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GHENT UNIVERSITY ACADEMIC YEAR 2015-2016

FACULTY OF ECONOMICS AND BUSINESS

ADMINISTRATION

Crowdfunding in Belgium: An International Comparison

Dissertation submitted in fulfillment of the requirements for the degree of

Master in Business Economics – corporate finance

Van den Berghe Geert

Under guidance of Prof. Dr. Bart Clarysse

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ABSTRACT

In this study, I try to map the investment-based crowdfunding market in Belgium. I

investigated the dynamics of 63 projects. Data was retrieved from three Belgian crowdfunding

platforms and annual accounts. The sample includes 31 loan and 32 equity crowd funded

business projects. In this paper, I show the differences between Belgian for-profit loan and

equity seeking companies on both project and firm level. Equity seeking firms were younger,

smaller, had more board members, intangible assets, higher levels of capital and lower debt

ratio’s in contrast with loan firms but same levels of equity. They raised higher amounts over

a longer funding period and received more professional investment. Different motivations of

choice regarding both types of crowdfunding were found for entrepreneur, investor and

intermediary.

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Table of contents

1. Introduction ......................................................................................................................... 6

Overview ................................................................................................................................ 6

Motivation to use crowdfunding ............................................................................................. 6

Extrinsic (financial) motivation .......................................................................................... 6

Intrinsic (non-financial) motivation .................................................................................... 7

2. Research context ................................................................................................................. 7

2.1. The Crowdfunding Process ............................................................................................. 7

2.1.1. Capital seeking agent ................................................................................................ 8

2.1.2. Capital giving agent .................................................................................................. 8

2.1.3. Crowdfunding intermediary .................................................................................... 10

2.1.4. Regulator ................................................................................................................. 11

2.1.5. Promotor ................................................................................................................. 13

2.1.6. Researcher .............................................................................................................. 13

2.2. The Equity Crowdfunding Process ................................................................................ 14

2.2.1. Support in raising capital ....................................................................................... 14

2.2.2. Subscription of shares to the platform .................................................................... 14

2.2.3. Payment of fees to the platform .............................................................................. 14

2.2.4. Payment of monetary incentives to the investor...................................................... 14

2.3. The Loan crowdfunding process ................................................................................... 15

2.3.1. Support in raising funds .......................................................................................... 15

2.3.2. Transfer of money to the platform........................................................................... 15

2.3.3. Payment of fees to the platform .............................................................................. 15

2.3.4. Payment of monetary incentives to the investor...................................................... 15

2.4. Stages in Equity Crowdfunding ..................................................................................... 16

2.4.1. Selection and valuation ........................................................................................... 16

2.4.2. Investment ............................................................................................................... 17

2.4.3. Post-investment ....................................................................................................... 17

2.4.4. Exit .......................................................................................................................... 18

2.5. Risk and Information Asymmetry ................................................................................. 19

2.5.1. Financial crowdfunding .......................................................................................... 19

2.5.2. Equity crowdfunding ............................................................................................... 19

2.5.3. Loan crowdfunding ................................................................................................. 21

2.6. Reaching the funding target ........................................................................................... 21

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3. Theoretical Framework ..................................................................................................... 23

3.1. Variables ........................................................................................................................ 23

4. Research methodology ...................................................................................................... 24

4.1. Data collection ............................................................................................................... 24

4.2. Sample description ........................................................................................................ 25

5. Analysis ............................................................................................................................. 26

5.1. Project level ................................................................................................................... 26

5.2. Firm level ....................................................................................................................... 27

6. Discussion ......................................................................................................................... 29

6.1. Conclusion ..................................................................................................................... 29

6.2. Policy implications ........................................................................................................ 31

6.3. Limitations and directions for further research ............................................................. 31

7. References ......................................................................................................................... 32

8. Appendices ........................................................................................................................ 35

List of abbreviations used

BA = Business Angel

BCF = Belgische Crowdfunding Federatie

BVBA = Besloten vennootschap met Beperkte Aansprakelijkheid

CVBA = Coöperatieve Vennootschap met Beperkte Aansprakelijkheid

EC = European Commission

ECN = European Crowdfunding Network

FSMA = Financial Services and Markets Authority

IPO = Initial Public Offering

KBO = KruispuntBank van Ondernemingen

NBB = Nationale Bank van België

NGO = Non Governmental Organization

NV = Naamloze Vennootschap

PMT = Payment

PE = Private Equity

VOKA = Vlaams Netwerk van Ondernemingen

VC = Venture Capital(ist)

SME = Small and Medium Enterprise

SPV = Special Purpose Vehicle

TEA = Total Entrepreneurial Activity

Unizo = Unie van Zelfstandige Ondernemers

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1. Introduction Overview First of all, the existing literature on investment-based crowdfunding is summarized. The

related agents, processes and stages in crowdfunding are listed, followed by related risk and

information asymmetries. Subsequently, the determinants of reaching the funding target are

given. After the theoretical overview, some basic statistic tests were run on the sample. The

goal of this paper is to provide a better understanding of the Belgian equity and loan

crowdfunding landscape. This could be of use for entrepreneurs, policy makers and investors

for various reasons, which could ultimately result in a more optimal allocation of financial

resources among all related parties. Given the diversity of the crowdfunding market, my

research was limited to the investment-based crowdfunding market in Belgium.

A definition of investment-based crowdfunding is found in the European Commission’s

paper on Crowdfunding in the EU capital markets union (2016). ‘Companies issue equity, debt

or contractual instruments to crowd-investors, typically through an online platform […] through

a variety of funding mechanisms, often to adapt to different regulatory requirements in EU

Member States’1. The investment-based crowdfunding market in my study covers the equity

and loan crowdfunding market. I have chosen this market because of the highest financial

relevance, eliminating as many as possible non-financial influences. Nevertheless, these non-

financial motivations still are of high importance. In the Nesta report on Understanding

Alternative Finance (2014) equity crowdfunding is defined as the sale of a stake in a business

to a number of investors in return for investment, predominantly used by early-stage firms2. In

this study, loan crowdfunding is best defined as debt–based transactions between individuals

and existing businesses (which are mostly SMEs) where many individual lenders contribute to

one.

A broad analysis of the European financial crowdfunding landscape shows that the

Belgian financial crowdfunding market lags behind those of our neighbors. The drivers of

development for investment-based crowdfunding in Europe are manifold. The biggest

impediment found for growth is legislation. Investor protection laws, tax on financial return

and constraints on investment and fund raising are affected by national and European

regulation. According to numbers from the European Commission (2015), the European

financial crowdfunding market raised 4,1 billion euro in 2015. Appendix J shows that EUR 422

million (103 million) was raised by the equity (loan) crowdfunding market in 2015. Belgium

accounts for approximately EUR 8 million (4 million), which is only 2% (4%). The United

Kingdom is the largest European crowdfunding market.

Motivation to use crowdfunding

Extrinsic (financial) motivation

Besides regulation, there are underlying entrepreneur and investor related motivations that

determine the use of financial crowdfunding. Possible entrepreneurial transaction motives are

the cost, ease and speed of obtaining finance. The entrepreneur can spread the risk of insolvency

among the investors in case of equity crowdfunding. The financial motivation of the investor is

the return on investment. For loan investors, this is received interest for loan projects. For equity

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investors, this is increasing share value and received dividends. Both intermediaries and

investors could seek for portfolio diversification. Platforms receive fees for their services.

Intrinsic (non-financial) motivation

In contradiction with the name itself, non-financial motivation is highly relevant in financial

crowdfunding. Non-financial motivations of the entrepreneur are investor participation, market

validation of the product or service. The non-financial investor-related motivation is the

intrinsic value of the investor toward the product or service. Examples are the support of an

innovative idea or the social value the investor gives to ecologic or social projects. The scope

of the study being equity crowdfunding, the extrinsic, financial motives are highly relevant,

following Cholakova and Clarysse (2015)3.

Reward and donation-based crowdfunding have more non-financial motivations of the

investor such as hedonism and altruism (Haas, P., Blohm, I., & Leimeister, J. M., 2014). Collins

& Pierrakis (20124) have evidence of investors on equity crowdfunding platforms being driven

by financial motivations. Hemer (2011) finds evidence for a combination of both extrinsic

financial and intrinsic non-financial motivations. Intermediaries are intrinsically motivated by

means of corporate social responsibility and innovation. Other drivers are platform

characteristics (tariffs, services and other) and country-specific, non-legal factors. Financial

crowdfunding is not necessarily a trade-off alternative for the entrepreneur to traditional lending

from banks, family or friends. The last two parties can invest in the project themselves. The

finance methods are rather complementary. Venture capital and business angel finance are not

considered as an alternative either. They enter in later stages or assist the crowd in negotiating

terms. Before the introduction of equity crowdfunding, the financing of start-ups and early stage

ventures was typically dominated by business angels and venture capitalists.

In Belgium, Business Angels traditionally invest between EUR 50.000 and 250.000 or

even 500.000 EUR, while Venture Capitalists invest EUR 500.000 or more. The introduction

of crowdfunding did not exclude these parties. In my sample, we conclude that a lot of

professional investing takes place (see 5.1. project level). The Business Angels Europe study5

(2015) shows that in Belgium, the Flanders and Wallonia network have nearly 400 Business

Angel members and receive over 750 projects on a yearly basis. Approximately 200 are

presented to their members. This results in 40-50 deals annually for a total amount of up to

EUR 10 million in 2015. My research indicates similar volumes for the investment-based

crowdfunding industry in Belgium. According to R. Vossen (CEO Business Angel Network of

Flanders), the average investment of a Flemish business angel in 2015 was EUR 80.000,

compared to EUR 103.000 in my sample (see 5.1 project level).

2. Research context

2.1. The Crowdfunding Process

Haas et al. (2014) provide a comprehensive view of the related groups in the crowdfunding

industry. These are capital seeking agents, project initiators, capital giving agents,

crowdfunding intermediaries, regulators, researchers and educators. This section will zoom in

on every related party.

