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CROWDFUNDING: A COMPARISON

BETWEEN

FLANDERS

AND

THE

NETHERLANDS

Aantal woorden / Word count: 18 199

Stamnummer / student number: 01603790

Promotor / supervisor: Prof. Dr. Rudy Aernoudt

Masterproef voorgedragen tot het bekomen van de graad van: Master’s Dissertation submitted to obtain the degree of: Master in Business Economics: Corporate Finance

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Confidentiality agreement

PERMISSION

I declare that the content of this Master’s Dissertation may be consulted and/or reproduced, provided that the source is referenced.

Name student: Julie Coorevits Signature:

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Foreword

This dissertation serves as the final piece of my education in Business Economics: Corporate Finance at Ghent University. I would like to express my gratitude to a few people for their advice, support and contribution throughout this journey. Without them, it would not have been possible to present this dissertation. Firstly, I would like to thank Prof. Dr. Rudy Aernoudt for supervising, sharing his knowledge in the field of finance and giving feedback and advice. Secondly, I would like to thank my family and in particular my dad, Frederic Coorevits, who supported me, gave me advice and provided me with feedback. I would also like to thank my friends who helped me in distributing and sharing the survey on social media, without them the number of respondents would have been lower.

Because the survey was distributed online, and I used online sources for the literature part, this master dissertation was not impacted by the Covid-19 measures taken by Ghent University.

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Table of contents

Foreword ... I List of Tables ... III List of Figures ... III List of used Abbreviations ... IV

1. Introduction ... 1

2. Literature study on crowdfunding ... 3

2.1 Crowdfunding ... 3

2.1.1 Definition ... 3

2.1.2 Evolution of crowdfunding: the importance of the financial crisis 2008 and Web 2.0 ... 6

2.1.3 Crowdfunding types ... 9

2.1.4 Objectives of crowdfunding ... 13

2.2 Crowdfunding in the world ... 16

2.3 Legislation of crowdfunding ... 21

2.3.1 Legislation in Europe ... 22

2.3.2 Legislation in Belgium ... 24

2.3.3 Legislation in the Netherlands ... 29

3. Survey and research questions ... 32

3.1 Survey Flanders 2015 (Naert & Van Daele) ... 32

3.2 Survey Flanders 2020 (Coorevits) ... 34

4. Empirical research ... 36

4.1 Research design and methodology ... 36

4.2 Practical and theoretical relevance ... 38

4.3 Quantitative research: Popularity of Crowdfunding ... 40

4.3.1 Popularity of Crowdfunding in Flanders ... 40

4.3.2 Comparison Survey 2020 and Survey 2015 ... 50

4.3.3 Popularity crowdfunding in the Netherlands ... 51

4.3.4 Comparative analysis funders Flanders vs the Netherlands ... 57

4.4 Research: legislation ... 61

4.4.1 Comparison legislation Flanders vs the Netherlands ... 61

5. Restrictions and weaknesses ... 64

6. Conclusion ... 65

7. Recommendations and future research ... 67

7.1 Recommendations ... 67

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Reference list ... V Appendix ... X

Appendix 1: Ranking top 50 countries in volume of online alternative finance ... X Appendix 2: Survey distributed in Flanders (March,2020) ... XI

List of Tables

TABLE 1: EUROPEAN DEFINITION SME . ... 8

TABLE 2: GLOBAL VOLUME CROWDFUNDING 2010-2014. ... 16

TABLE 3: CROWDFUNDING MARKET IN BELGIUM 2013-2017. ... 18

TABLE 4: CROWDFUNDING MARKET IN THE NETHERLANDS 2013-2019.. ... 19

TABLE 5: SURVEY 2020, FIVE STATEMENTS AND THE PERCENTAGE OF THE FLEMISH RESPONDENTS THAT ANSWERED ON A 5-POINT LIKERT SCALE. ... 48

TABLE 6: COMPARATIVE ANALYSIS FUNDERS FLANDERS VS THE NETHERLANDS ... 58

TABLE 7: COMPARISON LEGISLATION CROWDFUNDING: BELGIUM VS THE NETHERLANDS ... 61

List of Figures

FIGURE 1: CROWDSOURCING ... 5

FIGURE 2: STAGES OF ENTREPRENEURIAL FIRM DEVELOPMENT ... 6

FIGURE 3: MAIN TYPES OF CROWDFUNDING ... 10

FIGURE 4: GLOBAL CROWDFUNDING VOLUME AND ANNUAL GROWTH RATES BY MODEL 2012-2014 IN BILLION USD. ... 12

FIGURE 5: CROWDFUNDING BY TYPE IN BELGIUM IN 2016 AND 2017. ... 12

FIGURE 6: CROWDFUNDING BY TYPE IN THE NETHERLANDS IN 2016 AND 2017. ... 13

FIGURE 7: GLOBAL CROWDFUNDING VOLUME AND ANNUAL GROWTH RATES BY REGION 2012-2014 IN BILLION USD. ... 17

FIGURE 8: EURO INVESTED IN CROWDFUNDING PER RESIDENT IN BELGIUM VS THE NETHERLANDS. ... 20

FIGURE 9: CROWDFUNDING PER RESIDENT COMPARISON BETWEEN BELGIUM, GERMANY, FRANCE, THE NETHERLANDS AND THE UK IN 2014 AND IN 2017. ... 21

FIGURE 10: SUMMARY RESEARCH DESIGN. ... 38

FIGURE 11: SURVEY 2020, PERCENTAGE OF FLEMISH RESPONDENTS THAT HAVE (NOT) ALREADY INVESTED IN A FORM OF CROWDFUNDING, DONATIONS EXCLUDED. ... 43

FIGURE 12: SURVEY 2020, PERCENTAGE OF THE FLEMISH RESPONDENTS THAT HAVE ALREADY INVESTED IN CROWDFUNDING, DIVIDED IN THE NUMBER OF PROJECTS THEY HAVE FINANCED. ... 44

FIGURE 13: SURVEY 2020, AVERAGE AMOUNT PAID PER CROWDFUNDING PROJECT ACCORDING TO THE FLEMISH RESPONDENTS ... 44

FIGURE 14: SURVEY 2020, MOTIVATIONS OF THE FLEMISH RESPONDENTS OF PARTICIPATING IN CROWDFUNDING ... 45

FIGURE 15: SURVEY 2020, REASONS OF THE FLEMISH RESPONDENTS OF NOT PARTICIPATING IN CROWDFUNDING ... 46

FIGURE 16: SURVEY 2020, THE MAIN REASONS WHY THE FLEMISH RESPONDENTS HAVE NOT YET USED CROWDFUNDING ... 46

FIGURE 17: SURVEY 2020, ALTERNATIVE FINANCING FORMS THE FLEMISH RESPONDENTS WOULD CHOOSE IF A TRADITIONAL LOAN FROM A BANK IS NOT (OR NO LONGER) SUCCESSFUL ... 47

FIGURE 18: SURVEY 2020, ESTIMATION OF RISK OF CROWDFUNDING IN GENERAL OF THE FLEMISH RESPONDENTS ... 49

FIGURE 19: NCR 2016, NUMBER OF PROJECTS THE DUTCH RESPONDENTS HAVE ALREADY FINANCED USING CROWDFUNDING ... 52

FIGURE 20: NCR 2016 VS NCR 2013, AVERAGE AMOUNT PAID PER CROWDFUNDING PROJECT ACCORDING TO THE DUTCH RESPONDENTS OF NCR 2016 COMPARED TO THOSE OF NCR 2013 ... 53

