A Framework for European Crowdfunding

www.crowdfundingframework.eu
Conflicts Of Interest & Operational Risks
Conflicts of interest occur when owners or specific funding providers use privy information to generate
systematic superior returns compared to the crowd financing it.
Some platforms operate on a co-investment model, whereby an investment fund completes the investment
of crowds or precedes it in the form of seed capital. Many of these platforms have already understood the
potential conflicts of interest, therefore following a strict 50/50 rule (between own funds and crowdfunded
funds) within a single crowdfunding campaign.
Although this is mostly true with single crowdfunding campaigns, all investors’ returns have to be compared
on the longer term, and there are few guarantees (or laws) that prevent additional deals to be carried
out offline (i.e. outside the crowdfunding platforms).
There are also parties who might get a better investment opportunity than the crowd initially responsible
for funding. These types of situations must be strictly avoided and rules should be enforced for raising
money online (via the crowdfunding platform) vs. raising money offline (in private deals).
Similarly, while we know that many financial institutions do not publicly disclose the identities or demographics
of their shareholders. It is critical to question this practice for the crowdfunding industry.
The limited size of many crowdfunding platforms starting-up supposes a high concentration of ownership
within the operating companies. This means the actual operations and development depends on the limited
set of resources of its shareholders. Size and shareholder capability are therefore a significant issue for
many (growing) crowdfunding platforms.
A FRAMEWORK FOR EUROPEAN CROWDFUNDING | Kristof De Buysere, Oliver Gajda, Ronald Kleverlaan, Dan Marom | 2012
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