Crowdfunding Gains Traction in EU as Loan-Based Models Dominate and Cross-Border Investment Grows

Crowdfunding continues to advance and consolidate in the European Union as an important alternative to traditional bank financing for SMEs, which often have a difficult time finding their way. Last January, the European Securities and Markets Authority (ESMA) published its first annual report on the sector since the entry into force of the European regulation governing crowdfunding (Regulation (EU) 2020/1503).

This report is based on data from 98 crowdfunding providers in 17 Member States and aims, above all, to improve the transparency of crowdfunding platforms and strengthen investor confidence in them. According to the report, the most widely used crowdfunding model in 2023 was loan-based, representing 65% of total funding raised, with 53 providers operating this model. That was followed by bond -based crowdfunding , at 17%, and equity-based crowdfunding, at 6%.

The majority of investors, 87%, were “inexperienced” (known as retail), while “experienced” (known as professional) investors accounted for 12%. Those classified as professional under MiFID II barely accounted for 1%.

According to the report, the most widely used crowdfunding model in 2023 was loan-based

The sectors that have most frequently used this financing option have been professional, scientific, and technical services, which raised 33% of the total raised, followed by construction, with 21%. However, in terms of the number of investors, the real estate sector led the way, with 380,000 in various projects.

This may be due to the fact that retail investors—as we mentioned, the majority of investors—are seeking accessible investment options perceived as lower risk, and investment in real estate has traditionally been viewed as a stable and tangible alternative. Furthermore, the real estate sector is perceived as less volatile compared to startups or technology projects, which reinforces its appeal in times of economic uncertainty such as the current one.

The average fundraising per project was €15,000 for loan-based projects, €53,000 for bond-based projects, and €46,000 for equity- based projects. The average contribution from individual retailers was €590; that from professionals was €990; and that from professionals as defined by MiFID II was €4,200. The data also reflects the increase in cross-border activity, thanks to providers benefiting from the European passport since the EU regulation came into force.

Although the majority of investments continue to be made within each country, 17% of the funds raised in 2023 came from investors from other countries in the European Economic Area. Austria and Estonia lead the way in this trend, with 80% of their funding coming from abroad.

By country, France has the largest crowdfunding market in Europe, both in terms of capital raised ( 292 million ) and number of platforms (30). It is followed by the Netherlands (291 million and 17). Lithuania, for its part, stands out as the country with the largest number of registered investors. And Spain? Well, it’s striking that Spain doesn’t appear in the report , and this shows that it still has a long way to go to establish a significant crowdfunding market, despite the sector’s strong development.

Perhaps because those seeking financing and those offering it are less accustomed to dealing with financial matters through digital platforms other than banking groups . We hope this will change and that the acceptance of crowdfunding as a consolidated means of raising funds will become a real alternative to the excessive dependence on traditional bank financing.

In short, as anticipated, this first ESMA report confirms that crowdfunding continues to grow in the European Union and is becoming established as a viable, more flexible, and open option for financing startups and SMEs . Even so, we believe this Spanish trend will reverse in the coming years, and crowdfunding platforms will become players with a similar weight to those in other countries around us.

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(Featured image by Stock Birken via Unsplash)

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First published in El Confidencial. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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