The present and future of crowdfunding

Mihkel Stamm, Crowdfunding Area Head of FinanceEstonia and COO of EstateGuru

Crowdfunding as a business model has proved itself over the ten years it has existed; the sector is growing rapidly and adding value to the economy. According to a study conducted at the University of Cambridge, Estonia is among the top countries in Europe ranked in terms of per capita volume of alternative funding. Our goal is to become leaders in this field also in terms of quality, stability and technological innovation.

The sector is growing fast

Over 20 crowdfunding platforms have been registered in Estonia alone. The number of platforms is also increasing in neighbouring countries. Why are there so many crowdfunding platforms in Estonia? The reason certainly lies in the simplicity of our enterprise environment, for which we are known around the world. Another reason is the lack of local regulation, which also simplifies the registration of crowdfunding platforms. A European crowdfunding regulation that will set a common framework for all countries has been in preparation since 2018 and will come into effect next year at the latest. Meanwhile, some EU member states (such as Finland and Lithuania) have developed and applied their own regulations. Estonia has therefore been a good place for business without direct regulatory supervision.

Estonia has advocated a European regulation, and the Ministry of Finance and FinanceEstonia have both actively participated in the preparation of the regulation. I think this approach has not been wrong, as examples from other countries show that hastily adopted regulations have been inadequate and set unnecessary restrictions on both crowdfunding businesses and users.

So far, crowdfunding in Estonia has been self-regulated by FinanceEstonia’s best practice for crowdfunding, which is based on best market practice. The best practice was developed in 2016. Its aims to ensure self-regulation by market participants and thereby promote trust and transparency in the sector. To ensure independence, certificates are issued by a committee including several law offices as third parties that are not directly involved in any crowdfunding businesses. The first best practice certificates were issued in May 2016 to five market operators.

Trust and responsibility are critical

Until now, crowdfunding platforms have operated in a climate of economic growth without any major crises. The first bankruptcies have occurred in Europe and the first funds from investors have been lost. The first local fraudulent schemes have been revealed over the past weeks.

Enhancing trust and reputation is critical for promoting the sector and developing new business models. The platforms that have taken self-regulation seriously from the very beginning by applying open communication principles, auditing their financial results, and building reliable and experienced teams have been successful. In all the cases of failure, the lack of competent people has been one of the main causes.

What lies ahead?

The crowdfunding sector continues to develop powerfully. Most market participants are no longer peer-to-peer crowdfunders, but have become hybrids, involving institutional and professional investors in addition to retail customers. A new financial ecosystem is emerging together with neobanks such as Revolut, N26, Monese, etc. The first cooperation projects[1] between neobanks and lending platforms to extend the product range are underway. Such cooperation will certainly intensify in the coming years.

It is not only the cooperation between fintech businesses that intensifies; the same is happening between the traditional financial sector and crowdfunding. Citadele recently announced[2] they have started investing in loans together with the Fellow Finance platform in Finland that mediates consumer loans. As an excellent example from Estonia[3], LHV, EstateGuru and Coinbase came up with a joint solution for investors to follow their portfolios as part of online banking.

‘Cross-border’ is a keyword in all these examples. Estonian platforms already have an international dimension: for example, Bondora lends in Estonia, Finland and Spain; Crowdestate in Estonia, Latvia, Finland and Romania; EstateGuru in the Baltic countries, Finland, Spain and Portugal. Once the European regulation comes into force, expansion to new countries can only be expected to intensify. This, in turn, helps boost the crowdfunding sector.

Investors also must pay attention to what the various crowdfunding platforms are all about. Assurance about the reliability of a portal is given by the best practice certificate, which has been issued to four portals operating in Estonia: Bondora Capital, Crowdestate, EstateGuru and Fundwise. Investors should also consider how long the portal has been operating, who the owners are, what the financial results have been and what feedback users have given.


The financial sector is developing and reforming, with the share of alternative financing increasing. Today we can support the development of the sector reasonably without the overregulation we have seen in banking. The sector is ready for regulation, as evidenced by active self-regulation. Regulation is important to protect investors and market operators, but it must not become an obstacle to the application of new technologies and business models. Alternative financing can support the international operations of local businesses. We just have to wait and see which alternative financing platforms become Estonia’s next success story.

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