GHENT UNIVERSITY
ACADEMIC YEAR 2015-2016
FACULTY OF ECONOMICS AND BUSINESS
ADMINISTRATION
Crowdfunding in Belgium: An International Comparison
Dissertation submitted in fulfillment of the requirements for the degree of
Master in Business Economics – corporate finance
Van den Berghe Geert
Under guidance of Prof. Dr. Bart Clarysse
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ABSTRACT
In this study, I try to map the investment-based crowdfunding market in Belgium. I
investigated the dynamics of 63 projects. Data was retrieved from three Belgian crowdfunding
platforms and annual accounts. The sample includes 31 loan and 32 equity crowd funded
business projects. In this paper, I show the differences between Belgian for-profit loan and
equity seeking companies on both project and firm level. Equity seeking firms were younger,
smaller, had more board members, intangible assets, higher levels of capital and lower debt
ratio’s in contrast with loan firms but same levels of equity. They raised higher amounts over
a longer funding period and received more professional investment. Different motivations of
choice regarding both types of crowdfunding were found for entrepreneur, investor and
intermediary.
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Table of contents
1.
Introduction ......................................................................................................................... 6
Overview ................................................................................................................................ 6
Motivation to use crowdfunding............................................................................................. 6
Extrinsic (financial) motivation .......................................................................................... 6
Intrinsic (non-financial) motivation .................................................................................... 7
2.
Research context ................................................................................................................. 7
2.1. The Crowdfunding Process ............................................................................................. 7
2.1.1. Capital seeking agent ................................................................................................ 8
2.1.2. Capital giving agent .................................................................................................. 8
2.1.3. Crowdfunding intermediary .................................................................................... 10
2.1.4. Regulator................................................................................................................. 11
2.1.5. Promotor ................................................................................................................. 13
2.1.6. Researcher .............................................................................................................. 13
2.2. The Equity Crowdfunding Process ................................................................................ 14
2.2.1. Support in raising capital ....................................................................................... 14
2.2.2. Subscription of shares to the platform .................................................................... 14
2.2.3. Payment of fees to the platform .............................................................................. 14
2.2.4. Payment of monetary incentives to the investor...................................................... 14
2.3. The Loan crowdfunding process ................................................................................... 15
2.3.1. Support in raising funds .......................................................................................... 15
2.3.2. Transfer of money to the platform........................................................................... 15
2.3.3. Payment of fees to the platform .............................................................................. 15
2.3.4. Payment of monetary incentives to the investor...................................................... 15
2.4. Stages in Equity Crowdfunding ..................................................................................... 16
2.4.1. Selection and valuation ........................................................................................... 16
2.4.2. Investment ............................................................................................................... 17
2.4.3. Post-investment ....................................................................................................... 17
2.4.4. Exit .......................................................................................................................... 18
2.5. Risk and Information Asymmetry ................................................................................. 19
2.5.1. Financial crowdfunding .......................................................................................... 19
2.5.2. Equity crowdfunding ............................................................................................... 19
2.5.3. Loan crowdfunding ................................................................................................. 21
2.6. Reaching the funding target ........................................................................................... 21
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3.
Theoretical Framework ..................................................................................................... 23
3.1. Variables ........................................................................................................................ 23
4.
Research methodology ...................................................................................................... 24
4.1. Data collection ............................................................................................................... 24
4.2. Sample description ........................................................................................................ 25
5.
Analysis ............................................................................................................................. 26
5.1. Project level ................................................................................................................... 26
5.2. Firm level ....................................................................................................................... 27
6.
Discussion ......................................................................................................................... 29
6.1. Conclusion ..................................................................................................................... 29
6.2. Policy implications ........................................................................................................ 31
6.3. Limitations and directions for further research ............................................................. 31
7.
References ......................................................................................................................... 32
8.
Appendices ........................................................................................................................ 35
List of abbreviations used
BA = Business Angel
BCF = Belgische Crowdfunding Federatie
BVBA = Besloten vennootschap met Beperkte Aansprakelijkheid
CVBA = Coöperatieve Vennootschap met Beperkte Aansprakelijkheid
EC = European Commission
ECN = European Crowdfunding Network
FSMA = Financial Services and Markets Authority
IPO = Initial Public Offering
KBO = KruispuntBank van Ondernemingen
NBB = Nationale Bank van België
NGO = Non Governmental Organization
NV = Naamloze Vennootschap
PMT = Payment
PE = Private Equity
VOKA = Vlaams Netwerk van Ondernemingen
VC = Venture Capital(ist)
SME = Small and Medium Enterprise
SPV = Special Purpose Vehicle
TEA = Total Entrepreneurial Activity
Unizo = Unie van Zelfstandige Ondernemers
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1. Introduction
Overview
First of all, the existing literature on investment-based crowdfunding is summarized. The
related agents, processes and stages in crowdfunding are listed, followed by related risk and
information asymmetries. Subsequently, the determinants of reaching the funding target are
given. After the theoretical overview, some basic statistic tests were run on the sample. The
goal of this paper is to provide a better understanding of the Belgian equity and loan
crowdfunding landscape. This could be of use for entrepreneurs, policy makers and investors
for various reasons, which could ultimately result in a more optimal allocation of financial
resources among all related parties. Given the diversity of the crowdfunding market, my
research was limited to the investment-based crowdfunding market in Belgium.
A definition of investment-based crowdfunding is found in the European Commission’s
paper on Crowdfunding in the EU capital markets union (2016). ‘Companies issue equity, debt
or contractual instruments to crowd-investors, typically through an online platform […] through
a variety of funding mechanisms, often to adapt to different regulatory requirements in EU
Member States’1. The investment-based crowdfunding market in my study covers the equity
and loan crowdfunding market. I have chosen this market because of the highest financial
relevance, eliminating as many as possible non-financial influences. Nevertheless, these nonfinancial motivations still are of high importance. In the Nesta report on Understanding
Alternative Finance (2014) equity crowdfunding is defined as the sale of a stake in a business
to a number of investors in return for investment, predominantly used by early-stage firms2. In
this study, loan crowdfunding is best defined as debt–based transactions between individuals
and existing businesses (which are mostly SMEs) where many individual lenders contribute to
one.
A broad analysis of the European financial crowdfunding landscape shows that the
Belgian financial crowdfunding market lags behind those of our neighbors. The drivers of
development for investment-based crowdfunding in Europe are manifold. The biggest
impediment found for growth is legislation. Investor protection laws, tax on financial return
and constraints on investment and fund raising are affected by national and European
regulation. According to numbers from the European Commission (2015), the European
financial crowdfunding market raised 4,1 billion euro in 2015. Appendix J shows that EUR 422
million (103 million) was raised by the equity (loan) crowdfunding market in 2015. Belgium
accounts for approximately EUR 8 million (4 million), which is only 2% (4%). The United
Kingdom is the largest European crowdfunding market.
Motivation to use crowdfunding
Extrinsic (financial) motivation
Besides regulation, there are underlying entrepreneur and investor related motivations that
determine the use of financial crowdfunding. Possible entrepreneurial transaction motives are
the cost, ease and speed of obtaining finance. The entrepreneur can spread the risk of insolvency
among the investors in case of equity crowdfunding. The financial motivation of the investor is
the return on investment. For loan investors, this is received interest for loan projects. For equity
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investors, this is increasing share value and received dividends. Both intermediaries and
investors could seek for portfolio diversification. Platforms receive fees for their services.
Intrinsic (non-financial) motivation
In contradiction with the name itself, non-financial motivation is highly relevant in financial
crowdfunding. Non-financial motivations of the entrepreneur are investor participation, market
validation of the product or service. The non-financial investor-related motivation is the
intrinsic value of the investor toward the product or service. Examples are the support of an
innovative idea or the social value the investor gives to ecologic or social projects. The scope
of the study being equity crowdfunding, the extrinsic, financial motives are highly relevant,
following Cholakova and Clarysse (2015)3.
Reward and donation-based crowdfunding have more non-financial motivations of the
investor such as hedonism and altruism (Haas, P., Blohm, I., & Leimeister, J. M., 2014). Collins
& Pierrakis (20124) have evidence of investors on equity crowdfunding platforms being driven
by financial motivations. Hemer (2011) finds evidence for a combination of both extrinsic
financial and intrinsic non-financial motivations. Intermediaries are intrinsically motivated by
means of corporate social responsibility and innovation. Other drivers are platform
characteristics (tariffs, services and other) and country-specific, non-legal factors. Financial
crowdfunding is not necessarily a trade-off alternative for the entrepreneur to traditional lending
from banks, family or friends. The last two parties can invest in the project themselves. The
finance methods are rather complementary. Venture capital and business angel finance are not
considered as an alternative either. They enter in later stages or assist the crowd in negotiating
terms. Before the introduction of equity crowdfunding, the financing of start-ups and early stage
ventures was typically dominated by business angels and venture capitalists.
In Belgium, Business Angels traditionally invest between EUR 50.000 and 250.000 or
even 500.000 EUR, while Venture Capitalists invest EUR 500.000 or more. The introduction
of crowdfunding did not exclude these parties. In my sample, we conclude that a lot of
professional investing takes place (see 5.1. project level). The Business Angels Europe study5
(2015) shows that in Belgium, the Flanders and Wallonia network have nearly 400 Business
Angel members and receive over 750 projects on a yearly basis. Approximately 200 are
presented to their members. This results in 40-50 deals annually for a total amount of up to
EUR 10 million in 2015. My research indicates similar volumes for the investment-based
crowdfunding industry in Belgium. According to R. Vossen (CEO Business Angel Network of
Flanders), the average investment of a Flemish business angel in 2015 was EUR 80.000,
compared to EUR 103.000 in my sample (see 5.1 project level).
2. Research context
2.1. The Crowdfunding Process
Haas et al. (2014) provide a comprehensive view of the related groups in the crowdfunding
industry. These are capital seeking agents, project initiators, capital giving agents,
crowdfunding intermediaries, regulators, researchers and educators. This section will zoom in
on every related party.
