Crowdfunding in Estonia

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Crowdfunding in Estonia is a rapidly growing sector that allows individuals and organisations to raise funds for various projects through online platforms. While crowdfunding in Estonia holds significant potential and is appealing to both investors and entrepreneurs, it requires a careful approach to project selection and a thorough understanding of the associated risks.

Contents

History

Crowdfunding in Estonia began to develop in 2007 with the launch of the country's first national crowdfunding platform, Bondora, which focused on peer-to-peer lending. [1] In 2012, the most popular crowdfunding platform in Estonia today, Hooandja, was created, catering to creative projects. [2] [3]

Over time, crowdfunding has become an important tool for financing startups and innovative projects, especially those that may struggle to obtain traditional bank loans. In addition, it offers private investors the opportunity to participate in projects with minimal contributions, starting from as little as 1 euro. [4]

As of September 2024, more than 20 national crowdfunding platforms are operating in Estonia, enabling companies and individuals to raise funds for their projects. Each platform has unique features, such as the type of crowdfunding model, funding options, target audience, level of support and advice, and fees charged. [5]

The Estonian Business Angels Association (EstBAN), founded in 2012, is also closely linked to the crowdfunding sector. As a result of EstBAN's activities, Estonia ranked first among European countries in terms of investment to GDP ratio in 2014. [6] In 2020, EstBAN invested a total of 6.7 million euros in 259 companies. [7]

Analysts note that Estonia likely has the highest per capita crowdfunding rates in Europe, with real estate crowdfunding dominating the sector. [5]

Estonian Crowdfunding Platforms

Examples of Successful Projects

Crowdfunding in Estonia has enabled numerous initiatives, including the reconstruction of public spaces and cultural sites.

As crowdfunding grew in popularity, the need for regulation became apparent. In 2013, significant legislative changes were introduced in Estonia to improve investor protection and standardise services, including the introduction of a crowdfunding licence.

Under Regulation (EU) 2020/1503 of the European Parliament and Council of 7 October 2020, which regulates crowdfunding in European Union countries, as of 11 November 2023, all crowdfunding platforms offering investment opportunities in Estonia are required to obtain the relevant permits before commencing operations. However, as of November 11, 2023, licences had only been issued to two companies — Crowdestate AS and Estateguru OÜ, with several other applications under review. [35]

In early 2021, Estonia also passed a bill introducing additional obligations and stricter criteria for crowdfunding platforms and their activities to enhance investor protection.

Challenges

Fraud and Lack of Trust

In 2020, a major scandal emerged involving two crowdfunding platforms created by Latvians but registered in Estonia — Kuetzal and Envestio. [36]

The platforms promised investors returns of 20% or more and the ability to withdraw funds at any time, but in January 2020, both disappeared with all the funds they had raised. [37] Kuetzal's collapse affected over 550 people, with losses amounting to €3 million, while Envestio's collapse impacted more than 1,800 people, with losses around €10 million. [38]

Authorities in both Latvia and Estonia launched criminal investigations into fraud in connection with these incidents. [39] Both platforms later declared bankruptcy and admitted all investor claims. [38]

Liquidity

Some crowdfunding platforms face liquidity issues, raising concerns among investors and highlighting the risks. For example, in September 2019, Q-haus Baltic, a company raising funds through Crowdestate, went bankrupt, but investors were not notified in time. However, liquidity problems among developers are relatively rare, and the issue cannot be considered widespread. [40]

Insufficient Regulation

The activities of crowdfunding companies and investors are still poorly regulated by law. Many legal aspects of crowdfunding in Estonia remain undefined and require clarification. The question of legal regulation of crowdfunding activity in Estonia remains relevant, especially in light of recent litigation and transparency issues in some projects. [41]

Related Research Articles

Seed money, also known as seed funding or seed capital, is a form of securities offering in which an investor puts capital in a startup company in exchange for an equity stake or convertible note stake in the company. The term seed suggests that this is a very early investment, meant to support the business until it can generate cash of its own, or until it is ready for further investments. Seed money options include friends and family funding, seed venture capital funds, angel funding, and crowdfunding.

Crowdfunding is a process in which individuals or groups pool money and other resources to fund projects initiated by other people or organizations "without standard financial intermediaries." Crowdfunded projects may include creative works, products, nonprofit organizations, supporting entrepreneurship, businesses, or donations for a specific purpose. Crowdfunding usually takes place via an online portal that handles the financial transactions involved and may also provide services such as media hosting, social networking, and facilitating contact with contributors. It has increased since the passage of the Jumpstart Our Business Startups (JOBS) Act.

