Crowd Funding

Crowd Funding
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Contents
INTRODUCTION........................................................................................................ 3
How crowdfunding functions................................................................................... 3
Crowdfunding stages and models:............................................................................. 4
Stages..................................................................................................................... 4
Models:.................................................................................................................... 5
The Equity Model.................................................................................................. 5
The Lending Model............................................................................................... 5
The Donations or Rewards Model.........................................................................5
Financial Service permit prerequisites.....................................................................5
Lending Model...................................................................................................... 7
Donations or Rewards Model................................................................................ 7
License under the Payment Services regulation......................................................7
Prospectus requirements......................................................................................... 8
RESULTS.................................................................................................................... 8
DISCUSSION:.......................................................................................................... 10
1.

Crowd funded equity investing.......................................................................11

2.

An analysis of crowd funded lending for business...........................................11

ARGUMENT............................................................................................................. 11
1.

Crowdfunding for social good..........................................................................11

2.

Crowdfunding in the creative industries..........................................................11

Conclusion................................................................................................................ 12
BIBLIOGRAPHY....................................................................................................... 14
APPENDICES........................................................................................................... 15
Possible regulation of Crowd funding platforms under the AIFMD regime................15
Status of AIFMD implementation...........................................................................15
Crowd funding Platform......................................................................................... 15
Crowd funding in Italy: the first and only country with ad hoc regulations.........15

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INTRODUCTION
Crowdfunding is an aggregate type of subsidizing, a community oriented process by a gathering
of individuals who utilize their own cash to bolster the endeavors of individuals and associations.
The Web, the unpredictable framework that associates us to a great many individuals around the
globe and permits us to promptly share a photograph when it is taken, is additionally the
framework that, for a couple of years, has empowered the accumulation of assets and financing
through its system.
A fantasy, a venture or an objective to accomplish is shared on the Web and bolstered by a horde
of individuals. Be that as it may, how is this conceivable?

How crowdfunding functions

Every one of us, some more than others, discuss our life and what we do on informal
organizations. Why not utilize this profitable system of contacts to finance our activities?
A little venture, for example, distributing a book or a huge venture, for example, opening a
fruitful business can be financed by raising assets on the Web because of crowdfunding.
Individuals have utilized crowdfunding to raise subsidizes as a part of request to reestablish
works, acquire sufficient assets to make a film, satisfy a fantasy or even sort out a wedding. The
point of crowdfunding is to disclose why you have to raise reserves, announce your expectations,
inspire individuals to participate and support Web clients.
Be that as it may, why might anybody need to store another person's venture?
Angelo Rindone of Produzioni dal Basso, the most seasoned Italian crowdfunding stage set up in
2005, clarifies: "Above all else, we have to clarify. Many sorts of crowdfunding exist: the most
far reaching in Italy is reward-based crowdfunding, which plans to back all around characterized
undertakings and offers something consequently to reward givers, for example, a book, a DVD,
tickets for a show or a membership to a magazine. Much of the time, the reward is the question,
book or film that will be made with the cash raised by crowdfunding. One reason why
individuals are urged to reserve is that they are occupied with the final result. Another reason,
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which is similarly as vital for the individuals who utilize the Produzioni dal Basso stage, is that
they put stock in the venture and in its social esteem, beside the question that is the reward".
How can it function? The instrument is exceptionally basic:
You pick a crowdfunding stage (in Italy there are 41 dynamic stages and 13 now being
propelled) and clarify the venture that you plan to actualize.
You compute the amount it will cost and what number of commitments it can be partitioned
into. The individuals who are occupied with financing hold their commitments, notwithstanding,
by and large they don't pay anything until the venture has been completely subsidized. At exactly
that point, they should pay the concurred sum by bank exchange, Visa or PayPal.

Crowdfunding stages and models:

Crowdfunding stages are sites that unite the individuals who advance ventures and demand
subsidizing and clients who offer fiscal commitments.

Stages
Crowdfunding stages can be characterized as takes after:

Generalist stages that gather extend in every aspect of intrigue.

Vertical (or topical) stages had practical experience in ventures in particular segments.

