Small and medium-sized businesses (SMEs) are finding that cross-border crowdfunding is a popular method to obtain funds in Europe. SMEs now have access to a larger pool of investors outside of their own country’s boundaries because of the development of digital platforms and the ease with which cross-border transactions can be conducted.
Cross-border crowdfunding in Europe still confronts a number of challenges, including regulatory hurdles, disparities in legal frameworks, and linguistic and cultural limitations, despite the potential advantages. In this post, we’ll look at the advantages of international crowdfunding for SMEs as well as the difficulties they have while trying to raise money abroad in Europe. We’ll also look at some of the initiatives being made right now to get around them and create a more hospitable atmosphere for international crowdfunding in Europe.
The need for Cross-Border crowdfunding in Europe
Cross-border crowdfunding in Europe is needed to break down the bureaucratic barriers that prevent foreign crowdfunding platforms and investors from operating in different countries. This would expand the available financing opportunities for SMEs and broaden the pool of investors, ultimately narrowing the economic inequality gap and strengthening the economy of the entire union. However, there are obstacles to be faced, such as digitalization challenges, market expansion costs, and regulatory barriers.
To license a cross-border crowdfunding platform, applicants must apply to their local European Member State authority, and upon submission, the review of the application takes 25 days, followed by a three month period for further analysis. The assessment evaluates all the basic aspects of the crowdfunding services to be provided, including their scale and complexity.
Benefits of cross-border crowdfunding for SMEs
Cross-border crowdfunding can offer several benefits to SMEs such as:
Access to a larger pool of investors: By participating in cross-border crowdfunding campaigns, SMEs can access a wider pool of potential investors from different countries. This can help them secure funding that they may not be able to access otherwise.
Diversification of funding sources: Raising funds from a diverse group of investors from different countries can reduce the risk of relying on a single funding source. This can help SMEs to mitigate the impact of any financial shock or downturn.
Increased visibility: Cross-border crowdfunding campaigns can provide SMEs with increased visibility and exposure, which can help to attract more customers, partners, and investors.
Networking opportunities: Participating in cross-border crowdfunding campaigns can also provide SMEs with opportunities to network with other businesses, investors, and industry experts from different countries.
Lower cost of fundraising: Cross-border crowdfunding can be a cost-effective way for SMEs to raise funds compared to traditional fundraising methods, such as bank loans or private equity investment. This is because crowdfunding platforms typically charge lower fees and SMEs can avoid the costs associated with going public.
The Obstacles for European Cross-border crowdfunding
There are several obstacles that hinder the development of cross-border crowdfunding in Europe. Some of these obstacles are:
Regulatory differences: One of the main challenges of cross-border crowdfunding is the regulatory differences between different European countries. There are currently no harmonized rules and regulations for crowdfunding across the European Union. This means that crowdfunding platforms have to comply with different regulations in different countries, making it difficult and costly to expand their operations.
Language barriers: Europe is home to many different languages, which can create barriers for cross-border crowdfunding. Crowdfunding platforms need to be able to communicate with investors and companies in different languages, which can be a challenge for smaller platforms.
Limited access to information: Crowdfunding platforms may also face challenges related to limited access to information about companies in other countries. This can make it difficult for investors to evaluate the risks and potential returns of investing in cross-border campaigns.
Political and economic instability: Finally, political and economic instability in some European countries can also pose a challenge for cross-border crowdfunding. Instability can increase the risk of investing in certain countries, making it difficult for crowdfunding platforms to attract investors.