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2.1.1. Capital seeking agent

The capital seeking agent wants to obtain finance and is called the project initiator. The initiator

is an individual or a group, an entrepreneur or a company, or even a non-governmental

organization. Capital seeking agents form the demand side of the market. Entrepreneurs with a

profit-oriented venture are most present in the financial crowdfunding industry, since they could

provide return through issuing shares (debt) and paying out dividend (interest). Evidence from

the GEM reports 2014 and 20156 (see appendix D) shows that Belgian and Italian entrepreneurs

have the highest fear of failure to start up a company. In the Netherlands and the UK,

entrepreneurship is ought to be a good career choice. Hence, it is no surprise that the early-stage

entrepreneurial activity relative to the total activity (TEA) is the highest in these two countries.

The raised funds are used by the project initiator to invest in (in)tangible assets or

working capital. In my sample, the average equity seeking company is 4 years old, versus 12

years for loan companies. The difference in company age results from the divergent incitement

for finance between equity and loan seeking agents. Equity seeking agents can desire an internal

monitor. Experienced investors can share knowledge and expertise by participating in

management. They give advice and help with carving out business strategy. The incentive for

loan seeking agents inclines more to the need for finance exclusively. The difference in age

might also suggest that established firms have greater value of control. In my sample, loan firms

have 3 board members, while equity seeking companies have 4 board members on average.

Please note that most of the loan seeking companies are BVBAs (private type), while

most of the equity seeking companies are NVs (public type). The initial capital requirement for

funding a company with type BVBA is EUR7 18550 and EUR8 61500 for a NV. The corporate

structure of a BVBA is a more private or closed structure, while the structure of an NV is more

open. Small, family businesses often opt for a closed structure because of the interesting

shareholders rights. The existing legal framework helps the company to protect its shareholders

against hostile takeovers. As most shareholders are family members, these rights and voting

laws can help to keep the company within the family. Also, all agreements between company

members are clearly stated on paper. The open structure, however, can be advantageous for

larger firms with dispersed ownership, such as listed firms. The corporate bodies, voting laws

and internal mechanisms of an NV enhance dispersed ownership decision making. The relevant

decisions in my research are related to profit-sharing, remuneration and investment policy.

2.1.2. Capital giving agent

The capital giving agent invests in the project. Investors form the supply side of the market.

The investor could be an individual or a group which is a private or a qualified investor. In

equity crowdfunding, qualified investors often co-invest with private crowd investors. The

investment of the qualified investor could be picked up as a signal9 of good quality, causing

private investors to invest after having seen someone professional funding a large part of the

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project. A professional investor traditionally invests EUR 25.000 or more. A minimum of 10

% of the shares for at least one year is invested because of the tax exemption on capital gains.

An example of a professional investment fund is Inventures. This fund is managed by the

similarly named holding company. The company has a capital of EUR 14.647.292, from which

EUR 5.000.000 has been raised by crowdfunding. The remaining capital has been subscribed

by two other investment holdings. Inventures has a board of directors of 6 people, who actually

manage the company and allocate the funds. Their investment strategy can be seen in appendix

F. The holding has specific investment thresholds related to the different growth stages the

company is in. Geographically, the company may not be located of further distance than 500

km from Wavres, the headquarters of the investment company. The distance criteria is set to

support local economy. The maximum investment of the portfolio is limited to 20% per sector

. The highly technical industry is avoided because of the high uncertainty that comes with the

long research and development period. As shown in appendix F, one can see an example of

objective investment criteria from a qualified investor.

Private crowd investors, on the other hand, are inclined to be driven by subjective, motivational

investment criteria. According to a study of Bolero and Massolution (2015), there are 5 main

reasons why Belgians invest in crowdfunding projects.

The first is the financial motivation which can be simply defined as the return on

investment. The second , functional motivation brings a more practical problem-solving point

of view. The product or service has to provide a solution for a struggle that people encounter.

The product or service has to give benefits for the customer. For example, a technology that

recognizes songs. The third motivation is social, the collective human side and the feeling to be

part of a something. The fourth is the innovative motivation, the desire to be part of something

new. The fifth, emotional motivation implies feelings, engagement and commitment.

The qualified investor uses only the first two of these five motivations. The functional

motivation helps the investor to select projects meeting the need of the market rather than being

just an insignificant hype. According to an internal research of Mymicroinvest, three essential

motivations can be ranked by importance. The first is financial motivation, more specifically

the seek for return on capital. The second is the cause to feel part of a change and contribute in

helping a project succeed. The third motive results from a close relationship between investor

and entrepreneur. The link can be family or product related. For example, the need for a solution

of a hearing problem the investor has.

In my sample, I found equity crowd investors invest less than loan investors. According

to internal research on the loan platform LookandFin (2016), 40% of the active investors on

their platform is aged 35 to 45 years old and has a portfolio of investments. The average

portfolio on the crowdfunding platform is EUR 8.772 per lender. Foreign investors mount up

to 30%, with lenders from the Netherlands and France, notably. They invested in Belgium for

fiscal or portfolio diversification reasons. Belgian equity platforms reported 10% of

investments were foreign. They describe their average crowd investor as a man between 30 and

45 years old with a high education (university). Nevertheless, the demographical distribution

of the financial crowd is very diversified. According to the activity report of Mymicroinvest

(2015), equity investors age between 18 and 85. The heterogeneity of age, gender, residence

and knowledge within the crowd is an asset for companies. As mentioned above, the financial

and functional motivation are most relevant. The functional cause is a condition for the investor

to select a project. The financial incentive helps the investor to select the functionally approved

project with the highest estimated return. Women are more driven by social cause and are more

eager to donate for donation-based projects than men.

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As insinuated by the different motivations of crowd investors, the role of the capital

giving agent is not limited to finance exclusively. The crowd investors are real ambassadors of

the company they invest in. The biggest benefit for the company is that they are a big team of

marketers, spreading the message the company stands for. The power of the crowd can be very

well illustrated by a recent project, called Domobios. Domobios found a remedy for people that

are allergic to dust mite. Most crowd investors that backed the project were allergic themselves.

The allergic patients were displeased that they could not buy medication against dust mite at

the local pharmacist. Domobios thus asked their crowd ambassadors to ask for the product

Domobios in their neighborhood pharmacy. Because of the demand for a dust mite remedy,

local pharmacists began to contact Domobios themselves to buy and distribute the product. This

story proves that crowd investors can be the best sales men, if the company thinks it through

and has a clear strategy. The crowd investors of each project are represented by one single

contact person, who groups their interests.

2.1.3. Crowdfunding intermediary

The intermediary between capital seeking and giving agents is the crowdfunding platform. The

online portal manager works together with a financial institution or bank for the management

of the transactions. A special purpose vehicle (SPV) can be used to conduct interest and

dividend payment from the company to the investor. The investor is entitled to receive such

payments through the debt or equity note issued by the SPV. Crowdfunding intermediaries are

prohibited by law to allow funding for sex, weapon or drug projects. A large variety of platform

business models exists. Investment-based platforms require a percentage on the total amount

raised. Fees for successful funding, registration or from the investor are less common. A variety

of these earning models is often combined10. Examples of tariffs are given in section 2.2.3. and

2.3.3.

Not all platforms are banks. The role of banks towards crowdfunding in Belgium is vital,

as many SMEs obtain bank finance. In Europe, banks with an investment bank subsidiary are

more eager to initiate crowdfunding activity, as the earning model is in line with the strategy

and business model of the bank. According to Bart Vanhaeren (CEO Bolero crowdfunding), the

bank can assume three main roles towards crowdfunding. Important for all roles is that

crowdfunding is considered as a fully-fledged alternative source of finance. First, it can simply

inform the client that crowdfunding exists. Second, the bank can assume its role as a referral.

The bank refers the client to a platform that has a partnership with the bank. Third, the bank

can engage actively by launching its own crowdfunding platform. A possible motive for

intermediaries is to separate funding for start-ups, to have corporate social responsibility

projects or to stimulate innovation. Having its own platform entails risk and reputational related

benefits and disadvantages. Banks with investment subsidiaries can carry over potential crowd

investors from retail investment and saving account services. The bank has in-house expertise

(legal, due diligence) regarding private equity deals.

A more recent evolution is the integration of crowdfunding platforms in the stock

exchange. February 2016, Euronext Belgium has initiated a secondary market for crowdfunding

transactions. The Euronext Expert Market. According to Vincent Van Dessel (CEO Euronext)

investors can better time their investment and exit strategy. Hence, a more universal and

transparent platform for a larger crowd is created. The debt or equity link notes on the expert

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market offer the investor the opportunity to cash out early and sell their notes privately. This

can be a blessing for people who need their invested money back immediately because of an

urgent need for finance. This could save the crowdfunding intermediaries a lot of time and work

effort. Other intermediaries are online trading banks who support a crowdfunding platform.

For example, Keytrade Bank supports Mymicroinvest, enabling its customers to invest in

tangible projects in addition to traditional investments on the exchange. Mymicroinvest also has

a partnership with BNP Paribas Fortis Bank. This way, the bank can service as a referral for

starting entrepreneurs to whom the bank does not wish to grant a loan because of various

reasons such as screening costs, lack of collateral and lack of market validation of the

entrepreneur’s idea. The European MiFID directive11 imposes platforms that deal for their own

account to have EUR 730.000 initial capital. Others have a capital requirement of EUR

125.00012.

2.1.4. Regulator

At the regulatory level we can find a first layer of European regulation, followed by a second

layer of national company laws. The staff working document from the European Commission

(Crowdfunding in the EU capital markets union, 2016) states the following: ‘Given the

predominantly local nature of crowdfunding, there is no strong case for EU level policy

intervention at this juncture. Crowdfunding is still relatively small and needs space to innovate

and develop. Given the dynamism of crowdfunding and the potential for future cross border

expansion, it will be important to monitor the development of the sector and the effectiveness,

and degree of convergence of, national regulatory frameworks.’13 According to policy advice

from Brueghel14, ‘inefficient and antiquated frameworks for insolvency and debt restructuring

deter corporate investment […] because investors and creditors are insufficiently protected in

case of insolvency, and the conduct of the insolvency process fails to maximize the prospects

for asset recovery’.

