Palgrave Macmillan Studies in Banking and Financial Institutions

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1 Palgrave Macmillan Studies in Banking and Financial Institutions Series Editor Philip Molyneux Bangor Business School Bangor University United Kingdom

2 The Palgrave Macmillan Studies in Banking and Financial Institutions series is international in orientation and includes studies of banking systems in particular countries or regions as well as contemporary themes such as Islamic Banking, Financial Exclusion, Mergers and Acquisitions, Risk Management, and IT in Banking. The books focus on research and practice and include up to date and innovative studies that cover issues which impact banking systems globally. More information about this series at

3 Roberto Bottiglia Flavio Pichler Editors Crowdfunding for SMEs A European Perspective

4 Editors Roberto Bottiglia University of Verona VERONA, Italy Flavio Pichler University of Verona VERONA, Italy Palgrave Macmillan Studies in Banking and Financial Institutions ISBN ISBN (ebook) DOI / Library of Congress Control Number: The Editor(s) (if applicable) and The Author(s) 2016 Th e authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Th e use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Th e publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper Th is Palgrave Macmillan imprint is published by Springer Nature Th e registered company is Macmillan Publishers Ltd. London

5 Contents 1 Introduction 1 Roberto Bottiglia and Flavio Pichler 2 Crowdfunding as a New Phenomenon: Origins, Features and Literature Review 5 Flavio Pichler and Ilaria Tezza 2.1 Introduction What Is Crowdfunding? Features of Financial Return Crowdfunding Platforms Motivations for Participation in a Crowdfunding Campaign Risks of Crowdfunding Crowdfunding Market Literature Review Future Research 41 3 Web 2.0 as Platform for the Development of Crowdfunding 45 Federico Brunetti 3.1 Introduction Features of Web v

6 vi Contents 3.3 Crowdsourcing and Crowdfunding: Context, Subjects, and Objects of Exchange Crowdfunding and Web 2.0: Mutual Interaction and Consequences Questions for the Future 59 4 Competitive Frontiers in P2P Lending Crowdfunding 61 Roberto Bottiglia 4.1 Introduction P2P Lending: Types and Business Models P2P Lending Market Conditions Favouring the Growth of P2P Lending Competitive Advantages of P2P Lending Problems and Risks of P2P Lending Competitive Reactions and Positioning of Banks and Other Financial Institutions The Role of Institutional Investors and Internet-Based Service Providers Conclusions 89 5 How to Obtain Credit from Alternative Funding Agents 93 Giuliana Borello 5.1 Introduction Literature Review on P2P Lending Analysis of P2P Lending Platforms Sample Selection Process Methodology and Results Mini-Bonds Conclusion 114

7 Contents vii 6 Competitive Frontiers in Equity Crowdfunding: The Role of Venture Capitalists and Business Angels in the Early-Stage Financing Industry 117 Vincenzo Capizzi and Emanuele Maria Carluccio 6.1 Introduction The Early-Stage Financing Industry: The Funding Gap Issue The Main Actors in Early-Stage Financing Equity Crowdfunding Informal Investors Business Angels Business Angel Networks, Syndicates, Groups and Clubs of Angels Incubators and Accelerators Institutional Investors Venture Capital Firms Corporate Venture Capitalists Seed Venture Funds Private Equity Firms Non-investing Institutions Gatekeepers Non-profit Foundations Business Angels and Venture Capitalists: A Comparative Analysis Business Angels and Venture Capitalists: Similarities and Differences Business Angels and Venture Capitalists: Empirical Evidence from the Italian Capital Market Deals Performed by Institutional Investors 143

