Assessing the potential for crowdfunding and other forms of alternative finance to support research and innovation Final Report EUR [number] EN January – 2017 EUROPEAN COMMISSION Directorate-General for Research and Innovation Directorate B — Open Innovation and Open Science Unit B.3 — SMEs, Financial Instruments and State Aid Contact: Steve Rogers E-mail: [email protected] [email protected] European Commission B-1049 Brussels EUROPEAN COMMISSION Assessing the potential for crowdfunding and other forms of alternative finance to support research and innovation Final Report EY Open Evidence Politecnico di Milano European Crowdfunding Network Directorate-General for Research and Innovation 2017 Access to Risk Finance EUROPEAN COMMISSION EUROPE DIRECT is a service to help you find answers to your questions about the European Union Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you) LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the internet (http://europa.eu). Luxembourg: Publications Office of the European Union, 2017. PDF ISBN 978-92-79-59130-3 doi: 10.2777/046608 KI-01-16-636-EN-N © European Union, 2017. Reproduction is authorised provided the source is acknowledged Table of Contents LIST OF TABLES ............................................................................................................ 5 LIST OF FIGURES .......................................................................................................... 5 LIST OF ACRONYMS ....................................................................................................... 7 ACKNOWLEDGEMENTS ................................................................................................... 9 ABSTRACT .................................................................................................................. 10 EXECUTIVE SUMMARY .................................................................................................. 11 EXECUTIVE SUMMARY (FR) ........................................................................................... 18 1. INTRODUCTION ................................................................................................... 25 1.1 Objectives and scope of the study ................................................................. 25 1.2 Methodological overview .............................................................................. 26 1.3 Content of the report .................................................................................. 28 2. THE ROLE OF ALTERNATIVE FINANCE FOR R&I ........................................................ 30 2.1 Estimating AF funding for research and innovation .......................................... 30 2.1.1 Size of the Alternative Finance Market Worldwide .............................. 31 2.1.2 Estimating the share of the AF going to R&I ...................................... 32 2.1.3 Geographical distribution and cross-border dimension of AF for R&I ..... 35 2.2 Typologies of R&I funded by AF .................................................................... 36 2.2.1 Breakdown between research and innovation .................................... 36 2.2.2 Application sectors ......................................................................... 38 2.2.3 Riskiness of AF .............................................................................. 39 2.2.4 Size of AF R&I projects ................................................................... 39 2.2.5 Type of AF funding for type of R&I ................................................... 40 3. PLATFORMS ........................................................................................................ 42 3.1 Overview ................................................................................................... 42 3.1.1 Funding models of platforms ........................................................... 43 3.1.2 Thematic specialiSation of platforms ................................................ 45 3.1.3 Business models of platforms .......................................................... 47 3.1.4 Selection criteria for R&I projects..................................................... 49 3.2 Bottlenecks ................................................................................................ 53 3.2.1 Platform-specific challenges ............................................................ 53 3.2.2 Country-specific barriers to THE development of AF platforms ............. 54 3.2.3 Barriers to cross-border operations of AF platforms ............................ 55 3.2.4 MiFID´s role in assisting AF platforms to operate cross-border ............ 57 4. FUNDRAISERS ..................................................................................................... 59 4.1 Overview ................................................................................................... 59 4.1.1 Motivations behind launching AF campaign ....................................... 59 4.1.2 Types of AF for R&I beneficiaries ..................................................... 60 4.1.3 Enterprise crowdfunding ................................................................. 61 4.2 Bottlenecks ................................................................................................ 63 4.2.1 Key success factors of AN AF campaign ............................................ 63 4.2.2 Barriers for fundraisers ................................................................... 66 5. INVESTORS ......................................................................................................... 70 5.1 Overview ................................................................................................... 70 5.1.1 Investors´ motivation to use AF ...................................................... 71 5.1.2 Insitutional investors and AF ........................................................... 71 5.1.3 AF Investment criteria .................................................................... 72 5.2 Bottlenecks ................................................................................................ 74 3 5.2.1 Barriers to cross-border investments For INVESTORS ......................... 76 6. ECOSYSTEM ........................................................................................................ 78 6.1 AF and financial pipeline for R&I ................................................................... 78 6.2 AF and financing ecosystem ......................................................................... 80 6.3 AF and Fintech trends ................................................................................. 83 7. POLICY RECOMMENDATIONS ................................................................................. 84 7.1 Investors ................................................................................................... 84 7.1.1 The problem of uptake of AF for R&I by investors .............................. 84 7.1.2 Discussion of policy options ............................................................. 85 7.2 Platforms ................................................................................................... 88 7.2.1 The issue of sustainability of business models ................................... 88 7.2.2 Discussion of policy options ............................................................. 88 7.3 Fundraisers ................................................................................................ 90 7.3.1 The issue of awareness, lack of skills and lack of trust ........................ 90 7.3.2 Discussion of policy options ............................................................. 90 7.4 Ecosystem ................................................................................................. 92 7.4.1 The issue of THE financing pipeline and building AN AF for R&I ecosystem .................................................................................... 92 7.4.2 Discussion oN policy options............................................................ 92 7.5 Final policy recommendations....................................................................... 93 7.5.1 Recommendations in support of overall AF ........................................ 94 7.5.2 Recommendations in support of AF for research and innovation ........... 97 7.5.3 Recommendations in support of AF for innovation .............................. 98 7.5.4 Recommendations in support of AF for research .............................. 100 8. CONCLUDING REMARKS ..................................................................................... 101 BIBLIOGRAPHY ......................................................................................................... 102 4 LIST OF TABLES Table 1 Final policy recommendations ................................................................................... 16 Table 2 Overview of the objectives of the study ..................................................................... 25 Table 3 Overview of the methods to be used for each objective ................................................ 28 Table 4 Quantitative estimates of AF funding for R&I .............................................................