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Crowd Funding
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Crowd Funding
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.
2.
ARGUMENT............................................................................................................. 11
1.
2.
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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Crowd Funding
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?
Crowd Funding
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.
Stages
Crowdfunding stages can be characterized as takes after:
Vertical (or topical) stages had practical experience in ventures in particular segments.
Donation-based: stages where clients can make gifts to bolster a particular cause or
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
Crowd Funding
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
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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,
such securities;
Whatever other security regularly arranged which allows the buy or offer of securities
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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.
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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
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
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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-
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
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.
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.
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.
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.
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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.
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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