8 viii Contents Deals Performed by Institutional Investors and Business Angels in Syndication Deals Performed Only by Business Angels Conclusions and Policy Suggestions The Role of Equity Crowdfunding in Financing SMEs: Evidence from a Sample of European Platforms 159 Veronica De Crescenzo 7.1 Introduction The Business Model of Equity Crowdfunding Platforms Factors for Success of a Funding Campaign: an Explanatory Study Features of a Sample of Successful European Equity Crowdfunding Campaigns Conclusions Financial Crowdfunding Regulation in EU Countries 185 Paolo Butturini 8.1 Introduction France Germany Italy The Netherlands Spain The United Kingdom Final Remarks 208 References 211 Index 227

9 About the Authors Roberto Bottiglia is Full Professor in Banking and Finance at the Department of Business Administration at the University of Verona. His research interests include bank marketing, the structure of financial systems and bank strategies. Former dean of the Department of Business Administration at the University of Verona. Giuliana Borello is Post-Doc Fellow in Financial Markets and Institutions at the University of Verona, where she teaches Financial Markets and Institutions at graduate and undergraduate level. Her main research interests are related to banks, other financial institutions and crowdfunding. Federico Brunetti is Full Professor of Business Management at the Department of Business Administration at the University of Verona. His research interests include brand and branding, macro-marketing, epistemology and methodology in management disciplines, decision making and cognitive traps, tourism and destination management. Paolo Butturini is Assistant Professor in Business Law at the Department of Law at the University of Verona. He teaches basis of commercial law at the School of Foreign Languages and literature at undergraduate level. His main research interests are related to balance sheet, limited liability companies and crowdfunding. Vincenzo Capizzi is Full Professor in Banking and Finance at the Eastern Piedmont State University, Novara, where he serves as Rector s Delegate to ix

10 x About the Authors Cooperation and Development. He is the owner of the undergraduate course Financial Markets and Institutions and of the postgraduate course Investment Banking. He also lectures at the Department of Finance at Bocconi University in Investment Banking. His research interests are investment banking, M&A and buy-outs, debt restructuring, financial institutions economics, venture capital, business angels and start-up financing. His latest book deals with corporate crises and debt restructuring procedures. He sits on the board of IBAN (Italian Business Angels Network), where he is the Head of the Research Department. Emanuele Maria Carluccio is Full Professor in Financial Markets and Institutions at the University of Verona, where he teaches Financial Markets and Private & Corporate Banking to postgraduates. His research interests are related to asset management, advisory for both retail and institutional clients, and venture capital and private equity. Former dean of the University of Valle d Aosta. Veronica De Crescenzo is Assistant Professor in Financial Markets and Institutions at the University of Verona, where she teaches Financial Institutions and Markets at the undergraduate level. Her research interests are related to operational risk in banks, structure of financial markets, central securities depositories regulation and crowdfunding. Flavio Pichler is Associate professor in Financial Markets and Institutions at the University of Verona, where he teaches Financial Markets and Institutions and Economics of Banking and Insurance at both undergraduate and graduate levels. Research interests include theory, regulation and supervision of financial systems, economics of insurance and banking, risk management in financial institutions and crowdfunding. Ilaria Tezza is Post-Doc fellow in Financial Markets and Institutions at the University of Verona. She holds a Ph.D. in Business Administration from the University of Verona. Her research interests are related to banks, insurances, financial regulation and supervision of financial systems, systemic risk and crowdfunding.

11 Abbreviations ACA AFM B2B B2P BAGs BANs BAs BASs CIP DIY EBAN ESMA FCA FFF FSA FSB GDP HNWIs IBAN IBO ICT IFP Angel Capital Association Autoriteit Financiële Markten Business-to-business Business-to-person Business angel groups Business angel networks Business angels Business angel syndicates Conseil en investissement participatif Do-it-yourself European Trade Association for Business Angels, Seed Funds and Early Stage Market Players European Securities and Markets Authority Financial Conduct Authority Family, friends and fools Financial Supervision Act Financial Stability Board Gross domestic product High net worth individuals Italian Business Angels Network Initial bond offering Information and communication technology Intermédiaire en financement participatif xi

