5.3 Enabling factors
264. Crowdfunding activities require a reliable internet connection, access to the banking sector (in the
form of bank accounts for entrepreneurs and investors) and/or online payment systems for the funds to be
transferred. In this regard, an efficient banking system can ease the development of crowdfunding
platforms, by providing the infrastructure for payments, as well as information about the creditworthiness
of the entrepreneurs. In the case of crowdlending, for instance, the platforms may use credit history to decide on whether to accept a project for financing through their site and on the interest rate to charge
(OECD, 2014c). (
265. The development of the Web 2.0 has been critical to the diffusion and evolution of crowdfunding
platforms and practices. Through the Web 2.0, access and use by many different individuals is made easier,
knowledge and resources from several sources can be combined, and openness allows users to contribute
freely to different projects. This can especially broaden the capabilities of small businesses, allowing user
content to inflow and create value for the firm (Lee at al., 2008).
With the evolution of the technology, as
more applications are possible, crowdfunding platforms have been experimenting with new business
models and financing forms.
266. The diffusion of crowdfunding has also been favoured by an emerging internet-based community
culture, whereby individuals are motivated to share ideas and contribute to some collective endeavour, as
in the case of “open source”. However, as Belleflamme et al. (2011) note, crowdfunding differs
significantly from the open source model, when the resources belong to the community, which can exploit
them on an individual basis. In the case of crowdfunding, the key resource, capital, ultimately belongs to
the firm, which will be the only one able to use it.
267. While the pace of technological developments has enabled a rapid diffusion of crowdfunding, the
regulatory environment has limited its diffusion, especially for securities-based crowdfunding, which is
still not legal in some countries. The nature of crowdfunding does not make it possible to regulate the offer
as “private placements to accredited investors”. Rather, it is considered as public offering of securities,
which is highly regulated in most countries and often requires the publication of a sales prospectus that
must be accepted by a supervisory authority. The procedures involved are typically complicated, timeconsuming and costly, and can be prohibitive for the entrepreneurs or small businesses approaching
crowdfunding (Helmer, 2011; Mitra, 2012). To overcome such difficulties, some platforms set up
“investment clubs”, which potential funders can join. In this case, the regulatory provisions are less strict,
since the members of the club are regarded as qualified investors who need less protection than the
“general public” (Helmer, 2011).
268. Another regulatory obstacle to crowdfunding is the legal limit to the number of private investors
a company can have. By its nature, crowdfunding aims to collect contributions from a large base of
investors.
Also for this reason, most crowdfunding initiatives do not offer shares, but other types of
rewards, such as a product or membership (Belleflamme et al., 2011).
269. To date, the nature of the business has led to great caution by regulators. At the same time, the
lack of a clear regulatory framework vis-a-vis a new form of debt or equity issuance has contributed to
caution by the investment community, in the light of concerns about how much protection they have
against fraud, the public disclosure of sensitive information, and the management of a large number of
shareholders (Collins and Pierrakis, 2012).
Especially, crowdfunding practices raise questions with respect
to corporate governance and investor protection, as crowdfunders are most likely to be offered very little
protection. Relatively to traditional bank finance, the industry is more vulnerable to the risks of cyberattacks, identity and payment data theft, as well as money laundering (OECD, 2014c). Also, as the
individual investment is generally small and the investors typically lack experience, there is a lack of
incentive or capacity to intervene in case of mismanagement or abuse (Belleflamme et. al, 2011).
270. It is however to be noted that the regulatory environment is changing rapidly. In recent years,
important regulatory changes have been proposed or implemented in some OECD economies, to enable
greater access and use of crowdfunding by entrepreneurs and investors. The exemptions to general rules to
secure investors or the implementation of ad hoc regulation are expected to facilitate the growth of the
industry (see policy section).
