Crowdfunding in Estonia explained

Crowdfunding in Estonia is a rapidly growing sector that allows individuals and organisations to raise funds for various projects through online platforms. While crowdfunding in Estonia holds significant potential and is appealing to both investors and entrepreneurs, it requires a careful approach to project selection and a thorough understanding of the associated risks.

History

Crowdfunding in Estonia began to develop in 2007 with the launch of the country's first national crowdfunding platform, Bondora, which focused on peer-to-peer lending.^[1] In 2012, the most popular crowdfunding platform in Estonia today, Hooandja, was created, catering to creative projects.^{[2] [3]}

Over time, crowdfunding has become an important tool for financing startups and innovative projects, especially those that may struggle to obtain traditional bank loans. In addition, it offers private investors the opportunity to participate in projects with minimal contributions, starting from as little as 1 euro.^[4]

As of September 2024, more than 20 national crowdfunding platforms are operating in Estonia, enabling companies and individuals to raise funds for their projects. Each platform has unique features, such as the type of crowdfunding model, funding options, target audience, level of support and advice, and fees charged.^[5]

The Estonian Business Angels Association (EstBAN), founded in 2012, is also closely linked to the crowdfunding sector. As a result of EstBAN's activities, Estonia ranked first among European countries in terms of investment to GDP ratio in 2014.^[6] In 2020, EstBAN invested a total of 6.7 million euros in 259 companies.^[7]

Analysts note that Estonia likely has the highest per capita crowdfunding rates in Europe, with real estate crowdfunding dominating the sector.

Estonian Crowdfunding Platforms

• Boldyield – real estate & cash-flow investment.^[8]
• Bondora – peer-to-peer lending.^[9]
• Bulkestate – real estate investment.^[10]
• Crowdestate – real estate investment.^[11]
• Efinza – support for startups and small businesses.^[12]
• EstateGuru.co – real estate investment.^[13]
• EvoEstate – real estate investment.^[14]
• Funderbeam – support for startups and small businesses.
• Fundwise – equity investments in companies.^[15]
• Hooandja – creative and social projects.
• Income – investment in loans for passive income.^[16]
• Iuwo – investment in loans issued by registered non-bank financial institutions.^[17]
• KAMA Grupp – real estate investment.^[18]
• Koodoo Global – investment in company equity.^[19]
• LandEx – land investment.^[20]
• Moncera – consumer and business loan investments.^[21]
• Monefit – all types of crowdfunding.^[22]
• Monestro – investment opportunities in consumer loans.^[23]
• MoneyZen – support for startups and creative initiatives.
• Omaraha – specializing in microloans.
• Quanloop – management of several investment funds.^[24]
• Reinvest24.com – real estate investment.^[25]
• Scramble – support for startups, creative projects, and social initiatives.^[26]
• Swaper – support for startups, blockchain, cryptocurrency, technology, and creative projects.^[27]
• toeta.me – was originally created to raise funds to help Ukraine in the war against Russia, and later became available for other purposes.^{[28] [29]}
• Tribe Funding – real estate and private business investment.^[30]
• UFANDAO – raising funds to fulfill personal goals and dreams.^[31]

Examples of Successful Projects

Crowdfunding in Estonia has enabled numerous initiatives, including the reconstruction of public spaces and cultural sites.

• The largest crowdfunding campaign in Estonian sports history was for the creation of the "Sepa Jalgpallikeskus" football center in Tartu, which concluded in July 2016. A third of the funds used for its construction (€150,000) were raised through crowdfunding.^{[32] [33]}
• A project to renovate the Hollywood Hill in Laeva was carried out through crowdfunding. Local residents and commercial companies collaborated to improve the appearance of this iconic location.^[34]
• In 2017 raised €1.5 million from small investors over three days for a new building project in Lasnamäe. Contributions came from 1,100 investors across 26 countries. This is the largest amount ever raised for a single crowdfunding project in Estonia.^[35]
• The opening of a planetarium in Tallinn. A campaign led by the Baltic Astronomy Club (a group of enthusiasts promoting science in Estonia) was successfully completed in December 2023.^[36]

Legal Regulation

As crowdfunding grew in popularity, the need for regulation became apparent. In 2013, significant legislative changes were introduced in Estonia to improve investor protection and standardise services, including the introduction of a crowdfunding licence.

Under Regulation (EU) 2020/1503 of the European Parliament and Council of 7 October 2020, which regulates crowdfunding in European Union countries, as of 11 November 2023, all crowdfunding platforms offering investment opportunities in Estonia are required to obtain the relevant permits before commencing operations. However, as of November 11, 2023, licences had only been issued to two companies — Crowdestate AS and Estateguru OÜ, with several other applications under review.^[37]

In early 2021, Estonia also passed a bill introducing additional obligations and stricter criteria for crowdfunding platforms and their activities to enhance investor protection.

Challenges

Fraud and Lack of Trust

In 2020, a major scandal emerged involving two crowdfunding platforms created by Latvians but registered in Estonia — Kuetzal and Envestio.^[38]

The platforms promised investors returns of 20% or more and the ability to withdraw funds at any time, but in January 2020, both disappeared with all the funds they had raised.^[39] Kuetzal's collapse affected over 550 people, with losses amounting to €3 million, while Envestio's collapse impacted more than 1,800 people, with losses around €10 million.^[40]

Authorities in both Latvia and Estonia launched criminal investigations into fraud in connection with these incidents.^[41] Both platforms later declared bankruptcy and admitted all investor claims.