12 xii Abbreviations IPO Initial public offering IRR Internal rate of return ISAs Individual savings accounts IT Information technology LBOs Leveraged buy-outs M&A Merger and acquisition MARF Mercado Alternativo de Renta Fija MBIs Management buy-ins M-bond Mittelstandbond MBOs Management buy-outs MiFID Market in Financial Instruments Directive MTFs Multilateral trading facilities P2B Peer-to-business P2P Peer-to-Peer PSI Prestataire de services d investissement R&D Research and development ROSCA Rotating Savings and Credit Association SAS Société par actions simplifiée SMEs Small and medium-sized enterprises SPV Special purpose vehicle UGC User-generated content UKBAA UK Business Angels Association VCs Venture capitalists VeM Venture Capital Monitor

13 List of Figures Fig. 2.1 Bank loans to non-financial corporations ($bn) 7 Fig. 2.2 Monthly active users on Facebook and Twitter 8 Fig. 2.3 Crowdfunding models 13 Fig. 2.4 Crowdfunding global volumes ($bn) 23 Fig. 2.5 Crowdfunding volumes per geographical area ($bn) 23 Fig. 2.6 Crowdfunding global volumes per type ($bn) 24 Fig. 2.7 European crowdfunding market ( m) 25 Fig. 2.8 European crowdfunding market per type ( m) 26 Fig. 3.1 Subjects, objects and exchange flows in crowdfunding processes 57 Fig. 4.1 P2P lending in the context of financial return crowdfunding 62 Fig. 5.1 P2P lending platforms in Europe by year of establishment 101 Fig. 5.2 P2P lending platforms launched and failed in the years Fig. 6.1 Early company lifecycle 120 Fig. 6.2 The primary and secondary funding gaps 121 Fig. 6.3 The relationship between company lifecycle and typologies of equity investors 122 Fig. 6.4 Number of target companies 141 Fig. 6.5 Number of deals 142 Fig. 6.6 Number of investors 143 xiii

14 xiv List of Figures Fig. 6.7 Total amount invested ( m) 143 Fig. 6.8 Nationality of investors 144 Fig. 6.9 Stage of development 144 Fig Ownership of target companies 145 Fig Geographical distribution 146 Fig Investments by industry 146 Fig Nationality of investors 147 Fig Stage of development 148 Fig Ownership of target companies 148 Fig Geographical distribution 149 Fig Investments by industry 150 Fig Stage of development 151 Fig Geographical distribution 152 Fig Investments by industry 153 Fig. 7.1 Amount of funds raised and number of investors for successful funding campaigns 171 Fig. 7.2 Amount of funds raised and number of investors for smaller successful funding campaigns 172 Fig. 7.3 Amount of funds raised and funding window for successful funding campaigns 172 Fig. 7.4 Percentage of funds raised and funding window for successful funding campaigns 173

15 List of Tables Table 4.1 Main P2P lending platforms in the US, the UK and China 67 Table 5.1 European P2P lending platforms in the sample 99 Table 5.2 Main features of P2P lending platforms 100 Table 5.3 Borrowers characteristics 104 Table 5.4 Lenders characteristics 105 Table 6.1 The main actors of the early stage financing industry 123 Table 6.2 Angel investing and venture capital in Table 6.3 Amount invested and stake purchased 145 Table 6.4 Amounts invested by venture capitalists and business angels and stake purchased 149 Table 7.1 Main features of equity crowdfunding platforms 163 Table 7.2 Main features of a sample of successful and unsuccessful funding campaigns 167 Table 7.3 Main features of successful funding campaigns 176 Table 7.4 Summary statistics of the main variables for successful funding campaigns 177 Table 7.5 Summary statistics of the main variables for the successful funding campaigns each year 179 Table 7.6 Main features of successful funding campaigns for non start-ups 180 Table 7.7 Summary statistics of main variables for successful funding campaigns of non start-ups 181 xv