Eurada News nº388 - May 2019

The impact of crowdfunding on Central – Eastern region

The CROWD-FUND-PORT was a project that aimed to spread the utilize of the tool of crowdfunding (CF) in Central – Eastern (CE) Europe in order to minimize business risk-taking and increase entrepreneurship mind-set, which is why an unused crowdfunding potential represents a huge challenge especially in the eastern parts of Central European countries. The main purpose of this project was to improve skills and competences of all relevant stakeholder groups to prepare them for taking advantage of the crowdfunding phenomena.

On 10th May 2019 in Vienna, took place the final conference of the CROWD-FUND-PORT project, a project that aimed to spread the utilize of the tool of crowdfunding (CF) in Central – Eastern (CE) Europe in order to minimize business risk-taking and increase entrepreneurship mind-set, which is why an unused crowdfunding potential represents a huge challenge especially in the eastern parts of Central European countries. The main purpose of this project was to improve skills and competences of all relevant stakeholder groups to prepare them for taking advantage of the crowdfunding phenomena.

A 2016 Commission staff working document noted that crowdfunding has been developing rapidly since 2013, but remained concentrated in a few EU countries, with 81 % market share in the United Kingdom (UK). Some Member States introduced national rules to regulate their online platforms and/or apply elements of existing EU legislation on financial services to specific types of crowdfunding, while others leave some aspects of the activity unregulated. This regulatory patchwork hinders cross- border crowdfunding and creates considerable market fragmentation

The great variation of national licensing and investor protection schemes, diverging definitions of business models and ‘often ineffective’ application of existing EU legislation are considered to contribute to market fragmentation and regulatory arbitrage.

 

The project CROWD-FUND-PORT started on July 2016 and it is going to finish at the end of June, and it involved 10 partners coming from: Austria, Croatia, Czech Republic, Hungary, Poland, Slovakia, Slovenia and both part of Germany and Italy. The purpose of the project CROWD-FUND-PORT was top improve the compatibility and safety of CF in CE Europe. In order to do so, the project was composed by three phases:

1.       Different studies and analysis involving different stakeholders:

Study on drivers and fears of society for CF;

Recommendations for unification of legislation and implementation procedures;

Analysis of possibility for using public funding to match CF;

Analysis of regional strategies supporting CF.

2.       Support plans and action:

Action plan for future support of CF in CE;

National HUB strategies.

3.       Different discussion events:

Round tables;

Meetings with decision-makers.

Lots of work has been done in the last 3 years of the project, in fact changes are visible and they improved the financial conditions of several start-ups fostering innovation, employment and social stability in the Central – Eastern region. The main target of the project were economically weaker businesses with fewer opportunities, who did not have access to bank loans, and thanks to this project more than 120 companies were supported. Some SMEs benefited from this project by improving their competences while the crowdfunding investors took some advantages from the increased safety by a better understanding of benefits and risks. The policy maker, instead, gained decision-making competences. In the framework of the project more than 80 events were organized which interested roughly 1800 participants.
At the end of this project, it could be said that crowdfunding is a relevant topic in Central Europe region in order to foster its development.
Here you can find some example of successful example of crowdfunding’s stories.

Crowdfunding was a great challenge in CE Europe because in that region there is a lack of skills and competence of key stakeholders (platforms, SMEs, citizens, investors and policy makers). Moreover, there are disparities in development and knowledge between participating CE countries in the field of CF. Finally, there is a lack of research about existing situation on CF market development in CE countries.
A project in crowdfunding brought added values to this region: open innovation, distribution, product feedback, proof of concept, crowdsourcing, community building, market research and marketing.

An important aspect of the CF that cannot be neglected is the Civic crowdfunding. The civic CF is applied to civic projects, projects related to duties or activities of people in relation to their own city or local area. Civic CF is aimed at raising money specifically for public endeavours thus giving citizens an opportunity to donate to projects that matter most to them.

Civic CF main characteristics are: goal of general interests; place-based projects; models: reward or donation based; the actors involved and their motivations play a crucial role.
A recent trend shows that the local authorities are trying to be more involved in CF project, first because of the scarcity of resources, then because it enhances transparency and cost efficiency while is improving knowledge (about citizens need) and the rate engagement.
The involvement of the public authority in a CF project is not so easy, but it could be very useful because the promotion campaigns might be managed by the professional staff of the public administration, moreover they shall create an ad hoc platform. 

The civic CF has some benefits like, providing an additional share of private resources, maintaining the strategic priorities identified by the EU commission and improve the citizens awareness and engagement. Of course, it has also some barriers such uncertainty about the regulatory framework
maintenance issues and the Implementation of public goods.

 

Article written by Giacomo Frisanco, Communication and Policy Officer of EURADA