Liquidity

Some crowdfunding platforms face liquidity issues, raising concerns among investors and highlighting the risks. For example, in September 2019, Q-haus Baltic, a company raising funds through Crowdestate, went bankrupt, but investors were not notified in time. However, liquidity problems among developers are relatively rare, and the issue cannot be considered widespread.^[42]

Insufficient Regulation

The activities of crowdfunding companies and investors are still poorly regulated by law. Many legal aspects of crowdfunding in Estonia remain undefined and require clarification. The question of legal regulation of crowdfunding activity in Estonia remains relevant, especially in light of recent litigation and transparency issues in some projects.^[43]

Notes and References

1. Web site: Bondora Overview . PitchBook.
2. Web site: Mis asi on ühisrahastus? . 2014-12-12 . Stardipaik.ee. . https://web.archive.org/web/20170423063933/http://stardipaik.ee/mis-asi-on-uhisrahatus/ . 2017-04-23 . dead . et.
3. Web site: Kodanikuühiskonna eripreemiad said Hooandja ja Silver Meikar . 2013-02-14 . Postimees . Teder . Merike . et.
4. Web site: Reinvest24 . CrowdSpace.
5. Web site: Crowdfunding platforms in Estonia . crowdinform.com.
6. Web site: Äriingel: Eesti peaks looma maksusoodustusi . 2014-06-30 . Postimees . Aasmäe . Kalev . et.
7. Web site: Annual review 2020 . Est BAN . https://web.archive.org/web/20211206124349/https://estban.ee/annual-reviews/annual-review-2020/ . 2021-12-06 . dead.
8. Web site: Boldyield . CrowdSpace.
9. Web site: Bondora Go and Grow Review: Still Worth Investing? . re:think P2P . Neidhardt . Denny.
10. Web site: Latvian real estate technology company expanding into the EU . 2023-01-17 . The Baltic Times.
11. Web site: Kui pank ütleb "ei" . 2015-02-26 . Aripaev . Sarapuu . Merilin . et.
12. Web site: Efinza . CrowdSpace.
13. Web site: Краудфандинг или как не дать своим деньгам протухнуть . 2018-02-05 . Деловые ведомости . Фефилов . Дмитрий . ru.
14. Web site: Estonian fintech EvoEstate raises €320K to grow its next-gen investment platform globally . 2020-08-18 . EU-Startups . Tucker . Charlotte.
15. Web site: Pressiteade: Avatakse Baltikumi esimene osaluspõhine ühisrahastusplatvorm . 2015-08-25 . fundwise.me . et.
16. Web site: Income Marketplace . CrowdSpace.
17. Web site: Iuvo . CrowdSpace.
18. Web site: KAMA Grupp. Ühisrahastus . kamagrupp.ee . et.
19. Web site: Koodoo Global company profile . Tracxn. 11 September 2024 .
20. Web site: Landex – Easily Invest in European Farmland and Forestland . P2P Banking. 20 September 2021 .
21. Web site: Moncera . CrowdSpace.
22. Web site: New 7% Monefit SmartSaver Product Revolutionises Savings and Investment Market . 2022-12-14 . Fintech Finance News.
23. Web site: Monestro . CrowdSpace.
24. Web site: €20 Million Invested in European Businesses with Quanloop . 2023-02-14 . Financial IT.
25. Web site: Reinvest24.com . f6s.com.
26. Web site: Scramble . CrowdSpace.
27. Web site: Swaper . CrowdSpace.
28. Web site: Henri Laupmaa firm behind toeta.me donation platform struck from register . Väino . Valner . 2024-04-04 . ERR.ee . et.
29. Web site: toeta.me / Meist . toeta.me . et.
30. Web site: Tribe Funding . CrowdSpace.
31. Web site: Meet UFANDAO: the decentralized fundraising platform to fulfill your financial needs and dreams . 2022-12-10 . UK Herald Tribune.
32. Web site: Tutvustus . Sepa Jalgpallikeskus . et.
33. Web site: 2016-05-04 . Sepa jalgpallikeskuse valmimist saab jälgida reaalajas . Tartu Postimees . et.
34. Web site: Эстонский ответ Голливуду засияет благодаря краудфандингу . 2022-07-11 . Postimees . Раудмяэ . Эгели . ru.
35. Web site: Lasnamäe kortermaja tegi ühisrahastuse ajalugu . 2017-01-27 . Äripäev . et.
36. Web site: Opening of Planetarium in Tallinn . www.hooandja.ee.
37. Web site: Эстония вводит новые правила для краудфандинга: лицензии обязательны для всех платформ . 2023-11-13 . RUP.ee . ru.
38. Web site: Envestio и Kuetzal – это мошенничество? . 2020-01-31 . www.politsei.ee . ru.
39. Web site: Краудфандинговые платформы - как пирамиды; Envestio и Kuetzal исчезли с деньгами . 2020-02-17 . Kriminal.lv . Кудрявцев . Николай . ru.
40. Web site: Envestio and Kuetzal are Bankrupt, According to Public Documents . 2020-06-10 . Crowdfund Insider . Alois . JD.
41. Web site: Полиция начала расследование деятельности краудфандинговых платформ Kuetzal и Envestio . 2020-02-04 . err.ee . Тооман . Артур . ru.
42. Web site: Банк: испытывающие проблемы ликвидности застройщики – исключение . 2019-09-13 . err.ee . Коппель . Карин . ru.
43. Web site: Правовое регулирование краудфандинга в некоторых государствах — членах Европейского союза . epomen.ru . Кочян . Александр . ru.