After two years of seeking regulatory approval, Wefunder has officially received the green light to operate its investment crowdfunding services within the European Union. This marks Wefunder’s first time expanding outside of the United States, and according to CEO and founder Nick Tommarello, the business is the first U.S. investment platform to gain operational approval.
“It would be complacency not to do this,” Tommarello said, noting expansion was tied to key policy changes that took away some of the thorny financing rules that impacted the region.
Previously, Tommarello explained, crowdfunding platforms would have to gain approval from each and every country in the EU to operate there, as each followed a different set of regulations. Thanks to a law passed in 2021 by the European Union and the EEA, Wefunder can follow one set of laws that unifies the 30 countries into the same framework.
Katie Powers, head of Wefunder’s EU operations, said that before the laws were passed, there “was no law that harmonized all the countries – [crowdfunding platforms] could only operate in a country-specific way.” Now, she says, all platforms need to become licensed by November 2023.
Powers said that, from May to September, her team traveled to Lisbon, Madrid, Barcelona, Copenhagen, Amsterdam, Berlin, Tallinn, and Munich to meet with founders and other partners.
Much of that on-the-ground time was needed to help Wefunder make its name known, says Powers. But she also notes that the regulatory approval was an expensive, arduous process that took over two years and required lots of help from lawyers.
Wefunder is now positioned to launch strong, it suggests – it already has 12 EU startups raising crowdfunding campaigns on the platform. Still, the changing laws are setting off a race between US and UK platforms, all looking to enter the region in one fell swoop, the co-founder notes.
Further, 10-year-old Wefunder has a lot less capital than some of its rivals. Though it has raised more than $9 million in known funding from investors including Y Combinator and Visary Capital, the capital pales in comparison to one of WeFunder’s closest competitors, Republic, which has secured over $200 million in known funding since launching in 2016.
Tommarello suggests that Wefunder is comfortable with doing more with less. For example, in 2021, changing Reg CF regulations helped Wefunder grow to now represent more than 50% of the market share in community round fundraising in the United States, per the company.
The co-founder also says that Wefunder is taking a different, more humble approach to breaking into new markets compared to Republic’s $100 million acquisition of Seedrs, a UK equity crowdfunding business that saw its merger with a rival get blocked by competition regulators. Seedrs can only operate in the UK and its multiple jurisdictions; according to a spokesperson, the company is “securing an EU Crowdfunding license currently.”
Crowdcube, another UK-based competitor, has landed a crowdfunding license, Tommarello confirms.
More players in the market is good news for both U.S. and EU startups alike.
For one thing, notes Tommarello, U.S. startups can now raise equity crowdfunding rounds in both the United States and the EU, essentially doubling the total capital they are allowed to raise with the vehicle on a yearly basis. The added competition also means that businesses have more optionality on terms – and maybe that crowdfunding will reach a new echelon that finally quiets criticisms around the quality assurance of companies who take this financing route.
Additionally, In the UK, finances do get audited but are not released publicly – which can save companies tens of thousands of euros. By comparison, for companies in the United States, audited financials get released publicly if they are pursuing an equity crowdfunding round, Tommarello said.