InvestedIn is a crowd funding website for fund raising projects and charity events such as walkathons and celebrity cause-based campaigns. InvestedIn is also a technology provider offering a white label crowdfunding platform for commercial and non-profit use.

MicroVentures is an equity crowdfunding website that offers investments in early stage companies. It connects accredited investors with startups, businesses and services looking to raise funds or participate in select secondary market opportunities.

Crowdcube is a British investment crowdfunding platform, established by Darren Westlake and Luke Lang in 2011.

<span class="mw-page-title-main">Companisto</span> Equity-based crowdfunding website

Companisto is a German equity-based crowdfunding website. It allows investors to invest in startup companies. In return, they become shareholders and are entitled to a share of any profits, as well as potentially benefiting from an exit.

Fundrise is a Washington, D.C.-based financial technology company founded in 2010 that operates an online investment platform. Fundrise has been labeled as the first company to successfully crowdfund investment into the real estate market.

Planeta.ru is a Russian crowdfunding platform, one of the first and currently the biggest in the country. It allows to fund creative, scientific, social, entrepreneurial and other projects by raising money from a large number of individuals. From its founding in June 2012 until February 2019 over 4500 projects totaling billion rubles were funded.

Equity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a part of the capital markets. Because equity crowdfunding involves investment into a commercial enterprise, it is often subject to securities and financial regulation. Equity crowdfunding is also referred to as crowdinvesting, investment crowdfunding, or crowd equity.

VentureCrowd is an Australian multi asset class crowdfunding platform, headquartered in Sydney, including equity crowdfunding, property crowdfunding and debt-based crowdfunding. VentureCrowd completed the largest Australian equity crowdfunding raise, $4.2 million, for taxi-booking and payment software company Ingogo in May 2015. This deal is ranked 8th on the List of highest funded equity crowdfunding projects. This deal is ranked 8th on the List of highest funded equity crowdfunding projects. In June 2016, VentureCrowd raised more than $900,000 for a Western Sydney residential project - a 35-lot development in Riverstone East, in partnership with the property developer ClearState. In August 2016, a second project raised $1,700,000 for a 44-lot development project in Austral.

Exporo is a real estate crowdfunding platform, based in Hamburg, Germany.

Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over US$34 billion was raised worldwide by crowdfunding.

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Groundfloor is an American real estate investing and lending marketplace. It was the first real estate crowdfunding company to achieve SEC qualification utilizing Regulation A+ after the regulation became operable through the JOBS Act.

Beesfund is a Polish equity crowdfunding platform based in Warsaw, Poland. Managed by its eponymous company founded in 2012 by entrepreneur Arkadiusz Regiec, it is one of the first crowdfunding platforms in Poland, and Central and Eastern Europe. As of May 2020, 74 public offerings (issuances) were carried out on the platform, for a total amount of PLN 47M, collected by over 48,000 registered investors.

Veriff is a global identity verification service company founded and headquartered in Tallinn, Estonia. The company offers services for online businesses to mitigate fraud attempts and assisting regulatory compliance. Offering protection from identity fraud and identity theft, Veriff verifies a customer's identity automatically, using an AI that analyzes a multitude of technological and behavioural indicators, including facial recognition. The service is provided to companies as an API, which has been compared to Stripe.

<span class="mw-page-title-main">Sepa Jalgpallikeskus</span> Football stadium in Tartu, Estonia

Sepa Jalgpallikeskus is a football stadium in Tartu, Estonia. Opened in 2016, it is the training centre of Tartu Tammeka, whose first team also uses the artificial turf field as a home ground during winter and early spring months.

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<span class="mw-page-title-main">Change (company)</span>

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Hooandja is an Estonian crowdfunding platform created in 2012 to support and realize creative projects. It is the largest crowdfunding platform in the Baltic countries. The company is registered in Tartu with its headquarters located in Tallinn.

