Crowdfunding, ECSPR and Europe’s Unfinished Capital Market
Europe does not lack innovation. It lacks the financial system to scale it. This is a familiar diagnosis, repeated widely.
The European Union consistently ranks among the global leaders in scientific output, patenting, and deep-tech research. Yet it struggles to translate that strength into globally competitive firms. The “scale-up gap” has become shorthand for this failure, echoed in policy circles from Brussels to Frankfurt.
The response has followed a predictable path. Strengthen venture capital. Deepen capital markets. Remove barriers to IPOs. Build regulatory frameworks for the next generation of finance, from crypto-assets to artificial intelligence. Initiatives such as the EU Supervisory Digital Finance Academy reflect this approach. The focus is on equipping supervisors to understand technology, not on how capital actually reaches companies.
This framing is also reflected in parts of the recent academic and policy debate on European capital markets integration, such as the European University Institute paper “EU competitiveness and the innovation-finance nexus”. These contributions are useful in setting out the institutional architecture of European finance and in clarifying how innovation policy is expected to interact with capital markets development.
At the same time, they also reflect a more structural limitation in the current debate. Instruments such as ECSPR do not feature in this framing, despite being one of the few areas where a harmonised retail investment framework already exists at EU level. That absence is not incidental. It reveals where the analytical focus of the CMU discussion still sits: at the level of architecture and intent, rather than at the level of functioning capital flows.
Once the system is described in this way, a more difficult question emerges but is not fully addressed: how capital actually moves through the system in practice, across financing stages, sectors, and Member States, and where it fails to do so. It is at this point that the discussion shifts from design to execution, and from regulatory coherence to the continuity of financing flows that the system is meant to enable but does not always deliver. Seen from this perspective, ECSPR is less a technical implementation detail of the Capital Markets Union and more a practical stress test of whether its underlying assumptions about capital formation hold in practice.
This is not a new pattern. Development finance debates two decades ago were already grappling with a similar blind spot. Attention moved to the extremes, microcredit at one end and commercial banking at the other, while the “missing middle” of SME finance remained underserved. The lesson still applies. Financial systems do not fail only at the edges, but in the connections between them.
That connection is precisely what is missing in Europe today. Between informal funding and institutional capital lies a structurally underdeveloped space. It is here that crowdfunding operates. And it is here that European policy remains largely silent.
A continuity problem, not a capital shortage
The dominant narrative frames Europe’s weakness as a shortage of late-stage capital. The deeper issue is a break across financing stages. Early-stage funding is fragmented and concentrated. The transition from seed to growth capital is uneven. Companies are pushed into premature exits or forced to look beyond Europe for funding. This is not simply a funding gap. It is a break in the financing chain.
Crowdfunding operates in this space. It aggregates capital where traditional finance becomes selective and before institutional investors fully engage. It is not a substitute for venture capital. It is a bridge to it, and in many cases an alternative for companies that fall outside narrow investment models. Yet in policy terms, it barely registers.
This is difficult to justify when looking at the supply side. European households hold close to €10 trillion in deposits, much of it sitting idle. Retail participation in capital markets remains significantly below US levels. Europe is not short of capital. Capital in Europe is misaligned with market needs.
Crowdfunding addresses this directly. It connects retail capital with real-economy financing needs through digital platforms, allowing small investments to be aggregated into meaningful funding rounds. From a competitiveness perspective, that is not marginal. It is a capability Europe underuses.
With ECSPR, the EU has put in place a harmonised framework that allows platforms to operate across borders under a single authorisation. It addresses a long-standing barrier: fragmentation. In doing so, it has created one of the few functioning single market instruments for SME finance.
The market has moved on. According to the European Securities and Markets Authority, crowdfunding volumes exceeded €4 billion in 2024, with more than 180 authorised platforms active across 21 Member States. The investor base is overwhelmingly retail. Capital flows into services, construction, and increasingly energy and sustainability projects.
But it is not evolving evenly. That unevenness is where the policy relevance lies.
France and Germany: evolution versus arbitrage
In France, the largest EU market with around 50 platforms, crowdfunding is changing shape. Renewable energy and SME financing are expanding, while real estate, once dominant, is losing share. Platforms are consolidating and the market is diversifying. Recent data, for example from Mazars or Argent & Salaire confirms this shift. Average returns are now around 11.6%, while investment durations have shortened to roughly 20 months. Renewable energy competes directly with real estate on both yield and duration.