The national regulator has to ensure that current crowdfunding practices are legal. The

existing legislation lags behind the current practices, because of the novelty of the

crowdfunding phenomenon. Nevertheless, some crowdfunding platforms have a code of

conduct for investors and project initiators to anticipate new regulation.

In France for example, no prospectus is required if the crowdfunding platform has a CA or ISP

status who have a staged access website that indicates risk investment and refuses access to

those not willing to take risk15. Staged access websites checks whether the investor is informed

of the related risks of investing in crowdfunding projects. The risk assessment test has to be

developed by the crowdfunding platform itself. The capital giving agent has to be tested for

having sufficient theoretical and practical understanding to comprehend the risks that come

with investing money into crowdfunding projects on the related platform. If the investor lacks

sufficient knowledge, the possibility to invest is not refused, but a unequivocal warning is

expressed toward the investor. In such a manner, the regulator attempts to reduce irrational and

incautious investing to a minimum. Since the higher investable limits, a similar test is now

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obligatory in the Netherlands. In Belgium, some platforms already have investor tests, although

it is not obligatory.

The European MiFID directive imposes intermediaries to have specific initial capital

requirements. The existing Belgian law has following implications on financial crowdfunding.

For equity crowdfunding, a dividend tax of 27% is withheld by the government on dividends

received by crowd investors. For investment participations through companies, 95% of the

dividend is tax exempt if the participation mounts to 10% or more and is not sold for the period

of at least one year. On the remaining 5% of the dividend, a tax rate of 27% is withheld. The

capital gain of the share price is tax exempt for both individual and professional investors.

For Belgian crowd lenders, a tax percentage of 27 is withheld on the net income gained

from received interests. Investment vehicles do not have the same fiscal system for received

interests, as there exist many tax exemptions and reductions. The national tax policy is one of

the main determinants for (cross-border) investment behavior, as it has a direct impact on the

financial motive. France has an interest tax of 30 % or more, evoking some French investors to

invest in Belgian crowd lending and enjoy Belgium’s fiscal system. The national interpretation

of the European prospectus directive and its exemptions determine contemporary

organizational and operational structure of European crowdfunding platforms.

As equity crowdfunding offers equity to the European public, a prospectus is required

in some cases. The conditions are described in the Prospectus Directive16. If funds are raised

below EUR 100.000, no prospectus is needed17. If more than EUR 5 million is raised, a

prospectus is an absolute requirement. (Appendix A gives an overview of the exemptions)

Between those two amounts, European member states have a choice.

Next to the interpretation of the broadly covering legal framework in the European

Economic Area, there are different national company laws. The UK for example, has no tax on

dividends, making equity crowdfunding very interesting compared to other countries. In

Belgium, for projects between EUR 100.000 and 300.000, the maximum investable amount is

limited to EUR 1.00018. No limit exist for fund raising below EUR 100.000. The draw-up of a

prospectus also removes the investor limit. The limit is an obstacle for the growth of the Belgian

crowdfunding industry. The lower limit where no prospectus required is proposed to be

extended from EUR 100.000 to 500.000 in order to avoid disproportionate costs relative to the

amounts raised. In the Netherlands, the investment limit is EUR 40.000 for investments in

equity crowdfunding projects and EUR 80.000 for investments in loan crowdfunding projects19.

This is a substantial exemption on the prospectus directive. It is no surprise that the financial

crowdfunding industry in the Netherlands is further developed than the one in Belgium. The

maximum investment amounts in the United Kingdom are even higher than in the Netherlands.

A detailed overview of maximum investment and funding amounts within the European Union

is given in appendix I. A Belgian lending platform operates through a non-public fund raising

type of way. The platform ensures that the fund raising campaign of the loan seeking company

is disseminated to a maximum of 149 investors. These investors are selected based on their

industry and risk preference. Because the campaign is only presented to a limited amount of

people, it is classified as non-public. This exemption on the prospectus directive makes it

possible for firms to raise up to EUR 1 million without having a prospectus. In France, this is

EUR 2,5 million.

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In Belgium, new national company law is being proposed to support innovation through

tax deduction20. This tax shelter would enable a private (non-professional) equity investor to

exempt 30% (for investments in SMEs) or 45% (for bigger firms) from his personal tax on

investment income. The tax advantage is limited to an investment of 100.000 EUR and a stake

of 30% of the company. If the investment period is no longer than 4 years, the tax advantage is

reduced to the investment period. With loan crowdfunding, investors are exempted from the tax

withheld on interests (27%) if the loan is limited to EUR 15.000 per year. Loans under four

years emitted by a company younger than four years cannot benefit the tax advantage. On the

project level, the shelter is not applicable for the transfer of existing activities between

companies or entities. This means it has to be a newly initiated project, stressing the innovative

nature of the project. The tax shelter applies to investment transactions made after the 1st of

july 2015. This investment can be made directly, but also through an approved equity

crowdfunding platform. Until May 2016, no crowdfunding platforms are approved by the

FSMA.

2.1.5. Promotor

The organization most relevant for promotion in Europe is the European Crowdfunding

Network (ECN). Their purpose is to organize and transfer (technological) knowledge of

crowdfunding. ECN was founded as an indepent NGO in 2012 by Oliver Gajda and others. It

was formally incorporated anno 2013 in Brussels, Belgium. The purpose of the ECN is to

promote the use of crowdfunding in order to realise job creation, social innovation and to boost

entrepreneurship to the European public, policy makers and stakeholders21 . In Belgium

promotor institution Belgische Crowdfunding Federatie (BCF) provides a guide for

crowdfunding in Belgium. They publish a list of approved platforms together with their

characteristics and applicable regulation. Employer’s organization such as VOKA and Unizo,

or entrepreneurial organizations such as Vlaams Agentschap voor Ondernemers, also promote

the use of crowdfunding through organizing lectures and workshops.

2.1.6. Researcher

Research in this area is done by academics and (policy) institutions. Their interest can be to

prevail existing or new relationships in order to give policy advice or deeper understanding in

the crowdfunding industry for management implications.

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2.2. The Equity Crowdfunding Process

Hagedorn and Pinkwart present the equity crowdfunding process22 as a relationship between

entrepreneur, crowdfunding platform and investor. As illustrated by appendix B, four main

relationships occur. A first relationship is the support in raising capital for the project. Second,

investors encounter a subscription of shares to the platform. Third, entrepreneurs pay fees to

the platform. A fourth relationship is the payment of monetary incentives by the entrepreneur

to the investor. Note that this is a simplified image of the crowdfunding process in reality, as

other relationships are left out of consideration.

2.2.1. Support in raising capital

The capital giving agent invests money into a project . Minimum investment amounts were

between 25 and 100 EUR. The maximum is subject to the Belgian interpretation of the

Prospective Directive. (as explained in 2.1.4. Regulator)

2.2.2. Subscription of shares to the platform

The platform ensures the investor receives equity notes for his participation in the capital of the

capital seeking company. The intermediary provides platform service and subscribes shares or

equity notes to the investor. Finally, the raised funds are grouped on one bank account in a

special purpose vehicle. The money is transferred to the company in one transaction. The

managing and administration costs are sometimes withheld from the transaction amount in

order to secure the platform’s compensation.

2.2.3. Payment of fees to the platform

Mymicroinvest charges a set-up cost between 1495 and 9995 in function of the chosen package.

Investors are charged 2% managing costs annually23 for an average period of 6 years. This

amount is ought to cover management and monitoring costs of the investment account. If the

annual return on investment exceeds 5%, an additional commission of 20% is withheld from

the capital gain realized by the investor. Bolero crowdfunding charges entrepreneurs a success

fee of 6% of the raised amount, for both equity and loan projects24. Some platforms provide a

prospectus writing service in order to lift up investment limits and raised amounts. The capital

seeking agent has to pay the crowdfunding intermediary for the creation of this official

document. The cost of writing a prospectus is EUR 12.000 to 15.000. The project initiator has

to decide whether the cost of writing a prospectus is justified in proportion to the raised funds.

Bolero requires the entrepreneur(s) to found a new company to group the crowd investors, while

Mymicroinvest groups the crowd in their own special purpose vehicle.

2.2.4. Payment of monetary incentives to the investor

The monetary incentive is the return generated by dividends and the rise of the stock price. The

age of the equity projects did not allow to collect much data on dividends and stock prices,

since most of the companies were not profitable yet and an exit was not yet up for discussion.

As mentioned in section 2.1.4. Regulator, a tax of 27% is withheld on the dividend for crowd

investors. For investment vehicles, 95% of the dividend is tax exempt if specific company

requirements are met. On the remaining 5% of the dividend, a tax rate of 27% is withheld. The

capital gain of the share price is tax exempt for both individual and professional investors.

15

2.3. The Loan crowdfunding process

Since loan and equity are related financial types of crowdfunding, I extended the Hagedorn and

Pinkwart framework to the loan crowdfunding process. The extension of the process’

presentation enhances further comparability. The third relationship ‘subscription of shares to

the platform’ is transformed into ‘transfer of money to the platform’.

2.3.1. Support in raising funds

The capital giving agent lends money to the company by means of a subordinated loan or debt

note. The minimum investment depends on the project. Projects on lending platforms typically

had an absolute minimum of EUR 500. The upper investment limit is subject to the national

interpretation of the European Prospectus Directive (as explained in 2.1.4. Regulator).

2.3.2. Transfer of money to the platform

The money from the investors is transferred to the bank account of the company. Platforms

work with banks to take care of the transactions by using their transaction system.

Crowdfunding platforms also provide online payment services such as PayPal or Ogone which

function as a transaction intermediary. However, this involves an additional cost for the investor

and is not desirable for investment-based crowdfunding. Hence, this is more common for

reward and donation based crowdfunding.

