The young German equity crowdfunding industry is under threat of excessive regulations under the guise of investor protection. Earlier this month we reported on the proposed regulatory approach that crowdfunding platform Companisto described as;
“… it is clear that the draft law significantly threatens the continued existence of crowdinvesting in Germany. The provisions of the bill are designed to penalize hundreds of millions of euros of financial products and accordingly initiate bureaucratic and costly procedures and processes. These bureaucratic procedures and processes will now be applied to the Crowd Investing sector.”
The industry that has the potential to boost the economy, create jobs and stimulate innovation in Europe’s largest economy is paradoxically under threat. Crowdfunding industry participants are coalescing to counter the bureaucratic push. SeedMatch, one of the largest equity crowdfunding platforms in Germany, has posted their comments to the proposed regulations.
The Small Investor Protection Act was released in July by the Bundesministerium der Finanzen (Federal Finance Ministry) in a 43 page document. Seedmatch, while lauding the proposed law in seeking greater transparency challenges the proposal at several points:
Participating loans and subordinated loans will require a securities prospectus with the exception of loans with less than the issuers issued capital investments of 1 million euros or less (and per investor share value does not exceed 10,000 Euros)
Seedmatch: This proposal is geared to current environment and does not recognize crowdfunding as a new form of finance. The exemption should apply not to just loans but all investments.
Limit of 1 million euros for crowdfunding
Seedmatch: This proposed limit of 1 million euros ignores both the average significantly higher capital requirement of innovative start-up and growth companies, as well as with the EU Prospectus Directive, which provides for a mandatory prospectus requirement only from 5 million euros. For comparison, other European countries have adopted higher thresholds.
Require an Investment Information Sheet (hardcopy)
Seedmatch: Since crowdfunding takes place exclusively online, a modern, electronic process should be acceptable.
Advertising restrictions on crowdfunding and done only in media whose focus is on the presentation of economic facts.
Seedmatch: Crowdfunding is an internet phenomenon and is aimed deliberately at the masses – the crowd. All the major crowdfunding platforms at home and abroad are actively involved in social media and need visibility in Google – where you can reach the masses. The proposed advertising restrictions run counter to this basic idea.
Seedmatch is an advocate of a uniform European crowdfunding regulation and mentions specifically the British approach. While there are advocates of this approach and the EU has formally addressed crowdfunding on a European basis enacting a pan-European process for investment crowdfunding is a distant hope.
Crowdfunding in Germany has been establishing itself as an effective form of raising capital and has the potential to lead Europe – as long as the regulators allow it to grow.
Osborne Clark has also published information on German regulatory approach.