Equity Crowdfunding for Spain’s Small Businesses

Crowdfunding For Spain's Small Businesses

Equity Crowdfunding For Spain’s Small Businesses

Equity crowdfunding is seen by many as the future of finance. The concept is simple: a large number of people contribute small amounts of money to build up an investment large enough to fund a specific project or start-up.

This financing option emerged in around 2008 and has gained momentum in the US, Canada and the UK as the global economic crisis continues to stifle public and private financing. US funding platform Kickstarter is one example of a success story. Founded in 2009, last year it raised 320 million US dollars for over 18,000 projects.

Spain has now become a champion of this funding alternative with the birth of Spain Crowd Funding, an organisation which includes platforms like LemonFruits, Projeggt and Worldcoo. The timing could not be better for many of the country’s small and medium-sized enterprises (SMEs) struggling to grow their businesses due to the stranglehold on credit.

CROWDFUNDING LIFELINE FOR SMEs

SMEs account for about 70 per cent of Spain’s economy, so maintaining their competitive advantage in a downturn is a key challenge for the government. Measures have been implemented, such as encouraging banks to offer credit lines to small firms with favourable conditions.

More recently, Spain has set up its own seed capital mechanism in response to a request from the venture capital community for greater public sector involvement to fuel investment.

But all this is a drop in the ocean for the large number of small businesses in need of growth capital. Crowdfunding could turn out to be their lifeline and also a future M&A catalyst as companies expand and competition heats up.

LIMITING INVESTMENT RISK

Some 5.1 billion euros will be raised via crowdfunding in 2013, according to specialist firm Massolution. Looking further ahead, Gartner consultants forecast that 30-35 per cent of funds invested in companies will be financed by individuals via crowdfunding in 2020.

Crowdfunding was passed into law in the US last April, as part of the JOBS Act. Many experts see this as an example for Europe to follow.

So how does Spain Crowd Funding aim to spread the good news? The organisation plans to prepare a document on the tax implications of crowdfunding and put together a handbook of  “good practices”  to boost investor confidence.

As with any investment, there is a risk, but this can be limited by tying how much individuals can contribute to their incomes. This is standard practice in the US.

While still at the beginning stage in Spain, crowdfunding has the potential to create businesses, employment and boost economic growth.

For information on crowdfunding in Spain, contact corporate law firm Argali Abogados.

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