2.3.3. Payment of fees to the platform

For loan investors at Bolero, financing a loan is free of charge. The interest rate found on the

platform is received without additional fees. Bolero crowdfunding charges entrepreneurs a

success fee of 6% of the raised amount of the loan project. To initiate a project on lending

platform LookandFin25, entrepreneurs pay a set-up fee of EUR 2.000 followed by a commission

of 4% of the successfully raised amount. Angel.me charges a success fee of 6.5% without set-

up costs. Crofun charges a set-up cost of EUR 181 and a success fee of 5%. Mymicroinvest

charges a set-up cost between EUR 1495 and 9995 depending on the chosen package. A success

fee of 4% of the raised amount is withheld together with an annual 1% of the raised amount.

The latter is due as a compensation for the paying-agent. Some crowdfunding platforms use

transaction intermediaries such as Paypal. Payment service companies traditionally ask

transaction fees of 2 to 5 % of the transaction amount. . If the platform does not withheld the

costs from the total raised amount, a separate invoice has to be sent.

2.3.4. Payment of monetary incentives to the investor

The monetary incentive is the return generated by the annual interest. The investor receives

periodical installments of capital and interests from the company. Other, less occurring debt

notes are coupons with specific terms. The intermediary functions as a control mechanism and

follows up the repayments. Most of the Belgian projects pay an average annual interest rate

between 6 and 12 percent. The average loan in my sample has an interest rate of 8 % and

duration of 4 years. The investor receives the interest payment based on the amount lent. The

interest rate shown on the website is the one the investor receives before tax. In Belgium, a tax

percentage of 27 is withheld on the net income gained from received interests.

16

2.4. Stages in Equity Crowdfunding

Wilson and Testoni26 describe the different stages followed by entrepreneur, crowdfunding

platform and investor. A visual overview is given in appendix C. Not all stages are equally

applicable to loan crowd funding, what does not alter the fact that interesting comparisons can

be made.

2.4.1. Selection and valuation

To begin, the platform has to screen the entrepreneur that applied for funding. The intermediary

eliminates entrepreneurs who are not suited for starting a crowdfunding project. Hereby,

different criteria are evaluated. Repayment capacities, evaluation of the team, dependence

towards customers, working capital requirement, competition of the industry and others are

used. Human capital can thus be screened. The CFP can take an assessment of the skills,

learning abilities and capabilities. For example, identifying and exploring business

opportunities (Shane & Venkataraman, 2000)27. Intellectual capital can be screened.

Innovation, patents and access to niche markets. Furthermore, the social capital can be screened

by identifying the social network of the entrepreneur or the access to information and other

resources. The company has to come up with a sound business plan. This analytical tool has to

map all determinants for success of the project. A profound assessment of team, market, idea

and financials is essential. Entrepreneurs define their objectives and strategy precisely. The

financial plan determines the valuation of the company and need for external finance.

Ultimately, together with the pitch, the business plan has to attract investors. The projection of

the idea has to be easy to comprehend for an outsider.

After the screening by the platform, the investor tries to assess the potential value of the

firm. Wiltbanks and Boeker (2007) show that due diligence is important to identify quality

businesses in order to gain return in the future. Selection and valuation do not always occur

profoundly, as most private investors contribute just a small part of the total fundraising.

Agrawal et al. (2013) state that private investors are prone to perform free-riding on the

investment decisions of others. Consequently, the crowdfunding community may

systematically underinvest in due diligence. Qualified investors take more time to value the

firm properly. According to the Venture Capital Buy-Out guide for Belgium (S. Manigart,

2012)28 , three types of due diligence occur for private equity investors. Management,

commercial and financial due diligence. Management due diligence is related to the assessment

of the key people of the company. Commercial due diligence is about the product, the customers

and the market. Financial due diligence assesses the value of assets, taxes and other

commitments.

Next to the valuation of the investor, entrepreneurs and platforms might provide their

own valuation of the company. Mymicroinvest, for example, does not do the valuation exercise

all by their selves, but first asks the capital seeking company to do it for their own. Afterwards

they have a tool the company can use, to see if their valuation is realistic. This tool calculates

the maturity at the (possible) exit, and that value is than discounted to the present. The

calculation of that tool is based on the academic paper from Bhagat S. (2014) Why do venture

capitalists use such high discount rates?29. In the paper a rational explanation is given to justify

the high discount rates used in valuation methods for early-stage companies or projects. The

determinant of the valuation is the systematic risk of the cash flows and the risk free rate. The

17

method used could be seen as a type of asset pricing model. The operating leverage (capital

requirements for equipment etc), the discount rate of the cash flows (required rate of return)

and the cyclical nature of the industry will have an impact on the systematic risk of the firm or

project. The valuation has two stages with appropriate risk estimates. In the first stage, an

assessment of the economic feasibility of the project to the market is made. Here, the capitalist

agrees whether to invest or not. There is no cash flow at this stage. The determinant of the

probability of success of the project is defined by the possibility to cash out. In the second stage,

production and commercialization decisions are made. Both stages have their appropriate

probability rates of success and impact the valuation. The success rate in stage two is higher

because of the higher probability for the venture capitalist to cash out. Because of the

introduction of the success rates, the discount rates used in the model accounts for the fact that

not all companies are successful. Note that the method used by the platform is based on this

paper, but is not exactly the same. The final valuation of the company is traditionally between

the company’s own valuation estimate on the one hand, and the adjusted tool estimate value of

Mymicroinvest on the other. For valuations in my equity subsample, see Table V. Note that the

valuation of the share price here is negotiated between qualified investor and entrepreneur,

which is traditionally the case with Business Angel finance.

Some qualified investors prefer a ‘ratchet-up’ agreement, but this is rarely used in

Belgium. The ratchet-up method entails that the qualified investor receives more shares in the

beginning. The company thus is a little undervalued. The entrepreneur is rewarded with shares

if the company performs well. Such agreements are used to avoid conflict of interest. On other

platforms, companies often use a discounted cash flow method for valuation. Here, firms have

to estimate an appropriate weighted average cost of capital (WACC) and a perpetuity growth

rate. These estimates are necessary to determine the terminal value of the cash flows for the

years beyond the estimation horizon. (Platform selection rates, see 2.5 Risk and information

asymmetry)

2.4.2. Investment

After the approval of the project, the platform posts the pitch and project details online. First

investments can now be made. Usually, investing is possible during a fixed period of 60 or 90

days. However, in my sample the average equity project reached its funding target in around

50 days. Loan projects reach targets 5 times faster , with an average of 10 days. If business

angels and other qualified investors are interested, staged financing can occur. Here, the

company has to prove its viability over time in order to obtain further financing in subsequent

capital rounds. Staged financing can reduce the risk of the business by periodically evaluating

the company’s performance. A possible disadvantage for shareholders is the dilution of their

stake. The concept of dilution is explained in section 2.5 Risk and Information Asymmetry. In

my sample, a type of staged financing on the platform itself occurred for 3 equity-based

projects. Nearly 80 % was invested by professionals for these second financing rounds, notably.

2.4.3. Post-investment

If the project funding succeeds, the investment can be followed up. Non-professional (private)

investors assume a rather marketer type of role after investing. The company can use the power

of the crowd and make the private investors real ambassadors of the company (see 2.1.2 capital

giving agent). Their interest is grouped for the sake of the company. When statutory or other

decisions have to be made, the voice of the crowd is unified. Loan investors assume a rather

passive role opposite to equity investors. The investment decision is especially based on

financial motives.

18

Qualified investors assume a more business consultant type of role, such as monitoring

the company and participating in management. Preferably, the qualified investor has experience

within the industry of the company in which they invested. The professional network of the

investor can provide further business opportunities for the company. The participation of the

investor is not limited to finance exclusively. The qualified investor can add value to the

company by means of non-core-business advisory, because the entrepreneur is presumed to

know most of the core-business. Legal or fiscal advice can boost the company to a higher level

of performance through the minimization of redundant expenses. According to a study of

Business Angel Network Vlaanderen30, for a qualified investor the most important quality of

an entrepreneur is flexibility. The entrepreneur has to be able to do what is necessary, rather

than doing what he likes to do. Following Sapienza and Manigart (1996) and other empirical

work, the strategic involvement is seen as the most important role assumed by the venture

capitalist31. Other important value adding roles are interpersonal roles between the VC and the

entrepreneur and the professional network of the VC.

2.4.4. Exit

In Belgium, no exit data was available, given the newborn nature of crowdfunding in Belgium.

According to a worldwide study of Crowdcube, 8 crowdfunded companies were able to offer

an exit to their investors in 2015, for a total amount of nearly EUR 10 million. Similar exit

volumes were reported for 2014. Possible exits are carried out by acquisition of another

investor, company or private equity player. The private equity player can be a Venture

Capitalist, Business Angel, or an institutional (or other type) of investment fund. If large

enough, the company can opt for an IPO. This option is strongly subject to national regulation

regarding equity financing in the country of IPO. The listing for small caps means requirements

regarding assets, free-float and liquidity have to be met. An IPO traditionally comes with a high

fixed cost. However, crowd funded companies could be already listed on the stock exchange

when the campaign was launched, which facilitates the exit for the investor. Some investors are

able to cash out because of a buy back of the initial shareholders or founders of the company.

Here, a share price has to be arranged by means of required return on investment or by means

of a premium agreed upon the initial buy-in price of the investor.

As mentioned above, the Euronext Expert Market could be an interesting tool to enhance

exit strategies. March 2016, Bolero crowdfunding initiated a transaction system with block

chain technology. To get familiar with this technology, the platform organizes crowdfunding

and business angel lectures, where entrepreneurs pitch their business ideas. The interested

parties can then invest virtual currency into the project that convinced them. The entrepreneur

who receives most of the virtual investments, wins a golden ticket for a next entrepreneurial

summit. Here a lot of potential investors are present. Suchlike events bring investors and

entrepreneurs together. After the lecture and pitches, a networking moment is foreseen. Supply

meets demand and deals can be arranged. The entrepreneurs and investors can also extend their

professional business network. The virtual investment implies a crypto currency. The platform

is intended to incorporate this currency for real investment transactions in order to enable

investors to exit faster, easier and with lower transaction costs32. Another advantage of using

such a virtual currency for equity investing is that the large fixed cost of an IPO could be

avoided.

