Crowdfunding in Europe: Determinants of Platform Creation Across Countries
Gary Dushnitsky, Massimiliano Guerini, Evila Piva, and Cristina Rossi-Lamastra
Since 2011, the number of crowdfunding platforms (and the amount of capital raised for projects posted on these platforms), has grown exponentially. While the crowdfunding phenomenon has attracted considerable attention, existing research predominantly reflects a U.S.-centric perspective. Europe is an interesting context to study the evolution of the crowdfunding industry because of its heterogeneity. The creation and viability of crowdfunding platforms in Europe is highly dependent on country-level characteristics like population, national entrepreneurial rates, and the presence of platforms operated by incumbent financial organizations -- like large banks. Interestingly, lending-based platforms follow a different set of logic and trends, with cultural and legal factors playing the most prominent role in their creation and viability.
The State of Crowdfunding in Europe
The current growth of the crowdfunding industry has been driven by platforms based in Europe and North America, accounting for more than 85% of worldwide funding volume in 2013. While growth in Asia has been strong from 2014 onward, Europe and North America still represent more than 75% of all funding volume.
In 2014, North American platforms facilitated $9.46 billion in crowdfunding, about three times that in Europe ($3.26 billion). There were 539 active crowdfunding platforms in the top fifteen (EU-15) countries. Patterns of activity for each of the dominant crowdfunding models -- equity, reward-based, debt-based (lending), and charity -- varied significantly among these countries. In some countries like the UK, the four crowdfunding models are almost equally diffused. In other countries, one or two models dominate. In Spain, for instance, the number of reward-based platforms is double that of all other types of platforms.
The growth patterns of the European crowdfunding industry correlate closely with global events over the past decade. The global financial crisis of 2008 had many residual consequences, including a sudden reduction in the availability of capital from traditional sources. This induced many individuals and startups to look for alternative funding mechanisms, and led to a greater demand that fueled the creation of new crowdfunding platforms.
Germany, Spain, and the United Kingdom were the first-movers, launching platforms before the crisis in the early 2000s. By contrast, other countries like Finland, Greece, and Portugal didn’t launch platforms until 2010.
"Country-level characteristics like population size can contribute to the development and evolution of new crowdfunding platforms."
Country-level factors drive these patterns. Crowdfunding platforms are more likely to be created in countries with larger market sizes and higher entrepreneurship rates - so population, financial incumbents, and new business ownership have a strong positive correlation with platform creation. There are also differences based on the crowdfunding model pursued. For example, the lending model is currently the largest in Europe in terms of funding volume, and is affected by different factors. While the creation of lending-based platforms is also contingent on population, it is not correlated with the presence of financial incumbents or high rates of business ownership. Instead, strength of legal rights in a country’s credit market has a more significant effect for lending platforms.
There are four key insights to take away from an analysis of the European crowdfunding landscape. First, while crowdfunding is an internet-powered activity aiming to “democratize access to capital,” national boundaries play a significant role in shaping the creation of crowdfunding platforms. Second, crowdfunding is associated not only with economic and entrepreneurial activity, but also with the existence of supportive legal environments and cultural traits. Third, there are significant differences in the creation of platforms across the four dominant crowdfunding models. And finally, contrary to the assumption that crowdfunding is driven solely by startups, incumbent organizations play a critical role in the growth of crowdfunding.
Gary Dushnitsky is an Associate Professor of Strategy & Entrepreneurship at the London Business School and is a Senior Fellow at The Mack Institute for Innovation Management at The Wharton School, University of Pennsylvania.
Massimiliano Guerini is an Assistant Professor at Politecnico di Milano, Department of Management, Economics, and Industrial Engineering.
Evila Piva is an Associate Professor at Politecnico di Milano, Department of Management, Economics, and Industrial Engineering.
Cristina Rossi-Lamastrais an Associate Professor at Politecnico di Milano, Department of Management, Economics, and Industrial Engineering.
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