Crowdfunding typically involves the raising of small sums of money from a large number of investors or supporters, usually through the Internet. Crowdfunding can be used to fund a company or a project through charitable donations, business lending or by selling small amounts of equity to a large number of investors.  As a return, the investors or supporters of a project are frequently offered different types of incentives by a project creator, such as free/discounted products or services relating to the project or business. For example, an app developer may offer investors early or free access to the finished product.

This form of funding is receiving a lot of attention in the US, with Kickstarter.com recently announcing that its website has raised over $1 billion in crowdfunding for personal projects.

Europe is also taking notice and has been exploring the possibilities of this growing form of funding, as well as the implications, for business and project financing. The European Commission launched a consultation in 2013 to review the national legal frameworks applicable to crowdfunding and to explore the potential of EU action.

In Ireland, the crowdfunding concept has also been gaining a lot of interest in recent months, with a number of crowdfunding platforms now operating in Ireland such as Linked Finance, iFund and Fund It. These Irish platforms facilitate the various forms of crowdfunding, including crowdfunding by way of donations, “pledges” or business loans.

The concept of equity crowdfunding (where investors subscribe for shares in the capital of a company) is a popular option in some US states. However, Irish companies considering this option would need to carefully consider the restrictions which apply under Irish law to a company offering shares or other securities to the public.

What’s Next for Crowdfunding?

While currently, there is no specific legislation in Ireland or the EU to deal with crowdfunding, we expect to see developments in this area. In fact, the Central Bank of Ireland recently warned consumers that crowdfunding, including peer-to-peer lending, is currently not a regulated activity in Ireland and as such consumers are not protected by the Deposit Guarantee Scheme or Investor Compensation Scheme. It confirmed that it is actively monitoring developments in the area and will continue to work closely with European authorities in this regard. We have seen the US include crowdfunding in its JOBS Act in 2012 and Europe is considering its position with the recent consultation on crowdfunding. As with other forms of public investment and funding, the need to protect investors will most likely result in some form of legal and regulatory intervention.

Elaine Morrissey