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2.5. Risk and Information Asymmetry

2.5.1. Financial crowdfunding

The platform first screens (see 2.4.1.) the company that applies for funding in order to eliminate

unrealistic projects or ‘rotten tomatoes’. The platforms in my sample report that a mere 2 to 5

% of the funding applications makes it through the selection stage. Screening and selection are

executed to reduce risk in advance. Entrepreneurs take risk by initiating a project. Financial

crowdfunding projects come with an all-or-nothing way of funding, in order to ensure the

success of the firm’s project as much as possible. When the funding target is not reached the

entrepreneur bears the cost. A possible cost for the entrepreneur could be the set-up fee paid to

the platform. Not all platforms demand set-up costs. Other costs are also relevant, as the

entrepreneur invests a lot of time in exploring crowdfunding and preparing a campaign.

Reaching the funding target is of high importance because when not reached, the

investment project has even less probability of success than before. In this case, naturally, the

investors are refunded. Investors do only bear risk after the funding target is reached. When the

firm fails afterwards, this will be at cost of the debt- and shareholders. Different parties engaged

in a deal do not have access to the same level of information (Myers and Majluf, 1984). This is

called information asymmetry. Not all investors are specialists in identifying quality projects.

Entrepreneurs could have better understanding of the value of their company. The

crowdfunding campaign has to deal with risks and information asymmetries between

entrepreneur and investor. The campaign has to convert people into investing, whilst reducing

uncertainty. Banks as crowdfunding intermediaries obviously benefit more from successful

projects than from failed ones (see section 2.2.3 and 2.3.3). The projects initiated on their

platform thus are preferably of good quality. Failed projects can elicit investors to blame the

bank for their losses. In the worst case, the bank might even lose customers, especially if the

bank has its own platform. It could therefore be interesting for banks to clearly separate banking

and crowdfunding in avoidance of possible negative carryover effects. The main risks (and

implications) related to both types of investment-based crowdfunding are given in the following

sections.

2.5.2. Equity crowdfunding

Equity platform Mymicroinvest reports a selection rate of 5 % of the applicants. Selected

projects reach their funding target in 6 out of 7 or 85% of the cases. Equity platforms perform

different due diligence and use other selection criteria than loan platforms. Given the early-

stage nature of the ventures, some platforms require the company to have their first product

ready or to have their first paying customers. Shares have to be issued to the crowd in a

consistent way. In case of insolvency, shareholders are subordinated to debt holders. According

to Schwienbacher and Larralde (2010)33 , investors who acquire equity ask for more information

than debt financers, since they bear more risk. Opposite to traditional finance, the use of equity

crowdfunding spreads the risk among the shareholders. Bolero Crowdfunding requires the fund

seeking company to be of a specific organization type. A new company of type CVBA34 is

created to group the crowd investors. The investor company has a stake in the NV35, which is

the parent company. At least one or two board members of the parent company (NV) are seated

20

in the crowd company (CVBA). In case of a buy-out of all crowd investors by management,

the initial capital requirement of the daughter company can be recovered. The syndication of

the crowd enhances decision making because the interests of the crowd are grouped. In case of

an exit of one or more investors, an external auditor has to assess the value of the shares of the

crowd.

The fund seeking parent company has 3 types of shares. The first are ‘A-shares’ for the

founders and entrepreneurs. A-shares provide the highest decision authority and rights. The

second are ‘B-shares’ for the crowd investors. B-shares provide dividend claim, preference

liquidation rights and/or limited voting rights. The third are ‘C-shares’ for Business angels and

Venture Capitalists. C-shares are very similar to B-shares. The only difference is that business

angels and venture capitalist negotiate the liquidation rights and other claims because of their

larger participation and qualification. B-shares are grouped by the daughter company (CVBA).

The qualified investors participate directly in the parent company through individual C-shares,

which enables a more active role of participation and monitoring. The qualified investor

negotiates valuation and exit terms for himself and the other crowd investors. For a visual

overview, consult appendix G. The other equity crowdfunding platform in Belgium,

Mymicroinvest, has a different operational company structure. The platform offers an

additional prospectus writing service to capital seeking companies. The prospectus is written

by a special purpose vehicle (company) called Mymicroinvest Finance. This company groups

the crowd investors from all different projects and has participations in the related SMEs.

Mymicroinvest finance controls the voting rights of the crowd. The investment vehicle spreads

the risk of the crowdfunding platform. If one or more SMEs goes bankrupt, the investment

vehicle will not be harmed in a significant way. The company writes the equity notes for all the

crowd investors that invest on their platform. In negotiations with the SME and the qualified

investor, it acts on behalf of the crowd investor. The investor can thus bear risk in case of

insolvency of the crowdfunding platform, opposite to the situation were a separate company is

created for each project. The equity investor is not seeking for short term return. The investor

is ultimately aiming for an exit opportunity. The company has to be profitable in the long run

to be able to pay out dividend and rise shareholder value.

Dilution risk occurs when the company issues new shares in further rounds of finance.

Existing shareholders can subscribe to new shares to maintain the same level of ownership as

before capital increase. The stake of the first round investors in the company will become

smaller relative to the total capital (dilute) if they do not invest proportionally in subsequent

financing rounds. Dilution is also possible if new shares are issued at a lower price per share

than the price paid by the first round investors. Therefore anti-dilution protection rights are

agreed. Later stage finance can also benefit first round investors as a higher share price could

be established and subscription rights of preferred shares could be exercised. The investor thus

has the option to sell its stake (partially) with a profit. For firms with high growth potential and

need for larger amounts of finance, a highly dispersed shareholder structure would not be

desirable. In later funding stages, there could arise valuation problems. Therefore, the stake of

the crowd is grouped. In addition, overly dispersed capital ownership would make decision

making more complex. Either way, the interests have to be grouped. The protection of investors

in case of new financing rounds and exit or buy-out implications of different shareholders have

to be clearly stated in the shareholder’s agreement, in order to avoid opportunistic and self-

interest behavior of the entrepreneur or investor. For this reason, some platforms enable crowd

investors to decide together with qualified investors if they want to invest in subsequent

crowdfunding rounds. A second crowdfunding campaign of the same company ensures that

crowd investors are able to invest with identical value and exit terms as qualified investors.

Hence, anti-dilution rights are provided.

21

2.5.3. Loan crowdfunding

Lending platform Lookandfin reports that a mere 2,7 % of the applying companies are selected.

The platform requires the fund seeking company to have filed annual accounts for at least three

subsequent years and to have revenue of at least EUR 300.000. After screening and selection,

Lookandfin reports that funding targets are reached in 100% of the selected cases. Younger

SMEs are sometimes accepted to reach 80% of the funding target, if a bank is willing to

complete the loan. Loan crowdfunding implies more short and medium term related risks and

uncertainties for investors. The payback capabilities of the entrepreneur are relevant. This can

only be accomplished by the entrepreneur if the company generates sufficient cash flow to repay

its debt. In theory, the long term profitability of the company is not necessarily important for

the investor. Thereby, loan backers could be motivated by means of exclusively financial

interests. As mentioned above in 2.3.4., this is the received interest payment. Overall, loan

crowdfunding is considered less risky than equity crowdfunding for two main reasons. The first

reason is the higher probability of repayment to the loan investors because of the monthly

(yearly) installments the company has to pay. Through the months (years), the investor watches

the risk diminish over time as subsequent repayments are made and the outstanding debt

decreases. The second reason is the priority of debt over equity holders in case of insolvency.

Some crowdfunding intermediaries write their own debt notes. The investment vehicle

that writes these notes has a diversified investment portfolio of different crowd funded

companies. However, a bankruptcy of a lot of firms in the portfolio could trigger a bankruptcy

of the investment vehicle. The lender thus can lose its money. Other intermediaries use separate

bank accounts for subordinate loans. Investments are grouped on one specific bank account,

which is unblocked when the funding target is reached and the campaign is closed. The investor

is directly linked with the funded company. Hence, the crowd lender can lose money in case of

bankruptcy of the company, but cannot lose any money in case of insolvency of the

crowdfunding platform. The intermediary follows up the installments and facilitates

communication between investor and company. Some platforms have an internal risk

classification. Projects are rated on risk using different financial and non-financial criteria.

Investors can use the rating to invest in compliance with their investment strategy. Financial

criteria are cash flow ratios, operational profit margins and more. Non-financial criteria are

market and team related.

2.6. Reaching the funding target

Success starts at the screening stage of the platform. According to lending platform Lookandfin,

only 2,7% of the requests make it through the screening stage. In the due diligence stage of the

investor, signal effects36 cannot be neglected. Possible signals for investors could be the number

of board members, education level and previous experiences of the entrepreneur. Also patents,

trademarks and alliances with familiar brands, companies or endorsers can be seen as quality

signals. Evidence has shown that geographical proximity between the investors and the

entrepreneur is relevant (agrawal et al, 2011)37. A possible explanation, supported by empirical

evidence of internal research within Mymicroinvest (see above), is that resources are commonly

found within the informal network of the entrepreneur. Family, friends and business contacts

22

often support the start-up venture in obtaining finance38.. This means that the network of the

entrepreneur is highly important. As friends and family investors often lack profoundly made

due diligence and objective investment criteria, the advantage of market validation or proof-of-

concept could be harmed. Qualified investors invest in geographically proximate companies

in order to support the local economy (see above). Consequently, research is limited to Belgian

firms only and outgoing cross-border investments are ignored. Another determinant of success

takes place in the investment stage. Here, herding behavior can occur. Herding is a social

phenomenon, explored by Banerjee (1992)39. The implication of herding is that people will be

doing what others are doing rather than using their own information. Burtch, Ghose, & Wattal

(2013)40 found that people are more likely to support projects that have already reached 80%

of their funding target. Crowdfunding websites were reluctant to display unsuccessful projects,

as this might discourage investors and entrepreneurs to engage in a crowdfunding project.

