Just as workers join trade unions to increase their visibility, cooperation and bargaining power, organisations within the same sectors team up in so-called trade associations (TAs, also known as industry trade groups, sector associations or industry bodies) to coordinate their activities and promote their common interests. From highly influential and long-established associations, such as the UK’s Confederation of British Industry, to slightly more niche groups (e.g. California Avocado Commission, which brings together local avocado growers), TAs are an imminent element of contemporary business and social landscape.
No surprise then that the hundreds of crowdfunding platforms, which emerged following the crowdfunding boom about a decade ago, started to team up as well. But what exactly do these “crowdfunding associations” do? What roles do they play in this highly innovative and complex field? Are they in any way different than the associations in more traditional sectors?
Why do the Crowdfunding Industry Organize in Associations?
Trade associations tend to be non-profit, voluntary and member-funded organisations. This means that not only are businesses not in any way required to join TAs, they also need to pay membership fees to keep the association going and can expect no direct monetary reward for their involvement. Why do they decide to associate then?
To understand the possible motives better, let’s look at some key roles TAs play in shaping the business landscape. These can be broadly divided into three categories:
- Shape public policy. On the one hand, TAs can engage in social consultations throughout the legislative process or provide the necessary evidence to inform policy design and implementation. On the other, they may use their strong political capabilities to simply lobby the government to pass legislation that improves industry conditions or protects their interests.
- Police. TAs have the (usually informal) power to protect the industry reputation through prescribing ethic codes and promoting ethical behaviour, ensuring that members do not indulge in unfair trade practices, providing space for settling disputes, etc.
- Educate. TAs can improve efficiency within their industry by facilitating the sharing of good practices and industry standards, providing market information, or enabling better networking opportunities.
- Promote. They can undertake advertisement campaigns to promote the industry.
Therefore, by joining a TA, businesses can take an active part in influencing both external (public policy and promotion) and internal factors (industry standards), improve access to information and networks, and in general reduce uncertainty in their common environment, gain perspective and act on shared problems.
Are Crowdfunding Associations any different from traditional trade organizations?
Well, yes and no. At first glance, they do serve similar functions – one team of researchers summarises:
“An overview of these organizations [crowdfunding associations] suggests that their aims encompass fostering laws, promoting crowdfunding, establishing best practices/standards and educating interested parties about crowdfunding.” [Emphases added]
A closer look at some exemplary crowdfunding associations, presented in the table below, might help to shed some more light on their main goals and functions.
Crowdfunding Associations Worldwide
To promote crowdfunding; to provide resources, professional support and a forum for members; to publicise community successes, impacts and scale of ambitions, as well as promote innovative financial solutions for funding social & business projects; to create and influence the political discourse regarding crowdfunding within the EU.
To promote crowdfunding as a valuable and viable way for UK businesses, projects or ventures to raise funds; be the voice of all crowdfunding businesses in the UK; to publish a code of practice that UK crowdfunding businesses would adopt.
German Crowdfunding Association (Bundesverband Crowdfunding eV)
To represent the political and public interests of crowdfunding platforms to the German Government, Parliament, Regulatory Bodies, Media and other Associations; to serve as a networking forum for the platform owners in developing best practices for the industry.
French Crowdfunding Association (Financement Participatif France)
To promote and anchor new forms of finance, alternative or complementary to existing models; to represent the interests of its members in connection with the stakeholders in these new forms of finance; and to anticipate changes that impact the activity of its members, whether they are regulatory, organizational, technological or sociological changes.
To create a strong and viable trade association for this new and emerging industry that supports the development of its members and encourages participation and awareness in crowdfund investing.
To create a strong and vibrant crowdfunding industry and voice across Canada.
To lobby for crowdfunding reforms; to increase public awareness; to create a more cohesive industry structure.
To develop and foster crowdfunding as a formalised development finance tool to broaden SME access to finance; to harmonise crowdfunding regulations across Africa; to provide industry data and research, facilitate policy dialogue and drive adoption of crowdfunding across the ecosystem.
Source: Adapted from Comparative analysis of the ways crowdfunding is promoted.
The Role of Crowdfunding Associations and Organizations
Although they serve similar functions as their “traditional” counterparts, the role of crowdfunding associations is incomparably greater than in most sectors. First, given the relatively low levels of awareness among consumers and other stakeholders, the promotion of crowdfunding is essential to further grow the pools of both fundraisers and funders.
Second, the very young age of most platforms (and the whole industry) makes the education and best practice sharing crucial for their learning and survival.
Third, extremely patchy crowdfunding-related legislation (if existent at all) transforms the policy-shaping function into more of a policy-building function.
Finally, in the absence of specific legislation in most countries so far, the policing role is raised to a self-regulation role.
Regulation is a foundation of every healthy market, as it establishes a playing field and decreases uncertainty. The legal system is no less important for crowdfunding – for example, one researcher from the University of Cambridge concludes that “the introduction of explicit crowdfunding regulation and the general rule of law in the country appear to be significant in explaining financing volume”. The more explicit and enforceable legislation, and the more security – the more lending, borrowing and donating.
This is why self-regulation is such an important role of crowdfunding associations. They enhance certainty, stability, confidence and lawfulness through the voluntary compliance of its members with the established Code of Conducts (CoCs). The CoCs tend to clarify three main categories of rules: rules related to transparency, investor protection and business conduct. By setting and adhering to those rules, the platforms protect the shared industry reputation, or “reputation commons”.
How Crowdfunding Associations help protect the funders & investors
In the case of breach of rules, a crowdfunding association, itself lacking a legal enforcement mechanism, can report the suspicious entities to higher financial/other regulatory authorities. For instance, the European Crowdfunding Network was early to flag Kuetzal and Envestio as problematic – both platforms were shut down soon after.
The self-regulation function can also feed the policy-building function – the industry internal rules can serve as a stepping-stone for the design of formal legislature. Conversely, policymakers could and should support the definition of the rules and work alongside the crowdfunding associations to converge self-regulation into regulation. For instance, the European Commission assisted the initial efforts of the European Crowdfunding Network through tenders for research and data collection.
As the legislation progresses, this function of crowdfunding associations is likely to diminish allowing them to focus on their key mission of promoting and encouraging crowdfunding. In the meantime, though, the associations will remain invaluable guardians of industry reputation and the essential source of confidence in the crowdfunding market.