Is crowdfunding about to take off for mobility startups in Europe?
Lighter EU rules encourage crowdfunding of mobility startups. The European crowdfunding scene received a generational boost last month, when the European Crowdfunding Service Providers for Business Regulation (ECSP) came into force. Equity crowdfunding has – to date – made little headway on the continent. But after years of small volumes and lagging its global counterparts, this could be the moment that crowdfunding finally takes off for mobility startups in Europe.
Matthew Kay is Autonomy’s Business Analyst. He writes about the financing and the strategy of mobility businesses, having spent over a decade working in banking and asset management. Matthew is a CFA charterholder with an Education background in Cambridge.
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It is hard to overstate the importance of the recent changes. Raising equity finance in Europe via crowdfunding has long been fraught with complex obstacles relating to fragmented national compliance, investor protection, and broader regulatory rulebooks. The process could be time-consuming and loaded with legal and compliance costs which differed widely between EU member states. Platforms hoping to raise capital from investors in multiple European countries could easily face steep costs and numerous exhausting procedures. Given the small sums often involved on a per-investor or per-project basis, the funding often simply did not materialise.
It is no mystery why by some estimates equity crowdfunding holds a less than 6% market share of early-stage investments in Europe. For example, WiSeed, a well established French platform, has funded €318 million since 2009, of which just under a quarter was in equity crowdfunding; by contrast, Balderton Capital, just one venture capital firm, recently raised $600 million in a new VC fund to invest in European “breakout tech”.
All that changed on 10 November, with new regulations intended to integrate the European crowdfunding sector and kick start cross-border platform creation. Firstly, they carve crowdfunding activities below €5 million (over a 12-month period) out of the scope of MiFID II, the regulatory regime for financing and advisory services in Europe. Obtaining a full MiFID authorisation is no easy feat, so this is a boost for crowdfunding in countries where no lighter national crowdfunding regime was already in place. Secondly, they create a new regime in MiFID’s place, providing a harmonised rulebook across the continent, including specific investor protections. In many countries this will widen the scope of projects that can be crowdfunded. In other countries the harmonised requirements may be more onerous than the national regimes they replace, but a single regulatory regime across Europe will help boost availability of, and investor confidence in, crowdfunding platforms, and should drive costs and barriers down. The creation of cross-border platforms that these changes support is the key pillar in unlocking a new wave of crowdfunding capital, with Olivier Goy, the CEO of lending platform October, noting last year that “cross-border operations has been the exception, not the norm”.The provisions also remove the frustration of even fully MiFID-compliant platforms being unable to completely passport their services trans-continent, due to differing national interpretations of crowdfunding rules. ESCP aims to vastly improve regulatory clarity and visibility, providing greater certainty for platforms and projects on the legal environment within which they are operating. The number of investors willing to provide capital – and the number of projects looking for funding – can be expected to grow enormously as a result.
The provisions also remove the frustration of MiFID-compliant platforms being unable to completely passport their services trans-continent, even when they are fully regulated, due to differing national interpretations of crowdfunding rules. The number of investors willing to provide capital – and the number of projects looking for funding – can be expected to grow enormously as a result of ECSP.
What could this mean for Mobility Startups?
Crowdfunding will add a welcome competitive player to capital provision in Europe, benefitting founders who have long had to rely on other sources of financing. Angel syndicates and venture capital have dominated the market, with a 60% and 33% market share, respectively. Accelerators and government-led financing complete the picture, though their impact has until recently been limited. EIT Urban Mobility, an agency of the European Union, aims to co-fund up to €400 million by 2026, and currently runs accelerator and investment programmes. While each funding source has its own benefits and drawbacks, there is one standout advantage in democratising the financing of urban mobility projects via crowdfunding. Introducing end-users of mobility services as potential investors brings projects closer to home, and enabling users to be investors too will forge a stronger bond between users and infrastructure.
Nothing in this article should be construed as regulatory, compliance, legal, or investment advice.