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2.1.1. Capital seeking agent
The capital seeking agent wants to obtain finance and is called the project initiator. The initiator
is an individual or a group, an entrepreneur or a company, or even a non-governmental
organization. Capital seeking agents form the demand side of the market. Entrepreneurs with a
profit-oriented venture are most present in the financial crowdfunding industry, since they could
provide return through issuing shares (debt) and paying out dividend (interest). Evidence from
the GEM reports 2014 and 20156 (see appendix D) shows that Belgian and Italian entrepreneurs
have the highest fear of failure to start up a company. In the Netherlands and the UK,
entrepreneurship is ought to be a good career choice. Hence, it is no surprise that the early-stage
entrepreneurial activity relative to the total activity (TEA) is the highest in these two countries.
The raised funds are used by the project initiator to invest in (in)tangible assets or
working capital. In my sample, the average equity seeking company is 4 years old, versus 12
years for loan companies. The difference in company age results from the divergent incitement
for finance between equity and loan seeking agents. Equity seeking agents can desire an internal
monitor. Experienced investors can share knowledge and expertise by participating in
management. They give advice and help with carving out business strategy. The incentive for
loan seeking agents inclines more to the need for finance exclusively. The difference in age
might also suggest that established firms have greater value of control. In my sample, loan firms
have 3 board members, while equity seeking companies have 4 board members on average.
Please note that most of the loan seeking companies are BVBAs (private type), while
most of the equity seeking companies are NVs (public type). The initial capital requirement for
funding a company with type BVBA is EUR7 18550 and EUR8 61500 for a NV. The corporate
structure of a BVBA is a more private or closed structure, while the structure of an NV is more
open. Small, family businesses often opt for a closed structure because of the interesting
shareholders rights. The existing legal framework helps the company to protect its shareholders
against hostile takeovers. As most shareholders are family members, these rights and voting
laws can help to keep the company within the family. Also, all agreements between company
members are clearly stated on paper. The open structure, however, can be advantageous for
larger firms with dispersed ownership, such as listed firms. The corporate bodies, voting laws
and internal mechanisms of an NV enhance dispersed ownership decision making. The relevant
decisions in my research are related to profit-sharing, remuneration and investment policy.
2.1.2. Capital giving agent
The capital giving agent invests in the project. Investors form the supply side of the market.
The investor could be an individual or a group which is a private or a qualified investor. In
equity crowdfunding, qualified investors often co-invest with private crowd investors. The
investment of the qualified investor could be picked up as a signal9 of good quality, causing
private investors to invest after having seen someone professional funding a large part of the
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project. A professional investor traditionally invests EUR 25.000 or more. A minimum of 10
% of the shares for at least one year is invested because of the tax exemption on capital gains.
An example of a professional investment fund is Inventures. This fund is managed by the
similarly named holding company. The company has a capital of EUR 14.647.292, from which
EUR 5.000.000 has been raised by crowdfunding. The remaining capital has been subscribed
by two other investment holdings. Inventures has a board of directors of 6 people, who actually
manage the company and allocate the funds. Their investment strategy can be seen in appendix
F. The holding has specific investment thresholds related to the different growth stages the
company is in. Geographically, the company may not be located of further distance than 500
km from Wavres, the headquarters of the investment company. The distance criteria is set to
support local economy. The maximum investment of the portfolio is limited to 20% per sector
. The highly technical industry is avoided because of the high uncertainty that comes with the
long research and development period. As shown in appendix F, one can see an example of
objective investment criteria from a qualified investor.
Private crowd investors, on the other hand, are inclined to be driven by subjective, motivational
investment criteria. According to a study of Bolero and Massolution (2015), there are 5 main
reasons why Belgians invest in crowdfunding projects.
The first is the financial motivation which can be simply defined as the return on
investment. The second , functional motivation brings a more practical problem-solving point
of view. The product or service has to provide a solution for a struggle that people encounter.
The product or service has to give benefits for the customer. For example, a technology that
recognizes songs. The third motivation is social, the collective human side and the feeling to be
part of a something. The fourth is the innovative motivation, the desire to be part of something
new. The fifth, emotional motivation implies feelings, engagement and commitment.
The qualified investor uses only the first two of these five motivations. The functional
motivation helps the investor to select projects meeting the need of the market rather than being
just an insignificant hype. According to an internal research of Mymicroinvest, three essential
motivations can be ranked by importance. The first is financial motivation, more specifically
the seek for return on capital. The second is the cause to feel part of a change and contribute in
helping a project succeed. The third motive results from a close relationship between investor
and entrepreneur. The link can be family or product related. For example, the need for a solution
of a hearing problem the investor has.
In my sample, I found equity crowd investors invest less than loan investors. According
to internal research on the loan platform LookandFin (2016), 40% of the active investors on
their platform is aged 35 to 45 years old and has a portfolio of investments. The average
portfolio on the crowdfunding platform is EUR 8.772 per lender. Foreign investors mount up
to 30%, with lenders from the Netherlands and France, notably. They invested in Belgium for
fiscal or portfolio diversification reasons. Belgian equity platforms reported 10% of
investments were foreign. They describe their average crowd investor as a man between 30 and
45 years old with a high education (university). Nevertheless, the demographical distribution
of the financial crowd is very diversified. According to the activity report of Mymicroinvest
(2015), equity investors age between 18 and 85. The heterogeneity of age, gender, residence
and knowledge within the crowd is an asset for companies. As mentioned above, the financial
and functional motivation are most relevant. The functional cause is a condition for the investor
to select a project. The financial incentive helps the investor to select the functionally approved
project with the highest estimated return. Women are more driven by social cause and are more
eager to donate for donation-based projects than men.
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As insinuated by the different motivations of crowd investors, the role of the capital
giving agent is not limited to finance exclusively. The crowd investors are real ambassadors of
the company they invest in. The biggest benefit for the company is that they are a big team of
marketers, spreading the message the company stands for. The power of the crowd can be very
well illustrated by a recent project, called Domobios. Domobios found a remedy for people that
are allergic to dust mite. Most crowd investors that backed the project were allergic themselves.
The allergic patients were displeased that they could not buy medication against dust mite at
the local pharmacist. Domobios thus asked their crowd ambassadors to ask for the product
Domobios in their neighborhood pharmacy. Because of the demand for a dust mite remedy,
local pharmacists began to contact Domobios themselves to buy and distribute the product. This
story proves that crowd investors can be the best sales men, if the company thinks it through
and has a clear strategy. The crowd investors of each project are represented by one single
contact person, who groups their interests.
2.1.3. Crowdfunding intermediary
The intermediary between capital seeking and giving agents is the crowdfunding platform. The
online portal manager works together with a financial institution or bank for the management
of the transactions. A special purpose vehicle (SPV) can be used to conduct interest and
dividend payment from the company to the investor. The investor is entitled to receive such
payments through the debt or equity note issued by the SPV. Crowdfunding intermediaries are
prohibited by law to allow funding for sex, weapon or drug projects. A large variety of platform
business models exists. Investment-based platforms require a percentage on the total amount
raised. Fees for successful funding, registration or from the investor are less common. A variety
of these earning models is often combined10. Examples of tariffs are given in section 2.2.3. and
2.3.3.
Not all platforms are banks. The role of banks towards crowdfunding in Belgium is vital,
as many SMEs obtain bank finance. In Europe, banks with an investment bank subsidiary are
more eager to initiate crowdfunding activity, as the earning model is in line with the strategy
and business model of the bank. According to Bart Vanhaeren (CEO Bolero crowdfunding), the
bank can assume three main roles towards crowdfunding. Important for all roles is that
crowdfunding is considered as a fully-fledged alternative source of finance. First, it can simply
inform the client that crowdfunding exists. Second, the bank can assume its role as a referral.
The bank refers the client to a platform that has a partnership with the bank. Third, the bank
can engage actively by launching its own crowdfunding platform. A possible motive for
intermediaries is to separate funding for start-ups, to have corporate social responsibility
projects or to stimulate innovation. Having its own platform entails risk and reputational related
benefits and disadvantages. Banks with investment subsidiaries can carry over potential crowd
investors from retail investment and saving account services. The bank has in-house expertise
(legal, due diligence) regarding private equity deals.
A more recent evolution is the integration of crowdfunding platforms in the stock
exchange. February 2016, Euronext Belgium has initiated a secondary market for crowdfunding
transactions. The Euronext Expert Market. According to Vincent Van Dessel (CEO Euronext)
investors can better time their investment and exit strategy. Hence, a more universal and
transparent platform for a larger crowd is created. The debt or equity link notes on the expert
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market offer the investor the opportunity to cash out early and sell their notes privately. This
can be a blessing for people who need their invested money back immediately because of an
urgent need for finance. This could save the crowdfunding intermediaries a lot of time and work
effort. Other intermediaries are online trading banks who support a crowdfunding platform.
For example, Keytrade Bank supports Mymicroinvest, enabling its customers to invest in
tangible projects in addition to traditional investments on the exchange. Mymicroinvest also has
a partnership with BNP Paribas Fortis Bank. This way, the bank can service as a referral for
starting entrepreneurs to whom the bank does not wish to grant a loan because of various
reasons such as screening costs, lack of collateral and lack of market validation of the
entrepreneur’s idea. The European MiFID directive11 imposes platforms that deal for their own
account to have EUR 730.000 initial capital. Others have a capital requirement of EUR
125.00012.
2.1.4. Regulator
At the regulatory level we can find a first layer of European regulation, followed by a second
layer of national company laws. The staff working document from the European Commission
(Crowdfunding in the EU capital markets union, 2016) states the following: ‘Given the
predominantly local nature of crowdfunding, there is no strong case for EU level policy
intervention at this juncture. Crowdfunding is still relatively small and needs space to innovate
and develop. Given the dynamism of crowdfunding and the potential for future cross border
expansion, it will be important to monitor the development of the sector and the effectiveness,
and degree of convergence of, national regulatory frameworks.’13 According to policy advice
from Brueghel14, ‘inefficient and antiquated frameworks for insolvency and debt restructuring
deter corporate investment […] because investors and creditors are insufficiently protected in
case of insolvency, and the conduct of the insolvency process fails to maximize the prospects
for asset recovery’.
