US Crowdfunding Platforms Expand to Europe
US-based crowdfunding platforms are expanding their services to Europe. Wefunder has already received a license, and they already have 12 startups live on their European platform.
Raise Green is another platform that has applied for a license but hasn’t received it yet. We expect that they will make their platform available for European-based startups soon, and many more platforms will join them in the near future.
What you will learn in this post:
Why do crowdfunding platforms enter the European market?
There are several reasons for expansion and why US-based investment platforms decide to enter the European market. Let’s talk about some of the major benefits of migrating or expanding your crowdfunding business to Europe.
A unified legislation
The main reason is the introduction of a unified European legislation for crowdfunding service providers.
Earlier, it was unreasonable to move to the European market because a platform would have to adjust to the legislation in every separate country. Now, with the introduction of the New Regulation on European Crowdfunding Service Providers (ECSP), the EU market overcame fragmentation which was the major challenge for the expansion of crowdfunding platforms. With it, the addressable market became almost equal to the USA.
No dominant competition
You could almost say that there is no crowdfunding platform in the EU that can be defined as dominant. This niche is open, and ambitious American crowdinvesting service providers will have a chance to benefit from it. However, you should definitely consider some of the strongest players such as Crowdcube and Seedrs.
More loyal legislation
European legislation resembles the US laws but in some regards, it opens more opportunities for the development of platforms. Startups don’t have to audit their financial documents, and platforms are permitted to share their revenue with affiliate partners which is better for their growth.
An opportunity for startups to raise twice as much money from retail investors
In both the USA and the EU, a startup is permitted to raise the maximum of $5 million per year, but if a platform operates in both regions, a startup can raise funds in each region concurrently which effectively raises the limit by $10 million per year.
An opportunity for US platforms to work with startups around the globe
The legislation of the USA permits crowdinvesting platforms to work only with US-based startups, except maybe for the regulation S. In Europe, such limitations don’t exist. Platforms that expand to the EU can work with startups all around the globe if the companies comply with the local legislation.
Attractive markets within the EU
Even though US crowdfunding platforms that acquire the ECSP license will be permitted to operate on the entire territory of the EU, some European markets for crowdfunding are more attractive than others.
German crowdfunding market
According to Karsten Wenzlaff, among all the EU countries, Germany looks especially attractive for the US crowdfunding platforms. The main reason is the country’s economic growth. Another factor is the impressive number of potential retail investors and a developed network of startup incubators. It means that for a properly designed crowdinvesting platform, the scaling potential for crowdfunding in Germany is high.
The members of the German Crowdfunding association focus on the principles of transparency and fair investing.
The association members share the best practices regarding legal compliance and regulation. That’s why platforms can always forecast what changes are coming and get ready for them in advance.
However, the German crowdfunding market has its specifics. In this country, it is important to have local ties. Also, the knowledge of legislation and investment culture helps platforms to succeed. These are the reasons why for those who are willing to enter the German market, a merger with a German-based investment platform may be more productive than just opening a local office and hiring the local team.
The Netherlands crowdfunding market
The Dutch crowdfunding authority, Autoriteit Financiële Markten, has approved WeFunder, so the Netherlands crowdfunding market can be considered interesting for the US players. One of the reasons is obviously the language as English is more popular here than in other European countries.
Challenges of the expansion to the EU market
Along with benefits, the US crowdfunding expansion to the European market has a lot of challenges.
The market complexity
Even though there is one European legislation about crowdfunding, each country has some details that shall be considered. There is a threat of underestimating what efforts are needed to comply with those European regulatory requirements for crowdfunding.
Add different languages and cultures, and it becomes a challenge for those platforms that are used to the US market.
Crowdfunding is less developed
There is not as much capital flowing in the EU crowdfunding market compared to the USA. It is a challenge but on the other hand, it also means a bigger potential for the platforms that are expanding their services there.
Ambitious crowdfunding platforms in the USA are already expanding their services to European clients. The activities of WeFunder and those US platforms that soon will join it are going to put more pressure on regulators and force them to create equal conditions for competition.
Those investment platforms that are joining now have more chances to fill in the existing gaps and become strong players in the new market. This is the main reason why waiting is not the best option if you consider the EU market for your future platform.
If you are thinking about grasping the opportunities that the EU market offers without delays, LenderKit can help you in multiple ways.
You can choose white-label crowdfunding software for your EU-based platform. Our investment solutions come with an extensive set of features that enable you to launch all the required activities asap.
You get your software already integrated with the leading payment providers, KYC/AML providers, document filing and signing automation providers, and you can integrate any third-party provider through an API.
We also have both SEC/FINRA and ECSPR regulations support out-of-the-box and with a few tweaks as per your requirements, we can turn your platform into a competitive and regulations-compliant online business.