FIGURE 21: NCR 2016, MOTIVATIONS OF THE DUTCH RESPONDENTS FOR PARTICIPATING IN CROWDFUNDING ... 54

FIGURE 22: NCR 2016, ESTIMATION OF RISK OF CROWDFUNDING IN GENERAL OF THE DUTCH RESPONDENTS ... 54

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List of used Abbreviations

3F’s Friends, Family and Fools

AFM Authority for the Financial Markets

AFP Alternative Financing Platform

CCAF Cambridge Centre for Alternative Finance

CMU Capital Markets Union

DFSA Dutch Financial Supervision Act

ECN European Crowdfunding Network

ECSP European Crowdfunding Services Provider

EEA European Economic Area

EU European Union

FSMA Financial Services and Markets Authority

IPO Initial Public Offering

KBO Kruispuntbank van Ondernemingen

MiFID Markets in Financial Instruments Directive

NCR 2013 National Crowdfunding Research 2013

NCR 2016 National Crowdfunding Research 2016

OECD Organisation for Economic Co-operation and Development

SAFE Survey on the Access to Finance of Enterprises

SME Small and Medium-sized Enterprise

USD United States Dollar

VAT Value-added Tax

WFT Wet Financieel Toezicht

WHO World Health Organisation

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1. Introduction

Companies can be funded in different ways. They can get funding from traditional banks, from private equity funds, from venture capital funds, from angel investors and from existing shareholders, like personal funds, family and friends. Crowdfunding is a more recent financing method, often used by SMEs for whom it is sometimes difficult to find the above-mentioned external financing.

Belgium runs behind its neighbouring countries in terms of crowdfunding. According to Bolero Crowdfunding (2017), 13,06 euro per resident was invested in the Netherlands in 2017, which is 6 times higher than the amount invested in crowdfunding per Belgian resident (2,20 euro). What are the reasons for this backlog of Belgium compared to the Netherlands in terms of use of crowdfunding? And what measures can be taken in order to stimulate crowdfunding in Belgium?

This study focuses on Flanders instead of Belgium, since the economic growth of Flanders is more in line with that of the Netherlands. Therefore, Flanders is more cyclically aligned with the Netherlands compared to Belgium as a whole.

The reasons for the difference between Flanders and the Netherlands of knowledge and use of crowdfunding have been analysed in a master’s dissertation of 20151. In the years 2015-2020 though, the government has taken multiple ininitatives to stimulate crowdfunding in Flanders. Also, crowdfunding in both areas has grown further. It is interesting to update the research done in 20151 in order to investigate whether the gap between these two areas has narrowed in terms of use and knowledge of crowdfunding. A survey was made and distributed using social media In Flanders.

1 Naert, L. & Van Daele, R. (2015). Crowdfunding: marginaal of mainstream financiering (Master’s dissertation, Ghent University, Ghent, Belgium)

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In order to compare these results with the Netherlands, the National Crowdfunding Research (2016) was used2. Unfortunately, no comparable studies were found with a later date.

First, the existing literature of crowdfunding is analyzed. How crowdfunding emerged, and the evolution of crowdfunding in the world. Next, this study tries to give an answer on the following proposed research questions. ‘Has the gap between Flanders and the Netherlands been closed in terms of knowledge and usage of crowdfunding compared to 2015?’

‘What is the difference in current behaviour of the fundraisers with regard to crowdfunding as an alternative form of financing in Flanders and the Netherlands?’

‘What are the current legal (de)motivations to engage in crowdfunding for the population of Flanders and the Netherlands?’

Both the legislation and the attitude of the main stakeholders of crowdfunding, funders and fundraisers, are examined. The main results are presented in a comparative analysis between Flanders and the Netherlands. This master’s dissertation also tries to give possible recommendations to all stakeholders involved in a crowdfunding process (legislators of both areas, the funders, the fundraisers and the crowdfunding platforms). Furthermore, the limitations of this research and possibilities for further research are also mentioned.

2 The initiative was taken by CrowdfundingHub. The research team of NCR 2016 consists of Sander van der Lijn, Helen Toxopeus, Friedemann Polzin, Jamal Abid, Ronald Kleverlaan, Karen Maas, Erik Stam and Frank-Jan de Graaf.

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2. Literature study on crowdfunding

2.1 Crowdfunding

2.1.1 Definition

Instead of raising money from a small group of sophisticated investors (banks, private equity houses, venture capitalists, business angels…), crowdfunding helps companies to collect money for a specific purpose from large audiences, the crowd, in which each individual provides a (very) small amount (Belleflamme, Lambert, & Schwienbacher, 2014). This explanation can clearly be found in the word itself: crowdfunding consists of two words, crowd and funding.

On the website of the European Commission the following definition of crowdfunding can be found:

“Crowdfunding is an emerging alternative form of financing that connects those who can give, lend or invest money directly with those who need financing for a specific project. It usually refers to public online calls to contribute finance to specific projects.”3 Another common definition used by Lambert and Schwienbacher (2010) is:

“Crowdfunding is an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes.”

From these definitions it is clearly noticeable that the internet is an important aspect for crowdfunding. The raising of capital is entirely done online, more specific using crowdfunding platforms on the internet.

Although internet is an important aspect of crowdfunding, the basic idea of crowdfunding is not new (Bolero crowdfunding, 2017). In 1884, the Statue of Liberty in New York was funded

3 Definition retrieved from

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by small donations from the American crowd. This way, 100 000 dollars was collected from 125 000 people. Another example of famous crowdfunding campaigns are the election campaigns in 2008 and 2012 of Barack Obama. These two campaigns were funded by raising money from the public. Even though the basic idea behind crowdfunding is not new, its modern version is a relatively young form of financing (Galkiewicz & Galkiewicz, 2018). The term ‘crowdfunding’ was first used by entrepreneur Michael Sullivan in 2006.

In the crowdfunding process, a connection is created between three actors: the fundraisers, the platform (e.g. Kickstarter, Bolero) and the funders (people providing the funds).

The first actors are the fundraisers, also called the capital seekers, the demand side. Their main objective is to raise capital from a large number of small investors.

Next to the fundraisers are the funders, the crowdfunders, the capital providers. They are the people who want to invest their money, also called the supply side.

The third actors are crowdfunding platforms, also called the crowdfunding service providers. These are websites that enable interaction between supply and demand of capital. Well-known international crowdfunding platforms are Indiegogo, GoFundMe, Kickstart, KissKissBankBank, Ulule. According to the FSMA (2017), Lita.co, Ecco Nova, Look & Fin, Spreds4 and Bolero Crowdfunding are the largest platforms in Belgium. The crowdfunding platforms get their income from registration or subscription fees and from commissions on financial transfers.

Once these platforms receive an application from project owners (fundraisers), the platform can choose to accept or decline the application according to their own rules. After the idea is accepted, the project owner (fundraiser) must make a funding goal over a marked period of time. The project owner and the platform can use their social and business network to reach potential funders who can directly fund using the platform. If the funding goal is reached within the specified time frame, the project owner receives the money. Otherwise the

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platforms often reimburse the money to the funders (De Buysere, Gajda, Kleverlaan, & Marom, 2012).

