Crowdfunding has been gaining increased popularity in recent times as the industry grew to over $5.1 billion worldwide in 2013 according to Wikipedia. Basically, the concept is to fund a project or venture by raising monetary contributions from a large number of individuals, typically through the internet.
Crowdfunding has helped initiate numerous startups in a wide range of industries like Ouya, a video games company, Tile, in technology, Nomiku in the food industry and many others. Some of the most popular crowfunding firms include Kickstarter and Indiegogo. .
The EU regulators, including the European Securities and Markets Authority (ESMA) have called for more regulations to help supervise and oversee this type of investment to help overcome information shortcomings and high failure rates. Regulators have a responsibility of safeguarding the financial system and ensuring that all investment deals are in the best interest of all parties involve, so as to be mutually beneficial to both the investor and the invested which therefore justifies their concern over the rise in crowdfunding activities.
Steven Maijoor, Chairman of the European Securities and Markets Authority is quoted to have commented that:
“ESMA’s aim is to enable crowdfunding to reach its potential as a source of finance, while ensuring that risks to users of crowdfunding platforms are identified and addressed in a proportionate and convergent way across the EU.”
“We believe that there are benefits both for investors as well as for platforms by operating inside rather than outside the regulated space” he added.