The response was articulated around The European Equity Crowdfunding Association to which Private Investments Networks is a member. The main comments were about:

The specificities of equity crowdfunding

The initial aim of equity crowdfunding is to support companies at each stage, and more specifically at early stages. The current average of the offers published on a website by European crowdfunding platforms is €250,000. The size of the offers is mainly between €50,000 and €1,500,000.

Therefore, we think that the 5,000,000 € threshold is appropriate to support the crowdfunding development in respect of SMEs at early stages or small entities out of the scope of the Prospectus requirements.

Crowdfunding isn’t really a securities offering to the public. The issuers raising capital through a platform shall be granted an exemption to the public offering rules. Nevertheless, the need to protect the investors has to remain; hence it should be made mandatory for the issuer to maintain a flow of corporate information to its investors and to find the best solution to facilitate liquidity opportunities for the investors coming from this type of funding.

Needs of harmonization

The diversity of domestic regulations is a barrier to the crowdfunding development equity within Europe. Each EU Member State has a different domestic policy regarding Prospectus requirements. As an example, the exemption threshold varies: it is €1M in Germany, France, Romania, and €5M in Spain, Italy & the UK etc.

This creates barriers within the EU for crowdfunding both for platforms and issuers. The key point to harmonize and unleash the potential of crowdfunding is that all countries adopt similar requirements. Among them:
– the same prospectus threshold of €5M,
– the same information requirements (key Issuer information document – KIID)
– the same platforms and the Issuers responsibilities regarding this documentation.

Currently, there are regulatory competitive advantages disrupting the market and some platforms are willing to transfer their principal office to other countries to address their own domestic market.

At least, the issuer using Crowdfunding should have harmonized obligations throughout Europe.

Description of the KIID

The Directive shall harmonize a Key Issuer Information Document. This documentation should have clear definitions. It should be required for companies raising capital below the threshold, but not subject to the previous authorization of a National competent authority. The issuer should provide this information under his/her own responsibility and allowed to personalize the information given in order to adapt it to its project and situation. The template provided by the directive should aim at providing a harmonized way to present each information category.

Thus, we think that there should always be an information document (referred to as “KIID”) stating the information that the SME can provide at its sole discretion (mainly based on existing documentation):
– The annual accounts summary (balance sheet and Income statement) for the past 3 years, stating if they are audited and by whom. (Indicative length: max 12 pages)
– A documentation stating the strengths (patents, technology, know-hows, etc.) and main threat the issuer sees (competition, obsolescence, etc.) (max 1 page)
– A short bio of the founders, the board members (if any), the advisory committee members (if any) (max 2 paragraph per bio)
– Current capital structure & dilution due to the fund raising (one table)
– In an appendix, the issuer should add any existing commercial information that he views relevant for the investor. It could be about the product/service and about the market.
When some information does not exist, the issuer should just state that he doesn’t have this information and why.

Given the level of experience/expertise of the retail investors, the complexity of such a document should aim to provide conceptually simple examples, as is now expected in medical publications for consumers.

The KIID should both remain simple as entrepreneurs lack of experience and investors sophistication, and be very explicit.

Need for a single, integrated EU filing system for all prospectuses

It can be set up at a low cost and provide a simple solution to investor’s access to information. It should be set up in a flexible way enabling investors to access to the information of the prospectuses they are interested in and be easily integrated into data feeds to enable diffusion through the intermediaries and media information systems.

François-Eric Perquel.

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