Stages are additionally isolated by sort of crowdfunding model as takes after:

Donation-based: stages where clients can make gifts to bolster a particular cause or

activity without accepting anything in return (e.g. financing a decision battle)

Reward-based: clients participate in financing a venture in return for a non-fiscal reward

or affirmation (e.g. subsidizing a theater execution and accepting a ticket for the show in return).
It is the most across the board model to date.

Social loaning or shared loaning: utilized for advances between private people, who are

compensated by the installment of intrigue.

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Royalty-based: financing an activity and being reimbursed with the benefits made.

Models:
In Italy, there are three sorts of Crowdfunding.
The Equity Model

According to this model, people make speculations to subscribe share capital in the objective
organization. Right now a couple of stages offering the Equity Model work with no sort of
permit and just take part in the matter of speculation broking and additionally contract broking.
They guarantee security offerings follow exclusions from the prerequisite to create a plan.
The Lending Model

According to this model people loan cash to a stage which thus loans cash to others as a
byproduct of reimbursement of the credit and premium. The two Italian stages working this
model have been asked for by CONSOB and the Bank of Italy to conform to the managing an
account and budgetary establishments laws and controls and them two are working with a
keeping money/monetary foundation permit.
The Donations or Rewards Model

Under the Donations Model, people give cash to an organization or venture genius bono, for
philanthropy or for different purposes however regardless, with no money related reward. The
Donations or Rewards Model is chiefly used to fund social, philanthropy or inventive
undertakings or organizations and no money related venture or return is included. Financial
specialists finance undertakings or organizations and either get no arrival at all or just get nonmoney related prizes (e.g. tickets, CDs or prizes of a typical esteem). 2 Current Regulation of
Crowdfunding stages in Italy

Financial Service permit prerequisites

Equity Model Pursuant to the Italian Consolidated Financial Law and Italian Consolidated
Banking Law, anybody proposing to give venture benefits in Italy monetarily or on a scale which
requires an industrially sorted out business undertaking requires a composed permit from the
capable powers (CONSOB as well as Bank of Italy). Venture administrations are, bury alia, the
expediting of business including the buy and offer of budgetary instruments or their
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documentation (speculation broking), the buy and offer of money related instruments for the sake
of and for the record of others (contract broking) and the position of monetary instruments
without duty to take up those instruments (situation of monetary instruments). Money related
items inside the importance of the Italian Consolidated Financial Act incorporate securities and
monetary instruments. Securities are, bury alia,

Organization offers and different shares proportionate to shares of organizations,

associations or different people and share store testaments;

Bonds and other obligation securities, including authentications of store identifying with

such securities;
Whatever other security regularly arranged which allows the buy or offer of securities

depicted in the former sections

Whatever other security more often than not including money settlement decided with
reference to securities depicted in the former sections, to cash, loan fees, returns, items,
files or measures.

Securities, currency showcase instruments, units in aggregate speculation stores, alternatives,

fates, swaps, prospects contracts on loan costs and other subordinate contracts connected to
securities, coin, loan costs or returns, or on wares, subsidiaries for the exchange of credit hazard,
differential money related contracts. Value based Crowdfunding has been recognized as a model
to raise financing and help an organization to prevail with regards to executing certain ventures.
Italy has directed this matter in accordance with Law 221/2012 which allows the raising of cash
online to bolster the improvement of "inventive new businesses", being organizations which
meet prerequisites determined under a similar Law 221/2012.
CONSOB is because of plan more itemized guidelines basic the new administration and the draft
of the control has been now distributed for remarks albeit many focuses are still the subject of
level headed discussion.
Law 221/2012 appears to confine the likelihood of raising cash online to the Italian elements
falling inside the meaning of "creative start-up". In any case, while this is unmistakably a huge
limitation, it might be that the classifications of value investee might be augmented after an
underlying time for testing.

