30 September 2022
The growing development of crowdfunding platforms in Europe is based on a relatively simple observation: crowdfunding is a 2.0, innovative and transparent response to financing difficulties in the banking sector. In Spain and Italy, the regulations surrounding this model have taken opposite paths but will now have to converge with the new European regulation ECSP. An overview of our Iberian and Italian neighbours’ participatory financing market.
Crowdfunding emerged in Italy in the early 2010s with the first donation platforms. It is possible to go back even further with the launch of Produzioni dal Basso in 2005, an Italian portal focused on a funding model based on donations with or without counterparts. Italy saw its first real boom in 2012 with the do-it-yourself platforms (participatory funding initiatives launched on a sponsor’s site without going through an external crowdfunding platform).
Excluding crowd equity platforms, Italy has a high degree of regulatory flexibility, so many platforms have emerged. From 2015 to 2019 alone, 54 platforms have been created – out of a total of 95 – with a preponderance in the matching and non-matching donation sector. One example is EpPela, which has become the country’s leading donation-for-gift platform, raising over €5.5 million in 2021. Nevertheless, many crowdfunding, matching and non-matching donation platforms have been closed or bought out because they could not find a sustainable model to last.
The trend is rising, with about ten active players on the crowdlending side. This model is particularly appreciated regarding the credit crisis. Companies that have difficulty convincing more traditional institutions are particularly fond of it and see it as an opportunity to obtain loans in a shorter time frame.
Recently, real estate crowdfunding has become more widespread as a financing tool and investment product. With a growth of 86.5% compared to 2019, Walliance – a platform dedicated to investments in the real estate market through equity and debt crowdfunding – has made its mark in France by being the first Italian portal authorised in another European country registered with the ORIAS. It should be noted that real estate crowdfunding or crowd equity is significantly regulated explicitly by Italian law.
At the beginning of the 2010s, the crowdfunding sector was still timid and took its time to establish itself in Spain, unlike its French and German neighbours, who were more offensive. Platforms such as Lanzanos, SeedQuick or TheCrowdAngel dominated the market in 2013/2014. In the same way, as in Italy, the crowdfunding system appeared as an alternative for young entrepreneurs to find funds while the country was just emerging from an economic crisis.
Faced with so much enthusiasm – and according to some, to spare bank financing – the Spanish government enacted Law 5/2015 on promoting entrepreneurial funding to regulate the practice of crowdfunding in Spain. It obliged platforms to register and obtain approval from the Comisión Nacional del Mercado de Valores (“CNMV”) (local regulatory authority). . Very restrictive – even limiting for its detractors – it sets a limit of 1 million euros on the amount that a company can raise, and a limit of 3,000 euros of investment for a project per investor. Since the law came into force, Spain has seen the number of crowdfunding platforms decrease. For example, in 2016, there were 9 new platforms authorised compared to only 1 in 2020.
Real estate crowdfunding platforms have become particularly popular in Spain. They allow you to invest in real estate – in a single asset – and offer much higher rates of return than other financial products. Volatile real estate market, difficulty in guaranteeing the fees generated by the company… Not without risk, real estate crowdfunding is nevertheless very popular with individuals and has seen a leap in “tripling its volume from 17 million euros in 2016 to 40 million in 2019″, according to Rafael Merry del Val, co-founder, and CEO of Wecity.
The disparity of rules applicable to crowdfunding platforms has led the European Union towards harmonisation.
“On 10 November 2021, Regulation (EU) 2020/1503 of 7 October 2020 on European providers of participatory finance services for entrepreneurs (“ECSP Regulation”) entered into force and became directly applicable to all crowdfunding platforms offering their services in the form of lending (“crowdlending”) or investment (“crowd equity”) related to the financing of projects for business purposes.
To continue their activity on a European scale, this Regulation now requires the platforms mentioned above to obtain the status of Participatory Finance Service Providers (“PSFP”).
Indeed, before the ECSP regulation came into force when a platform domiciled in France wished to develop its activity on Spanish territory, it had to comply with local crowdfunding regulations (including the need to create a subsidiary established in Spain and to obtain an authorisation from the CNMV).
This new status is, therefore, an excellent opportunity for crowdlending and crowdfunding platforms, which will now be able to develop their activity on a European scale.
Existing platforms in Spain and Italy have 12 months (until 10 November 2022) to comply with the regulation. Newcomers must comply with the licensing, transparency, and investor information requirements.
Moreover, the collection threshold is harmonised and raised to 5 million euros per project. This is a disadvantage for Italian platforms that were not limited, for example.
As a pan-European payment service provider, Lemonway supports you in creating and complying with your crowdfunding platforms in Spain and Italy. Choosing Lemonway means benefiting from the skills of our experts and the European license to expand your activity in all member countries. Contact us now!
