Concerns Rise as German Government Passes Law that Threatens Crowdfunding

Flag_of_Germany.PNGAs previously reported, a German investor protection law, has been weaving its way through the legislative process.  Unfortunately for the investment crowdfunding industry, this new form a finance may find itself impacted as collateral damage if the proposed rules becomes enforceable law.

In mid – November, the federal government passed a draft law that is described as having “provisions [that] are unintentionally threatening a young German growth industry”.  The proposed rules still must make it’s way past both the Bundestag and Bundesrat – the upper and lower houses of the legislative branch of government.  This is not expected to occur until some time in early 2015.  If things go poorly though – investment crowdfunding may be hobbled to the point of irrelevance.  Interestingly enough this law is in many ways counter to the direction that Chancellor Angela Merkel desires for the German economy.

According to Companisto, a leading investment platform;

“The German equity-based crowdfunding scene is still in its infancy because it is only three years old. Within this short period, however, it has already made a major contribution to the solution of a problem German entrepreneurs have been facing for decades: the lack of capital necessary to implement innovative ideas. Indeed, company founders in Germany hardly have any access to financing.

The protection of investors is key to the equity-based crowdfunding industry, for the confidence of investors is essential to the long-term success of equity-based crowdfunding. Ultimately, however, the law on the protection of small investors contains provisions that neither reflect the reality of modern crowd-based financing rounds nor improve the protection of investors. In particular, the following three elements of the law are threatening the German equity-based crowdfunding industry.”

Destroy Crowdfunding with MissleThe damaging portions of draft rules, as described by Companisto include;

  • A limitation of the maximum amount to 1 million euros
  • A provision limiting individual investments to 10,000 euros – even for investors with total assets exceeding 100,000 euro
  • the draft law requires each investor to sign an investment information form for every single investment. This must be a printed document that is mailed to the equity-based crowdfunding platform
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