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Crowdfunding for European SMEs - #SMEAssembly2016

I had the honor to be invited to Bratislava (Slovakia) by the European Commission to present crowdfunding as a way for SMEs to finance their growth in a way that is complementary to the traditional financing ecosystem. Actually crowdfunding BECOMES part of the traditional business funding ecosystem!

Also known as Alternative Finance, more recently discussed as a form of Fintech, crowdfunding encompasses a variety of ways to connect investors to business seeking funds. Whether it is pre-sale based funding with platforms like Kickstarter or Ulule, lending-based investment with platforms like Zopa or Lendix, or equity-based investment with platforms like Crowdcube or WiSEED, these forms of financing represent a small yet growing means to fund entrepreneurship and innovation in Europe.

Future opportunities and challenges have been discussed during the masterclass.

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Crowdfunding for European SMEs - #SMEAssembly2016

  1. 1. Yannig Roth Marketing Director, WiSEED @YannigRoth @WiSEED #SMEweek2016 #SMEassembly2016 Bratislava, November 25th 2016
  2. 2. WiSEED is a French, MIFID-compliant crowdfunding platform • A diversified crowdfunding platform − 2008 : start-ups (equity) − 2011 : real estate (bonds) − 2015 : cooperatives (bonds) − 2016 : renewable energy (bonds) − 2016 : agroforestry (equity) • Founding member of European Crowdfunding Network • Double focus − Start-ups, scale-ups, SMEs − Private & institutional investors WiSEED.com
  3. 3. Starting-up is easy, experimenting & scaling-up is not • Every year, 200 000 SMEs file for bankruptcy, representing a job loss of 1 700 000 jobs in Europe • Access to capital is vital, Europe has a solid layer already − European Fund for Strategic Investments − Competitiveness of Enterprises & SMEs programme − Horizon 2020’s SME Instrument − Start-up and Scale-up Initiative (announced this Tuesday) Source : Startup Europe Partnership (SEP)
  4. 4. Crowdfunding: What are we looking at?
  5. 5. Crowdfunding : the only way to market & fund at the same time • Why marketing ? − Showcase technology, assemble consumer communities, get market attention & validation… • Why finance ? − Choice in type of financing, pitch to investors, access to smart money, speed & transparency…
  6. 6. Crowdfunding: Definition and taxonomy • Generating investments or funds for a project, cause, or enterprise by acquiring funds from many individuals over the internet. • Types: − Donation-based crowdfunding − Reward-based crowdfunding − Peer-to-Peer (P2P) lending − Equity based crowdfunding
  7. 7. Donation & reward-based crowdfunding
  8. 8. Peer-to-peer (P2P) lending
  9. 9. Equity-based crowdfunding
  10. 10. Where we stand today & how we got there
  11. 11. Crowdfunding across the globe (1) • Global crowdfunding volume was $34.4Bn in 2015 − North America $17.2Bn − Asia $10.54Bn − Europe $6.48Bn − Oceania $68.6Mn − South America $85.74Mn − Africa $24.16Mn Source : Massolution
  12. 12. Crowdfunding across the globe (2) • Cambridge’s “Sustaining Momentum” report shows a similar number for Europe, but much higher in other world regions − Asia-Pacific €94.61Bn (mainly China) − Americas €33.58Bn (mainly US) − Europe €5.43Bn (mainly UK) » UK €4.35Bm » France €0.319Bn » Germany €0.249Bn » The Netherlands €0.111Bn Source : University of Cambridge
  13. 13. Crowdfunding across Europe • In 2015, U.K. represented 81% of Europe’s crowdfunding volume (75% in 2014) − Double nb of platforms than closest follower France » Crowdcube, Seedrs, Syndicate Room, Funding Circle, Zopa… − Benefit from highly attractive tax schemes » Seed Enterprise Investment Scheme (SEIS) » Enterprise Investment Scheme (EIS) − Open-minded and voluntary regulation by FCA Source : University of Cambridge
  14. 14. Heterogeneous development • Alternative Finance Maturity Index − Captures the causes behind the current state of crowdfunding in Europe − 15 areas to assess the maturity of the alternative finance industry » 7 general areas (volumes, platform diversity, accessibility of data…) » 8 related to regulation Source : Crowdfunding Hub