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The administration of a stage for the gathering of capital for creative new businesses must be led
by venture organizations and banks that are approved to give the 2 Article 25, passage 2 of Law
221/2012.
A distribution of the European Crowd subsidizing Network in relationship with Osborne Clarke
relative venture administrations to the subjects selected on an enlist to be made by CONSOB (the
alleged enlist of the elements overseeing stage). Regardless, these stages are required to transmit
the requests in regards to the endorsing and exchanging of money related instruments speaking to
capital solely to banks and venture organizations. The element dealing with the stage won't have
the privilege to gather the cash from speculators, unless it is approved to go about as a monetary
foundation.
Lending Model

The two Italian stages working this model have been asked for by CONSOB and the Bank of
Italy to agree to the saving money and monetary establishments laws and controls and them two
are working with a managing an account/budgetary foundation permit. A similar restriction is
probably going to apply to stages loaning to organizations or other sort of substances.
Donations or Rewards Model

These sorts of commitments are organized so as not to constitute speculation items and hence the
stage working this model falls outside of the Italian money related administrations control.

License under the Payment Services regulation

Any transfer of funds through the operator of a Crowd funding platform could constitute money
remittance services and be subject to payment services regulation. As an alternative in a similar
manner to a CONSOB proposal in respect of securities licensing for the Equity Model the
Crowd funding platform could avoid being regulated as an intermediary by using an external
financial institution for processing payments. As already noted, the entity managing the platform
cannot hold sums of money or financial instruments belonging to third parties, unless it is
authorized as a bank or an investment company.

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Fig : Italian Crowd Funding Platforms Model

Prospectus requirements
The prospectus requirement does not apply to the offering of securities or investment products
with a value of EUR 5 million or less within a time period of 12 months. Because the amounts
raised are generally smaller, a Crowd funding platform operating the Equity Model is unlikely to
be subject to any prospectus requirement. However, it is not yet clear whether the platform will
be responsible for the information made available to the investors individuals and concerning
the "offering".
Prospectus requirement is likely to apply in respect of the Lending Model or the Donations or
Rewards Model.

RESULTS
Information was gathered from 30 stages. The quantity of activities submitted to stages totaled
more than 52,000, of which most by far too loaning based stages. Of these 52,000 ventures,
fewer than 15,000 were really distributed and the lion's share of these being prize based tasks.
The aggregate estimation of the tasks is developing however stays unassuming part of the
general worldwide sums raised. This would propose that the accessibility of stages is at present
surpassing the accessibility of appropriately arranged ventures in Italy. With respect to the
achievement rate, it's a normal 54% in loaning - based, 44% in gifts and 24 % in reward - based.

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The aggregate esteem brought by effective tasks up in the historical backdrop of Italian crowd
funding adds up to right around 23 million euro, of which more than 11 million has been
gathered in the most recent year. Of this aggregate, 80% is acquired by loaning based entries,
which likewise have the most noteworthy normal estimation of financed undertakings (
7,892/extend). It ought to be noticed that in Italy loaning is buyer loaning as business (to
business loaning) is not as of now allowed.
Model

Total Value of Funded

Published /Approved

Successfully funded

Reward-Based
Donations
Equity-Based
Social Lending
Total

Projects
E 726,705
E 245,000
E 200,000
E 10,304,500
E 13,274,205

Projects
1522
176
110
5313
8819

projects
242
130
8
1855
2477

Graph: Total value of funded projects dived by models of crowd funding

Fig.2 Breakdown of the total value of funded projects for each crowd funding model

The Italian market for crowd funding is by all accounts developing at a quick pace. From 16
stages in 2012 we now have 41, of which 27 are dynamic and 14 in their dispatch stage. Among
the dynamic stages, the greater part is reward-based, 33% gift based and just three are loaning
based. It was additionally the chance to show the redesigned release of the "Examination of
Italian Crowd funding Market", to date the most entire give an account of the sector.The
fundamental results are:
The quantity of stages has practically tripled in a year
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-

The accessibility of stages is as of now exceeding the accessibility of reasonably arranged

ventures: dismissal rate is high

Half of the aggregate esteem brought by fruitful ventures up in the historical backdrop of

Italian crowd funding has been gathered in the most recent year (11 million Euros)
There's an unmistakable and checked prevalence of the social loaning model: of the

aggregate esteem raised, the 80% is acquired by loaning based entryways

Among the patterns: local vesting, specialty stages, crossover stages and DIY crowd

funding
Italian crowd funding business sector is developing quick however it has still far to go,
particularly in defeating social hindrances and standards

