The Keynote Speaker, Ronald Kleverlaan, Director of European Centre for Alternative Finance at Utrecht University emphasised the potential in alternative financing methods for innovative companies and identified the three main obstacles for growth:
- in the absence of a balanced regulation, which fits the maturity of the market, alternative finance service providers cannot operate efficiently;
- improving the financial literacy of entrepreneurs in the course of educational programs is also of key importance;
- a co-operation between the players of the ecosystem, a constructive dialogue with the regulatory authorities, as well as the establishment of a facilitation hub is crucial .
Kleverlaan pointed out the potential for crowdfunding to create equal opportunities in this field: on the one hand, it helps more companies access capital than business angel or VC investment, also, this financing method has been found to contribute to the success of female entrepreneurs – as opposed to the traditionally man-driven venture capital funds.
Keynote Speech by Ronald Kleverlaan at the conference. Image source: FinTech Inn.
Karsten Wenzlaff, Secretary General of the German Crowdfunding Association (Bundesverband Crowdfunding) introduced the upcoming pan-EU crowdfunding regulation (ECSP, European Crowdfunding Service Providers Regulation), which is expected to enter into force in 2020. The regulation aims at enhancing the competitiveness of the EU by regulating platform-based investment and thus providing access to finance for innovative SMEs (small- and medium-sized companies).
Once the Regulation enters into force, the crowdfunding platforms will be supervised by the National Competent Authorities in each member state, in accordance with the guidelines of the European Securities and Markets Authority (ESMA). A lot of attention has been paid to an expected change in the threshold: when securities are offered to the public, there is a limit on the amount of capital that can be raised without the obligation to disclose a Prospectus. According to Section (12) and (13) as well as Section 3 of Article 1 of the European Prospectus Regulation in force, this threshold is EUR 1 million per annum. This means that if raising at most EUR 1 million, the National Competent Authorities cannot oblige the company to disclose a Prospectus. Within a few weeks the Trialogue between the European Parliament, the European Commission and the European Committee will resolute on increasing this threshold to EUR 8 million.
For investment opportunities below the threshold, the ECSP requires a simplified document, the so-called Key Investor Information Sheet (KIIS).
Panel discussion on the new pan-EU crowdfunding regulation. Image source: FinTech Inn.
Investor protection was a key aspect for Lithuanian regulators when creating the Lithuanian Law on Crowdfunding, which has been in force for more than 3 years now.
Jekaterina Govina, Head of Innovation and Fintech at the Bank of Lithuania declared that the Lithuanian regulator intends to react quickly to innovative solutions, since it contributes to the growth of innovative businesses if they know the rules and they can expect that these rules won’t change.
The forward-looking approach of the Lithuanian regulator can be justified by the fact that it uniquely issued guidelines for Security Token Offerings (STO), which are available on the website of the Bank of Lithuania.
No wonder that a few days ago Findexable listed Lithuania among the top 5 Fintech countries in its Global Fintech Ranking.
The most popular crowdfunding method in Europe is peer-to-peer (P2P) lending. According to Griskevicius, this financing method is the easiest to understand for the crowd, since lending is much more familiar to them than the equity-based financing methods. Moreover, the slowness and inflexibility of banks provides a competitive advantage for P2P lending service providers.
Joachim Dworén, Head of sales at the Swedish equity-based platform FundedByMe highlighted that the most important element of the campaign is a convincing pitch, which is to be transmitted through active communication to a large follower base, which is to be built prior to the campaign. Many campaign initiators launch their campaign without marketing activity, which is a huge mistake. In fact, crowdfunding is all about marketing. It is also essential to have a profound business plan, which justifies the funding target of the campaign.
Kfir Kachlon, Investment Principal at the Israel-based equity platform, OurCrowd highlighted two further success factors: since usually tech companies launch campaigns on such platforms, it is crucial to introduce their solution in an easily understandable and convincing way. Moreover, the founder and the CTO of the company must be constantly accessible during the campaign, in order to provide quick answers to the questions of prospective investors. Kachlon concluded his speech by highlighting the great opportunity for clients to take part in the company.
Panel discussion on the regional trends of crowdfunding and the success factors of campaigns. Image source: FinTech Inn.
The concluding conversation discussed the similarities of venture capital funding and crowdfunding.
Andris K. Berzins, Managing Partner of the Latvian VC, Change Ventures stated that both business-to-business (B2B) and business-to-consumer (B2C) business models might be suitable for VC or crowd investment. However, the company should be able to show traction: it might be a user base from the pilot program of the company, early sales or participation in an accelerator program, which also brands the company and contributes to its credibility.
Ardo Mardisoo, Head of Baltic Region and Finland at the Estonian equity-based platform Funderbeam emphasised the importance of the aforementioned elements during the valuation of an early-phase company. This valuation is done by the lead investor of the campaign following the due diligence process. Mardisoo highlighted that the lead investor becomes a partner for life, and besides the capital it provides valuable business advice to the company.
They emphasised the synergies of venture capital investments and crowdfunding: the combination of this two financing methods is the most efficient way to raise capital: besides providing capital,it simultaneously strengthens the brand of the company.
Fireside chat: Crowdfunding or Venture Capital. Image source: FinTech Inn.