The national regulator has to ensure that current crowdfunding practices are legal. The
existing legislation lags behind the current practices, because of the novelty of the
crowdfunding phenomenon. Nevertheless, some crowdfunding platforms have a code of
conduct for investors and project initiators to anticipate new regulation.
In France for example, no prospectus is required if the crowdfunding platform has a CA or ISP
status who have a staged access website that indicates risk investment and refuses access to
those not willing to take risk15. Staged access websites checks whether the investor is informed
of the related risks of investing in crowdfunding projects. The risk assessment test has to be
developed by the crowdfunding platform itself. The capital giving agent has to be tested for
having sufficient theoretical and practical understanding to comprehend the risks that come
with investing money into crowdfunding projects on the related platform. If the investor lacks
sufficient knowledge, the possibility to invest is not refused, but a unequivocal warning is
expressed toward the investor. In such a manner, the regulator attempts to reduce irrational and
incautious investing to a minimum. Since the higher investable limits, a similar test is now
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obligatory in the Netherlands. In Belgium, some platforms already have investor tests, although
it is not obligatory.
The European MiFID directive imposes intermediaries to have specific initial capital
requirements. The existing Belgian law has following implications on financial crowdfunding.
For equity crowdfunding, a dividend tax of 27% is withheld by the government on dividends
received by crowd investors. For investment participations through companies, 95% of the
dividend is tax exempt if the participation mounts to 10% or more and is not sold for the period
of at least one year. On the remaining 5% of the dividend, a tax rate of 27% is withheld. The
capital gain of the share price is tax exempt for both individual and professional investors.
For Belgian crowd lenders, a tax percentage of 27 is withheld on the net income gained
from received interests. Investment vehicles do not have the same fiscal system for received
interests, as there exist many tax exemptions and reductions. The national tax policy is one of
the main determinants for (cross-border) investment behavior, as it has a direct impact on the
financial motive. France has an interest tax of 30 % or more, evoking some French investors to
invest in Belgian crowd lending and enjoy Belgium’s fiscal system. The national interpretation
of the European prospectus directive and its exemptions determine contemporary
organizational and operational structure of European crowdfunding platforms.
As equity crowdfunding offers equity to the European public, a prospectus is required
in some cases. The conditions are described in the Prospectus Directive16. If funds are raised
below EUR 100.000, no prospectus is needed17. If more than EUR 5 million is raised, a
prospectus is an absolute requirement. (Appendix A gives an overview of the exemptions)
Between those two amounts, European member states have a choice.
Next to the interpretation of the broadly covering legal framework in the European
Economic Area, there are different national company laws. The UK for example, has no tax on
dividends, making equity crowdfunding very interesting compared to other countries. In
Belgium, for projects between EUR 100.000 and 300.000, the maximum investable amount is
limited to EUR 1.00018. No limit exist for fund raising below EUR 100.000. The draw-up of a
prospectus also removes the investor limit. The limit is an obstacle for the growth of the Belgian
crowdfunding industry. The lower limit where no prospectus required is proposed to be
extended from EUR 100.000 to 500.000 in order to avoid disproportionate costs relative to the
amounts raised. In the Netherlands, the investment limit is EUR 40.000 for investments in
equity crowdfunding projects and EUR 80.000 for investments in loan crowdfunding projects19.
This is a substantial exemption on the prospectus directive. It is no surprise that the financial
crowdfunding industry in the Netherlands is further developed than the one in Belgium. The
maximum investment amounts in the United Kingdom are even higher than in the Netherlands.
A detailed overview of maximum investment and funding amounts within the European Union
is given in appendix I. A Belgian lending platform operates through a non-public fund raising
type of way. The platform ensures that the fund raising campaign of the loan seeking company
is disseminated to a maximum of 149 investors. These investors are selected based on their
industry and risk preference. Because the campaign is only presented to a limited amount of
people, it is classified as non-public. This exemption on the prospectus directive makes it
possible for firms to raise up to EUR 1 million without having a prospectus. In France, this is
EUR 2,5 million.
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In Belgium, new national company law is being proposed to support innovation through
tax deduction20. This tax shelter would enable a private (non-professional) equity investor to
exempt 30% (for investments in SMEs) or 45% (for bigger firms) from his personal tax on
investment income. The tax advantage is limited to an investment of 100.000 EUR and a stake
of 30% of the company. If the investment period is no longer than 4 years, the tax advantage is
reduced to the investment period. With loan crowdfunding, investors are exempted from the tax
withheld on interests (27%) if the loan is limited to EUR 15.000 per year. Loans under four
years emitted by a company younger than four years cannot benefit the tax advantage. On the
project level, the shelter is not applicable for the transfer of existing activities between
companies or entities. This means it has to be a newly initiated project, stressing the innovative
nature of the project. The tax shelter applies to investment transactions made after the 1st of
july 2015. This investment can be made directly, but also through an approved equity
crowdfunding platform. Until May 2016, no crowdfunding platforms are approved by the
FSMA.
2.1.5. Promotor
The organization most relevant for promotion in Europe is the European Crowdfunding
Network (ECN). Their purpose is to organize and transfer (technological) knowledge of
crowdfunding. ECN was founded as an indepent NGO in 2012 by Oliver Gajda and others. It
was formally incorporated anno 2013 in Brussels, Belgium. The purpose of the ECN is to
promote the use of crowdfunding in order to realise job creation, social innovation and to boost
entrepreneurship to the European public, policy makers and stakeholders 21 . In Belgium
promotor institution Belgische Crowdfunding Federatie (BCF) provides a guide for
crowdfunding in Belgium. They publish a list of approved platforms together with their
characteristics and applicable regulation. Employer’s organization such as VOKA and Unizo,
or entrepreneurial organizations such as Vlaams Agentschap voor Ondernemers, also promote
the use of crowdfunding through organizing lectures and workshops.
2.1.6. Researcher
Research in this area is done by academics and (policy) institutions. Their interest can be to
prevail existing or new relationships in order to give policy advice or deeper understanding in
the crowdfunding industry for management implications.
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2.2. The Equity Crowdfunding Process
Hagedorn and Pinkwart present the equity crowdfunding process22 as a relationship between
entrepreneur, crowdfunding platform and investor. As illustrated by appendix B, four main
relationships occur. A first relationship is the support in raising capital for the project. Second,
investors encounter a subscription of shares to the platform. Third, entrepreneurs pay fees to
the platform. A fourth relationship is the payment of monetary incentives by the entrepreneur
to the investor. Note that this is a simplified image of the crowdfunding process in reality, as
other relationships are left out of consideration.
2.2.1. Support in raising capital
The capital giving agent invests money into a project . Minimum investment amounts were
between 25 and 100 EUR. The maximum is subject to the Belgian interpretation of the
Prospective Directive. (as explained in 2.1.4. Regulator)
2.2.2. Subscription of shares to the platform
The platform ensures the investor receives equity notes for his participation in the capital of the
capital seeking company. The intermediary provides platform service and subscribes shares or
equity notes to the investor. Finally, the raised funds are grouped on one bank account in a
special purpose vehicle. The money is transferred to the company in one transaction. The
managing and administration costs are sometimes withheld from the transaction amount in
order to secure the platform’s compensation.
2.2.3. Payment of fees to the platform
Mymicroinvest charges a set-up cost between 1495 and 9995 in function of the chosen package.
Investors are charged 2% managing costs annually23 for an average period of 6 years. This
amount is ought to cover management and monitoring costs of the investment account. If the
annual return on investment exceeds 5%, an additional commission of 20% is withheld from
the capital gain realized by the investor. Bolero crowdfunding charges entrepreneurs a success
fee of 6% of the raised amount, for both equity and loan projects24. Some platforms provide a
prospectus writing service in order to lift up investment limits and raised amounts. The capital
seeking agent has to pay the crowdfunding intermediary for the creation of this official
document. The cost of writing a prospectus is EUR 12.000 to 15.000. The project initiator has
to decide whether the cost of writing a prospectus is justified in proportion to the raised funds.
Bolero requires the entrepreneur(s) to found a new company to group the crowd investors, while
Mymicroinvest groups the crowd in their own special purpose vehicle.
2.2.4. Payment of monetary incentives to the investor
The monetary incentive is the return generated by dividends and the rise of the stock price. The
age of the equity projects did not allow to collect much data on dividends and stock prices,
since most of the companies were not profitable yet and an exit was not yet up for discussion.
As mentioned in section 2.1.4. Regulator, a tax of 27% is withheld on the dividend for crowd
investors. For investment vehicles, 95% of the dividend is tax exempt if specific company
requirements are met. On the remaining 5% of the dividend, a tax rate of 27% is withheld. The
capital gain of the share price is tax exempt for both individual and professional investors.
14
2.3. The Loan crowdfunding process
Since loan and equity are related financial types of crowdfunding, I extended the Hagedorn and
Pinkwart framework to the loan crowdfunding process. The extension of the process’
presentation enhances further comparability. The third relationship ‘subscription of shares to
the platform’ is transformed into ‘transfer of money to the platform’.
2.3.1. Support in raising funds
The capital giving agent lends money to the company by means of a subordinated loan or debt
note. The minimum investment depends on the project. Projects on lending platforms typically
had an absolute minimum of EUR 500. The upper investment limit is subject to the national
interpretation of the European Prospectus Directive (as explained in 2.1.4. Regulator).
2.3.2. Transfer of money to the platform
The money from the investors is transferred to the bank account of the company. Platforms
work with banks to take care of the transactions by using their transaction system.
Crowdfunding platforms also provide online payment services such as PayPal or Ogone which
function as a transaction intermediary. However, this involves an additional cost for the investor
and is not desirable for investment-based crowdfunding. Hence, this is more common for
reward and donation based crowdfunding.
