3 reasons European crowdfunding platforms beat U.S. ones
If negotiations regarding the Transatlantic Trade and Investment Partnership (TTIP) agreement are finalized, European FinTech startups will be in a great position to become world leaders in the peer-to-peer finance market. Here are 3 reasons why.
1. Experience advantage
Due to the dynamic increase in equity crowdfunding, which can be expressed by more than one hundred percent growth annually, Americans will not lose a moment to enter the competition. Well, some are already in – in the States they already operate platforms with offers for accredited investors only. Since September 2013, these platforms have raised $400 million for entrepreneurs listed on them.
This is, however, still a drop in the ocean for U.S. startups – in 2011 alone, Facebook Inc. raised $50 billion from private investors. In terms of targeting a wider audience, the U.S. crowdfunding platforms will have to start from scratch.
On the other hand, European platforms have run equity-based crowdfunding for several years now. Crowdcube (UK), Ulule (France) and FundedByMe (Sweden-based but operating worldwide) hold firm positions in the global crowdfunding scene.
There is no better school than practice. Examples? Here you go. Groups of funders interested in rewards and those who invest instead of equities are very different. However, it is possible to convert the first one into a more profitable segment. To do it you need a know-how gained from real life operations. Europeans should already have it.
2. Legislative advantage
From an American point of view, the European market is not transparent nor easy. Around 510 million citizens is a significant number, but they live in relatively small countries, where legislation varies significantly from country to country. Even particular provisions that look similar on paper may differ depending on the legal landscape. Not so long ago, the Spanish government considered significantly limiting opportunities for peer-to-peer lending. The British Financial Service Authority incorporated the provisions in its regulations just a couple months later.
Although there aren’t many crowdfunding companies operating in cross-border mode, those that do know how to deal with these issues, such as FundedByMe and others. Looking at this from the opposite perspective, the American market should be much easier for European platforms: one law, one interpretation and around 320 million customers: a perfect opportunity for scaling up the business.
3. Advantage in mindset recognition
Last but not least on that list is a customer’s approach to a potential equity offer. The EU probably won’t be as grateful for U.S. crowdfunding companies as they may expect. Although the capitalization of equity market in the UK in 2013 was 121% of GDP, in Lithuania, Latvia and Cyprus it was less than 10%. There are many reasons for this , but one of them is that people in different European countries are much less keen to allocate their savings in such sophisticated financial instruments.
Americans are considered to be just the opposite. Investing and actively taking care of your own financial situation is one of the commandments of a successful Yankee. From a business perspective, it is much easier to convince those who are familiar with the process to a particular brand rather than running a long-term category awareness communication campaign. The U.S. companies that dream about conquering America will have to do so first; Europeans, the latter. Assuming that both parties will be equally determined in achieving their business goals, the competition opened by TTIP and JOBS will be really fierce.
This post was originally published on Geektime.