DISCUSSION:
Italy is the first country in Europe to have a law that regulates equity-based crowdfunding.
Unlike in other countries, crowdfunding portals in Italy are equivalent to existing applications
(public savings and payment services).
This difference arises in response to the economic crisis that struck Italy in 2008, a crisis that
particularly affected small and medium-sized companies and new enterprises, better known as
start-ups.
Equity-based crowdfunding is seen as a tool that can facilitate the development of innovative
start-ups through regulations and funding procedures that exploit the potential of the Web and
therefore stimulate the economic growth of Italy.
Crowdfunding facilitates the raising of capital for a variety of purposes, using numerous
variations of the model. Below is a typology of how the operators in the market can potentially
be segregated. The majority of platforms can be categorized under these four types, but there are
several variations, such as hybrid models and those platforms that define themselves in a
sectorial vertical rather than by the type of finance they provide.

1.

Crowd funded equity investing

This piece looks at the potential of crowdfunding to provide risk capital to businesses. We
examine how the model works and investigate whether it provides the sufficient benefits and
protections for both businesses and investors. Regulation, a barrier to the growth of the model, is
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examined as are other policy issues such as tax incentives. The report outlines the issues
surrounding the model, drawing on interviews with key stakeholders in the field.

2.

An analysis of crowd funded lending for business

This research empirically examines a particular type of crowdfunding, the business lending
model, which is growing fast in the UK. For the purpose of this study, Nesta is working closely
with Funding Circle, a UKbased debtcrowdfunding platform to collect data from both those 4 /
An Introduction to crowdfunding who lend and those who borrow through their platform. The
study provides key insights on both the motivations and characteristics of those lending and
borrowing through the model and examines the growth potential of the model.

ARGUMENT
1.

Crowdfunding for social good

This research takes a closer look at the role of the increasing number of platforms for social
giving that are now being used in the UK. We will review the recent development of platforms in
this space, and investigate the variety of ways that donors can give to and support causes through
these platforms. Much of the new activity in crowdfunding for social good goes beyond oneoff
and oneway financial donations to include the giving and loaning of money, time and resources.
The report will highlight the key trends and challenges for this emerging sector including how
existing funding bodies and social projects can make the most of the new opportunities provided
by these platforms.

2.

Crowdfunding in the creative industries

Crowdfunding platforms can connect cashstarved creative entrepreneurs with audiences

looking to fund creative projects because they are passionate about their substance, rather than
seeking to generate a financial return from them, as well as with investors offering capital on
better terms than traditional sources of finance for the sector, such as banks or publishers.
Kickstarter, the most successful creative crowdfunding platform, has already generated pledges
above $230 million, and funded over 23,000 creative projects. Many policyrelevant questions
about creative crowdfunding remain to be addressed such as its potential role as a driver of
innovation and competition in creative industries dominated by riskadverse gatekeepers, or its
position within the wider financing landscape for the sector. Creative entrepreneurs would
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benefit from robust knowledge about which project characteristics and crowdfunding practices
are more conducive to success.

Conclusion
The Lending Model is already subject to regulation and the Equity Model will become subject to
its own regulatory regime once, once the relevant regulation is finalized. Law 221/2012 seems to
restrict the possibility of raising money online to Italian entities covered by the innovative startup definition.
These provisions could therefore be seen as a contradiction to the clear intention of the European
Commission to support the Crowdfunding raising on a wider basis. In a country like Italy in
which 1,000 new companies start every day, this law could materially limit the application of the
investment model and prevent the crowd from deciding which company to back for success in
the future. Another provision of the CONSOB draft regulation requires, as a condition precedent
to commence the online offer, a 5% subscription of the share capital to be made by a financial
investor.
The reason behind this decision is the need to have at least one investor to professionally
evaluate the business and the investment, in order to protect the other shareholders investment
(i.e. those coming from the crowd). This provision could again materially limit the raising of
money, without bringing any actual protection of the public investors. The efficacy of this
method of investor protection is questionable, but the limitations it imposes on Crowdfunding do
not appear consistent with the European Commission's view. Although it is not clear that the
AIFMD regime does apply to companies seeking funds through Crowdfunding platforms (which
needs to be further assessed) if it were to apply, it would make any attractive cost-reward ratio
impossible.