Crowdfunding must be distinguished from crowdsourcing and fundraising.

Crowdfunding ≠ crowdsourcing

Crowdsourcing is the sourcing of anything from a crowd, like for example Wikipedia is a crowdsourced encyclopaedia. An organisation can outsource an activity, like idea generation, information gathering, decisions-making support or resource allocation, to a large group of people (Chiu, Liang, & Turban, 2014).

On the contrary, crowdfunding is the sourcing of funds from a crowd and can thus be seen as a subset of crowdsourcing. (Belleflamme et al., 2014).

Figure 1: Crowdsourcing

Crowdfunding ≠ fundraising

Belleflamme et al. (2014) state that crowdfunding can be viewed as a way to develop corporate activities through the process of fundraising. It is thus a broader concept than purely raising funds. “Crowdfunding is an umbrella term used to describe diverse forms of fundraising via the internet, where groups of people pool money to support a particular goal.” (Ahlers, Cumming, Günther, & Schweizer, 2015).

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2.1.2 Evolution of crowdfunding: the importance of the financial crisis 2008 and Web 2.0

It is difficult to say when crowdfunding really took off. In many papers, two major evolutions keep coming back. The two evolutions that had a big impact on crowdfunding are the 2008 financial crisis and Web 2.0.

Financial crisis 2008

Berger and Udell (1998) state that companies in general go through a financial growth cycle in which different capital structures are optimal at different points in the cycle. This figure of the stages of entrepreneurial firm development was based on the financial growth cycle paradigm of Berger and Udell (1998). This paradigm considers a linear relationship between sources of funding, the investor type, and stages of development.

Figure 2: Stages of entrepreneurial firm development. Retrieved from ‘Venture capital and private equity contracting: An international perspective.’ from Cumming, D. J., and Johan, S. A. (2013), p. 7, Academic Press.

There are different ways to finance a company, using external and internal sources. The most used funding options are bootstrapping, like internal financing through personal funds, family, friends and fools (the 3 F’s) (Belleflamme et al., 2014).

If this is not enough to finance the company, they can also have a look at external capital sources like banks, leasing forms, venture capitalist funds, private equity funding and angel

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financing (Cosh, Cumming, & Hughes, 2009). Later, when the firm is more mature, it can go public through an initial public offering (IPO), raise money on a regulated public stock market. The market risks of these mature firms are lower and they have less information asymmetry problems, so bank finance may be more easily available (Schwienbacher, 2014).

Because of the economic crisis and the lack of confidence in banks in 2008, a new form of financing has evolved: crowdfunding. Hervé and Schwienbacher (2018) state that crowdfunding would also be situated at the beginning of the cycle in figure 2 above.

Bank lending has changed dramatically since the global financial crisis of 2008. The banks’ lending capacity shrank between 2008 and 2013 due to higher risk aversion in a time when economic growth had slowed (Cumming & Hornuf, 2018). And so the banks tightened their lending criteria. Especially Small and Medium-sized enterprises (hereafter: “SME”) have had more difficulties compared to larger companies in accessing traditional funding options such as bank loans (Paschen, 2017).

Van Bockhaven, Molly, and Laveren (2018) state that SMEs face numerous obstacles in borrowing funds because they are small, less diversified and have weaker financial structures. Candidates for bank loans need to provide high-quality collateral and sufficient cash flows to cover interest payments, two elements that start-ups or smaller companies often do not have. So, this way they are considered unfavourable borrowers (Ayadi & Gadi, 2013).

Artola and Genre (2011) say that there is also another cause why SMEs are struggling with bank financing. They state that the main cause of their financing constraints is the information asymmetry between the SME and the bank.

Due to this increasingly restrictive bank lending, borrowers were looking for a new type of funding: crowdfunding.

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Whenever we speak of an SME in this master dissertation, the following European definition from the European Commission5 will be used (table 1). This definition differs from the SME definition in Belgium.

Enterprise category

Annual average number of people employed

Annual turnover Or annual balance sheet total Micro enterprise < 10 ≤ 2 million euro ≤ 2 million euro

Small enterprise 10 – 49 ≤ 10 million euro ≤ 10 million euro

Medium-sized

enterprise 50 - 249 ≤ 50 million euro ≤ 43 million euro

SME 1 - 249 ≤ 50 million euro ≤ 43 million euro

Table 1: European definition SME.

Fast growing companies regard access to finance as one of the most important obstacles to further growth. The European Commission conducts a “Survey on the Access to Finance of Enterprises (SAFE)” each year. According to this survey, access to finance was the fourth most pressing problem reported by SMEs in the EU 28 in 2014. In 2019, access to finance for SMEs remains one of the 6 major issues for SMEs in the EU 28. For smaller SMEs, it seems likely that access to funding is one of the biggest problems.

We can conclude that the financial crisis has fuelled the growth of crowdfunding as a new way of finance. Dushnitsky, Guerini, Piva, and Rossi-Lamastra (2016) even say that “As the availability of the traditional sources of capital decreases, especially for SMEs, the possibility of raising money from the crowd appears as a magical cash machine”.

SMEs and entrepreneurs play a significant role in all economies and are the key generators of employment and income, and drivers of innovation and growth (OECD, 2009). It is thus critical that they find ways to finance their enterprise.

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Web 2.0

The second major evolution that had a big impact on crowdfunding are technological innovations such as Web 2.0 technologies. Web 2.0 is a web-as-participation-platform that made it, together with the growth of social media, easier for entrepreneurs to reach many people at a far less cost. Thanks to the internet, communication costs have virtually disappeared. Because crowdfunding is internet-based, it is easy to access worldwide.

The development of Web 2.0 has facilitated the access to the crowd. It also enables users to create ‘user-generated content’ (Kleemann, Voß , & Rieder, 2008). The Web 2.0 differs from the Web 1.0 because it allows users to provide content, interact with each other and thus create value for the company (Lee, DeWester, & Park, 2008).

Together with social media and crowdfunding platforms, the digital revolution offers new opportunities to raise capital to launch a project (Belleflamme et al., 2014; Mollick, 2014).

2.1.3 Crowdfunding types

Massolution, a research and advisory firm that was pioneering the use of crowdfunding solutions in governments, institutions and enterprises, released the first global Crowdfunding Industry Report in 2012. They talk about four main types of crowdfunding based on the return to investors. These four types are now widely used in recent papers. Block, Colombo, Cumming, and Vismara (2018), and Cumming and Hornuf (2018) also make this distinction based on the contributions received from investors:

- reward-based crowdfunding - donation-based crowdfunding - lending-based crowdfunding

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Figure 3: Main types of crowdfunding

We make a distinction between non-financial return and financial return crowdfunding.

Non-financial return crowdfunding

For the non-financial crowdfunding, the crowd is referred to as ‘backers’, because they do not expect a financial return but donate their funds as a gift or pre-purchase a product or service (Cumming & Hornuf, 2018).

(1) Donation-based crowdfunding:

Investors do not expect material or financial rewards in exchange for their contribution, instead they expect a social reward (acknowledgements). The investor is prepared to donate his money in order to support a project that appeals to him.

(2) Reward-based crowdfunding:

This type of crowdfunding is often used in the creative sector. The backer is willing to invest his money, but he expects a non-financial reward in exchange. This non-financial reward can be a concert ticket, having their name posted on the campaign website… The funders can also enjoy the benefit from pre-selling or pre-ordering of the product/ service. In this way they receive the financed project / product before publication or market entrance, often at a better price.