2.3.3. Payment of fees to the platform
For loan investors at Bolero, financing a loan is free of charge. The interest rate found on the
platform is received without additional fees. Bolero crowdfunding charges entrepreneurs a
success fee of 6% of the raised amount of the loan project. To initiate a project on lending
platform LookandFin25, entrepreneurs pay a set-up fee of EUR 2.000 followed by a commission
of 4% of the successfully raised amount. Angel.me charges a success fee of 6.5% without setup costs. Crofun charges a set-up cost of EUR 181 and a success fee of 5%. Mymicroinvest
charges a set-up cost between EUR 1495 and 9995 depending on the chosen package. A success
fee of 4% of the raised amount is withheld together with an annual 1% of the raised amount.
The latter is due as a compensation for the paying-agent. Some crowdfunding platforms use
transaction intermediaries such as Paypal. Payment service companies traditionally ask
transaction fees of 2 to 5 % of the transaction amount. . If the platform does not withheld the
costs from the total raised amount, a separate invoice has to be sent.
2.3.4. Payment of monetary incentives to the investor
The monetary incentive is the return generated by the annual interest. The investor receives
periodical installments of capital and interests from the company. Other, less occurring debt
notes are coupons with specific terms. The intermediary functions as a control mechanism and
follows up the repayments. Most of the Belgian projects pay an average annual interest rate
between 6 and 12 percent. The average loan in my sample has an interest rate of 8 % and
duration of 4 years. The investor receives the interest payment based on the amount lent. The
interest rate shown on the website is the one the investor receives before tax. In Belgium, a tax
percentage of 27 is withheld on the net income gained from received interests.
15
2.4. Stages in Equity Crowdfunding
Wilson and Testoni26 describe the different stages followed by entrepreneur, crowdfunding
platform and investor. A visual overview is given in appendix C. Not all stages are equally
applicable to loan crowd funding, what does not alter the fact that interesting comparisons can
be made.
2.4.1. Selection and valuation
To begin, the platform has to screen the entrepreneur that applied for funding. The intermediary
eliminates entrepreneurs who are not suited for starting a crowdfunding project. Hereby,
different criteria are evaluated. Repayment capacities, evaluation of the team, dependence
towards customers, working capital requirement, competition of the industry and others are
used. Human capital can thus be screened. The CFP can take an assessment of the skills,
learning abilities and capabilities. For example, identifying and exploring business
opportunities (Shane & Venkataraman, 2000)27. Intellectual capital can be screened.
Innovation, patents and access to niche markets. Furthermore, the social capital can be screened
by identifying the social network of the entrepreneur or the access to information and other
resources. The company has to come up with a sound business plan. This analytical tool has to
map all determinants for success of the project. A profound assessment of team, market, idea
and financials is essential. Entrepreneurs define their objectives and strategy precisely. The
financial plan determines the valuation of the company and need for external finance.
Ultimately, together with the pitch, the business plan has to attract investors. The projection of
the idea has to be easy to comprehend for an outsider.
After the screening by the platform, the investor tries to assess the potential value of the
firm. Wiltbanks and Boeker (2007) show that due diligence is important to identify quality
businesses in order to gain return in the future. Selection and valuation do not always occur
profoundly, as most private investors contribute just a small part of the total fundraising.
Agrawal et al. (2013) state that private investors are prone to perform free-riding on the
investment decisions of others. Consequently, the crowdfunding community may
systematically underinvest in due diligence. Qualified investors take more time to value the
firm properly. According to the Venture Capital Buy-Out guide for Belgium (S. Manigart,
2012)28 , three types of due diligence occur for private equity investors. Management,
commercial and financial due diligence. Management due diligence is related to the assessment
of the key people of the company. Commercial due diligence is about the product, the customers
and the market. Financial due diligence assesses the value of assets, taxes and other
commitments.
Next to the valuation of the investor, entrepreneurs and platforms might provide their
own valuation of the company. Mymicroinvest, for example, does not do the valuation exercise
all by their selves, but first asks the capital seeking company to do it for their own. Afterwards
they have a tool the company can use, to see if their valuation is realistic. This tool calculates
the maturity at the (possible) exit, and that value is than discounted to the present. The
calculation of that tool is based on the academic paper from Bhagat S. (2014) Why do venture
capitalists use such high discount rates?29. In the paper a rational explanation is given to justify
the high discount rates used in valuation methods for early-stage companies or projects. The
determinant of the valuation is the systematic risk of the cash flows and the risk free rate. The
16
method used could be seen as a type of asset pricing model. The operating leverage (capital
requirements for equipment etc), the discount rate of the cash flows (required rate of return)
and the cyclical nature of the industry will have an impact on the systematic risk of the firm or
project. The valuation has two stages with appropriate risk estimates. In the first stage, an
assessment of the economic feasibility of the project to the market is made. Here, the capitalist
agrees whether to invest or not. There is no cash flow at this stage. The determinant of the
probability of success of the project is defined by the possibility to cash out. In the second stage,
production and commercialization decisions are made. Both stages have their appropriate
probability rates of success and impact the valuation. The success rate in stage two is higher
because of the higher probability for the venture capitalist to cash out. Because of the
introduction of the success rates, the discount rates used in the model accounts for the fact that
not all companies are successful. Note that the method used by the platform is based on this
paper, but is not exactly the same. The final valuation of the company is traditionally between
the company’s own valuation estimate on the one hand, and the adjusted tool estimate value of
Mymicroinvest on the other. For valuations in my equity subsample, see Table V. Note that the
valuation of the share price here is negotiated between qualified investor and entrepreneur,
which is traditionally the case with Business Angel finance.
Some qualified investors prefer a ‘ratchet-up’ agreement, but this is rarely used in
Belgium. The ratchet-up method entails that the qualified investor receives more shares in the
beginning. The company thus is a little undervalued. The entrepreneur is rewarded with shares
if the company performs well. Such agreements are used to avoid conflict of interest. On other
platforms, companies often use a discounted cash flow method for valuation. Here, firms have
to estimate an appropriate weighted average cost of capital (WACC) and a perpetuity growth
rate. These estimates are necessary to determine the terminal value of the cash flows for the
years beyond the estimation horizon. (Platform selection rates, see 2.5 Risk and information
asymmetry)
2.4.2. Investment
After the approval of the project, the platform posts the pitch and project details online. First
investments can now be made. Usually, investing is possible during a fixed period of 60 or 90
days. However, in my sample the average equity project reached its funding target in around
50 days. Loan projects reach targets 5 times faster , with an average of 10 days. If business
angels and other qualified investors are interested, staged financing can occur. Here, the
company has to prove its viability over time in order to obtain further financing in subsequent
capital rounds. Staged financing can reduce the risk of the business by periodically evaluating
the company’s performance. A possible disadvantage for shareholders is the dilution of their
stake. The concept of dilution is explained in section 2.5 Risk and Information Asymmetry. In
my sample, a type of staged financing on the platform itself occurred for 3 equity-based
projects. Nearly 80 % was invested by professionals for these second financing rounds, notably.
2.4.3. Post-investment
If the project funding succeeds, the investment can be followed up. Non-professional (private)
investors assume a rather marketer type of role after investing. The company can use the power
of the crowd and make the private investors real ambassadors of the company (see 2.1.2 capital
giving agent). Their interest is grouped for the sake of the company. When statutory or other
decisions have to be made, the voice of the crowd is unified. Loan investors assume a rather
passive role opposite to equity investors. The investment decision is especially based on
financial motives.
17
Qualified investors assume a more business consultant type of role, such as monitoring
the company and participating in management. Preferably, the qualified investor has experience
within the industry of the company in which they invested. The professional network of the
investor can provide further business opportunities for the company. The participation of the
investor is not limited to finance exclusively. The qualified investor can add value to the
company by means of non-core-business advisory, because the entrepreneur is presumed to
know most of the core-business. Legal or fiscal advice can boost the company to a higher level
of performance through the minimization of redundant expenses. According to a study of
Business Angel Network Vlaanderen30, for a qualified investor the most important quality of
an entrepreneur is flexibility. The entrepreneur has to be able to do what is necessary, rather
than doing what he likes to do. Following Sapienza and Manigart (1996) and other empirical
work, the strategic involvement is seen as the most important role assumed by the venture
capitalist31. Other important value adding roles are interpersonal roles between the VC and the
entrepreneur and the professional network of the VC.
2.4.4. Exit
In Belgium, no exit data was available, given the newborn nature of crowdfunding in Belgium.
According to a worldwide study of Crowdcube, 8 crowdfunded companies were able to offer
an exit to their investors in 2015, for a total amount of nearly EUR 10 million. Similar exit
volumes were reported for 2014. Possible exits are carried out by acquisition of another
investor, company or private equity player. The private equity player can be a Venture
Capitalist, Business Angel, or an institutional (or other type) of investment fund. If large
enough, the company can opt for an IPO. This option is strongly subject to national regulation
regarding equity financing in the country of IPO. The listing for small caps means requirements
regarding assets, free-float and liquidity have to be met. An IPO traditionally comes with a high
fixed cost. However, crowd funded companies could be already listed on the stock exchange
when the campaign was launched, which facilitates the exit for the investor. Some investors are
able to cash out because of a buy back of the initial shareholders or founders of the company.
Here, a share price has to be arranged by means of required return on investment or by means
of a premium agreed upon the initial buy-in price of the investor.
As mentioned above, the Euronext Expert Market could be an interesting tool to enhance
exit strategies. March 2016, Bolero crowdfunding initiated a transaction system with block
chain technology. To get familiar with this technology, the platform organizes crowdfunding
and business angel lectures, where entrepreneurs pitch their business ideas. The interested
parties can then invest virtual currency into the project that convinced them. The entrepreneur
who receives most of the virtual investments, wins a golden ticket for a next entrepreneurial
summit. Here a lot of potential investors are present. Suchlike events bring investors and
entrepreneurs together. After the lecture and pitches, a networking moment is foreseen. Supply
meets demand and deals can be arranged. The entrepreneurs and investors can also extend their
professional business network. The virtual investment implies a crypto currency. The platform
is intended to incorporate this currency for real investment transactions in order to enable
investors to exit faster, easier and with lower transaction costs32. Another advantage of using
such a virtual currency for equity investing is that the large fixed cost of an IPO could be
avoided.
