One of the most well-known, but insufficiently understood, limitations of crowdfunding is the lack of a true secondary market, that is, of a place where investors can resell shares or the other types of financial instruments purchased during a campaign.

It is a critical issue especially for the’equity crowdfunding, because debt instruments usually have a shorter life. Those who invest in a startup or SME through equity crowdfunding, on the other hand, know that their capital will remain stuck for several years, up to a liquidity event (such as a divestment or listing).

The issue is far from marginal. With no exit options, many potential investors are hesitant to enter. That is why the secondary market is considered the crowdfunding maturity condition: the stage at which this form of alternative finance can become truly competitive alongside traditional instruments.

In recent years, the European Union has taken important steps in this direction: first with the European crowdfunding regulation (ECSP), which standardized the rules for platforms; then with the DLT Pilot Regime, which experiments with trading tokenized financial instruments on blockchain. Understanding how these two pillars interact underpins the construction of a secondary market for crowdfunding is critical to envisioning the future of crowdinvesting and finance for SMEs.

Primary market and secondary market in crowdfunding

In primary market newly issued instruments are purchased: this is the case with equity or lending crowdfunding campaigns, in which investors directly finance the company.

In secondary market, on the other hand, the same tools are resold or exchanged Between investors.

In crowdfunding, this concept applies to the shares or to the debt securities subscribed through the platforms. In theory, the investor should be able to sell them to another interested party, as is the case on the stock exchange for stocks and bonds of listed companies.

In practice, however, there is still no official infrastructure in crowdfunding to enable this with simplicity, security and transparency. 

The dialectic between the primary and secondary markets is crucial because it determines the degree of liquidity of the investment. A liquid market allows you to get out of a position quickly; an illiquid one, such as crowdfunding today, forces you to hold your investment for years.

The importance for investors and businesses

The ability to resell shares has a direct impact on the propensity to invest. Retail or unsophisticated investors, in particular, tend to prefer easily liquidated instruments.

An active secondary market increases confidence, reduces perceived risk, and attracts more capital, making crowdfunding campaigns more effective.

For businesses, on the other hand, the presence of a secondary market improves the enhancement of the company. When shares circulate and find demand, the implied value of the company is consolidated and can be used as a reference in future financing rounds.

The problems of the secondary market for crowdfunding

The secondary market in crowdfunding, although desired for years, is still far from fully operational, and significant critical issues arise from this. The difficulties stem from a combination of Regulatory constraints, operational barriers, and structural market limitations same.

1. Lack of transparency

Those who hold holdings obtained through equity crowdfunding face a real problem: there is no public market where you can see, at any time, how much those shares are trading for.

Unlike publicly traded stocks, where the value is determined transparently by matching supply and demand on an official list, in crowdfunding there is no common reference price.

Each disposal is done privately, and the price is determined from time to time by the parties, based on subjective assessments or internal estimates.

This generates two effects:

• the risk of underestimation or overestimation of quotas;
  
• a strong information asymmetry Between sellers and buyers.
  

In addition, the transfer of shares often requires a Notarial deed or the intervention of the business registry, procedures that make the operation slow and expensive, further discouraging trading. The alternative quota-header scheme, made available now by many platforms, at least lightens this part of the burden.

2. Regulatory obstacles

The ECSP Regulation (EU 2020/1503), which governs crowdfunding in the European Union, allows platforms to manage “message boards” where investors can signal willingness to sell or buy shares, but prohibits them from Organize a true regulated secondary market.

This means that platforms they cannot:

• Setting exchange prices;
  
• Execute orders or automatically match buyers and sellers;
  
• Temporarily hold funds or securities on behalf of users.

The result is a fragmented system where each platform operates independently and with little interoperable internal tools.

Added to this is the problem of the members' preemption, provided in many LLCs: before selling its shares to a third party, an investor must offer to buy them from the other shareholders, further slowing down the process.

