must also be reviewed. Starting, for example, with the location of the sites. I believe that not only English and Italian will suffice, but I would also consider French and German. The platforms will have to increase volumes on different markets to be competitive ".

A hybrid model

A positive novelty for operators is the possibility of hosting both equity and lending campaigns on the same platform, effectively opening up to a hybrid model, hitherto unforeseen and which could have great potential. There is also the possibility of creating electronic bulletin boards, in which investors will be able to insert sales announcements for shares and loans signed by them and relating to collection campaigns hosted by the platform itself. In this case, the platforms only make space available, they do not act as financial intermediaries. On this front, Italy has led the way in Europe and electronic bulletin boards are already provided for by national legislation, but so far very few platforms have activated them.

On the non-professional investors side, finally, European legislation requires platforms more transparency, to protect small savers. For example, upon registering the account it will be mandatory to take an entrance test to verify financial experience, investment objectives and understanding of risks. It will also be necessary to face a simulation of the ability to sustain losses, declaring a series of sensitive information, such as current and total income, present assets such as investments and cash deposits, financial commitments and so on. Furthermore, each collection campaign must be correlated by a form containing all the key information.

All these new disclosure and transparency obligations are aimed at safeguarding small investors, but it is possible that they discourage those who do not intends to share their sensitive data. The European single market is indeed an opportunity, but also a challenge that could be very demanding for the whole Italian crowdfunding sector.


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Topics

Crowdfunding Europe Finance Fintech Italy globalData.fldTopic = "Crowdfunding, Europe, Finance, Fintech, Italy "

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