Global Equity Crowdfunding – Money is a Universal Language
Equity crowdfunding allows startups and growing companies to raise capital from anyone, not just angel investors or venture capital fat cats. Equity crowdfunding campaigns are comparable to “mini-IPOs” and offer shares in the company that increase in value as the company does. Nowadays. global equity crowdfunding is emerging as the playground for the aloof investor.
Different countries’ governing bodies have taken different regulatory approaches to take their place in global equity crowdfunding, with varying results. For the most part, governments have a “hands off” goveninf approach seems to encourage more equity crowdfunding and startup growth, while stricter regulations can be significantly stifling. This reality reflects the broader business where deregulation has been historically proven to cut costs, improve productivity to yield gains that are proportionately higher than what the calculations may suggest.
Global Equity Crowdfunding by Country
Startup investing is more attractive than ever, with popular crowdfunding platforms facilitating investment processes and expanding their market reach globally. Popular U.S.-based crowdfunding platform Wefunder received regulatory approval to expand its operations across the Eurozone region earlier today. In fact, Wefunder is the first U.S.-based equity crowdfunding platform to operate multi-nationally.
After two years of seeking regulatory approval, Wefunder has officially received the green light to operate its equity crowdfunding platform within the European Union. This marks Wefunder’s first time expanding outside of the United States, and according to CEO and founder Nick Tommarello, the business is the first U.S. investment platform to operate in the EU.
Previously, crowdfunding platforms would have to gain approval from each and every country in the EU to operate there, as each followed a different set of regulations. Thanks to a law passed in 2021 by the European Union and the EEA, Wefunder can follow one set of laws that unifies the 30 countries into the same framework.
All crowdfunding in Canada is regulated by the Canadian Securities Commission, which has a sub-regulator for crowdfunding called the National Crowdfunding Association of Canada (NCAC). While rewards-based crowdfunding is allowed with limited regulation, there are much more stringent requirements for equity crowdfunding.
As of September of 2021, startups were allowed to use equity crowdfunding to raise $1.5 million per year. However, non-accredited retail investors are capped at investing $2,500 per year… unless advised by a certified investment adviser, which raises the cap to $10,000 per year.
Canadian securities laws often leave regulations for equity crowdfunding up to each province to create and enforce, making province-specific platforms easier to manage. In recent years, FrontFundr and Vested have both become leading equity crowdfunding platforms across the country.
New Zealand has had regulated equity crowdfunding since 2013, allowing companies the Kiwi country to raise up to $2,000,000 per year.
Unlike the United States, which permits investments from investors worldwide (with the exception of the UK and Canada due to securities laws in those countries), New Zealand platforms only allow investments from New Zealand-based investors. All equity crowdfunding platforms must be in licensed compliance with New Zealand securities laws.
There are only three equity crowdfunding platforms currently in New Zealand: Snowball Effect and PledgeMe were the first two, followed by AlphaCrowd, the platform for digital and tech companies.
Snowball Effect hosted the first equity crowdfunding campaign in August 2014 for Renaissance Brewing, successfully raising $700,000 in only 13 days. Soon after, Invivo Wines became the first company to raise the full $2,000,000 allowed under New Zealand law.
After years of legal rewards-based crowdfunding in the UK, new regulations legalize equity crowdfunding for startups. Under these new regulations, companies are capped at raising £4 million per 12 months.
Seedrs was the first equity crowdfunding platform to be authorized by the FCA (Financial Conduct Authority—like the British SEC), followed shortly by Crowdcube and SyndicateRoom. These platforms allow only UK or EU-based companies to fundraise.
In the UK, non-accredited investors can invest in startups as long as they agree not to spend more than 10 percent of their net assets in a year and prove they know the risks inherent to equity crowdfunding. Seedrs and Crowdcube both require potential investors to fill out a questionnaire, while SyndicateRoom requires investors to self-certify as a knowledgeable investor or prove a high net worth.
Equity crowdfunding platforms have been operational in Italy since 2013, but are limited by stricter regulations than many other countries. These rules often stifle equity crowdfunding efforts by Italian startups.
Companies must qualify as “innovative” or show “social purpose” to be allowed to offer their own equity securities through an online portal—but it gets even more strict from there!
The Italian securities authority, CONSOB, also stipulates that in order to be eligible for equity crowdfunding, the company:
- Must be less than 5 years old
- Must be headquartered in Italy, but another another EU country is acceptable if it has a production site or branch in Italy
- Must have annual profits less than €5,000,000, but must be profitable and growing
- Is not listed on any public trading platform
- Does not distribute profits in any way (dividends or shareholder rewards)
- Was not formed as the result of a merger or spin-off of a larger company
- Must have 5% minimum of the total fundraising amount come from a single institutional investor (a bank or venture capital firm)
Individual investors in Italy are limited to €500 per year, until they have completed an online questionnaire to determine their investing savvy. Investment firms are allowed up to €5,000, and anything above that threshold would require talking to a banking institution for risk profiling.
Though there are no Italy-specific platforms, both Kickstarter and Indiegogo have a large presence in Italy, as well as UK platforms Crowdcube and Seedrs. And, just like in the United States, Italy caps the annual raise amount to €5,000,000.
Nobody should be surprised to see global equity crowdfunding take its rightful place on the worlf stage of finance. become a prevalent worldwide movement. As more countries begin to adopt startup-friendly regulations, we’ll see more innovations from places where capital is difficult to secure—perhaps even startups that make a difference in the world.