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It’s time for Europe to build a new Palo Alto
New EU rules for alternative investments should make it easier for Europe to compete globally in a fast-growing market. That’s good news for start-ups, and good news for investors.
While it’s never been easier to invest in traditional stocks – shares in the world’s largest companies can be bought and sold in seconds with the click of a mouse – the financial world has also in recent years seen a boom in various alternative forms investment.
Indeed, from crowdfunding to crowdinvesting, from peer-to-peer lending to donation-based funds, there have never been more ways for investors to fund start-ups with nothing more than their laptops, or, increasingly, mobile apps.
To facilitate the boom, a thriving industry of fintech start-ups has blossomed, eager to capture a slice of a market whose growth shows no signs of slowing down.
IMARC Group, a consultancy which monitors the alternative investment market, has forecast that the crowdfunding market alone will reach a global value of 25.93 billion US dollars by 2027.
Since the boom first took off just over a decade or so ago, it is the United States which has – as is so often the case with technology and innovation – led the way. Europe has lagged behind, hampered primarily by diverging licensing requirements that differ from country to country, preventing its fintech start-ups from growing beyond their home markets, even within the European Union’s Single Market.
This has resulted in high compliance and operational costs, which prevent crowdfunding platforms from efficiently scaling the provision of their services. As a result, small businesses had fewer financing opportunities available to them and investors had less choice and faced more uncertainty when investing cross-border.
Competing globally
The European Commission, the European Union’s executive arm, recognises the problem, and has taken steps in recent years to boost fintech across the bloc.
In 2018 it published a fintech action plan which set out a series of steps designed to harness the opportunities presented by technology-enabled innovation in financial services.
“To compete globally, Europe’s innovative companies need access to capital, space to experiment and scale to grow,” said Valdis Dombrovskis, the commissioner in charge of financial markets, at the launch of the action plan.
“Alternative sources of funding, such as crowdfunding or peer-to-peer lending, directly link savings with investments. They make the market more accessible for innovative entrepreneurs, start-ups and small companies.”
One of the first steps taken by the EU to create a level playing field was to draft crowdfunding legislation that lays down uniform rules across the EU for the provision of investment-based and lending-based crowdfunding services related to business financing. It allows platforms to apply for an EU passport based on a single set of rules, which makes it easier for them to offer their services across the EU with a single authorisation.
The new rules increase the availability of innovative forms of finance, which should help companies seeking alternatives to bank financing. Investors on alternative platforms, meanwhile, benefit from an aligned and enhanced investor protection framework.
The new rules were adopted in November 2020, and will enter practical effect from November 10, 2022, following the expiry of a one-year transition period from their official coming into force date of November 10, 2021.
‘Internationalisation is unavoidable’
One of Europe’s leading co-investment platforms is SeedBlink, based in Romania. Its managing director and co-founder, Andrei Dudoiu, says that the new EU rules build a harmonised legal framework for all European countries, which could stimulate alternative types of financing for start-ups and SMEs, ensuring that crowdfunding platforms can access the entire single market through a single authorisation based on a single set of rules.
“Internationalisation is unavoidable for Europe’s start-ups and investors alike,” he says. “Europe being behind the US in terms of capital force, this European regulation facilitates cross-border investing and trust, allowing start-ups to raise the capital needed for sustainable growth across different maturities. Besides making the investment process easier, it also offers transparency and protection for investors.”
This also opens the need for investment platforms to differentiate, as the new rules allow businesses to raise up to five million euros over 12 months, without having to produce a full prospectus from European retail investors (the crowd) in an online process without falling under local fragmented restrictions across Europe.
Dudoiu also points out that while alternative investments are a way of financing start-ups, helping more companies innovate, they also help to educate investors, offering tools that can facilitate their own development alongside that of start-ups.
“They create a network of know-how and expertise that can only be good for the region’s growth,” he says.
In addition to attracting entrants from Europe itself, this ambition can be boosted by attracting non-European businesses to set up their payments or e-money business in Europe, and by encouraging foreign investments in European start-ups.
And with the new rules now in place, and a surge in the number of unicorns and the pace at which they are created, the seeds of a new, European Palo Alto have been sown. But Dudoiu is keen for more.
“Europe needs a modern and European Nasdaq,” he says. “Stock exchanges have tried to consolidate such a structure (most notably EuroNext), but local politics, and the legal framework prohibited success.”
It could be time to try again.
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PublishedOctober 12, 2022
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Tudor Goicea
Co-founder of Aqurate
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As a startup founder, I am happy to witness SeedBlink’s dedication to expanding their support for early-stage companies beyond funding, towards a healthy equity management via Nimity. A solution to help better navigate relations with stakeholders, employees and future investors is needed in Europe. Less admin work and bringing transparency to the cap table are immediate benefits I was able to test.