18
2.5. Risk and Information Asymmetry
2.5.1. Financial crowdfunding
The platform first screens (see 2.4.1.) the company that applies for funding in order to eliminate
unrealistic projects or ‘rotten tomatoes’. The platforms in my sample report that a mere 2 to 5
% of the funding applications makes it through the selection stage. Screening and selection are
executed to reduce risk in advance. Entrepreneurs take risk by initiating a project. Financial
crowdfunding projects come with an all-or-nothing way of funding, in order to ensure the
success of the firm’s project as much as possible. When the funding target is not reached the
entrepreneur bears the cost. A possible cost for the entrepreneur could be the set-up fee paid to
the platform. Not all platforms demand set-up costs. Other costs are also relevant, as the
entrepreneur invests a lot of time in exploring crowdfunding and preparing a campaign.
Reaching the funding target is of high importance because when not reached, the
investment project has even less probability of success than before. In this case, naturally, the
investors are refunded. Investors do only bear risk after the funding target is reached. When the
firm fails afterwards, this will be at cost of the debt- and shareholders. Different parties engaged
in a deal do not have access to the same level of information (Myers and Majluf, 1984). This is
called information asymmetry. Not all investors are specialists in identifying quality projects.
Entrepreneurs could have better understanding of the value of their company.
The
crowdfunding campaign has to deal with risks and information asymmetries between
entrepreneur and investor. The campaign has to convert people into investing, whilst reducing
uncertainty. Banks as crowdfunding intermediaries obviously benefit more from successful
projects than from failed ones (see section 2.2.3 and 2.3.3). The projects initiated on their
platform thus are preferably of good quality. Failed projects can elicit investors to blame the
bank for their losses. In the worst case, the bank might even lose customers, especially if the
bank has its own platform. It could therefore be interesting for banks to clearly separate banking
and crowdfunding in avoidance of possible negative carryover effects. The main risks (and
implications) related to both types of investment-based crowdfunding are given in the following
sections.
2.5.2. Equity crowdfunding
Equity platform Mymicroinvest reports a selection rate of 5 % of the applicants. Selected
projects reach their funding target in 6 out of 7 or 85% of the cases. Equity platforms perform
different due diligence and use other selection criteria than loan platforms. Given the earlystage nature of the ventures, some platforms require the company to have their first product
ready or to have their first paying customers. Shares have to be issued to the crowd in a
consistent way. In case of insolvency, shareholders are subordinated to debt holders. According
to Schwienbacher and Larralde (2010)33 , investors who acquire equity ask for more information
than debt financers, since they bear more risk. Opposite to traditional finance, the use of equity
crowdfunding spreads the risk among the shareholders. Bolero Crowdfunding requires the fund
seeking company to be of a specific organization type. A new company of type CVBA34 is
created to group the crowd investors. The investor company has a stake in the NV35, which is
the parent company. At least one or two board members of the parent company (NV) are seated
19
in the crowd company (CVBA). In case of a buy-out of all crowd investors by management,
the initial capital requirement of the daughter company can be recovered. The syndication of
the crowd enhances decision making because the interests of the crowd are grouped. In case of
an exit of one or more investors, an external auditor has to assess the value of the shares of the
crowd.
The fund seeking parent company has 3 types of shares. The first are ‘A-shares’ for the
founders and entrepreneurs. A-shares provide the highest decision authority and rights. The
second are ‘B-shares’ for the crowd investors. B-shares provide dividend claim, preference
liquidation rights and/or limited voting rights. The third are ‘C-shares’ for Business angels and
Venture Capitalists. C-shares are very similar to B-shares. The only difference is that business
angels and venture capitalist negotiate the liquidation rights and other claims because of their
larger participation and qualification. B-shares are grouped by the daughter company (CVBA).
The qualified investors participate directly in the parent company through individual C-shares,
which enables a more active role of participation and monitoring. The qualified investor
negotiates valuation and exit terms for himself and the other crowd investors. For a visual
overview, consult appendix G. The other equity crowdfunding platform in Belgium,
Mymicroinvest, has a different operational company structure. The platform offers an
additional prospectus writing service to capital seeking companies. The prospectus is written
by a special purpose vehicle (company) called Mymicroinvest Finance. This company groups
the crowd investors from all different projects and has participations in the related SMEs.
Mymicroinvest finance controls the voting rights of the crowd. The investment vehicle spreads
the risk of the crowdfunding platform. If one or more SMEs goes bankrupt, the investment
vehicle will not be harmed in a significant way. The company writes the equity notes for all the
crowd investors that invest on their platform. In negotiations with the SME and the qualified
investor, it acts on behalf of the crowd investor. The investor can thus bear risk in case of
insolvency of the crowdfunding platform, opposite to the situation were a separate company is
created for each project. The equity investor is not seeking for short term return. The investor
is ultimately aiming for an exit opportunity. The company has to be profitable in the long run
to be able to pay out dividend and rise shareholder value.
Dilution risk occurs when the company issues new shares in further rounds of finance.
Existing shareholders can subscribe to new shares to maintain the same level of ownership as
before capital increase. The stake of the first round investors in the company will become
smaller relative to the total capital (dilute) if they do not invest proportionally in subsequent
financing rounds. Dilution is also possible if new shares are issued at a lower price per share
than the price paid by the first round investors. Therefore anti-dilution protection rights are
agreed. Later stage finance can also benefit first round investors as a higher share price could
be established and subscription rights of preferred shares could be exercised. The investor thus
has the option to sell its stake (partially) with a profit. For firms with high growth potential and
need for larger amounts of finance, a highly dispersed shareholder structure would not be
desirable. In later funding stages, there could arise valuation problems. Therefore, the stake of
the crowd is grouped. In addition, overly dispersed capital ownership would make decision
making more complex. Either way, the interests have to be grouped. The protection of investors
in case of new financing rounds and exit or buy-out implications of different shareholders have
to be clearly stated in the shareholder’s agreement, in order to avoid opportunistic and selfinterest behavior of the entrepreneur or investor. For this reason, some platforms enable crowd
investors to decide together with qualified investors if they want to invest in subsequent
crowdfunding rounds. A second crowdfunding campaign of the same company ensures that
crowd investors are able to invest with identical value and exit terms as qualified investors.
Hence, anti-dilution rights are provided.
20
2.5.3. Loan crowdfunding
Lending platform Lookandfin reports that a mere 2,7 % of the applying companies are selected.
The platform requires the fund seeking company to have filed annual accounts for at least three
subsequent years and to have revenue of at least EUR 300.000. After screening and selection,
Lookandfin reports that funding targets are reached in 100% of the selected cases. Younger
SMEs are sometimes accepted to reach 80% of the funding target, if a bank is willing to
complete the loan. Loan crowdfunding implies more short and medium term related risks and
uncertainties for investors. The payback capabilities of the entrepreneur are relevant. This can
only be accomplished by the entrepreneur if the company generates sufficient cash flow to repay
its debt. In theory, the long term profitability of the company is not necessarily important for
the investor. Thereby, loan backers could be motivated by means of exclusively financial
interests. As mentioned above in 2.3.4., this is the received interest payment. Overall, loan
crowdfunding is considered less risky than equity crowdfunding for two main reasons. The first
reason is the higher probability of repayment to the loan investors because of the monthly
(yearly) installments the company has to pay. Through the months (years), the investor watches
the risk diminish over time as subsequent repayments are made and the outstanding debt
decreases. The second reason is the priority of debt over equity holders in case of insolvency.
Some crowdfunding intermediaries write their own debt notes. The investment vehicle
that writes these notes has a diversified investment portfolio of different crowd funded
companies. However, a bankruptcy of a lot of firms in the portfolio could trigger a bankruptcy
of the investment vehicle. The lender thus can lose its money. Other intermediaries use separate
bank accounts for subordinate loans. Investments are grouped on one specific bank account,
which is unblocked when the funding target is reached and the campaign is closed. The investor
is directly linked with the funded company. Hence, the crowd lender can lose money in case of
bankruptcy of the company, but cannot lose any money in case of insolvency of the
crowdfunding platform. The intermediary follows up the installments and facilitates
communication between investor and company. Some platforms have an internal risk
classification. Projects are rated on risk using different financial and non-financial criteria.
Investors can use the rating to invest in compliance with their investment strategy. Financial
criteria are cash flow ratios, operational profit margins and more. Non-financial criteria are
market and team related.
2.6. Reaching the funding target
Success starts at the screening stage of the platform. According to lending platform Lookandfin,
only 2,7% of the requests make it through the screening stage. In the due diligence stage of the
investor, signal effects36 cannot be neglected. Possible signals for investors could be the number
of board members, education level and previous experiences of the entrepreneur. Also patents,
trademarks and alliances with familiar brands, companies or endorsers can be seen as quality
signals. Evidence has shown that geographical proximity between the investors and the
entrepreneur is relevant (agrawal et al, 2011)37. A possible explanation, supported by empirical
evidence of internal research within Mymicroinvest (see above), is that resources are commonly
found within the informal network of the entrepreneur. Family, friends and business contacts
21
often support the start-up venture in obtaining finance38.. This means that the network of the
entrepreneur is highly important. As friends and family investors often lack profoundly made
due diligence and objective investment criteria, the advantage of market validation or proof-ofconcept could be harmed.
Qualified investors invest in geographically proximate companies
in order to support the local economy (see above). Consequently, research is limited to Belgian
firms only and outgoing cross-border investments are ignored. Another determinant of success
takes place in the investment stage. Here, herding behavior can occur. Herding is a social
phenomenon, explored by Banerjee (1992)39. The implication of herding is that people will be
doing what others are doing rather than using their own information. Burtch, Ghose, & Wattal
(2013)40 found that people are more likely to support projects that have already reached 80%
of their funding target. Crowdfunding websites were reluctant to display unsuccessful projects,
as this might discourage investors and entrepreneurs to engage in a crowdfunding project.
