The Current State of Crowdfunding in Germany
The first reward-based crowdfunding platforms in Germany started in 2010. This was when the term “crowdfunding” was brought to the broader public. Prior to that there were already some lending- and donation-based platforms on the market. A year later in 2011 equity-based crowdfunding started to evolve with the financing of startups. Over the next couple of years many crowdfunding platforms of different types entered the market, not all of them are still active. Today you can find more than 60 active platforms that have an operational base in Germany.
GDP (ppp) per capita: $47,033
(Source: Wikipedia; Image Credit: NuclearVacuum)
No data is available for donation based crowdfunding.
Für Gründer reports the following volumes in 2015:
Reward based crowdfunding: €9,8 million
P2P consumer&business lending: €66,8 million
Equity based crowdfunding: €37,3 million
Crowdfunding.de reports that € 48,9 million is raised on equity based platforms.
Auxmoney.de (peer2peer) is a lending platform that started in 2007.
Betterplace.org (donation) is a platform focused on social projects.
Seedmatch.de (2011) is the first platform focusing on equity based crowdfunding for startups .
Startnext.com (Startnext (2010) is the leading reward based platform and is one of the largest platforms focused on creative and sustainable projects in the German speaking countries.
Companisto.com is an equity based crowdfunding platform that started in 2012.
Wemakeit is an artists’ initiative founded in 2012 in Switzerland, now also present in Germany and Austria.
Indiegogo and Kickstarter are the most important crowdfunding platforms from abroad.
Regulations in Germany
The so called “Kleinanlegerschutzgesetz”, the first law that gives equity-based crowdfunding a legal framework, became effective in summer 2015.
Equity-based crowdfunding projects, that issue subordinated or profit participating loans, do not need a costly prospectus, if the maximum funding sum does not exceed €2,5 million. Instead of that a “financial assets information leaflet” (up to 3 pages) is requested, which has to be deposited at the Federal Financial Supervisory Authority. The maximum sum a natural person is allowed to invest in such a project is €10.000. But when investing more than €1.000, the investor needs to assure that he holds disposable assets of at least €100.000 or that he invests less than twice of his monthly net-income. The law comes along with more rules, as the right to withdraw from the investment within 14 days or a warning that needs to be shown when on advertisements for the project. Platforms need an approval according to §34f Gewerbeordnung (GewO) for “Vermögens- und Finanzanlagen”.
There are critics about the maximum funding limit of €2,5 million, the cap for natural persons to invest maximum €10.000 and the limitation to subordinate loans. But the general feedback from the market is positive. The regulation provides clear guidelines and serves also as a sign that politician recognize the relevance of crowdfunding. An amendment of the law is planned for the end of 2016.
Banks did not enter the crowdfunding market on a grand scale yet. They are involved when it comes to financial transactions, but you rarely see them as a provider of crowdfunding services. Only in the field of charitable crowdfunding, several banks started to run regional platforms.
Some of the leading banks in Germany published reports or were involved in the financing of academic studies about crowdfunding. This can be interpreted as a clear sign that banks have crowdfunding on the radar.
The volumes raised by reward-based crowdfunding show a modest growth over the last years, but the market is still waiting for a major breakthrough. Reward-based crowdfunding is dominated by one strong German platform. At the same time international platforms with a German website find acceptance among projects that aim for a global crowd.
The volume of lending-based crowdfunding is growing for years. Next to P2P lending for individuals, platforms start increasingly to approach small and medium sized enterprises.
The market for equity-based crowdfunding is divided into three main categories: startups/SME’s, energy and real estate. Real-estate crowdfunding shows a tremendous growth over the last year and with it comes along new platforms entering the market. Established platforms focusing on startup financing are developing new investment models as e.g. venture debts, crowd-voting or special purpose vehicles that allow a direct stake in equity.
What is the potential of crowdfunding in your country?
The potential of crowdfunding in Germany is huge. There are massive savings on German bank accounts and people are looking for investment alternatives, as interest rates are low.
What is the biggest challenge?
One of the main challenges is to overcome people’s lack of knowledge about the possibilities of crowdfunding. Many people in Germany just do not know much about crowdfunding. A study that was conducted in 2015 with 1.000 respondents (online representative for Germany) revealed some interesting facts. While 52% of the respondents have heard about crowdfunding, only 25% claimed to know what it exactly is.
For the further development of crowdfunding it is essential to establish general trust about it. A potential barrier to broader acceptance is the public failure of poorly executed crowdfunding projects. Also untrustworthy offerings that make use of the term “crowdfunding”, can have a negative impact on the market. Mandatory standards could help to differentiate clearly between reliable crowdfunding products and scam.
What is the future holding for Germany?
The development of crowdfunding in Germany is just at the beginning. There are different drivers that will help to push crowdfunding to the next level.
Medium-sized businesses are the backbone of the German economy. If these companies start to fully understand the advantages of crowdfunding, we will see a considerable advancement of the market. Also regional crowdfunding bears huge potential. Moreover new fields of application for crowdfunding will be discovered.
As mentioned previously, it requires further investor education to encourage self-dependent investments. Due to low interest rates and a lack of investment alternatives, people are forced to take responsibility for their money. This will help crowdfunding.
The level of professionalism within the German industry increases continuously. It would bring additional know-how and seriousness to the market, if crowdfunding companies succeed in attracting experienced manager from the traditional finance industry.
We have an exciting market development ahead. The German crowdfunding scene is full of visionary minds and motivated entrepreneurs. They will go the long distance to establish crowdfunding as an inherent part of the German financing system.