Projects in the equity subsample reached funding target in around 50 days. Loan projects

reached targets faster , with an average of 10 days. The Mymicroinvest activity report (2015)

shows that 1 out of 5 projects did not reach their funding target. More recent numbers from

Bolero and Mymicroinvest reveal that only 1 out of 6 Belgian investment-based projects failed

to reach the target (May, 2016). Remarkably, Lookandfin reported that all loan projects on their

website were successfully funded (May, 2016).

23

3. Theoretical Framework

3.1. Variables

Funding goal: The money that had to be raised.

Raised amount: The money that is raised.

Days success: Days passed to reach funding target.

Number of investors: The amount of individuals that backed the project.

Capital: The sum value of all shares in the company.

Equity: The sum of shareholder capital and retained earnings.

Sales Margin: Total revenue minus cost.

Total Assets: The total amount of assets (equal to the amount of liabilities).

Board members: The number of board members in the company.

Debt ratio: Debt over total assets.

Avg. crowd investment: The raised amount (professional investments excluded) over

number of investors.

Pre-money valuation: Cash flow based valuation before fundraising.

Post-money valuation: Valuation after fundraising.

Offered stake: The percentage of capital offered to the crowd.

Professional investment: Amounts invested by PE player(s).

Duration: The length of the loan in years.

Annual interest: The interest rate of the loan paid by the company.

Monthly installment: The periodical repayment of capital and interest to all investors.

Global return: The accumulated interest payments divided by the value of the

loan.

Company type: The organization type of the company.

Age: The age of a company. (in years)

3.2. Measures

Basic descriptive statistics were used, as some conditions to perform linear regression were

not fulfilled. I preferred custom calculations over standardized ones because of the size of the

sample and missing values. Outliers were removed for each variable using a confidence

interval for mean of 90%. Missing values were excluded from calculations. The duration

variable was computed to months in order to calculate monthly installments and global return.

Professional investments were excluded to calculate average crowd investment. The age of a

company was computed by tracking back the date of establishment to May 2016.

24

4. Research methodology

4.1. Data collection

The two equity crowdfunding platforms relevant for Belgium are MyMicroinvest and Bolero.

The relevant loan crowdfunding platforms are these two equity platforms, accompanied with

LookandFin, the French-Belgian loan platform for SMEs. The successful projects in the sample

were retrieved from the website’s track record. As the websites did not provide sufficient

information for all projects, further information had to be inquired with the specific companies.

After having obtained all necessary data on the project level, each project in the sample was

linked back to the company that initiated the crowdfunding project. For the linking of project

and company, the database of the Kruispuntbank van Ondernemingen (KBO) and the National

Bank of Belgium (NBB) was used. The KBO helps to find the company by name or by value

added tax registration number. In my first sample, a few foreign companies were included.

These had to be excluded because of the opaqueness of the French and Dutch corporate

information systems (unavailability of the annual reports).

In order to raise capital on the Bolero crowdfunding platform, the required company

type is a NV or CVBA. As the CVBA is rather a representation of the crowdfunding project

itself and not the company, further research had to be done to find the parent company. For

some crowd companies, pre-defined exit terms were stated in the Belgian Gazette. Once the

company was found, annual reports and other corporate information were requested and data

could be collected. The Belgian corporate disclosure is very open and accessible. The databases

used were free of charge and available on request. The numbers used in this research came from

corporate annual reports regarding 2014. The KBO helped to collect following company related

data for both equity and loan crowdfunding companies: date of establishment, amount of

capital, equity, intangible and total assets, sales margin, location of the registered office, number

of board members and company type.

The related equity crowdfunding websites helped to retrieve following project related

data: valuation, funding goal, raised amount, professional investment amount and number of

investors. The pre-money and post-money valuation was found on the crowdfunding website.

The post-money valuation was calculated by the average of the minimum and maximum post-

money valuation. However, for a few projects there was no post-money valuation available.

The valuation is then calculated as the raised amount over the percentage of offered capital.

This calculation implies an equity based valuation, as an alternative to the cash flow valuations.

Nevertheless, these valuations are very much in line with the pre-money valuations of the

concerning projects.

The related loan crowdfunding websites helped to collect following project related data:

funding goal, amount raised, number of investors, duration and annual interest. As duration and

annual interest were not available for all projects, the specific companies and platforms had to

be contacted. Monthly installments and global return of the loan could be calculated using these

data. Monthly installments are calculated following the PMT method. Here, the periodic

repayment of capital and interest to all investors is calculated. To find this number, I had to

compute following data. Interest rate per month, number of months and total loan amount. After

having computed the monthly installments, the total interest payment of the loan for its duration

was calculated by multiplying the monthly installment by the number of months and

subsequently subtracting the total loan amount. The global return (%) of the loan is defined as

the total interest payment over the total loan amount. Note that the interest rate is applied to the

remaining balance every month. The intention is to clarify for the investors what the total

interest over the duration will be. An important assumption here is that there is no discount rate

used whatsoever. (for example, see appendix K)

25

4.2. Sample description

The NBB database captures most of the project related incorporated entities. Considering the

recentness of the crowdfunding industry, some firms were too young to retrieve annual reports

from. For these firms, only few corporate information could be obtained. These are date of

establishment, capital, location of the registered office, number of board members and company

type. For older firms, all necessary information could be collected.

The sample consists of 63 crowdfunding projects of 63 different companies. There are 32 equity

crowdfunding projects and 31 loan crowdfunding projects. The equity projects were found on

the sites Bolero and Mymicroinvest. These platforms have a few key differences. The first

major discrepancy between both platforms is the manner in which the prospectus directive is

handled with. Bolero seldom uses a prospectus for projects under EUR 300.000, while

Mymicroinvest tries to draft a prospectus for every project that wants to fund over EUR

100.000. The prospectus is written by a company named Mymicroinvest Finance, which groups

all crowd investors and also writes the link notes. The presence of a prospectus enables crowd

investors to invest the amount they like, without being bounded to a limit of EUR 1.000. The

prospectus has to be approved by the FSMA. Bolero creates a new CVBA (daughter company)

for each separate crowdfunding project. This way they group crowd investors in separate

companies, opposite to Mymicroinvest.

The second difference is that with equity projects on Mymicroinvest, the co-investment

of at least one professional investor is mandatory. This is required to enhance valuation, staged

financing and exit negotiations. This is not surprising however, as the qualified investor has the

appropriate knowledge and has the same interests as the crowd investors. Bolero prefers the

presence of a professional investor but it is not mandatory. The requirement does not exist for

loan crowdfunding projects.

There are 4 significant for-profit loan crowdfunding platforms in Belgium. Bolero,

Mymicroinvest, Lookandfin and Crofun. Crofun is not included in this research because of

investment amounts were too small or lending was dominated by social motivations. The

majority of loan seeking projects in my sample are funded through the platform LookandFin.

Here, the company does not have to provide a profoundly detailed business plan, but rather

specific information about the replacement or expansion investments that have to be financed.

Technology and services (both 19%), followed by manufacturing (16%) and distribution (13%)

are the most represented industries for loan crowdfunding projects. Food and drinks (31%) is

the most popular industry for equity-based projects Technology and healthcare (both 16%) split

the second place, while transport and services (both 9%) share the third place. However, the

median loan firm has 0% intangible assets relative to total assets, while this value is 17% for

the median equity firm.

Mymicroinvest has approximately 33.000 members (investors) on their platform, Bolero has

approximately 20.000 members, Lookandfin over 50.000. The demographic distribution is

given in 2.1.2 capital giving agent.

26

5. Analysis

5.1. Project level A first analysis was made at the project level. The distribution of project data is shown in table

I. Equity and loan projects were analyzed separately. All variables were plotted. Some results

were biased by outliers. Therefore, biased average values were recalculated after exclusion of

the outliers and shown in brackets. Equity projects have raised an average of close to EUR

360.000, while loan projects raised EUR 130.000 on average. The higher levels of raised funds

were accomplished by qualified investors, as the average crowd investment for equity firms

was EUR 138.000. Equity projects enjoyed double the number of investors in comparison with

loan projects. However, the time to successful funding was 5 times faster on average for loan

projects. This is quite surprising though, knowing that loan projects required same levels of

crowd investments. The average loan firm emitted a loan of 4 years and pays 8 % interest

annually. This entailed a monthly repayment of debt and interest of EUR 4.131. The global

return for the average loan investor was 16,7 %.

Table I - Project characteristics

LOAN

Raised

Investors

Duration*

Interest

Days

Success

Monthly

Inst**

Global

Return

Min 50.000 26 2 5,0% 0 892 6,4%

Max 300.000 150 10 12,0% 79 15.130 34,2%

Average 132.550 65 3,9 7,9% 10 4.131 16,7%

Median 99.999 63 4,0 8,0% 3 2.488 16,1%

EQUITY

Raised

Investors

Stake

offered

Professional

Investments

Days

success***

Min 50.000 1 1% 0% -

Max 5.000.001 1.487 100% 99,9% 90

Average (356.066) (139) 36,7% 48,0%** 50

Median 222.000 127 36,2% 57,4% -

* The maturity of the loan in years.

**The average professional investment accounted for 70% of the raised amount.

***Only aggregate data available.

27

As shown in Table II, the crowd investor was willing to invest EUR 787 in equity projects.

Loan projects received average crowd investments of EUR 2.198. Professional investments

were excluded from the calculation of the average crowd investment, in order to enhance

comparability between loan and equity projects. As mentioned in 2.1.4. Regulator, the

Prospectus Directive curtails the investable amounts. Professionals invested an historically

high average of 70 % of the raised amount, in 23 out of 32 equity projects, for more than

EUR 12 million amounts raised by Beglian equity platforms (EUR 17 million). A third of the

equity companies received business angel finance. In consistency with prior numbers on

business angel finance, investments ranged from EUR 42.000 to 240.000 with an average of

EUR 103.000.