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Financial return crowdfunding

For the financial crowdfunding, the crowd is referred to as ‘investors’ for equity crowdfunding, and as ‘lenders’ for the lending-based crowdfunding (Cumming & Hornuf, 2018).

(3) Equity-based crowdfunding:

Compared to the other three forms of crowdfunding, equity-based crowdfunding, also called investment crowdfunding, is relatively new.

In return for financial support from the project funders, this model treats project funders as investors by making them equity stakeholders. Their goal is to share in the profit in the future. (Mollick, 2014). The investor is willing to invest his money, and in exchange he receives shares. He only expects return in the long run. This is comparable to business angel financing, with the difference that the financing now does not come from an individual, but from a group of individuals, the crowd (Van Bockhaven, Molly, & Laveren, 2018).

Ahlers et al. (2015) combined the definition from Hemer (2011) and from Bradford (2012) in their definition of equity crowdfunding:

“Equity crowdfunding is a method of financing whereby an entrepreneur sells equity or equity-like shares in a company to a group of (small) investors through an open call for funding on internet-based platforms.”

(4) Lending-based crowdfunding:

Investors provide funds through small loans, that are often granted at a fixed interest rate. They expect to see their money and agreed interest back before any return to the equity holder.

Crowdlending is the most successful crowdfunding type, it had an estimated global market volume of 11,08 billion USD dollar in 2014 (Massolution, 2015). In 2014, donation was 1,94 billion USD dollar, reward-based 1,33 billion USD dollar and equity-based 1,11 billion USD dollar (see figure 4). It is clear that crowdlending has grown enormously. Almost 72% of the total crowdfunding volume in 2014 was crowdlending.

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Figure 4: Global crowdfunding volume and annual growth rates by model 2012-2014 in billion USD. Retrieved from ‘2015 CF: The Crowdfunding Industry Report’, from Massolution (2015), p. 56.

The amounts raised for non-financial crowdfunding are lower than those for financial crowdfunding. In 2014 non-financial crowdfunding was 3,27 billion USD, compared to 12,19 billion USD of financial crowdfunding, which is almost 4 times higher.

If we have a look at the Belgian crowdfunding market (Douw&Koren), we notice that lending-based crowdfunding really took off in 2017 when it surpassed equity-lending-based crowdfunding. In the Netherlands lending-based crowdfunding in 2016 was already bigger than equity-based crowdfunding and is by far the most important source of financial crowdfunding.

Figure 5: Crowdfunding by type in Belgium in 2016 and 2017. Retrieved from Douw&Koren

0,99 0,39 1,19 0,118 1,34 0,726 3,44 0,395 1,94 1,33 11,08 1,11 0 2 4 6 8 10 12

donation reward lending equity

In b ill io n U SD

Global crowdfunding volume per type 2012-2014

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Figure 6: Crowdfunding by type in the Netherlands in 2016 and 2017. Retrieved from Douw&Koren.

Besides these main 4 types of crowdfunding, there are also other types of crowdfunding, like royalty-based6 crowdfunding or convertible lending-based crowdfunding7. This last type is a hybrid form of equity-based and lending-based crowdfunding. The use of these other forms is still very limited today and will not be taken into account in this study.

2.1.4 Objectives of crowdfunding

One of the main objectives of crowdfunding is to grant fundraisers, especially SMEs, easier access to alternative financing compared to traditional bank financing or other mainstream financing methods.

But this is not the only objective of crowdfunding. Cichy and Gradon (2016) and De Buysere et al. (2012) have listed the main advantages and disadvantages for funders, fundraisers and

6 Royalty-based crowdfunding offers backers a percentage of revenue from a project they support once it is generating profit. For example backers can support a mobile app before it’s fully developed or launched, they will share in the profit once the app starts selling to the public (retrieved from

https://www.equitynet.com/crowdfunding-terminology/royalty-crowdfunding )

7 Convertible loan is a loan which can be converted into equity-based on conversion price at a specific time. (Douw S. & Koren G., 2017)

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the crowdfunding platforms. These are also mentioned by the European Commission (2016) and Cumming and Hornuf (2018).

Another objective from a fundraisers-perspective is that crowdfunding could be a way to test the market for a new product. If a crowdfunding campaign for a new product has a lack of support, this may indicate that the market for the final product is too narrow or that the product does not appeal enough. A crowdfunding campaign is an excellent form of market research to get direct feedback on the product, the quality, the pricing and on the design. From a funder’s perspective, participating in crowdfunding project can generate either financial or non-financial returns. The funders can get a financial return if they invest in loan- or equity-based crowdfunding, and they can get a non-financial or material return (e.g. a product/service as a reward for their investment) if they invest in reward-based crowdfunding, or a social return (mental satisfaction) if they invest in donation-based crowdfunding. Another benefit from a funder’s perspective is that they can invest in multiple projects with a very low amount.

Off course there are also disadvantages. There are concerns that crowdfunding is more susceptible to fraud. De Buysere et al. (2012) state that the risk of fraud increases in crowdfunding because the people who invest (the crowd) do not always have sufficient knowledge to make a correct business assessment or are not assisted by a professional such as a banker. Since the investment is done through an online platform, there is less visibility who is behind a business idea leaving room for sometimes dodgy people and practices. The crowdfunding platforms also do not provide the same KYC (Know your client) standards compared to a bank. There have been several cases where wrong information was presented leading to loss of money. This is not common and is therefore (still) considered as exceptional, according to Bolero Crowdfunding (2017).

The lack of clear regulations and lack of legal protection is also seen as a disadvantage. The crowdfunding platform’s responsibility is limited to collecting the money, there is no sufficient control on the use of the money or on the viability of the business case. When a company wants an IPO, it needs to publish a prospectus with a big chapter explaining all the risks. This

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is controlled by official channels such as the FSMA. For a crowdfunding campaign this is not necessary, so people cannot judge the risks of a business case in an adequate way.

Another concern for the funders is that the investments through crowdfunding are not liquid, they are not listed on a stock exchange, and are therefore difficult to trade. There is no exit in a simple way because there is no secondary market.

If the project fails, the entrepreneurs (fundraisers) do not easily get a second chance to make a first good impression because the information gets rapidly spread, using web 2.0. This risk of loss of reputation is also seen as a disadvantage of using crowdfunding.

Another disadvantage is that the fundraiser must share some detailed information about the product in order to convince people to invest. He must be very careful about protecting his idea with a patent / copyright, to avoid that someone tries to steal his concept.

As mentioned before, not all projects that apply to crowdfunding platforms get onto the platform. If the project is accepted, it must make a funding goal over a marked period of time. If the funding goal is not reached within the specified time frame, the project owner might not get financing and the platform reimburses the money back to the funders. If that happens, valuable time is lost and it makes it even more difficult to find other financing.

There is also a risk of money laundering by using platforms. The Belgian government took the necessary steps to monitor these platforms more consistently. Since February 1, 2017, platforms must be recognized by the Financial Services and Market Authority (hereafter: “FSMA”). Fictional platforms can then no longer be set up to launder money without being noticed.

