The Funding Gap and The Role of Financial ReturnCrowdfunding: Some Evidence From European Platforms

Crowdfunding is a relatively new phenomenon. However, its growth rate in recent years has been substantial. Typically, start-ups and small and medium enterprises (SMEs) face funding problems and crowdfunding may have become an alternative funding source. We study a sample of financial return crowdfunding platforms active in the European Union. We concentrate on the organizational structure and business model of the platforms for those companies with funding needs to identify whether crowdfunding might be complementary to, or a substitute for traditional funding sources. The analysis evidences an extreme heterogeneity among platforms, partly due to the lack of regulation at both national and European level. Furthermore, it shows that crowdfunding has evolved from pure p2p to p2b and b2b fundraising, even in equity crowdfunding where target companies are mainly represented by start-ups. Also, some characteristics of p2p lending and equity platforms are significant for the future development of crowdfunding as an alternative source of capital. Another critical issue which may impact upon the future development of crowdfunding is regulation. Crowdfunding is largely still an unregulated activity. The ways in which crowdfunding is regulated will seriously affect its capacity to reduce the funding gap for start-ups and SMEs.