Table II – Average crowd investment

Average

crowd

investment

LOAN

EQUITY

min 825 100

max 4762 4051

average 2198 787

Median

2041

597

5.2. Firm level

A second analysis was done at the firm level (Table III). The average age of an equity seeking

company was 4 years, compared to 12 years for a loan seeking company. The oldest loan

seeking firm is dated from 1974 (42 years old), in contrast to the oldest equity seeking company

founded in 1999 (17 years old). The youngest firm was only 6 months old for both subsamples.

Equity firms had an average of 20% intangible assets over total assets. Intangible assets ratio’s

of loan companies were negligible. 19 of the equity seeking firms were (public) company type

NV and 12 of them are of (closed) type BVBA. 18 of the loan seeking companies are of the

company type BVBA and 11 are registered as NV. The other were cooperative firms. The equity

seeking company had an average of 4 board members, while loan seeking companies had only

2 or 3 board members. Not surprisingly, the average equity firm had a higher level capital.

Equity firms had an average of EUR 300.000 were the loan firm had only EUR 135.000. Equity

levels were not so different in the two subsamples because losses were carried over by early

stage equity firms and compensated the higher capital numbers. The median loan firm had total

assets of EUR 557.000, opposite to the median equity firm which had only EUR 116.000. Both

the average and the median of equity firms’ sales margin were negative. The average loan

company had a sales margin of EUR 273.000 which was in line with the respective average.

28

Table III - Age, Capital, Equity, Sales Margin and Total Assets

LOAN Age Capital Equity Margin Assets

(year)

min .5 6.200 -2.191.637 -2.465.319 6.309

max 42 8.333.824 7.985.617 1.670.784 18.677.656

average 12 (135.378) (297.149) (272.639) (1.216.361)

median 8 88.600 113.112 243.369 556.605

EQUITY

Age

(year)

Capital

Equity*

Margin

Assets

min .5 14.200 -236.460 -247.554 8.318

max 17 6.590.000 6.594.939 437.618 6.714.972

average 4 (298.004) (344.260) -7.135 (453.923)

median 3 301.000 70.888 -23.076 116.481

*A lot of equity firms had negative equity values because of carried-over losses in early stage.

Table IV indicates the higher debt ratio of the average loan firm. Loan firms were leveraged

up to 86%, opposite to equity firms (63%) . Over 70 percent of the loan crowd funded

companies obtained supplementary bank finance. A quarter of the equity start-ups had a debt

ratio below 10 percent.

Table IV – Debt Ratio

Debt ratio

LOAN

EQUITY

min 41% 0%

max 199% 397%

average (86)% (63)%

Median

84%

59%

The valuation in table V is calculated as in section 2.4.1. Selection and valuation. The pre-

money valuation is based on cash flows and capital structure before fund raising, whereas post-

29

money is calculated after fund raising naturally. The range of the valuations shows that equity

crowdfunding is used for both small and big scale projects. The difference between pre-money

and post-money valuation is higher than the raised amount in 22 equity projects, which indicates

value creation.

Table V – Valuation of Equity firms

Pre-Money Val

Post-Money Valuation

min 150.000 378.000

max 15.000.000 18.875.000

average (1.394.940) (1.929.152)

median

857.500

1.275.000

6. Discussion

6.1. Conclusion

At the project level, the average loan crowd investment was more than double the amount for

equity projects. The explanation can be found in section 2.5 Risk an Information Asymmetry.

Loan investments traditionally pose lower levels of risk exposure because of the periodical

repayments and the average duration of 4 years. Equity investments were made in the longer

term, as investors were contractually bound to holding shares for at least 5 years (data was

retrieved from the Belgian official Journal). Equity investors also account for higher risk

premium given the early-stage nature of the firms. Qualified investors often ask value-adding

premium. The premium has to account for value-adding services towards the company, which

were delivered by the investor. Therefore, required returns are often higher in equity

crowdfunding. We can conclude that loan investors are willing to invest significantly higher

amounts than equity investors, because equity investors aim for projects with higher returns in

the longer term. Equity firms raised nearly the threefold of amounts of loan firms, on average,

from twice as many investors. Loan crowdfunding platforms had an absolute limit of EUR

300.000 for loan projects, while equity projects were able to exceed this limitation by means of

professional investments. The discrepancy in raised amounts is thus accomplished by qualified

investors, as the average crowd investment for equity firms was EUR 138.000. The co-investing

that takes place is thus partly compensated by the higher average funding targets of equity

projects. For example, an equity project with a funding target of EUR 233.000, had only EUR

130.000 crowd investments, because EUR 103.000 were professional investments. The number

of investors is related to the smaller average crowd investment and raised amount by the crowd,

naturally, as more investors are needed to reach the funding target.

The Belgian equity seeking company is very different form the loan seeking company.

Loan crowd funded companies were three times older than equity ones. The difference in age

for each crowdfunding market can be explained by the pre-defined motivation of a company to

30

enter the crowdfunding market, in addition to the different selection criteria from the platforms.

Younger companies prefer equity crowdfunding because of the need for all kinds of expertise

from investors. Another motivation is market validation or proof-of-concept, which is more

applicable to start-up companies with new ideas that are not proven yet. This motivation was

backed up by the higher levels of intangible assets. Early-stage ventures frequently lack a track

record, collateral or reputation effect to obtain bank finance at normal rates. Equity

crowdfunding can be seen as the new validation of business plans by a diversified crowd. It can

serve as an alternative to a bank loan, as banks can consider particular business plans as too

risky. Once the business is accepted by the crowd and confirmed by the market, the company

could ask for supplementary bank loans. Equity crowdfunding finance is filling in the finance

gap that exists for non-profitable companies in seed or early-stage, rather than being a real

competitive threat for banks. It fits a piece into the finance puzzle relative to revenue over time.

Older SMEs are in a completely different position concerning revenue over time. They

might have established family values and prefer to maintain control (ownership), so equity

financing is not always an option. Nevertheless, start-ups can also benefit from loan

crowdfunding. The bank is often reluctant to finance young early-stage firms because of the

limited collateral it has on business assets in case of a bankruptcy. Furthermore, most

entrepreneurs do not want to give their personal assets in collateral in order to obtain additional

bank finance. Loan crowdfunding could then provide a solution. This type of crowdfunding

could be considered an non-competitive alternative to traditional debt finance. Moreover, 70%

of the loan funds are raised in addition to a bank loan. The crowdfunding loan can be seen as

the entrepreneur’s proper resources which are required to obtain bank finance. This is confirmed

by the high debt ratios of the loan firms in my sample (see table IV). As mentioned in section

2.3.1., most loan projects were limited to replacement and expansion investments. The

motivation of both entrepreneur and investor is predominantly financial, in opposite to equity

crowdfunding. Empirical research reveals that crowd lenders traditionally consider investing in

loan crowdfunding less risky than investing in bonds. This can be justified by the historically

high repayment ratios.

On the other hand, mature companies can benefit from equity crowdfunding as well.

The old-established company might pursue a fruitful relationship with new investors to

implement fresh ideas or strategies. A majority of 60 % of the equity seeking companies were

of open company type (NV), while 60 % of the loan seeking firms were registered as a closed

company type (BVBA). Even though equity seeking companies are younger and smaller, they

have an average of 4 board members, while loan seeking companies have less than 3 board

members. In many cases one or more qualified investor has a seat in the board of directors of

the equity seeking company. Equity firms had higher levels of capital, lower levels of assets,

and same levels of equity compared to loan firms. The explanation of the equity difference is

related to the sales margin. Most equity firms have a negative sales margin. The older loan

funded companies retained more earnings over time which accumulated their equity. Most

early-stage ventures are not profitable from the start. They do not break even until after a couple

of years.

31

6.2. Policy implications

National and European policymakers could use this information to allocate resources where

stimulation or regulation is most effective. This means proper subventions are given to the right

people and research is done in the relevant field. Potential crowdfunding platform managers

could use this study as a guideline for what really drives entrepreneurs to initiate (and backers

to support) projects and what characteristics of the platform are ought to be most important.

Entrepreneurs (investors) could use this research as a guide for initiating (investing in)

crowdfunding projects in Belgium.

6.3. Limitations and directions for further research

First, this paper is rather descriptive in nature. My research is not revealing many new

relationships or concepts, but gives more of an insight in and a summary of existing ones. The

data that was used in this research has important limitations. The sample is limited to firms that

obtained successful funding. It could be interesting to investigate projects that failed to reach

their funding target. These failed projects could provide supplementary information combined

with the successful ones.

The sample also suffers from a survivorship bias. Only viable continuous firms are

included in the sample. Disrupted companies were excluded, even if they had reached their

funding target. The geographical bias of the research is that the sample is limited to exclusively

Belgian firms and projects. Outgoing cross-border investments are not accounted for in this

study. Therefore, the external validity of this research is limited. The conclusion from this

research might not be generalized throughout other countries. The data was retrieved from

annual reports regarding fiscal year 2014, which might involve a time bias.

Another limitation is the dual classification of investment-based crowdfunding used in

my sample. In the future, more hybrid forms of loan and equity will arise. Hybrid forms or

financial securities such as convertible bonds, silent partnerships and other were not included.

A direction for further research is the comparison of annual return on investment for

investors in equity and loan projects. One could try to compare the annual interest payment of

loan crowdfunding investments with the average discounted return (rise in share price and

annual dividends) on equity crowdfunding investments. At the time of this research, it was not

possible to calculate return on investment because the equity crowdfunding projects and

companies were too young. Hence an appropriate cash-out or exit was not possible yet. One

could also do a similar study in the future, when the Belgian tax shelter is activated. The pre-

tax shelter firms and projects of this study could then be compared with similar post-tax shelter

ones and the effect of the tax shelter could be examined.

