POSITION PAPER - CROWDFUNDING

DATE December 2013

REFERENCE 2013-081

Social Economy Europe, the EU-level reference network for the social economy wishes to encourage all political parties to support the creation of an enabling environment for social economy, to the benefit of all European citizens. Unless a level-playing field for social enterprises is established, with legal, administrative and financial instruments conducive to the development of the sector, the potential of the social economy will not be unleashed. Social economy actors are guided by a mission that provides new solutions and generates positive impact on the society, the economy and the environment. For ages social economy actors have been developing and managing services and products that satisfy the specific needs and interests of a community. Social economy actors can be defined on the basis of three markers: The primacy of the person and the community purpose The democratic governance and inclusiveness The collective ownership of the profits and surpluses which are reinvested
Context Today, Crowdfunding is seen as an emerging form of financing that connects directly those who can give, lend or invest money with those who need financing for the development of an idea, a product or a service. While calls for funds to the public are not new, the phenomenon of using the internet to directly connect with funders emerged recently. Crowdfunding can take many forms, ranging from simple donations to investments in equity. The practice is becoming more and more widespread since the financial crisis, as banks lending activity is reduced and access to finance is more difficult. The crowdfunding hype is a result of the current financial and economic crisis. Traditional financial institutions and funders have become reluctant to fund smaller-scale and interest community-based projects. Small and medium enterprises and interest communities are faced to barriers to access capital. As an alternative, interest communities and SMEs started to search for funding among peers - succesfully. Studies suggest a phenomenon in plain growth. In 2012 crowdfunding in Europe saw an estimated 65% growth compared to 2011 and reached 735 million. Crowdfunding and social economy SOCIAL ECONOMY EUROPE considers crowdfunding as a new wording for a typical financing model of the social economy. e.g. mutuals and co-operatives. Both rely on an interest community that is willing to fund collectively a joint venture and to profit from the ventures fruit. As all social economy enterprises, they share the values of not-for -profit orientation, democratic governance and collective ownership, based on community or crowd funding. Since ages social economy actors have been initiating, developing and managing services and products that satisfy the specific needs of an interest community. Mostly social economy enterprises and organisations combine and associate the economic and social dimension for these communities. The privately managed ventures can be found in all sectors and in all branches of modern life. Social economy enterprises are everywhere for everyone, at any time. Specifically, social economy enterprises are active in domains such as social security, social and health services, insurance services, banking services, local services (maintenance, cleaning, repair and renovation jobs for housing and green spaces, social transport), education, training and research, culture, sport and leisure activities, social tourism, energy, consumers, industrial production, agricultural production, handicraft, building, the residential environment and cooperative housing. All these initiatives are based on community- or crowdfunding. Todays crowdfunding is also a collective and participiative way of collecting funds , but through modern means i.e. the internet. The basis is formed by an interest community that collectively wants to finance a certain service or product to satisfy its particular needs. The community members themselves decide wherther or not

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to fund, and in return, who and how they will profit from the collectively funded verture. In exchange for their funding the community members receive a reward access to the product or service and its value added.

Challenges and opportunities Community- or crowdfunding and social economy go hand in hand and over history, they have proven to be successful. The current and ever growing attention for crowdfunding is therefor most welcomed. Nevertheless, SOCIAL ECONOMY EUROPE identifies some risks that come with the crowdfunding hype : Crowdfunding is not the egg of Columbus o Crowd funding as such is not the solution for all problems. Access to capital will still be an issue for many SMEs and community-based initiatives; o Crowd funding should not lead to more privatisation in the public domain. The fact that interest communities have a possibility to self-fund their projects should not provide the green light to governments to withdraw from the public domain and the provision of (social) services of general interest. Funding of Social Services of General Interest should remain the public authorities responsibility. Crowdfunding should not become a victim of its own success o The growing popularity of crowd funding and the anonimity of the internet may not disturb trust and good use of community-based funding; o Crowd funding is sensitive to fraud and mis-use but this should not lead to excessive legislation and over-regulation. Specific legislation The new success of collective and participative fund collection or crowdfunding certainly atrackted the attention of policy makers on a national and a European level. Whereas small-scale collective and participative fund collection can be considered riskless because of the small amounts involved, more and more crowdfunding projects are more risky as amounts and the number of (anonimous) community members rise. Considering specific regulation of crowd funding and dedicated legislation is justified as there is a trust issue involved. In a small-scale crowd funding project, where the interest community is less anonimous and where members know each other personally, there is sufficient trust that the funders will be rewarded on the basis of a promise of the fund seekers. Larger-scale crowd funded ventures may not rely on a promise only, but will need a more formalised contract to describe rights and duties of funders and fund-seekers. Any new regulation or legislation should focus on this issue and should stimulate investments in social projects, social economy and/or projects for the larger general interest. Opinion SOCIAL ECONOMY EUROPE considers Crowdfunding as a new name for a typical funding instrument of social economy; Regulation and legislation concerning crowdfunding is desirable especially to maintain trust. SOCIAL ECONOMY therefor states that Crowdfunding should stay an accessible funding instrument for all social economy initiatives; Specific crowdfunding regulation and legislation should include criteria for democratic governance, collective ownership and not-for-profit orientation for projects in the social domain.

Brussels, 20 December 2013 A. Coheur, President SOCIAL ECONOMY EUROPE and member of GECES
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