The Current State of Crowdfunding in Finland
With the aim of re-identifying the current situation in Europe, we reached out to our international partners in the Altfinator Policy Network to provide in-depth insights on the Current State of Crowdfunding in Europe in 2020.
We have reached out to Mr. Tero Weckroth, a crowdfunding thought leader in Finland. Mr. Weckroth is sharing with us insightful information about the current crowdfunding trends in Finland and about the expectation regarding the impacts of the new European (ECSP) crowdfunding regulation.
Mr. Weckroth: The (Crowdfunding) Sector Needs More Consolidation
“Crowdfunding has lived through stages of the usual cycle. Skepticism was followed by hype, followed by disappointments. The phenomenon will not disappear, in fact it is almost as old as human civilization, but in return-focused crowdfunding (excluding rewards and donations) the focus will move towards the investors.
Digitalizing the fundraising processes is a necessary step in enabling collecting investments from a large number of people, angels or mortals. But while the digitalization enables the start-ups to open their fundraising rounds to the general public, it does not force them to treat the investors well. More streamlined digital back-office tools make it possible to coordinate diversified portfolios of investments in unlisted shares, information flow from companies to investors and to return the capital back from the companies to investors. But sadly not always have these opportunities been utilized nor have the investors always been happy.
I have been an advocate of more professional lead investors in crowdfunding rounds. They would be more aloof than genuine business angels but more involved than individual crowd investors. Lead investors would add value primarily by selecting the best cases and improving the value of the cases, but also by pooling smaller investors’ capital into bigger entities, increasing their negotiation power and enabling entry to possible pre-crowdfunding rounds, and guaranteeing enough firepower for the target companies in future rounds – assuming the business develops as expected and pre-defined milestones are met. This approach has not taken hold either. In essence, the volumes and quality are too small and weak for these kinds of players to emerge and prosper.
I believe the sector needs more consolidation. With better market position the platforms will be able to increase their level of scrutiny without fearing losing target companies and borrowers to competitors. Also, this will improve the deal flow quality and attract more professional and institutional money to the platforms. Particularly in the equity side there are too many weak platforms to survive – I was the main architect in one of the first cross-border deals when Invesdor acquired Finnest. Seedrs and Crowdcube are in the process of merging. I believe many more will follow and this phenomenon is likely to move to the lending side as well as the strongest players consolidate their position by acquiring competitors or their client basis.”
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