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An Industry United: A Tactical Framework for European Crowdfunding

Introductory note from Jonathan: The following article was written by Dan Marom, an acclaimed author and leading thought leader in the global crowdfunding field. In 2010, he co-authored a pioneering book titled The CrowdFunding Revolution with Kevin Lawton. A second edition is forthcoming in late 2012 by McGraw-Hill (available for pre-order!). Additionally, Dan is a prolific speaker and evangelist on the crowdfunding front, advising and championing a number of public and private organizations in the rapidly evolving global crowdfunding ecosystem.  Connect with Dan on Linkedin.        

A Framework for European Crowdfunding
In late October at the Crowdfuture Conference in Rome (www.CrowdFuture.net), my esteemed colleague Oliver Gajda released ‘A Framework for European Crowdfunding,’ a joint effort between Oliver, myself, Kristof De Buysere, and Ronald Kleverlaan. (Who you should all follow on Twitter! Oliver, Kristof, Ronald) The whitepaper is designed to give a concise overview of the state of crowdfunding in Europe, with the aim of establishing policy and a distinct framework for the European crowdfunding industry, efforts which we believe will aid in the economic recovery of Europe.

The circumstances of the 2008 economic crisis crippled small and medium sized business owners, making it extremely difficult for them to access capital and credit, inhibiting new job creation, and preventing sustainable economic growth at the local and national level. Crowdfunding is one of the most viable mechanisms for infusing capital back into European SMEs, as research shows forecasts upwards of $3 billion being invested in new ventures in 2012 via crowdfunding platforms.

Last year, Europe raised around €300 million or one third of the world market, considering all types of crowdfunding. At the end of 2011, there were around 200 crowdfunding platforms active in Europe. Their number is expected to increase by 50% by the end of 2012.

For SMEs and entrepreneurs, not only can crowdfunding provide start-up capital, it espouses several nonfinancial benefits: validation of product features, market segmentation, price and demand, pre-sales and customer feedback as well as word-of-mouth marketing and a stable, committed shareholding structure.

To realize the true potential of crowdfunding in Europe, we have created the following framework as an open call for policymakers, crowdfunding platforms, investors, and entrepreneurs on three key areas: regulation, education, and research.

Regulation
Until legislation is enacted, crowdfunding intermediaries should establish criteria focusing on the following categories of consumer protection: operational and financial transparency practice, financial control, security of information and payments, platform functionality, and operational procedures. These will assist in fraud prevention and detection and will signal credibility to individual funders.

Education
The second pillar is education; for crowdfunding to flourish, we believe a pan-European educational forum is necessary to educate stakeholders, funders, and entrepreneurs on the benefits of the industry, and the different business models of crowdfunding. These forums will provide a reasonable and fair guide to protect the financial interest, exposure and diversification of funders and investees across multiple crowdfunding business models. This needs to provide guidance around fraud, risk explanations and potentially the testing of funders’ knowledge.

Research
The third pillar is research; we believe the industry should drive academic and third party research. We believe crowdfunding operators should provide data sets to further industry research; the industry needs to find a transparent and open approach. Public reporting and research will drive competition and innovation within the industry. Finally, European, national and local legislators and policy makers should join forces to establish crowdfunding-enabling legislation in Europe. In this paper, we outline a number of potential policies and regulations which we believe offer a good starting point for a broader discussion. We hope to see many of these thoughts adopted for the benefit of the European economy.

The whitepaper can be accessed here: http://www.crowdfundingframework.eu/index.html

We believe this is an important document for helping the industry, policymakers, regulators, and general public understand the importance of moving forward with formal crowdfunding policy, toward building a stronger economy.

Image: Paul Goyette/Flickr CC

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About Jonathan Sandlund

Founder, TheCrowdCafe

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