Projects in the equity subsample reached funding target in around 50 days. Loan projects
reached targets faster , with an average of 10 days. The Mymicroinvest activity report (2015)
shows that 1 out of 5 projects did not reach their funding target. More recent numbers from
Bolero and Mymicroinvest reveal that only 1 out of 6 Belgian investment-based projects failed
to reach the target (May, 2016). Remarkably, Lookandfin reported that all loan projects on their
website were successfully funded (May, 2016).
22
3. Theoretical Framework
3.1. Variables
Funding goal:
The money that had to be raised.
Raised amount:
The money that is raised.
Days success:
Days passed to reach funding target.
Number of investors:
The amount of individuals that backed the project.
Capital:
The sum value of all shares in the company.
Equity:
The sum of shareholder capital and retained earnings.
Sales Margin:
Total revenue minus cost.
Total Assets:
The total amount of assets (equal to the amount of liabilities).
Board members:
Debt ratio:
Avg. crowd investment:
Pre-money valuation:
The number of board members in the company.
Debt over total assets.
The raised amount (professional investments excluded) over
number of investors.
Cash flow based valuation before fundraising.
Post-money valuation:
Valuation after fundraising.
Offered stake:
The percentage of capital offered to the crowd.
Professional investment:
Duration:
Annual interest:
Monthly installment:
Global return:
Amounts invested by PE player(s).
The length of the loan in years.
The interest rate of the loan paid by the company.
The periodical repayment of capital and interest to all investors.
The accumulated interest payments divided by the value of the
loan.
The organization type of the company.
The age of a company. (in years)
Company type:
Age:
3.2. Measures
Basic descriptive statistics were used, as some conditions to perform linear regression were
not fulfilled. I preferred custom calculations over standardized ones because of the size of the
sample and missing values. Outliers were removed for each variable using a confidence
interval for mean of 90%. Missing values were excluded from calculations. The duration
variable was computed to months in order to calculate monthly installments and global return.
Professional investments were excluded to calculate average crowd investment. The age of a
company was computed by tracking back the date of establishment to May 2016.
23
4. Research methodology
4.1. Data collection
The two equity crowdfunding platforms relevant for Belgium are MyMicroinvest and Bolero.
The relevant loan crowdfunding platforms are these two equity platforms, accompanied with
LookandFin, the French-Belgian loan platform for SMEs. The successful projects in the sample
were retrieved from the website’s track record. As the websites did not provide sufficient
information for all projects, further information had to be inquired with the specific companies.
After having obtained all necessary data on the project level, each project in the sample was
linked back to the company that initiated the crowdfunding project. For the linking of project
and company, the database of the Kruispuntbank van Ondernemingen (KBO) and the National
Bank of Belgium (NBB) was used. The KBO helps to find the company by name or by value
added tax registration number. In my first sample, a few foreign companies were included.
These had to be excluded because of the opaqueness of the French and Dutch corporate
information systems (unavailability of the annual reports).
In order to raise capital on the Bolero crowdfunding platform, the required company
type is a NV or CVBA. As the CVBA is rather a representation of the crowdfunding project
itself and not the company, further research had to be done to find the parent company. For
some crowd companies, pre-defined exit terms were stated in the Belgian Gazette. Once the
company was found, annual reports and other corporate information were requested and data
could be collected. The Belgian corporate disclosure is very open and accessible. The databases
used were free of charge and available on request. The numbers used in this research came from
corporate annual reports regarding 2014. The KBO helped to collect following company related
data for both equity and loan crowdfunding companies: date of establishment, amount of
capital, equity, intangible and total assets, sales margin, location of the registered office, number
of board members and company type.
The related equity crowdfunding websites helped to retrieve following project related
data: valuation, funding goal, raised amount, professional investment amount and number of
investors. The pre-money and post-money valuation was found on the crowdfunding website.
The post-money valuation was calculated by the average of the minimum and maximum postmoney valuation. However, for a few projects there was no post-money valuation available.
The valuation is then calculated as the raised amount over the percentage of offered capital.
This calculation implies an equity based valuation, as an alternative to the cash flow valuations.
Nevertheless, these valuations are very much in line with the pre-money valuations of the
concerning projects.
The related loan crowdfunding websites helped to collect following project related data:
funding goal, amount raised, number of investors, duration and annual interest. As duration and
annual interest were not available for all projects, the specific companies and platforms had to
be contacted. Monthly installments and global return of the loan could be calculated using these
data. Monthly installments are calculated following the PMT method. Here, the periodic
repayment of capital and interest to all investors is calculated. To find this number, I had to
compute following data. Interest rate per month, number of months and total loan amount. After
having computed the monthly installments, the total interest payment of the loan for its duration
was calculated by multiplying the monthly installment by the number of months and
subsequently subtracting the total loan amount. The global return (%) of the loan is defined as
the total interest payment over the total loan amount. Note that the interest rate is applied to the
remaining balance every month. The intention is to clarify for the investors what the total
interest over the duration will be. An important assumption here is that there is no discount rate
used whatsoever. (for example, see appendix K)
24
4.2. Sample description
The NBB database captures most of the project related incorporated entities. Considering the
recentness of the crowdfunding industry, some firms were too young to retrieve annual reports
from. For these firms, only few corporate information could be obtained. These are date of
establishment, capital, location of the registered office, number of board members and company
type. For older firms, all necessary information could be collected.
The sample consists of 63 crowdfunding projects of 63 different companies. There are 32 equity
crowdfunding projects and 31 loan crowdfunding projects. The equity projects were found on
the sites Bolero and Mymicroinvest. These platforms have a few key differences. The
first
major discrepancy between both platforms is the manner in which the prospectus directive is
handled with. Bolero seldom uses a prospectus for projects under EUR 300.000, while
Mymicroinvest tries to draft a prospectus for every project that wants to fund over EUR
100.000. The prospectus is written by a company named Mymicroinvest Finance, which groups
all crowd investors and also writes the link notes. The presence of a prospectus enables crowd
investors to invest the amount they like, without being bounded to a limit of EUR 1.000. The
prospectus has to be approved by the FSMA. Bolero creates a new CVBA (daughter company)
for each separate crowdfunding project. This way they group crowd investors in separate
companies, opposite to Mymicroinvest.
The second difference is that with equity projects on Mymicroinvest, the co-investment
of at least one professional investor is mandatory. This is required to enhance valuation, staged
financing and exit negotiations. This is not surprising however, as the qualified investor has the
appropriate knowledge and has the same interests as the crowd investors. Bolero prefers the
presence of a professional investor but it is not mandatory. The requirement does not exist for
loan crowdfunding projects.
There are 4 significant for-profit loan crowdfunding platforms in Belgium. Bolero,
Mymicroinvest, Lookandfin and Crofun. Crofun is not included in this research because of
investment amounts were too small or lending was dominated by social motivations. The
majority of loan seeking projects in my sample are funded through the platform LookandFin.
Here, the company does not have to provide a profoundly detailed business plan, but rather
specific information about the replacement or expansion investments that have to be financed.
Technology and services (both 19%), followed by manufacturing (16%) and distribution (13%)
are the most represented industries for loan crowdfunding projects. Food and drinks (31%) is
the most popular industry for equity-based projects Technology and healthcare (both 16%) split
the second place, while transport and services (both 9%) share the third place. However, the
median loan firm has 0% intangible assets relative to total assets, while this value is 17% for
the median equity firm.
Mymicroinvest has approximately 33.000 members (investors) on their platform, Bolero has
approximately 20.000 members, Lookandfin over 50.000. The demographic distribution is
given in 2.1.2 capital giving agent.
25
5. Analysis
5.1. Project level
A first analysis was made at the project level. The distribution of project data is shown in table
I. Equity and loan projects were analyzed separately. All variables were plotted. Some results
were biased by outliers. Therefore, biased average values were recalculated after exclusion of
the outliers and shown in brackets. Equity projects have raised an average of close to EUR
360.000, while loan projects raised EUR 130.000 on average. The higher levels of raised funds
were accomplished by qualified investors, as the average crowd investment for equity firms
was EUR 138.000. Equity projects enjoyed double the number of investors in comparison with
loan projects. However, the time to successful funding was 5 times faster on average for loan
projects. This is quite surprising though, knowing that loan projects required same levels of
crowd investments. The average loan firm emitted a loan of 4 years and pays 8 % interest
annually. This entailed a monthly repayment of debt and interest of EUR 4.131. The global
return for the average loan investor was 16,7 %.
Table I - Project characteristics
LOAN
Min
Max
Average
Median
EQUITY
Raised
50.000
300.000
132.550
99.999
Raised
Min
50.000
Max 5.000.001
Average (356.066)
Median
222.000
Investors Duration*
26
150
65
63
2
10
3,9
4,0
Investors Stake
offered
1
1.487
(139)
127
1%
100%
36,7%
36,2%
Interest
5,0%
12,0%
7,9%
8,0%
Professional
Investments
0%
99,9%
48,0%**
57,4%
Days
Success
0
79
10
3
Monthly
Inst**
Global
Return
892
15.130
4.131
2.488
6,4%
34,2%
16,7%
16,1%
Days
success***
90
50
-
* The maturity of the loan in years.
**The average professional investment accounted for 70% of the raised amount.
***Only aggregate data available.
26
As shown in Table II, the crowd investor was willing to invest EUR 787 in equity projects.
Loan projects received average crowd investments of EUR 2.198. Professional investments
were excluded from the calculation of the average crowd investment, in order to enhance
comparability between loan and equity projects. As mentioned in 2.1.4. Regulator, the
Prospectus Directive curtails the investable amounts. Professionals invested an historically
high average of 70 % of the raised amount, in 23 out of 32 equity projects, for more than
EUR 12 million amounts raised by Beglian equity platforms (EUR 17 million). A third of the
equity companies received business angel finance. In consistency with prior numbers on
business angel finance, investments ranged from EUR 42.000 to 240.000 with an average of
EUR 103.000.