References

  1. ↑ "Bondora Overview". PitchBook.
  2. ↑ "Mis asi on ühisrahastus?". Stardipaik.ee. (in Estonian). 2014-12-12. Archived from the original on 2017-04-23.
  3. ↑ Teder, Merike (2013-02-14). "Kodanikuühiskonna eripreemiad said Hooandja ja Silver Meikar". Postimees (in Estonian).
  4. ↑ "Reinvest24". CrowdSpace.
  5. 1 2 "Crowdfunding platforms in Estonia". crowdinform.com.
  6. ↑ Aasmäe, Kalev (2014-06-30). "Äriingel: Eesti peaks looma maksusoodustusi". Postimees (in Estonian).
  7. ↑ "Annual review 2020". Est BAN. Archived from the original on 2021-12-06.
  8. ↑ "Boldyield". CrowdSpace.
  9. ↑ Neidhardt, Denny. "Bondora Go and Grow Review: Still Worth Investing?". re:think P2P.
  10. ↑ "Latvian real estate technology company expanding into the EU". The Baltic Times. 2023-01-17.
  11. ↑ Sarapuu, Merilin (2015-02-26). "Kui pank ütleb "ei"". Aripaev (in Estonian).
  12. ↑ "Efinza". CrowdSpace.
  13. 1 2 3 4 5 Фефилов, Дмитрий (2018-02-05). "Краудфандинг или как не дать своим деньгам протухнуть". Деловые ведомости (in Russian).
  14. ↑ Tucker, Charlotte (2020-08-18). "Estonian fintech EvoEstate raises €320K to grow its next-gen investment platform globally". EU-Startups.
  15. ↑ "Pressiteade: Avatakse Baltikumi esimene osaluspõhine ühisrahastusplatvorm". fundwise.me (in Estonian). 2015-08-25.
  16. ↑ "Income Marketplace". CrowdSpace.
  17. ↑ "Iuvo". CrowdSpace.
  18. ↑ "KAMA Grupp. Ühisrahastus". kamagrupp.ee (in Estonian).
  19. ↑ "Koodoo Global company profile". Tracxn. 11 September 2024.
  20. ↑ "Landex – Easily Invest in European Farmland and Forestland". P2P Banking. 20 September 2021.
  21. ↑ "Moncera". CrowdSpace.
  22. ↑ "New 7% Monefit SmartSaver Product Revolutionises Savings and Investment Market". Fintech Finance News. 2022-12-14.
  23. ↑ "Monestro". CrowdSpace.
  24. ↑ "€20 Million Invested in European Businesses with Quanloop". Financial IT. 2023-02-14.
  25. ↑ "Reinvest24.com". f6s.com.
  26. ↑ "Scramble". CrowdSpace.
  27. ↑ "Swaper". CrowdSpace.
  28. ↑ "Tribe Funding". CrowdSpace.
  29. ↑ "Meet UFANDAO: the decentralized fundraising platform to fulfill your financial needs and dreams". UK Herald Tribune. 2022-12-10.
  30. ↑ "Tutvustus". Sepa Jalgpallikeskus (in Estonian).
  31. ↑ "Sepa jalgpallikeskuse valmimist saab jälgida reaalajas". Tartu Postimees (in Estonian). 2016-05-04.
  32. ↑ Раудмяэ, Эгели (2022-07-11). "Эстонский ответ Голливуду засияет благодаря краудфандингу". Postimees (in Russian).
  33. ↑ "Lasnamäe kortermaja tegi ühisrahastuse ajalugu". Äripäev (in Estonian). 2017-01-27.
  34. ↑ "Opening of Planetarium in Tallinn". www.hooandja.ee.
  35. ↑ "Эстония вводит новые правила для краудфандинга: лицензии обязательны для всех платформ". RUP.ee (in Russian). 2023-11-13.
  36. ↑ "Envestio и Kuetzal – это мошенничество?". www.politsei.ee (in Russian). 2020-01-31.
  37. ↑ Кудрявцев, Николай (2020-02-17). "Краудфандинговые платформы - как пирамиды; Envestio и Kuetzal исчезли с деньгами". Kriminal.lv (in Russian).
  38. 1 2 Alois, JD (2020-06-10). "Envestio and Kuetzal are Bankrupt, According to Public Documents". Crowdfund Insider.
  39. ↑ Тооман, Артур (2020-02-04). "Полиция начала расследование деятельности краудфандинговых платформ Kuetzal и Envestio". err.ee (in Russian).
  40. ↑ Коппель, Карин (2019-09-13). "Банк: испытывающие проблемы ликвидности застройщики – исключение". err.ee (in Russian).
  41. ↑ Кочян, Александр. "Правовое регулирование краудфандинга в некоторых государствах — членах Европейского союза" (PDF). epomen.ru (in Russian).
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