Equity crowdfunding, while still relatively new to the investosphere, has been widely accepted in the United States as a way for companies to raise capital.
But how do other countries regulate the way their citizens and companies use equity crowdfunding, if they allow it at all?
In this post, we’re taking a trip around the world to look at four other countries’ rules, laws, and regulations, and how they compare to our own. Buckle up.
Equity Crowdfunding Goes Global
Equity crowdfunding allows startups and growing companies to raise capital from anyone, not just accredited investors or venture capital. Equity crowdfunding campaigns are comparable to “mini-IPOs” and offer shares in the company that increase in value as the company does.
Different countries’ governing bodies have taken different regulatory approaches to equity crowdfunding, with varying results. Generally speaking, a more laissez faire approach seems to encourage more equity crowdfunding and startup growth, while stricter regulations can be significantly stifling.
After years of legal rewards-based crowdfunding in the UK, new regulations legalize equity crowdfunding for startups. Under these new regulations, companies are capped at raising £4 million per 12 months.
Seedrs was the first equity crowdfunding platform to be authorized by the FCA (Financial Conduct Authority—like the British SEC), followed shortly by Crowdcube and SyndicateRoom. These platforms allow only UK or EU-based companies to fundraise.
In the UK, non-accredited investors can invest in startups as long as they agree not to spend more than 10 percent of their net assets in a year and prove they know the risks inherent to equity crowdfunding. Seedrs and Crowdcube both require potential investors to fill out a questionnaire, while SyndicateRoom requires investors to self-certify as a knowledgeable investor or prove a high net worth.
All crowdfunding in Canada is regulated by the Canadian Securities Commission, which has a sub-regulator for crowdfunding called the National Crowdfunding Association of Canada (NCAC). While rewards-based crowdfunding is allowed with limited regulation, there are much more stringent requirements for equity crowdfunding.
As of September of 2021, startups were allowed to use equity crowdfunding to raise $1.5 million per year. However, non-accredited retail investors are capped at investing $2,500 per year… unless advised by a certified investment adviser, which raises the cap to $10,000 per year.
Canadian securities laws often leave regulations for equity crowdfunding up to each province to create and enforce, making province-specific platforms easier to manage. In recent years, FrontFundr and Vested have both become leading equity crowdfunding platforms across the country.
Equity crowdfunding platforms have been operational in Italy since 2013, but are limited by stricter regulations than many other countries. These rules often stifle equity crowdfunding efforts by Italian startups.
Companies must qualify as “innovative” or show “social purpose” to be allowed to offer their own equity securities through an online portal—but it gets even more strict from there!
The Italian securities authority, CONSOB, also stipulates that in order to be eligible for equity crowdfunding, the company:
- Must be less than 5 years old
- Must be headquartered in Italy, but another another EU country is acceptable if it has a production site or branch in Italy
- Must have annual profits less than €5,000,000, but must be profitable and growing
- Is not listed on any public trading platform
- Does not distribute profits in any way (dividends or shareholder rewards)
- Was not formed as the result of a merger or spin-off of a larger company
- Must have 5% minimum of the total fundraising amount come from a single institutional investor (a bank or venture capital firm)
Individual investors in Italy are limited to €500 per year, until they have completed an online questionnaire to determine their investing savvy. Investment firms are allowed up to €5,000, and anything above that threshold would require talking to a banking institution for risk profiling.
Though there are no Italy-specific platforms, both Kickstarter and Indiegogo have a large presence in Italy, as well as UK platforms Crowdcube and Seedrs. And, just like in the United States, Italy caps the annual raise amount to €5,000,000.
New Zealand has regulated equity crowdfunding since 2013, allowing Kiwi companies to raise up to $2,000,000 each year.
Unlike the United States, which permits investments from investors worldwide (with the exception of the UK and Canada due to securities laws in those countries), New Zealand platforms only allow investments from New Zealand-based investors. All equity crowdfunding platforms must be in licensed compliance with New Zealand securities laws.
There are only three equity crowdfunding platforms currently in New Zealand: Snowball Effect and PledgeMe were the first two, followed by AlphaCrowd, the platform for digital and tech companies.
Snowball Effect hosted the first equity crowdfunding campaign in August 2014 for Renaissance Brewing, successfully raising $700,000 in only 13 days. Soon after, Invivo Wines became the first company to raise the full $2,000,000 allowed under New Zealand law.
A Rising Tide Raises All Boats
At Arora Project, we’re excited to see equity crowdfunding become a prevalent worldwide movement. As more countries begin to adopt startup-friendly regulations, we’ll see more innovations from places where capital is difficult to secure—perhaps even startups that literally change the world!
If you’ve got a world-changing startup—or even just a great idea that needs funding—and could benefit from partnering with a team of experts, apply now to work with Arora Project.