Table II – Average crowd investment
Average
crowd
LOAN EQUITY
investment
min
max
average
Median
825
4762
2198
2041
100
4051
787
597
5.2. Firm level
A second analysis was done at the firm level (Table III). The average age of an equity seeking
company was 4 years, compared to 12 years for a loan seeking company. The oldest loan
seeking firm is dated from 1974 (42 years old), in contrast to the oldest equity seeking company
founded in 1999 (17 years old). The youngest firm was only 6 months old for both subsamples.
Equity firms had an average of 20% intangible assets over total assets. Intangible assets ratio’s
of loan companies were negligible. 19 of the equity seeking firms were (public) company type
NV and 12 of them are of (closed) type BVBA. 18 of the loan seeking companies are of the
company type BVBA and 11 are registered as NV. The other were cooperative firms. The equity
seeking company had an average of 4 board members, while loan seeking companies had only
2 or 3 board members. Not surprisingly, the average equity firm had a higher level capital.
Equity firms had an average of EUR 300.000 were the loan firm had only EUR 135.000. Equity
levels were not so different in the two subsamples because losses were carried over by early
stage equity firms and compensated the higher capital numbers. The median loan firm had total
assets of EUR 557.000, opposite to the median equity firm which had only EUR 116.000. Both
the average and the median of equity firms’ sales margin were negative. The average loan
company had a sales margin of EUR 273.000 which was in line with the respective average.
27
Table III - Age, Capital, Equity, Sales Margin and Total Assets
LOAN
Age
(year)
Capital
Equity
Margin
Assets
min
.5
6.200
-2.191.637
-2.465.319
6.309
max
42
8.333.824
7.985.617
1.670.784
18.677.656
average
12
(135.378)
(297.149)
(272.639)
(1.216.361)
median
8
88.600
113.112
243.369
556.605
Age
(year)
Capital
Equity*
Margin
Assets
min
.5
14.200
-236.460
-247.554
8.318
max
17
6.590.000
6.594.939
437.618
6.714.972
average
4
(298.004)
(344.260)
-7.135
(453.923)
median
3
301.000
70.888
-23.076
116.481
EQUITY
*A lot of equity firms had negative equity values because of carried-over losses in early stage.
Table IV indicates the higher debt ratio of the average loan firm. Loan firms were leveraged
up to 86%, opposite to equity firms (63%) . Over 70 percent of the loan crowd funded
companies obtained supplementary bank finance. A quarter of the equity start-ups had a debt
ratio below 10 percent.
Table IV – Debt Ratio
Debt ratio
min
max
average
Median
LOAN EQUITY
41%
199%
(86)%
84%
0%
397%
(63)%
59%
The valuation in table V is calculated as in section 2.4.1. Selection and valuation. The premoney valuation is based on cash flows and capital structure before fund raising, whereas post-
28
money is calculated after fund raising naturally. The range of the valuations shows that equity
crowdfunding is used for both small and big scale projects. The difference between pre-money
and post-money valuation is higher than the raised amount in 22 equity projects, which indicates
value creation.
Table V – Valuation of Equity firms
Pre-Money Val
Post-Money Valuation
min
150.000
378.000
max
15.000.000
18.875.000
average
(1.394.940)
(1.929.152)
median
857.500
1.275.000
6. Discussion
6.1. Conclusion
At the project level, the average loan crowd investment was more than double the amount for
equity projects. The explanation can be found in section 2.5 Risk an Information Asymmetry.
Loan investments traditionally pose lower levels of risk exposure because of the periodical
repayments and the average duration of 4 years. Equity investments were made in the longer
term, as investors were contractually bound to holding shares for at least 5 years (data was
retrieved from the Belgian official Journal). Equity investors also account for higher risk
premium given the early-stage nature of the firms. Qualified investors often ask value-adding
premium. The premium has to account for value-adding services towards the company, which
were delivered by the investor. Therefore, required returns are often higher in equity
crowdfunding. We can conclude that loan investors are willing to invest significantly higher
amounts than equity investors, because equity investors aim for projects with higher returns in
the longer term. Equity firms raised nearly the threefold of amounts of loan firms, on average,
from twice as many investors. Loan crowdfunding platforms had an absolute limit of EUR
300.000 for loan projects, while equity projects were able to exceed this limitation by means of
professional investments. The discrepancy in raised amounts is thus accomplished by qualified
investors, as the average crowd investment for equity firms was EUR 138.000. The co-investing
that takes place is thus partly compensated by the higher average funding targets of equity
projects. For example, an equity project with a funding target of EUR 233.000, had only EUR
130.000 crowd investments, because EUR 103.000 were professional investments. The number
of investors is related to the smaller average crowd investment and raised amount by the crowd,
naturally, as more investors are needed to reach the funding target.
The Belgian equity seeking company is very different form the loan seeking company.
Loan crowd funded companies were three times older than equity ones. The difference in age
for each crowdfunding market can be explained by the pre-defined motivation of a company to
29
enter the crowdfunding market, in addition to the different selection criteria from the platforms.
Younger companies prefer equity crowdfunding because of the need for all kinds of expertise
from investors. Another motivation is market validation or proof-of-concept, which is more
applicable to start-up companies with new ideas that are not proven yet. This motivation was
backed up by the higher levels of intangible assets. Early-stage ventures frequently lack a track
record, collateral or reputation effect to obtain bank finance at normal rates. Equity
crowdfunding can be seen as the new validation of business plans by a diversified crowd. It can
serve as an alternative to a bank loan, as banks can consider particular business plans as too
risky. Once the business is accepted by the crowd and confirmed by the market, the company
could ask for supplementary bank loans. Equity crowdfunding finance is filling in the finance
gap that exists for non-profitable companies in seed or early-stage, rather than being a real
competitive threat for banks. It fits a piece into the finance puzzle relative to revenue over time.
Older SMEs are in a completely different position concerning revenue over time. They
might have established family values and prefer to maintain control (ownership), so equity
financing is not always an option. Nevertheless, start-ups can also benefit from loan
crowdfunding. The bank is often reluctant to finance young early-stage firms because of the
limited collateral it has on business assets in case of a bankruptcy. Furthermore, most
entrepreneurs do not want to give their personal assets in collateral in order to obtain additional
bank finance. Loan crowdfunding could then provide a solution. This type of crowdfunding
could be considered an non-competitive alternative to traditional debt finance. Moreover, 70%
of the loan funds are raised in addition to a bank loan. The crowdfunding loan can be seen as
the entrepreneur’s proper resources which are required to obtain bank finance. This is confirmed
by the high debt ratios of the loan firms in my sample (see table IV). As mentioned in section
2.3.1., most loan projects were limited to replacement and expansion investments. The
motivation of both entrepreneur and investor is predominantly financial, in opposite to equity
crowdfunding. Empirical research reveals that crowd lenders traditionally consider investing in
loan crowdfunding less risky than investing in bonds. This can be justified by the historically
high repayment ratios.
On the other hand, mature companies can benefit from equity crowdfunding as well.
The old-established company might pursue a fruitful relationship with new investors to
implement fresh ideas or strategies. A majority of 60 % of the equity seeking companies were
of open company type (NV), while 60 % of the loan seeking firms were registered as a closed
company type (BVBA). Even though equity seeking companies are younger and smaller, they
have an average of 4 board members, while loan seeking companies have less than 3 board
members. In many cases one or more qualified investor has a seat in the board of directors of
the equity seeking company. Equity firms had higher levels of capital, lower levels of assets,
and same levels of equity compared to loan firms. The explanation of the equity difference is
related to the sales margin. Most equity firms have a negative sales margin. The older loan
funded companies retained more earnings over time which accumulated their equity. Most
early-stage ventures are not profitable from the start. They do not break even until after a couple
of years.
30
6.2. Policy implications
National and European policymakers could use this information to allocate resources where
stimulation or regulation is most effective. This means proper subventions are given to the right
people and research is done in the relevant field. Potential crowdfunding platform managers
could use this study as a guideline for what really drives entrepreneurs to initiate (and backers
to support) projects and what characteristics of the platform are ought to be most important.
Entrepreneurs (investors) could use this research as a guide for initiating (investing in)
crowdfunding projects in Belgium.
6.3. Limitations and directions for further research
First, this paper is rather descriptive in nature. My research is not revealing many new
relationships or concepts, but gives more of an insight in and a summary of existing ones. The
data that was used in this research has important limitations. The sample is limited to firms that
obtained successful funding. It could be interesting to investigate projects that failed to reach
their funding target. These failed projects could provide supplementary information combined
with the successful ones.
The sample also suffers from a survivorship bias. Only viable continuous firms are
included in the sample. Disrupted companies were excluded, even if they had reached their
funding target. The geographical bias of the research is that the sample is limited to exclusively
Belgian firms and projects. Outgoing cross-border investments are not accounted for in this
study. Therefore, the external validity of this research is limited. The conclusion from this
research might not be generalized throughout other countries. The data was retrieved from
annual reports regarding fiscal year 2014, which might involve a time bias.
Another limitation is the dual classification of investment-based crowdfunding used in
my sample. In the future, more hybrid forms of loan and equity will arise. Hybrid forms or
financial securities such as convertible bonds, silent partnerships and other were not included.
A direction for further research is the comparison of annual return on investment for
investors in equity and loan projects. One could try to compare the annual interest payment of
loan crowdfunding investments with the average discounted return (rise in share price and
annual dividends) on equity crowdfunding investments. At the time of this research, it was not
possible to calculate return on investment because the equity crowdfunding projects and
companies were too young. Hence an appropriate cash-out or exit was not possible yet. One
could also do a similar study in the future, when the Belgian tax shelter is activated. The pretax shelter firms and projects of this study could then be compared with similar post-tax shelter
ones and the effect of the tax shelter could be examined.