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BIBLIOGRAPHY
1

Mollick, E., 2014. The dynamics of crowdfunding: An exploratory study. Journal of business
venturing, 29(1), pp.1-16.

Belleflamme, P., Omrani, N. and Peitz, M., 2015. The economics of crowdfunding
platforms. Information Economics and Policy, 33, pp.11-28.

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3

Lehner, O.M., 2013. Crowdfunding social ventures: a model and research agenda. Venture
Capital, 15(4), pp.289-311.

Giudici, G., Nava, R., Rossi Lamastra, C. and Verecondo, C., 2012. Crowdfunding: The new frontier
for financing entrepreneurship?. Available at SSRN 2157429.

Biancone, P.P. and Secinaro, S., 2016. The equity crowdfunding italy: a model sharia
compliant. European Journal of Islamic Finance, (5).

Aschenbeck-Florange, T., Blair, D., Beltran, J., Garcia, A., Nagel, T., Piattelli, U. and Quintavalla, L.,
2013. Regulation of crowdfunding in Germany, the UK, Spain and Italy and the impact of the
European single market. European Crowdfunding Network. June. http://tinyurl. com/l3d5wp5.

Belleflamme, P., Lambert, T. and Schwienbacher, A., 2014. Crowdfunding: Tapping the right
crowd. Journal of Business Venturing, 29(5), pp.585-609.

De Buysere, K., Gajda, O., Kleverlaan, R., Marom, D. and Klaes, M., 2012. A framework for European
crowdfunding. European Crowdfunding Network.

APPENDICES
Possible regulation of Crowd funding platforms under the
AIFMD regime
Status of AIFMD implementation
All EU member states must implement the European Alternative Investment Fund Managers
Directive ("AIFMD") before 22 July 2013. Implementation of the law has not yet occurred and
no draft of the law has been published so far. The Bank of Italy, CONSOB and the competent
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Ministries are working in round table to draft the relevant implementing legislation. The
implementation of the directive was already in discussion by the Italian Parliament at the
beginning of 2012, as part of the Legge Comunitaria 2011, a law enacted every year in order to
implement all the pending directives. In that case, the Parliament would have enacted a law
fixing the main principles of the provisions to be adopted and would have delegated to the
Government responsibility for preparing and enacting the relevant final law.

Crowd funding Platform

As a general rule the manager of a Crowd funding platform does not raise capital from investors
itself. Therefore, the operator of the Crowd funding platform should not constitute an AIF. Since
it is a pre-requisite of the CONSOB regulation for the underlying investment under the Equity
Model to be a company having the characteristics of an innovative start-up, it should follow that
a Crowd funding platform will not "manage" this underlying investment. Instead the Crowd
funding platform merely arranges investment into it. The innovative start-up should not normally
constitute an AIF in the first place. In conclusion, there are sound arguments that the Crowd
funding platform should not constitute an AIFM, although this matter has to be kept under
review as the relevant Italian law develops.
Crowd funding in Italy: the first and only country with ad hoc regulations

Italy is the first country in Europe to have a law that regulates equity-based crowdfunding.
Unlike in other countries, crowd funding portals in Italy are equivalent to existing applications
(public savings and payment services).
This difference arises in response to the economic crisis that struck Italy in 2008, a crisis that
particularly affected small and medium-sized companies and new enterprises, better known as
start-ups.
Equity-based crowd funding is seen as a tool that can facilitate the development of innovative
start-ups through regulations and funding procedures that exploit the potential of the Web and
therefore stimulate the economic growth of Italy.
Crowd funding facilitates the raising of capital for a variety of purposes, using numerous
variations of the model. Below is a typology of how the operators in the market can potentially
be segregated. The majority of platforms can be categorized under these four types, but there are
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several variations, such as hybrid models and those platforms that define themselves in a
sectorial vertical rather than by the type of finance they provide.

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