Crowd Funding as a source of capital …

With crowd funding gaining ground and the EU’s recent plan to promote the sector, I am yet to find a text naming it as a viable source of capital. Perhaps, I’m looking in the wrong places and/or too soon. For those uncertain about what crowd funding is, the following article from REUTERS provides some clarifications alongside the EU proposals:

(Reuters) – A European Union “quality label” and possible state aid for crowdfunding would help the 1 billion euro (848.8 million pounds) sector grow to fund economic growth, the bloc’s executive body said in a document seen by Reuters.

Crowdfunding allows individuals and small businesses to raise money from pools of investors who can put money into peer-to-peer lending schemes or securities such as unlisted shares.

It is often hosted on online platforms such as Crowdcube, Funding Circle and Kickstarter.

The European Commission, in a draft document to be published next week, said crowdfunding has real potential to finance certain types of projects.

“Crowdfunding is an important source of finance to some half a million European projects each year that otherwise may not obtain the necessary funds to be realised,” the document said.

The document will be published alongside a blueprint setting out ways of boosting market-based fundraising at a time when small companies find it harder to get loans from banks that are focusing on increasing regulatory capital buffers.

“It’s great to see the EU recognise the positive impact that peer-to-peer lending has had across Europe,” said James Meekings, co-founder of Funding Circle.

The EU executive will conduct two studies this year; the first into how crowdfunding is used, the second into its potential for funding research and innovation, the document said.

The commission has just adopted new “risk finance” rules to govern state aid for small companies that find it hard to get loans in their early stages.

The document says these rules could also cover certain types of crowdfunding platforms.

FRAUD PROTECTION

“In view of this important public interest role, member states may support crowdfunding with their own resources, provided that there is an established market failure affecting the profitability of crowdfunding platforms,” the document said.

The plans would involve the creation of a pan-EU forum to improve standards and best practices to protect contributors from fraud and make sure complaints are handled properly.

Several EU states have already begun introducing rules for crowdfunding, but the Commission document signals that Brussels is cautious about stepping in too soon with pan-EU regulation.

“The Commission will continue to monitor the market and assess the need for regulatory action as a response to changing circumstances,” the document said.

Companisto, a Germany based European crowdfunding platform, welcomed plans for a quality label and the commission’s decision not to push ahead with EU regulation for now.

“As crowdfunding is still in an early stage, providers need some flexibility and freedom in developing and improving the infrastructure for this new eco-system,” Companisto co-founder and managing director, Tamo Zwinge said.

This week Britain’s finance ministry decided to allow the inclusion of crowdfunding in popular tax-free savings accounts after the country’s financial regulator introduced new rules for the sector.

Several Canadian provinces published proposals this week to harness crowdfunding to help business start-ups. (Reuters)