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2.2 Crowdfunding in the world

Crowdfunding is becoming an important financial tool. Because this is a worldwide phenomenon, it is very difficult to find exact and especially recent numbers about the global crowdfunding market. From 2010 until 2015, Massolution was the pioneer in research about the use of crowdfunding in enterprises worldwide. Their most recent industry report is however only from 2015. Massolution’s Crowdfunding Industry Report (2015) published numbers on the crowdfunding market worldwide from 2010 until 2014. In table 2, you can see that the global crowdfunding market has grown enormously during this period.

Year Number of platforms active worldwide

The crowdfunding platforms

raised a total of Growth

2010 294 0,88 billion USD +67% 2011 452 1,47 billion USD +84% 2012 813 2,7 billion USD +126% 2013 1013 6,1 billion USD +166% 2014 1250 16,2 billion USD

Table 2: Global volume crowdfunding 2010-2014. Retrieved from Crowdfunding Industry Report 2015 from Massolution.

When we have a closer look at the crowdfunding volume per region, the following figure can be found.

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Figure 7: Global crowdfunding volume and annual growth rates by region 2012-2014 in billion USD. Retrieved from ‘2015 CF: The Crowdfunding Industry Report’, from Massolution (2015), p. 58.

Remarkable is that Asia grew a lot in this period (figure 7). Funk (2019) state that the current crowdfunding’s global growth rate is mainly driven by the Asian crowdfunding market, which grew 320% between 2013 and 2014. Within Asia, the People’s Republic of China8 has been identified as the key market for crowdfunding’s growth (Funk, 2019).

Because Massolution’s latest report is from 2015, for more recent numbers about the crowdfunding market worldwide, we use numbers of the Cambridge Centre for Alternative Finance (hereafter: “CCAF”). The CCAF has been studying alternative finance and collecting data about the crowdfunding market since 2014. In April 2020, they have published their first global report with the intention of presenting world-wide online alternative finance market insights and data for 2018 (Ziegler et al., 2020). Although crowdfunding numbers are included, the alternative finance numbers also include other financing methods like P2P/marketplace lending, related online capital raising activities, microfinance / community shares, debt-based securities, invoice trading and virtual currency. This report does not only focus on the crowdfunding market as an alternative finance method, so we can’t compare both studies. We do see that the alternative market is evolving. According to CCAF, the global alternative finance industry facilitated 304,5 billion USD worth of alternative funding in 2018. The CCAF

8 More information about the reasons of this growing potential for crowdfunding in China can be found on p. 2 and 3 of the book: Funk, A. S. (2019). Crowdfunding in China. Springer, Cham.

1,61 0,945 0,033 0,076 0,8 0,065 3,86 1,35 0,81 0,027 0,021 0,006 9,47 3,3 3,4 0,043 0,057 0,012 0 2 4 6 8 10

North America Europe Asia Oceania South America Africa

In b ill io n U SD

Global crowdfunding volume per regio 2012-2014

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made a ranking with the volume of online alternative finance of the top 50 countries worldwide in 2018 (see appendix 1). On the first place is China with almost 4 times the volume of the country on the second place, the United States. The UK is on the third place, the Netherlands is on place 4, Germany is on place 6 and France is on the 9th place. All neighbouring countries of Belgium appear in the top 10, whereas Belgium is only at the 43th place in this worldwide ranking.

Douw&Koren, a Dutch crowdfunding consultancy agency, has been mapping the status and development of crowdfunding in Belgium (table 3) and the Netherlands (table 4) since 2011. If we look at these studies, we see that Belgium is lagging behind the Netherlands in terms of crowdfunding. The latest survey of the Dutch crowdfunding market dates from 2019, while the latest survey of the Belgian market dates from 2017.

Belgium 2013-2017 Year Crowdfunding volume Number of residents Euro invested per resident

Growth Euro invested per resident 2013 1,1 million euro 11 130 000 0,10 euro

+ 300%

2014 4,4 million euro 11 132 269 0,40 euro

+ 128%

2015 10,2 million euro 11 190 845 0,91 euro

+ 192%

2016 29,9 million euro 11 250 585 2,66 euro

- 17%

2017 24,9 million euro 11 303 528 2,20 euro

Table 3: Crowdfunding market in Belgium 2013-2017. Numbers crowdfunding retrieved from Douw&Koren and Crowdfundingcijfers.be. Numbers of residents retrieved from Statbel.

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The Netherlands 2013-2019 Year Crowdfunding volume Number of residents Euro invested per resident

Growth Euro invested per resident 2013 32 million euro 16 779 575 1,91 euro

+ 96%

2014 63 million euro 16 829 289 3,74 euro

+ 102%

2015 128 million euro 16 900 726 7,57 euro

+ 32%

2016 169,7 million euro 16 979 120 10,00 euro

+ 31%

2017 223 million euro 17 081 507 13,06 euro

+ 47%

2018 329 million euro 17 181 084 19,15 euro

+ 28%

2019 424 million euro 17 282 163 24,53 euro

Table 4: Crowdfunding market in the Netherlands 2013-2019. Numbers crowdfunding volume retrieved from Douw&Koren and Crowdfundingcijfers.nl . Numbers of residents retrieved from Opendata.cbs.nl.

The graph below (figure 8) shows the number of euro invested per resident in both the Netherlands and Belgium from 2013 to 2017. We clearly see that Belgian residents invest far less in crowdfunding than Dutch residents. But when we look at the growth rates of Belgium and the Netherlands of euro invested per resident in crowdfunding, Belgium is growing faster each year than the Netherlands, except for the year 2017.

The volume of crowdfunding decreased in Belgium in 2017 compared to 2016 because in 2016, a small number of companies that sold shares through crowdfunding raised millions of co-financing from professional investors. According to Douw&Koren (2018), this co-financing caused an exceptional peak in the amount raised in 2016. The total amount raised in 2017 is lower than in 2016 because there were no such outliers in 2017. In 2014, the crowdfunding in Belgium per capita was 10 times smaller than that in the Netherlands. By 2017, this gap narrowed to 6 times smaller. In 2016 there was even an exceptional 4 times gap for the reasons explained above.

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Figure 8: Euro invested in crowdfunding per resident in Belgium vs the Netherlands.

We can conclude that the crowdfunding market in Belgium is growing but is still way smaller than the crowdfunding market in the Netherlands.

According to the FSMA (2018), that did a research of de crowdfunding campaigns launched on the 5 biggest crowdfunding platforms active on the Belgian market (Lita.co, Ecco Nova, Look&Fin, Spreds9, Bolero Crowdfunding) during the period January 2012 to December 2017, the Belgian crowdfunding market has grown steadily over time. This is in line with the numbers of Douw&Koren. But when the FSMA compares the total amount raised in 2017 for crowdfunding (24,9 million euro according to Douw&Koren (2017)) with the amounts of cash in regulated saving deposits (250 billion euro in 2017, according to the numbers on stat.nbb.be) and the volume of loans granted to companies by financial institutions (about 131 billion in 2017, according to Febelfin10), they come to the conclusion that crowdfunding in Belgium is still a marginal form of investment and source of funding. Belgium has still a long way ahead before crowdfunding can be considered as a significant alternative source of funding (FSMA, 2018).

9 The platform was initially named MyMicroInvest. The name changed in the first half of 2018. 10http://dashboard.febelfin.be/fr

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Belgium is not only behind the Netherlands, but also other neighbouring countries like Germany, France and the UK are doing a lot better than Belgium. These are the same conclusions that appeared in the CCAF alternative finance ranking worldwide of 2018 (Ziegler et al., 2020).