This context generates a vicious circle: on the investor side, the absence of a clear and fast exit channel Reduces interest in participating to the countryside. On the business side, low liquidity limits the ability to attract capital and to provide a reliable assessment of the company for future rounds.

The current “solutions”

Although a true regulated secondary market does not yet exist, a number of intermediate solutions that seek to provide a way out for investors and, at the same time, greater attractiveness to campaigns.
These are still limited tools, but they anticipate the direction in which the industry is moving.

1. Many crowdfunding platforms have introduced some internal notice boards, that is, digital spaces where investors can Post announcements of sale or expressions of interest in purchase of quotas.

These are not actual marketplaces: the platform merely connects the parties, without intervening in the pricing or management of the funds or securities. These bulletin boards thus function as private marketplaces, especially useful for facilitating meetings between supply and demand.

However, the limitations are obvious:

• the price remains subject to private negotiation;
  
• trades are infrequent and with very small volumes;
  
• there is no official mechanism for validating or updating corporate values.

2. A more concrete way to overcome the absence of a secondary market is the crowdfunding listing, a model developed in Italy and adopted by some European platforms to Accompanying SMEs from crowdfunding to listing on the stock exchange.

The mechanism is simple: after successfully completing an equity crowdfunding campaign, the company can use the capital raised and the membership base obtained to initiate the listing process in direct listing on a regulated market such as Euronext Growth Milan or other SME-specific markets.

In this way, the shares acquired by crowdfunding are converted to marketable shares.

Crowdfunding listing thus represents A bridge between alternative finance and regulated markets, although it remains accessible only to the most structured companies with adequate size and governance to deal with the costs and obligations of a listing.

3. In parallel, more experimental solutions based on the quota tokenization.

In this model, an interest in a company or a debt security is represented by a digital token registered on blockchain, which certifies its ownership and allows it to be transferred quickly and securely.

Tokenization opens the door to a new type of digital secondary market, where exchanges can take place almost in real time, with much reduced costs and greater traceability.

However, this type of marketplace must be operated by authorized entities and embedded in a regulatory framework that is still being defined and stabilized. Some fintech and infrastructure players are testing blockchain-based exchange platforms for the Trading of tokenized securities, with the aim of demonstrating the Compatibility between technological innovation and investor protection.

What the European ECSP Regulation provides for

The ECSP Regulations, which came into full effect in 2023, represented a major turning point for the industry.

It standardized crowdfunding rules across the European Union and introduced the European passport for platforms, allowing them to operate in all member states with a single permit.

However, despite this step forward, the regulation Has not yet resolved the issue of the secondary market. As we have already anticipated, platforms can facilitate the exchange of information between investors, but they cannot handle actual buying and selling of shares or securities.

In fact, the ECSP Regulation clearly distinguishes between. crowdfunding services (raising capital in the primary market) and trading services of financial instruments (secondary market). Only the former are allowed to crowdfunding platforms; the latter remain reserved for entities that hold a financial intermediary or market operator license.

This means that the platforms May not organize or operate an exchange market.

They can, at most, offer their users a service called bulletin board, o electronic bulletin board: an online space where those who want to sell shares can post their offer, and those who want to buy can express interest.

This distinction serves to protect investors from risks of fraud or price manipulation, but in fact severely limits the movement of quotas.

Despite these limitations, the ECSP has introduced important innovations that lay the foundation for a future integrated secondary market. Indeed, regulatory standardization facilitates the cross-border cooperation between platforms and increases opportunities for companies to raise capital from a wider audience.

In the medium term, interconnection between operators from different countries could also pave the way for More advanced exchange mechanisms, based on common standards and harmonized rules.

The prospects for regulatory evolution

At the European level, supervisors are already considering how to expand the scope of the ECSP to include controlled forms of the secondary market.

L'ESMA (European Securities and Markets Authority) and the European Commission have initiated public consultations to understand How to integrate digital technologies and tokenization in the crowdfunding discipline, including in coordination with the DLT Pilot Regime, which we will discuss in the next section.