32

7. References

1. European Commission, Crowdfunding in the EU Capital Markets Union,

http://ec.europa.eu/finance/general-policy/docs/crowdfunding/160428-crowdfunding-

study_en.pdf, 06/05/2016, 32.

2. Baeck, P., Collins, L., & Zhang, B. (2014). Understanding alternative finance. Nesta

and University of Cambridge.

3. A prospectus provides important financial and non-financial information to (potential)

investors when the firm issues capital to the public. The information a prospectus has

to contain is described in: Directive 2003/71/EC of the European Parliament and of the

Council of 4 November 2003 on the prospectus to be published when securities are

offered to the public or admitted to trading and amending Directive 2001/34/EC.

4. Article 3 (2) Prospectus Directive (see appendix A)

5. Le cadre réglementaire du financement participatif sous forme de souscription de titres

financiers ( Autorité des Marchés Financiers, 11/12/2014)

6. Exemption on the prospectus directive, Art. 18 § 1 (j)

7. A. Hakvoort, FG Lawyers, New crowdfunding rules as per 1 april 2016,

http://www.fglawyersamsterdam.com/wp-content/uploads/2016/03/20160316-New-

Crowdfunding-rules-as-per-1-April-20162.pdf, 22/04/2016

8. Cholakova, M., & Clarysse, B. (2015). Does the Possibility to Make Equity

Investments in Crowdfunding Projects Crowd Out Reward‐Based Investments?.

Entrepreneurship Theory and Practice, 39(1), 145-172.

9. Collins, L., & Pierrakis, Y. (2012). The venture crowd: Crowdfunding equity

investment into business. Nesta.

10. Business Angels Network Deutschland, The European Business Angels Market: An

approximation, http://www.business-angels.de/wp-content/uploads/2015/12/BAE-

The-European-Business-Angel-Market.pdf, 09/05/2016.

11. Singer, S., Amorós, J. E., & Arreola, D. M. (2015). Global entrepreneurship monitor:

2014 global report. Global Entrepreneurship Research Association, 1-116.

12. Art. 214 W.Venn. § 1

(Boek VI, Titel II, Hfdst I, January 2002,

http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=199905

0769&table_name=wet, 15/02/2016)

13. Art. 439 W.Venn.

(Boek VII, Titel II, Hfdst I, January 2002,

http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=199905

0769&table_name=wet, 15/02/2016)

33

14. Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity

crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955-980.

15. Wilson, K. E., & Testoni, M. (2014). Improving the role of equity crowdfunding in

Europe's capital markets. Available at SSRN 2502280.

16. Article 28 § 2 of MiFID Directive 2013/36/EU.

17. Article 29 § 1 of MiFID Directive 2013/36/EU.

18. European Commission, Crowdfunding in the EU Capital Markets Union,

http://ec.europa.eu/finance/general-policy/docs/crowdfunding/160428-crowdfunding-

study_en.pdf, 06/05/2016, 31.

19. Véron, N., & Wolff, G. B. (2016). Capital markets union: a vision for the long term.

Journal of Financial Regulation, 2(1), 149.

20. Tax shelter, http://www.dekamer.be/FLWB/PDF/54/1125/54K1125001.pdf, page 62,

21/03/2016. Numbers are applicable for fiscal year 2016.

21. Eurocrowd, Purpose, http://eurocrowd.org/about-us/purpose/, 21/03/2016.

22. Hagedorn, A., & Pinkwart, A. (2016). The Financing Process of Equity-Based

Crowdfunding: An Empirical Analysis. In Crowdfunding in Europe (pp. 71-85).

Springer International Publishing.

23. Mymicroinvest, Frequently Asked Questions for investors,

https://www.mymicroinvest.com/en/faq#/question/33, 23/03/2016.

24. Bolero, Tarieven, https://bolero-crowdfunding.be/nl/meer-weten/tarieven, 23/03/2016.

25. Lookandfin, frequently asked questions for investors,

http://www.lookandfin.com/nl/lookandfin/page/faq-lenen-59/, 05/04/2016.

26. Wilson, K. E., & Testoni, M. (2014). Improving the role of equity crowdfunding in

Europe's capital markets. Available at SSRN 2502280

27. Shane, S., & Venkataraman, S. (2000). The promise of entrepreneurship as a field of

research. Academy of management review, 25(1), 217-226.

28. S. Manigart et al, Growth Capital and Buy-outs guide for Belgium,

http://www.bva.be/wp-content/uploads/2014/12/BUY-OUT-GUIDE-EN.pdf,

19/04/2016

29. Bhagat, S. (2014). Why do venture capitalists use such high discount rates?. The

Journal of Risk Finance, 15(1), 94-98.

30. R.Vossen, Investeringsbarometer 2015, http://www.ark-

angelsfund.be/content/BanVlaanderen/uploads/docs/Barometer%20Reginald%20Voss

en.pdf, 21/04/2016

34

31. Sapienza, H. J., Manigart, S., & Vermeir, W. (1996). Venture capitalist governance

and value added in four countries. Journal of Business Venturing, 11(6), 439-469.

32. Schrever, K. (2016, March 21). Bolero staat klaar met secundaire markt voor

crowdfunding via blockchain-technologie en heeft Europese primeur [Press release].

Retrieved from: https://bolero-crowdfunding.be/uploads/media/56f150d1b7063.pdf

33. A Besloten Vennootschap met Beperkte Aansprakelijkheid (BVBA) is a Belgian

company with limited liability (similar to a SCRL)

34. A Naamloze Vennootschap (NV) is a Belgian publicly limited liability company

(similar to a PLC)

35. Schwienbacher, A., & Larralde, B. (2010). Crowdfunding of small entrepreneurial

ventures. Handbook of entrepreneurial finance, Oxford University Press, Forthcoming.

36. Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity

crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955-980.

37. Agrawal, A. K., Catalini, C., & Goldfarb, A. (2011). The geography of crowdfunding

(No. w16820). National bureau of economic research.

38. Birley, S. (1986). The role of networks in the entrepreneurial process. Journal of

business venturing, 1(1), 107-117.

39. Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of

Economics, 797-817.

40. Burtch, G., Ghose, A., & Wattal, S. (2013). An empirical examination of the

antecedents and consequences of contribution patterns in crowd-funded markets.

Information Systems Research, 24(3), 499-519.

35

8. Appendices

Article 3

Obligation to publish a prospectus

1. Member States shall not allow any offer of securities to be made to the public within

their territories without prior publication of a prospectus.

2. The obligation to publish a prospectus shall not apply to the following types of offer:

(a) an offer of securities addressed solely to qualified investors; and/or

(b) an offer of securities addressed to fewer than 150 natural or legal persons per Member

State, other than qualified investors; and/or

(c) an offer of securities addressed to investors who acquire securities for a total

consideration of at least EUR 50000 per investor, for each separate offer; and/or

(d) an offer of securities whose denomination per unit amounts to at least EUR 50000;

and/or

(e) an offer of securities with a total consideration of less than EUR 100000, which limit

shall be calculated over a period of 12 months.

However, any subsequent resale of securities which were previously the subject of one or

more of the types of offer mentioned in this paragraph shall be regarded as a separate offer

and the definition set out in Article 2(1)(d) shall apply for the purpose of deciding whether

that resale is an offer of securities to the public. The placement of securities through

financial intermediaries shall be subject to publication of a prospectus if none of the

conditions (a) to (e) are met for the final placement.

3. Member States shall ensure that any admission of securities to trading on a regulated

market situated or operating within their territories is subject to the publication of a

prospectus.

Appendix A - Prospectus Directive

Source: European Commission

36

Appendix B – The Equity Crowdfunding process

Source: Springer

Appendix C – Stages in Equity Crowdfunding

37

2014

Entrepreneurship

is good carreer

choice

Perceived

opportunities

Fear of

failure

Early-stage

entrepreneurial

activity (TEA)

New business

ownership

rate

Belgium 52,4 35.9 49,4 5,4 2,5

Italy 56,1 26,6 49,1 4,4 1,3

Netherland

s 79,1 45,6 34,8 9,5 4,5

France 59 28,3 41,2 5,3 1,7

Germany 51,7 37,6 39,9 5,3 2,3

Spain 53,9 22,6 38 5,5 2,2

UK 60,3 41 36,8 10,7 4,5

2015

Belgium 54,2 40,3 48,5 6,2 2

Italy 60,9 25,7 57,5 4,9 1,7

Netherland

s 79,2 48,4 33,2 7,2 3

France

Germany 50,8 38,3 42,3 4,7 1,9

Spain 53,2 26 39,2 5,7 3,6

UK 57,8 41,6 34,9 6,9 2,9

Appendix D – Entrepreneurial characteristics

Source: GEM report 2014-2015, reworked

38

Appendix E - Amounts raised in Belgium (2014)

Source: Bolero Crowdfunding Research 2015

39

Appendix G – Organization structure

Source: Bolero crowdfunding

Appendix F - Investment strategy of Inventures

Source: Mymicroinvest

40

CROWD

INVESTOR

Finance (SPV)

D/E NOTE

SMEs

Appendix H – Organization structure

Source: Mymicroinvest Finance (reworked)

41

Appendix I –

National

interpretation of

the European

Prospectus

Directive

42

Source: European Commission

43

Appendix J – EU: size of the financial crowdfunding market 2015

Source: European commission

Amount 100.000

Monthly

installment

2.488,5

Annual interest rate 9,0%

period 48 months

Total interest 19.448

Global return 19,4%

Date Monthly

installment

Principal interest balance

1-4-2015 2.489 1.739 750 98.261

1-5-2015 2.489 1.752 737 96.510

1-6-2015 2.489 1.765 724 94.745

1-7-2015 2.489 1.778 711 92.967

1-8-2015 2.489 1.791 697 91.176

… … … … …

1-12-2018 2.489 2.415 73 7.355

1-1-2019 2.489 2.433 55 4.922

1-2-2019 2.489 2.452 37 2.470

1-3-2019 2.489 2.470 19 0

Total 119.448 100.000 19.448

Appendix K – Monthly installments and global return, in EUR.