TILBURG UNIVERSITY LAW SCHOOL Master Thesis for the International Business Law LLM Equity Crowdfunding- where is the industry today? Student: Dagmar Pasovs Emp: u1275499, ANR: 566890 Supervisor: Erik P.M. Vermeulen Academic Year: 2015-2016 Table of Contents Foreword ................................................................................................................................................. 4 Introduction ............................................................................................................................................. 5 Chapter I: Overview on equity crowdfunding and the Master Thesis structure ..................................... 7 1.1 The general overview on equity crowdfunding ............................................................................. 7 1.2 Problem description ....................................................................................................................... 9 1.3 Research question ........................................................................................................................ 11 1.4 Master thesis structure ................................................................................................................. 11 Chapter II: Why is equity crowdfunding a good way forward? ............................................................. 13 2.1 What is the core of equity crowdfunding? .................................................................................. 13 2.2 What are the numbers telling about the activity on equity crowdfunding market? ..................... 15 2.2 Equity crouwdfunding vs Venture Capital and Business Angels ................................................ 17 2.4 How do platforms manage ownership of the shares? .................................................................. 20 Chapter III: The changing landscape of equity crowdfunding regulation ............................................. 22 3.1 Why do we need regulation after all? .......................................................................................... 22 3.1 JOBS Act in the United States.................................................................................................... 26 3.1.1 What is JOBS Act Title III? ................................................................................................. 26 3.1.2 Investor limitations ............................................................................................................... 27 3.1.3 Disclosure and issuer requirements ...................................................................................... 29 3.1.4 Rules for Intermediaries (crowdfunding platforms) ............................................................. 35 3.1.5 Rule for companies regarding maximum sum to be raised via platforms ............................ 39 3.1.6 Conclusion ............................................................................................................................ 40 3.3 What is happening in Europe? ..................................................................................................... 42 3.1.1 Legislation in the United Kingdom .......................................................................................... 44 3.1.2 Legislation in Austria ............................................................................................................... 46 3.1.3 Legislation in Switzerland ........................................................................................................ 48 3.1.4 Legislation in Italy .................................................................................................................... 50 3.1.5 The current regulatory framework in other parts of Europe ..................................................... 53 3.1.6. Conclusion ........................................................................................................................... 57 Chapter IV: What are the success stories of cases telling us about the industry? ................................ 58 4.1 JustPark ....................................................................................................................................... 58 4.2 Chilango ...................................................................................................................................... 60 4.3 Sugru ........................................................................................................................................... 61 4.4 Assetz Capital .............................................................................................................................. 62 2 4.5 1Rebel .......................................................................................................................................... 63 4.6 Camden Town Brewery ............................................................................................................... 63 4.7 eMoov .......................................................................................................................................... 64 4.8 Seedrs .......................................................................................................................................... 65 4.9 Other success stories ................................................................................................................... 65 Conclusion ......................................................................................................................................... 66 Chapter V: What are the cases telling us and what role has the law to play in this? ........................... 67 5.1 Maximum amount allowed to be raised by the issuer ................................................................. 67 5.2 Losing the boarders ..................................................................................................................... 68 5.3 Maximum contribution by the individual investors .................................................................... 69 5.4 Setting the bar for maximum number of investors per project .................................................... 70 5.5 Prohibition of advertising ............................................................................................................ 71 5.6 Prospectus and disclosure rules ................................................................................................... 71 5.7 Rules for the platforms ................................................................................................................ 72 Conclusion ............................................................................................................................................. 74 Bibliography ........................................................................................................................................... 76 3 Foreword Before you lies my master thesis, the last chapter of my studies at Tilburg University International Business Law Program. I have written my thesis under the supervision of the International Business Law department. During my study period at Tilburg University I became especially interested in entrepreneurship and the unique process of equity crowdfunding as a method of alternative financing model for businesses. From a personal stand point of view, I became fascinated by different problems associated with equity crowdfunding and it became in my interest to analyse who and based on what has been successful in this business. We have seen today how different countries have approached risks associated to equity crowdfunding and the same time there are several countries who have taken a step back to observe where this new sourcing model will lead to without strict regulation by the government. This master thesis will analyse the success stories and failures regarding equity crowdfunding and gives an insight about what kind of frameworks have been introduced to regulate equity crowdfunding business financing model and at the same time gives critical overview of the possible future regulation and what are the trends in the industry. I would like to thank my supervisor Mr Erik P. M. Vermeulen for his time and contribution for this thesis process. His constructive feedback was vital for the final result. I would also like to thank Tilburg University‘s staff for helpful stand. Tilburg, June 2016, Dagmar Pasovs 4 Introduction Equity-based crowdfunding industry has been rapidly growing within the past few years and has created a pile of success stories simultaneously raising a number of concerns. Equity crowdfunding can be defined as 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.1 It has become an active discussion today in venture capital industry as more and more countries are turning their heads towards regulatory initiatives and there are controversial opinions regarding restrictive measures taken. Concerning regulation there are mainly two groups of countries: those which put in place a specific regulation for crowdfunding (Brazil, Hong Kong or Singapore) and those which put in place ad hoc systems (France, the U.K., the U.S., Québec or Japan).2 We can see in the industry success stories such as JustPark whereas there are failures in the example of Rebus Group. This outlines that there is no success rate guaranteed in this industry