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Karen Wilson on equity crowdfunding

Crowdfunding has grown at an annual rate of 76 percent from 2009. Karen Wilson, Senior Fellow at Bruegel, explains this phenomenon. The concept of “crowdfunding” has increasingly drawn attention, most recently for its possible role in providing equity funding to start-ups. However, most of the growth has been in the area of reward crowdfunding, where […]

By: Date: June 11, 2014 Topic: Finance & Financial Regulation

Crowdfunding has grown at an annual rate of 76 percent from 2009. Karen Wilson, Senior Fellow at Bruegel, explains this phenomenon.

The concept of “crowdfunding” has increasingly drawn attention, most recently for its possible role in providing equity funding to start-ups. However, most of the growth has been in the area of reward crowdfunding, where people give money in return for something.

While there is a hype surrounding equity crowdfunding, there are also many misperceptions. “Actually, crowdfunding is the smallest part of the market – it comprises only 4 percent. And it is only growing at a 50 percent rate, compared to the 400 percent growth rate of reward crowdfunding,” Wilson explains.

The risks also vary. “With equity crowdfunding people actually expect to get a return from their investment. But investing through the internet is much more complicated and fraught with all sorts of difficulties.”

Following the crisis, access to financing has become a huge issue. As a result, policy makers are starting to look into crowdfunding. “There are, nevertheless, risks in terms of investor protection, because these are unsophisticated investors. In fact, equity crowdfunding is not allowed in many countries, for example in the United States,” Wilson points out.

“Most equity crowdfunding is happening in Europe, where people have been able to use exemptions. There is a patchwork of legislation across the continent, it is very ad hoc,” she continues. “One thing that would really help crowdfunding is to have consistent policies across countries, which protect consumers, but also facilitate the market.”


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