Figure 9: Crowdfunding per resident comparison between Belgium, Germany, France, the Netherlands and the UK in 2014 and in 2017. Numbers retrieved from Douw&Koren.

According to Douw&Koren (2017) 2,20 euro per Belgian resident was invested in crowdfunding in 2017, this amount is almost 6 times higher in the Netherlands. The UK is leader within Europe, with 100 euro per inhabitant invested in crowdfunding. From the graph above, we can see that crowdfunding in Belgium over the period 2014-2017 grew 6 times, Germany 4 times, France 2 times, the Netherlands 3,5 times and the UK 3 times. So, Belgium has been able to narrow the gap.

2.3 Legislation of crowdfunding

Belgium and the Netherlands have also tried to stimulate the use of crowdfunding by introducing new laws for both crowdfunding platforms and funders. Also, on a European level, a new proposal for a uniform framework within the EU for crowdfunding platforms will have a positive impact on the use of crowdfunding in the near future.

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2.3.1 Legislation in Europe

The EU market for crowdfunding is underdeveloped, compared to other major world economies (China, USA). The European Commission state that one of the biggest hurdles faced by crowdfunding platforms that offer their services across borders, is the lack of common rules across the EU.

De Buysere et al. (2012) say that there are 3 pillars of a European crowdfunding framework: education and training (1), research (2) and regulation (3).

Education and training

In order to increase the awareness of SMEs of the potential of crowdfunding as an alternative source of finance, the European Commission published in 2016 a guide that explains what crowdfunding is and how to use it for SMEs in 23 languages.

Research

The European Crowdfunding Network does research about the European crowdfunding industry. Their findings are helpful for entrepreneurs in creating the top tier crowdfunding platforms and run successful campaigns.

Regulation

In September 2015, the European Parliament launched the Capital Markets Union (hereafter: “CMU”) plan. The CMU is an EU initiative which aims to broaden access to finance for innovative companies and start-ups. The access to finance remains difficult for these companies, particularly when they move from a start-up into the expansion phase, due to structural information asymmetries (European commission, 2018). Thanks to the CMU action plan, crowdfunding can help mobilise capital in Europe to SMEs.

The European Commission (2016) state that “the CMU should create an appropriate regulatory environment that enhances cross-border access to information on the companies looking for credit, quasi-equity and equity structures, in order to promote growth of non-bank financing models, including crowdfunding and peer-to-peer lending".

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National regulatory regimes are impacting the development of crowdfunding in Europe. Many member states of the EU have different frameworks, rules and interpretations of business models applied to crowdfunding platforms in the EU. This hinders the potential scaling up of crowdfunding activity across the EU as the business models of each crowdfunding platform would have to be adjusted according to each jurisdiction and should require multiple national authorizations and compliance with different national laws. This results in high costs, legal complexity and uncertainty for crowdfunding platforms.

At the same time all these cross-border barriers also generate additional search costs for international investors (funders) because due to the lack of an internal harmonised market, the investors have limited accessibility and ability to diversify risk.

The inability of platforms and investors to move cross-border may also inhibit access to finance for companies (fundraisers) (European Commission, 2018).

It is thus clear that there is need for uniform conditions for operations regarding crowdfunding for firms within the EU, hereby reducing the complexity, financial and administrative burdens for all these stakeholders (crowdfunding platforms, fundraisers and funders). The European commission presented a proposal for a regulation on crowdfunding service providers in March 2018. The European Crowdfunding Services Provider (ECSP) law will provide a harmonized playing field in all European member states for lending and equity-based crowdfunding. They expect that the law will come into effect in 2021.

The European Commission proposal only applies to the crowdfunding types which give a financial return to the investors, such as equity-based and lending-based crowdfunding. It is thus not applicable for reward-based and donation-based crowdfunding.

According to the European Commission (2018), this new regulation will allow equity- and lending-based crowdfunding platforms to apply for a EU passport based on a single set of rules, once this new regulation is adopted at EU level. It will be easier for them to offer their services across the EU. Bolero Crowdfunding (2018) states that a common legislative European framework can also help to better compete against the huge US and Chinese crowdfunding

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platforms (Kickstarter, Indiegogo ...). The new rules will have advantages for both funders and fundraisers. Funders on crowdfunding platforms will also benefit from a better protection regime and a higher level of guarantees. The new rules will also improve access to crowdfunding for small investors and businesses in need of funding (fundraisers), particularly SMEs.

2.3.2 Legislation in Belgium

In Belgium, crowdfunding is under the supervision of the Financial Services and Markets Authority (hereafter: “FSMA”).

Platform

On 18th December 2016, a legal framework was created in Belgium for crowdfunding. This law entered into force on February 1, 2017. This regime applies only to crowdfunding entailing a financial return for investors (equity- and lending based crowdfunding). Donation- and reward-based crowdfunding are thus excluded from this law.

Also, this law does not apply to companies that only offer alternative financing services to fewer than 150 people (natural and legal people). The main target group for crowdfunding are the investors-natural people. On the site of Bolero Crowdfunding (May, 2020) there are only a few projects that have been funded by fewer than 150 investors. Moreover, the Belgian crowdfunding law also does not apply to companies that only distribute reports on offers of investment instruments and that have no (in)direct interest in the result of these offers. Since February 1, 2017, crowdfunding platforms on which one can make a financial investment and that has not been approved by the FSMA can no longer operate in Belgium. An alternative financing platform (AFP) license is required for any company that is not a regulated company11 and of which the ordinary professional activity is to organize an electronic platform (usually a website) to provide alternative financing services (e.g. actively sell certain investment

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instruments) in Belgium. For crowdfunding platforms on which donations (donation-based crowdfunding) and payments in exchange for a benefit such as receiving a product (reward-based crowdfunding) can be made, no license is required. Only for platforms on which one can make a financial investment (equity- and lending-based crowdfunding) a license is required.

Secondary market

After an unforeseen event, an investor may want to exit a crowdfunding project. The only way to get all or a part of his money back is to sell his debt-claim or equity claim on a secondary market (Bolero Crowdfunding, 2017). These secondary markets are still in their infant stages in Belgium.

Appropriateness test and suitability test

In addition to rules that the FSMA imposes on all crowdfunding service providers, such as committed to the interests of their clients in a loyal, equitable and professional way or providing minimum information to their clients before they provide their services ... 12, all crowdfunding service providers must also, depending on whether they provide investment advice or not, administer an appropriateness test or a suitability test.

They must take an appropriateness test when offering an investment instrument without advice, or when advising on an investment instrument that is not a financial instrument. According to the FSMA, a potential investment is considered appropriate if the client has the necessary knowledge and experience to understand the associated risks. If this test is negative, the service should only be provided after the investor has been warned that the investments offered by the service provider are not appropriate for him. The platform may use a standard warning for this.

If crowdfunding service providers advise on financial instruments, they must take the mandatory suitability test, which is the main MiFID rule of conduct of the Belgian

12 More information:

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crowdfunding law. MiFID refers to the "Markets in Financial Instruments Directive" that introduced the rules of conduct regarding investment services.