31
7. References
1. European Commission, Crowdfunding in the EU Capital Markets Union,
http://ec.europa.eu/finance/general-policy/docs/crowdfunding/160428-crowdfundingstudy_en.pdf, 06/05/2016, 32.
2. Baeck, P., Collins, L., & Zhang, B. (2014). Understanding alternative finance. Nesta
and University of Cambridge.
3. A prospectus provides important financial and non-financial information to (potential)
investors when the firm issues capital to the public. The information a prospectus has
to contain is described in: Directive 2003/71/EC of the European Parliament and of the
Council of 4 November 2003 on the prospectus to be published when securities are
offered to the public or admitted to trading and amending Directive 2001/34/EC.
4. Article 3 (2) Prospectus Directive (see appendix A)
5. Le cadre réglementaire du financement participatif sous forme de souscription de titres
financiers ( Autorité des Marchés Financiers, 11/12/2014)
6. Exemption on the prospectus directive, Art. 18 § 1 (j)
7. A. Hakvoort, FG Lawyers, New crowdfunding rules as per 1 april 2016,
http://www.fglawyersamsterdam.com/wp-content/uploads/2016/03/20160316-NewCrowdfunding-rules-as-per-1-April-20162.pdf, 22/04/2016
8. Cholakova, M., & Clarysse, B. (2015). Does the Possibility to Make Equity
Investments in Crowdfunding Projects Crowd Out Reward‐Based Investments?.
Entrepreneurship Theory and Practice, 39(1), 145-172.
9. Collins, L., & Pierrakis, Y. (2012). The venture crowd: Crowdfunding equity
investment into business. Nesta.
10. Business Angels Network Deutschland, The European Business Angels Market: An
approximation, http://www.business-angels.de/wp-content/uploads/2015/12/BAEThe-European-Business-Angel-Market.pdf, 09/05/2016.
11. Singer, S., Amorós, J. E., & Arreola, D. M. (2015). Global entrepreneurship monitor:
2014 global report. Global Entrepreneurship Research Association, 1-116.
12. Art. 214 W.Venn. § 1
(Boek VI, Titel II, Hfdst I, January 2002,
http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=199905
0769&table_name=wet, 15/02/2016)
13. Art. 439 W.Venn.
(Boek VII, Titel II, Hfdst I, January 2002,
http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=199905
0769&table_name=wet, 15/02/2016)
32
14. Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity
crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955-980.
15. Wilson, K. E., & Testoni, M. (2014). Improving the role of equity crowdfunding in
Europe's capital markets. Available at SSRN 2502280.
16. Article 28 § 2 of MiFID Directive 2013/36/EU.
17. Article 29 § 1 of MiFID Directive 2013/36/EU.
18. European Commission, Crowdfunding in the EU Capital Markets Union,
http://ec.europa.eu/finance/general-policy/docs/crowdfunding/160428-crowdfundingstudy_en.pdf, 06/05/2016, 31.
19. Véron, N., & Wolff, G. B. (2016). Capital markets union: a vision for the long term.
Journal of Financial Regulation, 2(1), 149.
20. Tax shelter, http://www.dekamer.be/FLWB/PDF/54/1125/54K1125001.pdf, page 62,
21/03/2016. Numbers are applicable for fiscal year 2016.
21. Eurocrowd, Purpose, http://eurocrowd.org/about-us/purpose/, 21/03/2016.
22. Hagedorn, A., & Pinkwart, A. (2016). The Financing Process of Equity-Based
Crowdfunding: An Empirical Analysis. In Crowdfunding in Europe (pp. 71-85).
Springer International Publishing.
23. Mymicroinvest, Frequently Asked Questions for investors,
https://www.mymicroinvest.com/en/faq#/question/33, 23/03/2016.
24. Bolero, Tarieven, https://bolero-crowdfunding.be/nl/meer-weten/tarieven, 23/03/2016.
25. Lookandfin, frequently asked questions for investors,
http://www.lookandfin.com/nl/lookandfin/page/faq-lenen-59/, 05/04/2016.
26. Wilson, K. E., & Testoni, M. (2014). Improving the role of equity crowdfunding in
Europe's capital markets. Available at SSRN 2502280
27. Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of
research. Academy of management review, 25(1), 217-226.
28. S. Manigart et al, Growth Capital and Buy-outs guide for Belgium,
http://www.bva.be/wp-content/uploads/2014/12/BUY-OUT-GUIDE-EN.pdf,
19/04/2016
29. Bhagat, S. (2014). Why do venture capitalists use such high discount rates?. The
Journal of Risk Finance, 15(1), 94-98.
30. R.Vossen, Investeringsbarometer 2015, http://www.arkangelsfund.be/content/BanVlaanderen/uploads/docs/Barometer%20Reginald%20Voss
en.pdf, 21/04/2016
33
31. Sapienza, H. J., Manigart, S., & Vermeir, W. (1996). Venture capitalist governance
and value added in four countries. Journal of Business Venturing, 11(6), 439-469.
32. Schrever, K. (2016, March 21). Bolero staat klaar met secundaire markt voor
crowdfunding via blockchain-technologie en heeft Europese primeur [Press release].
Retrieved from: https://bolero-crowdfunding.be/uploads/media/56f150d1b7063.pdf
33. A Besloten Vennootschap met Beperkte Aansprakelijkheid (BVBA) is a Belgian
company with limited liability (similar to a SCRL)
34. A Naamloze Vennootschap (NV) is a Belgian publicly limited liability company
(similar to a PLC)
35. Schwienbacher, A., & Larralde, B. (2010). Crowdfunding of small entrepreneurial
ventures. Handbook of entrepreneurial finance, Oxford University Press, Forthcoming.
36. Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity
crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955-980.
37. Agrawal, A. K., Catalini, C., & Goldfarb, A. (2011). The geography of crowdfunding
(No. w16820). National bureau of economic research.
38. Birley, S. (1986). The role of networks in the entrepreneurial process. Journal of
business venturing, 1(1), 107-117.
39. Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of
Economics, 797-817.
40. Burtch, G., Ghose, A., & Wattal, S. (2013). An empirical examination of the
antecedents and consequences of contribution patterns in crowd-funded markets.
Information Systems Research, 24(3), 499-519.
34
8. Appendices
Article 3
Obligation to publish a prospectus
1. Member States shall not allow any offer of securities to be made to the public within
their territories without prior publication of a prospectus.
2. The obligation to publish a prospectus shall not apply to the following types of offer:
(a) an offer of securities addressed solely to qualified investors; and/or
(b) an offer of securities addressed to fewer than 150 natural or legal persons per Member
State, other than qualified investors; and/or
(c) an offer of securities addressed to investors who acquire securities for a total
consideration of at least EUR 50000 per investor, for each separate offer; and/or
(d) an offer of securities whose denomination per unit amounts to at least EUR 50000;
and/or
(e) an offer of securities with a total consideration of less than EUR 100000, which limit
shall be calculated over a period of 12 months.
However, any subsequent resale of securities which were previously the subject of one or
more of the types of offer mentioned in this paragraph shall be regarded as a separate offer
and the definition set out in Article 2(1)(d) shall apply for the purpose of deciding whether
that resale is an offer of securities to the public. The placement of securities through
financial intermediaries shall be subject to publication of a prospectus if none of the
conditions (a) to (e) are met for the final placement.
3. Member States shall ensure that any admission of securities to trading on a regulated
market situated or operating within their territories is subject to the publication of a
prospectus.
Appendix A - Prospectus Directive
Source: European Commission
35
Appendix B – The Equity Crowdfunding process
Source: Springer
Appendix C – Stages in Equity Crowdfunding
36
2014
Belgium
Italy
Netherland
s
France
Germany
Spain
UK
2015
Belgium
Italy
Netherland
s
France
Germany
Spain
UK
Entrepreneurship
is good carreer
choice
Perceived
opportunities
Early-stage
entrepreneurial
activity (TEA)
Fear of
failure
New business
ownership
rate
52,4
56,1
35.9
26,6
49,4
49,1
5,4
4,4
2,5
1,3
79,1
59
51,7
53,9
60,3
45,6
28,3
37,6
22,6
41
34,8
41,2
39,9
38
36,8
9,5
5,3
5,3
5,5
10,7
4,5
1,7
2,3
2,2
4,5
54,2
60,9
40,3
25,7
48,5
57,5
6,2
4,9
2
1,7
79,2
48,4
33,2
7,2
3
50,8
53,2
57,8
38,3
26
41,6
42,3
39,2
34,9
4,7
5,7
6,9
1,9
3,6
2,9
Appendix D – Entrepreneurial characteristics
Source: GEM report 2014-2015, reworked
37
Appendix E - Amounts raised in Belgium (2014)
Source: Bolero Crowdfunding Research 2015
38
Appendix F - Investment strategy of Inventures
Source: Mymicroinvest
Appendix G – Organization structure
Source: Bolero crowdfunding
39
CROWD
Finance (SPV)
SMEs
D/E NOTE
INVESTOR
Appendix H – Organization structure
Source: Mymicroinvest Finance (reworked)
40
Appendix I –
National
interpretation of
the
European
Prospectus
Directive
41
Source: European Commission
42
Appendix J – EU: size of the financial crowdfunding market 2015
Source: European commission
Amount
Monthly
installment
Annual interest rate
period
Total interest
Global return
100.000
2.488,5
Date
Principal
interest
balance
1-4-2015
1-5-2015
1-6-2015
1-7-2015
1-8-2015
…
1-12-2018
1-1-2019
1-2-2019
1-3-2019
Monthly
installment
2.489
2.489
2.489
2.489
2.489
…
2.489
2.489
2.489
2.489
1.739
1.752
1.765
1.778
1.791
…
2.415
2.433
2.452
2.470
750
737
724
711
697
…
73
55
37
19
98.261
96.510
94.745
92.967
91.176
…
7.355
4.922
2.470
0
Total
119.448
100.000
19.448
9,0%
48
19.448
19,4%
months
Appendix K – Monthly installments and global return, in EUR.
43