News

Santa Claus and EU Prospectus Regulation

January 21, 2017 • By Emily Mackay

December 2016 was a good month for the European crowd economy.

Santa Claus brought Christmas cheer, brightly wrapped presents and amended EU prospectus requirements, giving more flexibility to businesses looking to raise funds.

December 2016 was a good month for the European crowd economy.

Santa Claus brought Christmas cheer, brightly wrapped presents and amended EU prospectus requirements, giving more flexibility to businesses looking to raise funds.

A lot has been written on this topic, without much clarity. So here’s an explanation - in plain english this time - of what has happened and why it matters to you and your business.

What’s happened?

The proposed Prospectus Regulation replaces the current 'EU Prospectus Directive', making it easier for companies to raise money on public markets.

Why now?

The idea is to simplify the rules - and admin - for companies wishing to raise capital. Policymakers also want to reduce the costs of producing a prospectus, whilst continuing to protect investors.

What has actually been agreed?

No prospectuses will be required for crowdfunding projects up to €1 million. This move will help align crowdfunding markets across Europe and give early-stage businesses better access to capital.

In another significant development, the threshold for capital raises beyond which the issuance of a prospectus is mandatory, has been increased from €5 million to €8 million. This is a real boost for growth businesses looking to raise relatively large amounts of capital via crowd finance - and a boon to the big boys like Crowdcube and Seedrs, who support larger raises on their platforms.

When will the new rules come into force?

We don’t have an exact date, but soon. The Council expects Parliament to approve the regulation at first reading, after which the final text submitted for adoption by the Council.

What does all this mean for the crowd finance industry?

This change has been planned and discussed for some time, and in light of the huge growth in crowd finance activity in recent years, the amendment is necessary and timely.

Data speaks louder than words, and average volume for European equity raises across all European platforms tracked by Crowdsurfer was £374,000 (€432,000) in 2016. Hence, a clear need for legislative change, lowering the administrative burden (translation: red tape) for many companies.

Our view at Crowdsurfer is that this amendment is a welcome boost for equity crowd finance in the UK and across Europe, especially given the considerable political turbulence across the continent today. It should boost the growth of the industry, providing new ways for businesses who seek affordable, fast and transparent sources of capital.

As a result, we expect to see an increase in equity deals across Europe at a time when crowdfunding is really proving its worth to business owners and investors alike.

Inevitably, there'll be questions about how we ensure transparency and regulatory standards, especially given the rapid expansion taking place in the industry. There's already intense pressure on competing platforms from investors and users to make information more readily available.

This latest amendment to a fundamental part of the fund-raising process will be scrutinised by all, but especially those critics who claim the industry is expanding too fast and becoming laissez-faire in its regulatory approach.

So, we see this as a positive development for crowdfunding and the alternative finance industry, but we need to keep an eye on how the new legislation beds in. Only time will tell, but in the meantime we'll be tracking capital raises throughout Europe to monitor the impact.

We will know a lot more by the time Santa Claus returns in 2017.