1000 Days for a EU JOBS Act

The European Crowdfunding Network is in Brussels at the EU Workshop organized by the European Commission’s DG Connect and DG Enterprise & Industry. SecondMarket, Symbid, GrowVC and Indiegogo are the other participants on the event who are talking about legalizing crowd funding for equity in Europe.

DG Connect is the Directorate General for Communications Networks, Content and Technology, aka DG CNECT.  DG Enterprise & Industry “works on creating an environment in which European firms can thrive. The improvement of the business environment is intended to lead to growth in productivity and subsequently create the jobs and wealth necessary to achieve the objectives set by the European Council in Lisbon in March 2000,” according to Wikipedia.

The Soho Loft was present July 10, 2012 during the previous workshop held with DG Enterprise & Industry at the Transatlantic Economic Council (TEC) forum for SME Policy.  The EU has 28 million SMEs (across 27 countries and 500 million inhabitants) versus the 25 million SMEs in the US.  We covered fund of funds, VC funds, guarantee funds, angel networks, private equity funds and crowd funding at an event which was a precursor to the official TEC meeting in Rome July 12-13.  Crowd funding was not well received as some grandmothers had been ripped off and the anger this had caused was unmistakable.

Oliver Gadja of European Crowdfunding Network and Kristof de Buysere of Value Development

Yet this workshop is different.  It is for crowd funders and crowd funders alone and the topic is not crowd funding based on donation or rewards but crowd funding for equity.  The latter is operational in the UK, France, Sweden and the Netherlands. The Italians had a conference last month discussing how to get it legalized there.  The Italian holdup is that the SEC equivalent stock police CONSOB has to review it—and there is no deadline for CONSOB’s review of the pending proposal.  The Italian initiative is also not crowd funding as we know it but crowd funding for existing high tech growth companies —thus non-tech firms cannot apply—and the incentive being offered is a 19% tax deduction for investors.

However, the success and challenges of the US JOBS Act (signed into law by President Obama April 5, 2012) are among the reasons the European CrowdFunding Network is taking the lead with the current workshop.  There must be a pan-European law allowing crowd funding in Europe, and this process began with the presentations that Jouko Ahvenainen of GrowVC, Korstiaan Zandvliet of Symbid and The Soho Loft made last July on crowd funding.  Oliver Gadja has taken the lead with a white paper on the industry and his role in helping to organize the European Crowdfunding Network. Seedmatch in Germany (which has raised total 2.5 millions Euro to date) can only raise 100,000 Euro but has managed to combine its efforts with angel networks to add debt to its platform with the result that it can now raise 250,000 Euro per start-up.  So collaboration is occurring.

As you are aware, the US has its own industry leading association.  The Soho Loft had founded CFIRA (Crowd Fund Intermediary Regulatory Association) with StartUp Exemption and Gate Technologies March 18, 2012.  The first meeting we set up was at Mintz Levin Law Offices in NYC and that group had 25 members.  At  that time we moved to split CFIRA into Crowd Fund Intermediary Regulatory Advocates (intended to work with the SEC for the law to be implemented), while also providing a voice for businesses and platforms through the Crowd Funding Professional Association.  We have worked with the SEC and found it very accommodating during the 7 months since our first meeting with the head of Trading & Markets and Corporate Finance on April 20.  Thanks to Obama being re-elected and Mary Schapiro (Chair of SEC) resigning Dec 14, 2012, we have seen the remaining Commissioners vying for the chair position and as such, embracing crowd funding.  It is hoped that this openness will continue now that President Obama has chosen SEC Commissioner Elisse Walter as the new chair.  Either way, SEC is clearly blowing the original deadline, since crowd funding for equity was expected to become law by Q1, 2014 (see 10 Steps For Obama to make Crowd Funding Legal).

The European endeavor is needed.  65% of new jobs the last 2 decades in the US were created by SMEs.  Unfortunately the EU is like a new nation and there are 27 self interest groups (one for each country) per Directorate General division.  Getting a new law to pass will take 2-3 years says the EU Commission we met.  In the US the law passed in less than 500 days, yet again it seems it might take another 500 days to make it into a practical law.  So 1000 days to become law in the US—that seems to correlate with the time frame the Europeans have mentioned to us.

Alex Raguet of Lumo and Danae Ringelmann of IndieGoGo

It is about time.  Europe has started crowd funding for equity under the local laws and exceptions of several countries, but scaling it outside each country’s borders is not happening yet. Symbid and GrowVC are clearly the international leaders on these topics yet again—Indiegogo and Secondmarket are attending the meeting for the first time.  It was interesting to hear that the average donation at Indiegogo was $79 while SecondMarket added that 43% of campaigns raising $100,000 managed to get their raise fulfilled on Kickstarter.

Jouku Ahvenainen of GrowVC and Denis Bartelt of StartNext

A key issue around the implementation of any new initiative is access to the discussions.  It is very difficult to participate if you are not included.  And it is often a challenge for organizers to ensure that their range of participants is representative of the current state of an industry—or inclusive of its future potentialities.  With regard to the workshop being discussed here, why weren’t Kickstarter and Rockethub—two of the largest crowd funding firms in the world—present? How about France’s leading Wiseed and the UK’s Seedrs and CrowdCube?  The UK is the largest market in Europe in this field.  And what about Sweden’s crowdfunding group FundedByMe?  Of course, Leo Padazakos of Crowd Equity from Sweden was present.  In fairness, though, we know Kickstarter has its own solo track on media and participation (yes, they do not play at all with others in the sandbox).

Leo Padazakos of Crowd Equity

Overall, this was an excellent event in the momentum towards crowd funding for equity in Europe.  We will learn whether legal crowd funding for equity can be achieved within 1000 days as we hope it will be in the US.  The clock starts ticking today.