  15. 15. How are Europe’s SMEs using crowdfunding? (UK excluded) Source : University of Cambridge • In 2015 a total of 9,442 businesses have raised €536Mn in capital • Debt & Equity models accounted for €508Mn among which… − €159Mn in equity (up 93%) » France > Germany > Netherlands − €349Mn in debt (up 156%) » Netherlands > Germany > France
  16. 16. How are Europe’s consumers / investors using crowdfunding? • Retail investors have pioneered crowdfunding, institutional investors starts pouring in − 76% of platform investments had only retail investors in 2013 − 56% of platform investments had only retail investors in 2015 − Most institutional money goes into lending • No need to be rich to invest in crowdfunding (logarithmic function) Source : University of Cambridge
  17. 17. Why are consumers / investors using crowdfunding? • Young consumers’ investment behavior is changing (Goldman Sachs) − Millennials hold approximately 52% of their assets in cash, only 28% in stocks − Millennials are more likely to participate in crowdfunding » 47% have backed or are likely to back a crowdfunding campaign, compared to 30% of Gen-Xers, 13% of Boomers, and 4% of Matures − Millennials more likely to accept a lower ROI or higher risk if the company has a positive impact on society & the environment Source : US Trust
  18. 18. Crowdfunding: Where are we heading?
  19. 19. Continuous growth of the market, globally • Global crowdfunding market to grow at a CAGR of 26.87% during the period 2016-2020 (Technavio) • Global crowdfunding market has the ability to deploy up to $96Bn a year by 2025 (World Bank) • Questions arise : − To what extent will the US and Asia out-grow Europe ? » Will the UK players suffer from Brexit ? » Will the rest of Europe catch up with the UK ? − Will developing countries catch up ? − How will institutional vs. retail investment be spread ? − Will crowdfunding surpass Angel & VC investment ? − How can Europe platforms be fostered ? » Will we have a crowdfunding capital union ? Source : Technavio
  20. 20. Crowdfunding in Europe is encouraged but not facilitated (yet) • National frameworks are seen as coherent : − “National frameworks are broadly consistent in terms of the objectives and outcomes they seek to achieve.” • No immediate plans to facilitate cross-border crowdfunding : − “Given the predominantly local nature of crowdfunding, there is no strong case for EU level policy intervention at this juncture. […]. Given the dynamism of crowdfunding and the potential for future cross border expansion, it will be important to monitor the development of the sector.” • Chicken & egg problem… Source : European Commission
  21. 21. Europe can be at the forefront of financial innovation • Wealth management & robo-advisors − Threshold to invest will keep lowering, more investors can be reached by SMEs across Europe • Blockchain & smart contracts − “Mini-bonds” issues by French SMEs on the blockchain will be recognizes as financial instruments » To be issues on crowdfunding platforms & be purchased by individuals & legal entities » To be used by banks’ securities services in helping small companies access capital Source : Crowdfundinsider
  22. 22. Further reading (EU) “Crowdfunding remains relatively small in the EU but is developing rapidly. It has the potential to be a key source of financing for SMEs over the long term.” “The European alternative finance market should have ample room for continued growth and expansion over the coming years” (University of Cambridge, 2016) “The alternative finance industry is a vibrant industry that develops very quickly” (CrowdfundingHub, 2016)
  23. 23. “The US has the highest total online alternative finance market volume per capita in the world, at $ 113.43 in 2015” (University of Cambridge, 2016)“This document explores specific strategies to drive crowdfunding, the risks in crowdfunding and how to mitigate them, and the potential use of crowdfunding in the developing world” (World Bank, 2013) Further reading (other) “The more projects funded draw more entrepreneurs and other creators to start campaigns on the platform, creating a virtuous cycle of growth on both sides of the marketplace” (Goldman Sachs, 2015)