The market is repricing risk, shortening exposure, and moving away from concentration. For investors, this creates a more demanding environment. Returns remain attractive, but selectivity has become critical, particularly as defaults from earlier vintages continue to work through the system. This is not a market in decline. It is a market adjusting.
The intensity of public criticism in France reflects something deeper than market performance. Media coverage has framed crowdfunding as a model in question, particularly following real estate losses. Yet this sits uneasily with underlying dynamics. Diversified investors continue to generate positive returns, and platform economics remain resilient when built on low-cost, digital structures.
What is emerging is not the failure of a model, but the filtering of it. The persistence of a negative narrative points to structural factors. France has long favoured capital-preserving savings products, from regulated accounts to traditional life insurance, discouraging retail participation in risk-bearing investments. In that context, crowdfunding challenges how savings are mobilised. The scepticism it attracts is therefore not only financial. It is structural, and ultimately political. Industry representation has not consistently countered this narrative or clarified the distinction between market cycles and model viability.
In Germany, the picture is markedly different. Here, the issue is not only market stress, but how the regulatory framework is being used. A wave of defaults in real estate crowdfunding, linked to the broader property downturn, has exposed weaknesses. Projects have stalled, platforms have contracted, and investor confidence has been damaged, as reported frequently by Investmentcheck and Refire. That alone would be cyclical. What is not cyclical is the regulatory response.
Rather than consolidating under the European framework, large parts of the market have moved away from it. Today, only two platforms operate under ECSPR according to ESMA. At the same time, alternative national structures continue to be used, allowing activity to take place outside stricter requirements on disclosure, supervision and investor protection.
The signal is clear. Earlier this year, WiWin, following its acquisition of Zinsbaustein and the creation of a platform with a historical track record of around €400 million, chose to opt out of ECSPR in favour of a national legal structure. This was not a marginal player. It was a consolidating actor with scale choosing regulatory flexibility over harmonisation.
This goes beyond policy design. Parts of the German crowdfunding sector, including its industry representation, have actively supported this direction over time. The result is not simply inconsistency. It approaches regulatory arbitrage. In such an environment, the framework designed to build trust is weakened from both sides. Investors face uneven levels of protection. Platforms face uneven competitive conditions. The European regime risks being seen not as the standard, but as the constraint to be avoided. Public criticism of crowdfunding in Germany reflects this confusion, often failing to distinguish between regulated and unregulated segments.
This is not only a policy failure. It is a misalignment of incentives between regulation and market behaviour. Trade associations in both countries have not consistently strengthened the link between market development and regulatory credibility. The contrast is nonetheless clear. Where the framework is applied and markets are allowed to evolve, crowdfunding adjusts and matures. Where it is bypassed, it fragments and loses credibility.
And still, it barely features in the EU’s strategic thinking.
An early warning for ECSPR
This stands in contrast to other markets. In the UK, platforms such as Crowdcube operate within the Public Offers Platform regime and are part of the broader capital markets pipeline. Their proximity to institutions such as the London Stock Exchange reflects a system that connects early-stage finance with public markets. Crowdfunding is treated as part of the capital market architecture. In the EU, it is still treated as peripheral.
ECSPR is often presented as a breakthrough, and it is. But its trajectory should be read more cautiously. It is not yet a success story. A rulebook has been created, but not consistently applied. A market has been enabled, but not aligned around it. In some cases, it is being actively worked around.
With further regulatory initiatives on the horizon, there is a risk that complexity increases while coherence weakens.
The implication is straightforward. Europe does not need to build another layer on top of its financial system while the middle remains unstable. Crowdfunding already occupies that middle. It connects retail capital with project developers and early-stage firms and provides continuity where the financing chain is weakest. But it only works if the framework around it is credible, consistent and actually used.
Treating ECSPR as a completed file is the mistake. It should be treated as infrastructure under construction, requiring alignment not only from policymakers, but from the market itself.
If the EU cannot make its only fully harmonised retail investment framework work in practice, the problem is not crowdfunding.
It is how Europe builds markets.