Prospectus and maximum amount to invest

If the investment exceeds certain thresholds for when issuing securities (shares, bonds) or when offering financial crowdfunding to the broader public, a prospectus must be drawn up in which the investor is informed of all necessary conditions and risks. A prospectus is expensive because it must meet legal requirements and must be approved by the FSMA. Before 2014, as a general rule, a prospectus was required in Belgium for offers to the public where the amount to be raised was greater than or equal to 100 000 euro.

In April 2014, a first crowdfunding exemption was introduced. There was no prospectus required for offers below 300 000 euro, provided that each individual investor invests no more than 1000 euro per project. On December 18, 2016, effective from February 1, 2017, a new legislative framework for crowdfunding was established in Belgium. As of February 1, 2017, a new crowdfunding exemption was introduced: no prospectus is required for offers below 300 000 euro, provided that each individual investor invests up to a maximum of 5 000 euro per project (FSMA, 2016).

From July 21, 2018, a financial crowdfunding project in Belgium has become easier. The thresholds within Europe related to the prospectus requirement were more levelled. The prospectus obligation now only applies from 5 000 000 euro (instead of the previous 300 000 euro). This aims to make it easier for entrepreneurs to raise capital and to remove the expensive administrative burden. For offers between 500 000 and 5 000 000 euro, an information note must be prepared. This is a brief document that contains essential information about the offer (Vlaams Agentschap Innoveren & Ondernemen, 2018). There was already an implementation of this regulation for prospectuses at European level, and now, as from July 21, 2018 also at a Belgian level.

Also, it is important that on February 28, 2019 the new code of companies and associations was approved, which entered into force on May 1, 2019. This new legislation also has an

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impact on crowdfunding. Before this act, the BVBA could appeal to a maximum of 100 000 euro to the crowd, now this can also be done for the BV up to 5 000 000 euro. The same maximum amounts apply to all new company forms.

As said before, no prospectus should be made for reward- and donation-based crowdfunding. There is also no prospectus obligation if the offer is aimed exclusively at qualified investors (such as credit institutions or investment firms) or if aimed at less than 150 people who are no qualified investors (see also law February 1, 2017 above).

Fiscal advantages

There are also several fiscal advantages for crowdfunding investors. (Vlaams Agentschap Innoveren & Ondernemen, 2020). These are only limited to crowdlending and equity-based crowdfunding.

1. Exemption of withholding tax on income from investment

A lender who takes out a loan to finance a crowdfunding project of a SME, on a crowdfunding platform recognized by the FSMA, can benefit from an exemption from withholding taxon the interest of the loans for the part up to 9 965 euro per year (basic amount).

The borrower (company) is considered if it has been incorporated less than 48 months ago in the ‘Kruispuntbank van Ondernemingen’ (KBO) or in a similar register in another member state of the European Economic Area (EEA) and if he meets the Belgian definition of a small company (according to WVV art 1:24 §§ 1 to 6).

2. Tax credit and security of a win-win loan

A win-win loan13 is a form of peer-to-peer financing in Flanders, it is a subordinated loan with a fixed term of eight years. The Flemish government encourages private individuals to provide subordinated loans to SMEs that meet the European SME definition (see table 1).

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The win-win loan has several advantages:

- A company can borrow up to 200 000 euro from private individuals, limited to 50 000 euro per private individual.

- The win-win loan is a subordinated loan with a capped interest rate. The interest rate for 2020 is minimum of 0.875% and maximum of 1.75%.

- In addition, the borrower benefits from some tax incentives and the risk is covered up to 30%. If the borrower cannot repay the investment, he is entitled to a one-time tax credit of 30% of the invested amount.

3. Tax shelter

In Belgium, there is more than 259 billion euro in savings accounts (Vervenne, 2020), while SMEs find it difficult to raise capital to finance their growth. Because SMEs are the backbone of the Belgian economy, the Belgian government introduced the tax shelter.

The tax shelter is a tax benefit in the form of a reduction in income tax. This measure should encourage people to invest in a new company and therefore it stimulates the Belgian economy. A distinction between tax shelter for start-ups and for scale-ups is made (Vlaams Agentschap Innoveren & Ondernemen, 2020).

Tax shelter for start-ups

With this measure, the federal government wants to support small companies of a maximum of 4 years old that need capital to finance their growth. A small company can raise a maximum of 250 000 euro through this tax shelter. Each taxpayer can invest up to 100 000 euro per year in crowdfunding campaigns eligible for the shelter tax and reclaim a tax reduction of 30% on the amount invested in small companies or 45% on the amount invested in micro-companies through the annual tax return.

Tax shelter for scale-ups

The above measure was extended with the tax shelter for scale-ups, aimed at companies that are at least 4 years old. A small company can raise a maximum of 500 000 euro through this tax measure. This amount must be reduced by the amount that may have been collected via

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the Tax shelter for start-ups. Investors can invest a maximum of 100 000 euro per person and per year through this Tax shelter and the Tax shelter for start-ups. They can obtain a 25% personal income tax reduction if they acquire new shares from a growth company, directly or through a crowdfunding platform. A scale-up is a small company of at least 4 and maximum 10 years old, with at least 10 full-time employees, and that achieved growth of at least 10% per year in employment and / or turnover during the two previous financial years.

2.3.3 Legislation in the Netherlands

The Authority for the Financial Markets (hereafter: “AFM”) and the Dutch Financial Supervision act (DFSA) are responsible for supervision of the financial market in the Netherlands. The AFM does not supervise donation- and reward-based crowdfunding, only equity- and lending-based crowdfunding.

Platform

Since 2014, lending- and equity-based platforms have to register with the AFM in order to get a licence to operate. In March 2020, there were a total of 48 registered equity and lending-based crowdfunding platforms in the Netherlands (AFM, 2020).

Platforms should offer investors the opportunity to actively confirm or recall an investment 24 hours after they have invested. This measure is designed to ensure that investors make conscious decisions.

A new regulation states that all project information must be available to all investors on the platform 48 hours before the registration opens.

The AFM advises investors to invest only a reasonable part of their available funds (guideline: maximum 10 percent) in crowdfunding and to spread that investment over several projects. The AFM expects the platform to make a real effort to ensure that the investor will not invest more than 10% of their available capital in crowdfunding.

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Secondary Market

Dutch crowdfunding platforms are keen to offer tradable shares and loans, but the AFM does not yet allow secondary markets to be set up in 2018. This is permitted in England, e.g. crowdfunding platform Seedrs has set up a secondary market. According to CrowdfundingHub (2018), crowdfunding investors miss out on returns due to the lack of a secondary market. There is no efficient exit strategy yet for funders.

Investor test

Since April 1, 2016, every investor must take an investor test if they invest more than 500 euro via the crowdfunding platform. This test contains questions about the knowledge, experience and the financial ability of the investor and aims to enable the investor to make a responsible investment decision and to ensure that investors make investments that match their financial position and knowledge and experience. The test is repeated when exceeding 5 000 euro, 10 000 euro, 20 000 euro and 40 000 euro in investments. If this test is negative, the investor can only invest after the platform has actively pointed out the risks to him.

Prospectus and maximum amount to invest

In the Netherlands they try to stimulate further growth of the crowdfunding industry, in order to improve the access to finance for SMEs. Therefore, as per April 1, 2016 the Dutch regulatory framework, that is applicable to loan-based and equity-based crowdfunding was amended. The investment limits of crowdfunding in the Netherlands have been increased because the original investment limits were perceived as hindering by investors (AFM, 2017). An investor can since 2017 invest up to 80 000 euro in lending-based, or 40 000 euro in equity-based crowdfunding, via a platform. Investment limits applicable to equity- and lending-based crowdfunding were doubled, compared to 2014.