The stated goal is to promote greater liquidity of financial instruments issued through crowdfunding, without compromising the security and transparency of the system. The starting assumption, which is in itself a fundamental goal, is that crowdfunding is a subject of European finance in its own right, the integration of which should be encouraged with a view to pursuing the goal of greater movement of capital in the Union.

DLT Pilot Regime: an experimental European solution

To try to structurally solve the problem of liquidity in crowdfunding, the European Union introduced in 2023 the DLT Pilot Regime (EU Regulation 2022/858).
It is a regulatory sandbox: a controlled environment in which firms and authorized intermediaries can Experiment with the use of blockchain technology (or more correctly Distributed Ledger Technology, DLT) to issue, exchange and settle financial instruments in digital form.

In finance, DLT allows a security (a stock, bond or company share) to be represented in the form of digital token, easily transferred from one investor to another, even without traditional intermediaries such as custodian banks or clearinghouses.

Thanks to this infrastructure, it is possible:

• drastically reduce settlement time: the exchange takes place in real time (T+0 instead of T+2 as in traditional markets);
  
• eliminate many intermediaries and thus reduce costs;
  
• Make transactions transparent and traceable, increasing investor confidence;
  
• fractionating assets (e.g., buying minimum portions of shares or bonds) and thus expand the audience of investors.

The DLT Pilot Regime and its Goals.

The DLT Pilot Regime allows financial intermediaries and market participants to test, for a limited period (initially three years, extendable), the trading and settlement of tokenized financial instruments.

The experiment specifically concerns:

• SME actions With capitalization of less than 500 million euros;
  
• bonds or minibonds up to 1 billion euros;
  
• mutual fund shares up to 500 million euros.
  

The framework is deliberately designed to encourage small and medium-sized enterprises, which more than others need efficient and less expensive funding channels.

To manage these operations, the DLT Pilot introduces three new categories of market infrastructure:

• DLT MTF (Multilateral Trading Facility): multilateral trading platforms where investors can trade financial tokens.
  
• DLT SS (Settlement System): systems for settling transactions in tokens.
  
• DLT TSS (Trading & Settlement System): integrated infrastructure that combines trading and settlement in a single platform.
  

Companies participating in the DLT Pilot may apply for the following. targeted exemptions from MiFID II and CSDR rules, so as to experiment with innovative models while maintaining A high level of investor protection. In Italy, the relevant authorities are. Consob e Bank of Italy, who evaluate permit applications on a case-by-case basis.

Today, therefore, an equity crowdfunding campaign allows you to raising capital in the primary market, but it does not offer a regulated channel for the subsequent exchange of allowances.
The DLT Pilot, on the other hand, aims precisely to create secure digital markets Where these instruments can circulate.

Looking forward, then, we may see a two-stage integrated model:

1. Phase 1 - Collection: An SME raises capital through an ECSP platform by issuing tokenized financial instruments (e.g., digital shares).
   
2. Phase 2 - Exchange: those same tokens are admitted to trading on a DLT MTF, where new and existing investors can trade freely and safely.

This connection between ECSP and DLT Pilot completes the capital life cycle: from the initial raising to the possibility of liquidity for investors.

The future prospects of the secondary market for crowdfunding

The secondary market represents the next frontier of crowdfunding.

To date, platforms have focused on primary collection, but the full maturity of the sector will depend on the ability to also offer exit and exchange solutions for investors.

For this to become a reality, it will take common rules and standards. Today, each platform uses its own data models, procedures, and post-campaign infrastructure, making it difficult for operators to exchange information, even after the ECSP regulation, which standardized rules but not infrastructure.

The goal of the European Union, already expressed in the Capital Markets Union and in the more recent Savings and Investments Union, is to create a capital market unified, where tools and information can circulate freely between countries and platforms. This applies to both traditional finance and crowdfunding, which could become so A structural component of the European capital market. The combination of ECSP and DLT Pilot Regime is the first concrete step in this direction.