Global Chronology of Equity Crowdfunding
We have previously delved into the black box that is defining equity crowdfunding and proposed a simple definition based on three criteria. We noted there are myriad mechanisms and models applicable in each unique jurisdiction to allow for equity crowdfunding, but at a minimum, “true” equity crowdfunding must satisfy the criteria that it be instigated by anyone, open to all, advertised publicly through an online portal offering equity-style financial reward.
In this article we have applied this criteria globally to present a chronology of “true” equity crowdfunding uptake thus far with a portent of what may be to come.
In the beginning, there was Switzerland - which has always been so cool they don’t need no extra rules for equity crowdfunding. It was a relatively slow start for other equity crowdfunding countries on a global scale as evidenced by the fact that only Sweden and Italy came on board in the three years since the Netherlands boldly led the pack out in 2011. Much of this reticence undoubtedly came about as a result of mass confusion on the part of the regulators.
As the evolution of equity crowdfunding was an unknown quantity, critical mass and/or peer pressure from other countries appears to be the likely factors in the opening up of regulations to equity crowdfunding – as evidenced by the drive from an inter-connected Europe to progress the necessary legislative changes. But there was also an understanding that equity crowdfunding offers an opportunity for matching startups in the difficult early capital raising phase with significant numbers of unaccredited investors for offerings that were previously the domain of professional investors.
That is not to say that it was all stagnant on the equity crowdfunding front in the interceding period. In a previous article we opined about a form of quasi-equity crowdfunding which in effect functions in much the same way as traditional investment banking and venture capital, accessible to the same people – institutional, sophisticated, high net worth etc.
The only difference is the proliferation of online portals or platforms which act either solely as advertising platforms for private company capital raises or as a sort of Tinder for investor syndicates. This is the model adopted by many countries – including the US, UK and Australia – to allow for quasi equity crowdfunding but under the accredited investor model with strict guidelines and regulations until such time as legislation democratises capital flow for all investors.
As you can see in the timeline, momentum was slow to build but once the cat was truly out of the bag, there has been a veritable stampede amongst the legislatures of the world. Twelve countries have thus far loosened up their regulations allowing for true equity crowdfunding from early 2014 to present.
In particular, we’ve witnessed a particularly rampant start to 2015, with eight countries signing on the dottted line, notably the US with Title IV of the JOBS Act finally coming on line, and the entry of the first Asian countries onto the crowd sourced equity funding scene. We’re also hearing murmurings from the ASEAN bloc of other countries imminently following suit.
This is surely the tip of the iceberg. Figures to hand indicate that equity crowdfunding experienced tremendous growth to date, despite often strict and arcane regulatory environments.
We note that these figures are based on all types of equity crowdfunding (including our quasi- definition) but if you consider that the eight countries that have come online with true crowd sourced equity funding - since the latest 2014 figures were published - have a cumulative population well over half a billion, the latent potential for equity crowdfunding raises for 2015 and beyond is staggering..
As we see equity crowdfunding legislation being liberalised across the world, it is likely that experiences from the success of equity crowdfunding will lead to further reform. Indeed, we anticipate the regulation to become more aligned initially on a regional basis, allowing for greater freedom and alignment in startup fundraising, and truly harnessing the free movement of capital.
So, to our friends across the ditch in New Zealand, who are out in front of us again. In just over 10 months since regulatory approval, the burgeoning equity crowdfunding scene there has raised $9.5m+ in 18 successful equity campaigns. With a population about a fifth the size of ours, and an economy based on Hobbits, our regional counterparts are once again inexplicably excelling in a space where Aussie startups should be equally thriving.