Delia Iliasa
Managing Partner
SanoPass
SeedBlink is a transparent solution that connects entrepreneurs with great business plans, with investors, at different stages in their development. It is a great tool for us, a democratization of access to funding, I would say.
Ioan Iacob
Founder
FLOWX.AI
We really loved the SeedBlink journey. We reached our fundraising goal within hours of launching. About 100 investors joined our vision and invested almost $2 million in FLOWX.AI through the Private Deal Room. At the same time, working with SeedBlink to prepare for the funding round was an excellent exercise for our entire team, and we received and felt the support from the SeedBlink team members who took on an advisory role.
Dan Vidrașcu
CEO
VOXA
SeedBlink made the (investment) process run smoothly. We appreciate all the support SeedBlink's professional team has provided.
Tinu Bosinceanu
Founder and CEO
Upgrade Education
It's important to look for and choose a platform that you resonate with, that shares your mission with, a platform & its people with which you feel you can have good working relationships. we got an excellent relationship going forward; we talked a lot and we were in touch on a lot of matters and I think this was important. Having people who believe in your idea is of great help.
Kimmo Rytkönen
Founder and CEO
Income
Running the financing round was like any other fundraising; we had to be active in our community as well as in SeedBlink's investor community. After the launch, everything happened very quickly, and SeedBlink organized several pitch events for investors, which we found very useful for the round momentum.
Svilen Rangelov
Founder and CEO
Dronamics
We immediately clicked with the SeedBlink team as their fundraising expertise was immediately obvious and their no-nonsense approach really appealed to us. After all, fundraising is only a means to an end, and we liked how the SeedBlink team was really focusing on supporting us and on getting things done.
Mihai Darzan
Founder
Procesio
Our main expectation has been to raise the amount we were aiming for, and both rounds launched on Seedblink exceeded our targets, so we’re very happy with that! Even though the launched funding campaigns have been purely crowdfunding rounds, we are thrilled to actually receive extra support from some of the investors, who have chosen to get involved and help us generate product awareness, whenever they can.
Catalin Mester
Founder
Voxa
I am recommending SeedBlink without hesitation, to every founder that raises capital, especially early-stage tech startups. SeedBlink is a crowd investment platform that will also provide their startup with visibility, for Angels and VCs.
Dragoș Iliescu
Founder and CEO
Brio
In the early stages, we have been funded by several early (angel) investors, and one and a half year ago through an equity crowdfunding campaign on SeedBlink. Of course, this impacted our growth in many positive ways, partly due to the cash influx that, evidently, was sorely needed, but in a larger part due to the fact that our responsibility towards our shareholders has become more stringent and explicit, becoming embodied in our market approach.
Costin Tudor
Co-founder and CEO
Undelucram
Given the accelerated growth we observed at the end of last year and the beginning of 2021, we want a new capitalization, quickly. This is a bridge round that we will use for one year, and the advantages that SeedBlink offers are the speed at which we were able to list for financing and the experience that we gain as a result of this public listing, similar to a listing on the stock exchange.
Diwaker Singh
Co-Founder & CEO
Crikle
As a platform that only serves technology ventures, SeedBlink can connect the start-up with more than just money. SeedBlink investors are primarily technocrats who understand the objectives of the fundraising company and are also able to post-funding contribute with business opportunities. The minimum investment threshold, and technology focus, differentiates SeedBlink from other fundraising platforms. A perfect fit for a technology start-up seeking intelligent funding.
Florin Stoian
Co-Founder & CEO
Milluu
SeedBlink boosted our brand exposure and facilitated the financial support we were seeking. Having a campaign on the platform allowed us not only to meet a team of professionals - that guided and helped us prepare the necessary materials - but also opened doors for increasing our brand awareness and have discussions with VCs & angel investors we have never reached before. This campaign gave us the encouragement we needed to push the product further, while the record-breaking fundraising (only 2 hours from the launch of the campaign!) was a great confirmation that our product is needed in this market and that we should continue innovating.
Raluca Jianu
CEO & Co-founder
Epic Visits
SeedBlink has created a vital ecosystem for startups at the beginning of their journey by equipping entrepreneurs with expertise, encouraging honest and sometimes uncomfortable but necessary discussions about risks and vulnerabilities through a suite of tools, and facilitating connections with investors who share the founders' vision and can contribute to their success. I have greatly appreciated the constant support of Eric and the entire team at all stages of the campaign. Thank you so much!
SeedBlink S.A. is registered in the Register of the Romanian Financial Supervisory Authority (ASF), under number PJR28FSFPR/400001, as of 03.11.2022 with an EU passport as per European Securities and Market Authority (ESMA) register of crowdfunding services providers.
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