271. Securing an exit for crowdinvestors is also important for the spread of equity crowdfunding. The
evidence about successful exits is still limited, but some recent cases suggest that, even when the
crowdfunded business is sold to a large investor, it is likely that the shares of previous investors will be
diluted, following other crowdfunding campaigns or separate deals with angel investors29.
5.4 Trends
272. The crowdsourcing industry has grown rapidly since the mid of the 2000s, and at an increasing
rate over the last few years, although it still represents a very minor share of business financing. According
to Massolution, a research firm that produces an annual report on the crowdfunding industry30, globally,
there were 536 active platform in 2012, a 23.5% increase with respect to the number estimated in 2011
(434), and nearly double the number of platforms observed in 2010 (283). The rate of increase of the
volume of funds raised has been even more pronounced, from USD 1.5 billion in 2011 to an estimated
USD 5.1 billion in 2013.
273. Crowdfunding is mainly centered in North America and Europe, which, in 2012, accounted
respectively for 59% and 35% of the capital raised worldwide. In 2012-13, North American crowdfunding
volumes grew by 105% up to USD 1.6 billion, whereas in Europe crowdfunding volumes grew by 65%,
reaching USD 945 million. In the rest of the world, growth was even more pronounced with a 125%
average annual growth rate.
274. However, an important difference exists between the US and Europe with regard to the type of
crowdfunding raised, which can be explained to a large degree by the different regulatory frameworks in
place. While in the US equity crowdfunding has been hindered by regulatory limitations, so that, in most
cases, it takes the form of donation- or reward-based crowdfunding, in several European countries, equitybased platforms have been in operation for some years. However, the size of equity crowdfunding in
Europe was estimated to be in the range of EUR 50 -100 million in 2013, still a very minor share of the
market, if compared, for instance, with the EUR 26 billion value of the IPO market (OECD, 2014c).
275. Worldwide, donations and reward-based crowdfunding are the most widespread, accounting for
USD 1.4 billion in 2013 and recording an 85% increase in volumes over a year. The second largest
category is lending-based crowdfunding, which however exhibits a higher rate of expansion. Equity-based
crowdfunding still represents a minor share of the market, growing at a relatively moderate pace 5.4 Trends
272. The crowdsourcing industry has grown rapidly since the mid of the 2000s, and at an increasing
rate over the last few years, although it still represents a very minor share of business financing. According
to Massolution, a research firm that produces an annual report on the crowdfunding industry30, globally,
there were 536 active platform in 2012, a 23.5% increase with respect to the number estimated in 2011
(434), and nearly double the number of platforms observed in 2010 (283). The rate of increase of the
volume of funds raised has been even more pronounced, from USD 1.5 billion in 2011 to an estimated
USD
5.1 billion in 2013.
273. Crowdfunding is mainly centered in North America and Europe, which, in 2012, accounted
respectively for 59% and 35% of the capital raised worldwide. In 2012-13, North American crowdfunding
volumes grew by 105% up to USD 1.6 billion, whereas in Europe crowdfunding volumes grew by 65%,
reaching USD 945 million. In the rest of the world, growth was even more pronounced with a 125%
average annual growth rate.
274. However, an important difference exists between the US and Europe with regard to the type of
crowdfunding raised, which can be explained to a large degree by the different regulatory frameworks in
place.
While in the US equity crowdfunding has been hindered by regulatory limitations, so that, in most
cases, it takes the form of donation- or reward-based crowdfunding, in several European countries, equitybased platforms have been in operation for some years. However, the size of equity crowdfunding in
Europe was estimated to be in the range of EUR 50 -100 million in 2013, still a very minor share of the
market, if compared, for instance, with the EUR 26 billion value of the IPO market (OECD, 2014c).
275. Worldwide, donations and reward-based crowdfunding are the most widespread, accounting for
USD 1.4 billion in 2013 and recording an 85% increase in volumes over a year. The second largest
category is lending-based crowdfunding, which however exhibits a higher rate of expansion. Equity-based
crowdfunding still represents a minor share of the market, growing at a relatively moderate pace