Article 52 of the ‘Wet Financieel Toezicht’ (Wft) states that the offering of securities to the public is exempt from the prospectus regulation, only if it concerns securities that form a part of an offer whereby the total equivalent of the offer within the European Economic Area (EEA), calculated by category over a 12-month period, is less than 5 000 000 euro.

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Fiscal advantages

The Dutch personal tax system has 3 boxes in which every Dutch person pays income tax. In box 1 you pay tax on income from work and on your home, in box 2 you pay tax on an interest in business and in box 3 you pay tax on the return of your equity. The Dutch are allowed to build up part of their asset tax-free. For the income tax, an exemption applies in box 3. But since you usually only start investing if you can easily miss this money, many Dutch people already use this exemption for their savings. That is why there are no real tax benefits for crowdfunding in the Netherlands.

For donation-based crowdfunding, a donation is generally not tax deductible for the investor. In some cases, tax benefits can only be used when it concerns a Public Benefit Organization. The maximum amount to be deducted per year is 1 250 euro.

For reward-based crowdfunding, the investor actually buys a product, therefore 21 percent VAT must be paid on the entire order, regardless of whether the product has already been delivered.

For equity-based crowdfunding, if the investor has a substantial equity part (5 percent or more), the shares fall in box 2 of the Dutch tax system. In this box, the dividends and income are taxed at 25% income tax. If the investment is for less than 5% of the company, the shares fall in box 3. There is no tax on dividend and profit to be paid on this. However, there is an equity tax on the value of the shares every year.

Also, for lending-based crowdfunding to a private individual, this must be stated in box 3 with the income tax return, withholding taxes are paid on this.

We can therefore conclude that the Netherlands does not yet provide real tax incentives to make crowdfunding an attractive alternative financing source for investors.

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3. Survey and research questions

The purpose of this research is to find out whether Flanders is catching up with the Netherlands in terms of the use and knowledge of crowdfunding compared to 5 years ago. The central research question is then:

‘Has the gap between Flanders and the Netherlands been closed in terms of knowledge and usage of crowdfunding compared to 2015?’

We take 2015 as the reference year because in 2015 a similar study was done by Liesa Naert and Roseline Van Daele. A comparative analysis is made between the results of this survey and the results of the master dissertation14 of Naert and Van Daele in 2015.

3.1 Survey Flanders 2015 (Naert & Van Daele)

The main results of the survey of Naert and Van Daele (2015) are discussed beneath.

A survey was conducted for the funders and the fundraisers. This was distributed via social media. Both stakeholders were given more or less the same questions.

3.1.1 Funders

In 2015, not less than a third of all respondents had never heard of crowdfunding. They knew crowdfunding mainly because of traditional media (television, newspapers, radio) and social media (Facebook, LinkedIn, Twitter).

Only 20 of the 327 funder-respondents (or 6%) had already invested in a type of crowdfunding (donations excluded). 63% of those indicated that they had invested in 1 project, whereas only 32% said they had invested in 2 to 5 projects. The motivations for participating in crowdfunding were also investigated. It is clear that social motives were more important than financial motives. These results must be taken with a grain of salt, since only 20 respondents

14Naert, L. and Van Daele, R. (2015). Crowdfunding: marginaal of mainstream financiering (Master’s

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had already invested in crowdfunding. This is a very low number and can lead to incorrect conclusions.

More interesting are the reasons why many respondents had not yet participated in crowdfunding. Most respondents had put ‘risk of default’ and ‘not enough information about the project available’ in a shared first place (both 30%).

3.1.2 Fundraisers

They also investigated the fundraiser-perspective, mainly the SMEs. Only 6% of the SMEs had already used crowdfunding. This number is too low and further conclusions were thus not representative.

The majority of the SMEs that have not yet used crowdfunding as an alternative finance form, said that the main reason for not doing so was that they could easily find other finance forms like traditional bank loans… The second main reason for not participating was ‘not enough information available’. Nobody indicated the option ‘negative experience with crowdfunding’. This may be due to the fact that they did not know anyone who had used crowdfunding, or that the person they knew only invested in 1 project and can’t compare his experience. All the SMEs were asked which alternative financing form they would prefer if a traditional loan from a bank was not or no longer successful. Crowdfunding was in the fourth place after ‘own money’, ‘loans from family and friends’ and ‘equity contributions from new partners’. Not many companies are thus considering using crowdfunding if traditional loans are no longer possible.

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3.2 Survey Flanders 2020 (Coorevits)

This study focuses on Flanders, instead of Belgium. Flanders and the Netherlands constitute one language area. The economic growth of Flanders is also more in line with that of the Netherlands. In 2019, the growth for Flanders was 1,5%, while the economic growth for Wallonia was 1,2% and for Brussels was 0,9% in 2019 (Flemish Government, 2019). The Dutch gross domestic product grew by 1,7% in 2019. Flanders is therefore more cyclically aligned with the Netherlands compared to Belgium as a whole. Moreover, it would not be possible to compare the results with the survey of 2015, which also only focused on Flanders.

Whenever we refer to ‘Flanders’ in this study, the following regions are meant: West-Flanders, East-Flanders, Antwerp, Flemish Brabant, Limburg and the Brussels-Capital Region.

This central research question is divided into two sub-questions, as the research is examined from two points. On the one hand the knowledge and usage of the two main stakeholders of crowdfunding (funders and fundraisers) is measured, while on the other hand, the legislation of crowdfunding in Flanders and the Netherlands is examined.

The Crowdfunding platforms, the third stakeholder of crowdfunding, are not included in the research since they operate sometimes cross-border and make a comparison between Flanders and The Netherlands quite complex.

The first sub-question is:

‘What is the difference in current behaviour of the funders and fundraisers with regard to crowdfunding as an alternative form of financing in Flanders and the Netherlands?’

Although fundraisers are all companies that look for funding, in this study we only focused on small-and medium enterprises (hereafter: “SME’s”) because they have the most difficulties in attracting finance. Whenever we speak of an SME, the European definition, mentioned in table 1, will be used. This definition differs from the SME definition in Belgium.

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As the numbers above point out, it is expected that we will observe a difference in terms of awareness of crowdfunding as an alternative way of financing in Flanders and the Netherlands. Moreover, it is also expected that participation ratio is different. Participation means both requesting financing (from a fundraiser perspective) and financing projects (from a funder perspective). It is also interesting to investigate whether there is a difference in the amount of money invested in crowdfunding between the two areas.

Since not only the knowledge of the population about this alternative finance form is important, also the legislation of both countries with regard to crowdfunding was investigated. Belgium and the Netherlands are both European countries, hence the European legislation of crowdfunding is also being examined. For more information about the legislations, we refer to the literature section above. Beneath, a comparison of the legislation of Belgium and the Netherlands is made. The second sub-question is:

‘What are the current legal (de)motivations to engage in crowdfunding among the population of Flanders and the Netherlands?’

Afbeelding

Figure 1: Crowdsourcing
Figure 2: Stages of entrepreneurial firm development. Retrieved from ‘Venture capital and private equity contracting: An  international perspective.’ from Cumming, D
Table 1: European definition SME.
Figure 3: Main types of crowdfunding
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