CEO Christin Friedrich CEO Discusses Pivot at Innovestment, Pan-European Crowdfunding Changes & Challenges in Germany

Christin Friedrich is CEO and majority shareholder of Innovestment, an alternative financing platform founded in 2012 that is focused on the long-term sustainable impact for SMEs based in Germany. She is also chairwoman of the board of the European Crowdfunding Network (ECN), the association that represents all online investment platforms in Europe.

As part of her work at both the ECN and Innovestment, she has been deeply involved in the regulatory update that is taking place in the European Union that will see issuers utilizing investment crowdfunding to be allowed to raise up to €5 million across all EU member states. Friedrich is also a steering committee member of the Blockpool Project (SME blockchain use cases) an area of growing interest for European firms. Blackpool seeks to develop a common vision and framework to support the uptake and diffusion of Blockchain across Europe.

At the end of 2017, Innovestment paused operations due to changes in the market environment and different orientations of shareholders, according to public statement. The company and business model were completely restructured. At that time, Friedrich said that existing financing models were too expensive and time-consuming. She said she was convinced that people desire more simplicity when it comes to their own investments.

Last year, Friedrich pivoted Innovestment’s approach to online capital formation. Instead of equity crowdfunding, Innovestment is now using a loan-based approach as a digital investment and financing platform with its own marketplace with curated investment projects. Currently, early-stage ventures may access subordinated loans but further forms of investment are said to be in the planning stage.

Crowdfund Insider recently connected with Friedrich to learn more of the changes taking place at Innovestment as well as the environment for crowdfunding platforms operating in Germany as well as Europe in general.

Our discussion is below.


 

At the end of 2017, Innovestment had to file for bankruptcy protection. What happened that compelled your company to restructure? Was the market simply too small?

Christin Friedrich: In 2017 it became clear that shareholders and management had different ideas about the direction of Innovestment. Both ideas could no longer be reconciled. As a result, the shareholders were no longer willing to provide further capital. The insolvency plan procedure was the best possible way to enable a restructuring of Innovestment. We also used the time to rethink and adapt our business model and launch a new business under the same brand whilst ensuring we can still honour the commitments to our past projects and retail investors.

You have revamped Innovestment’s website. What is new and improved?

Christin Friedrich: We switched from equity-based to lending-based [model] with a further focus on sustainability. This means we also take the SDGs into account by curating the projects and highlight them in the offer profiles. Thereby, technology and innovation are still core.

We put a high effort into making the platform, the offer profiles, and its processes as simple as possible for investors. Through our efficient processes, we can reduce the transaction costs for projects further.

Since February we also have an English version available, which underlines our goal to become Pan-European and give non-German speakers the opportunity to invest in our great German projects and companies.

All these adjustments are in alignment with our vision, which we have followed since our founding in 2011, to make investing in companies simple and fun and using digital finance as an attractive financing option for companies.

Last year, Innovestment announced a new partnership with Aktivwert. [The managing director of the company joined investment’s management team.] Who is Aktivwert? Beyond capital, how does their involvement help your company?

Christin Friedrich: In the restructuring process we received various interests from different stakeholders for the assets of the business. Some financial investment brokers showed interest in bringing Innovestment back to the market.

As the investment broker business is transitioning from offline to online, this cooperation is a perfect mix of the classical world with long-term investor relationships and the digital world of simple and convenient investing.

So Aktivwert GmbH was founded and got on board as an investor. They do not have a management role though, I am working quite closely together with the general manager: Hans-Helmuth Föh, who, with his decades of experience, is a great sparring partner for me and contributes to the project deal flow.

Innovestment is focusing on energy/green firms – correct?And you are doing debt only – correct? Are you open to other early-stage firms in need of capital? what about other verticals?

Christin Friedrich: Focussing on sustainability was more of a process than a fixed plan. After evaluating more than 10,000 early stage businesses we decided to leave the path of very early stage startups in order to create better long term risk-return opportunities for our investors. So we changed our funding priorities to:

    • Sustainability/Impact investing
    • Innovation/Growth and project financing and
    • Entrepreneurship/Revenue stage startups

The closer we worked on the new Innovestment, the clearer it became that sustainability is a core value and motivation driver for all of our team members and our investors. And with this, we do not only focus on environmental protection but corporate responsibility with all its facets. The base of everything we do is the Sustainable Development Goals (SDG) by the United Nations.

We are open to early-stage firms as we follow an investment boutique approach through which we help outstanding companies to find financing partners in our network.

Have you considered digital securities or crypto-assets?

Christin Friedrich: We do follow the topic quite closely, also from the perspective of the European Crowdfunding Network of which I am chairwomen and was co-leading the working group “Exploring Blockchain for Alternative Finance” from 2018 until 2020. There is a huge potential in it, no doubt.

Nevertheless, blockchain is not the first priority for Innovestment for the time being. We have taken a lot of chances to talk to our investors, some of them still on board right from the start of Innovestment in 2011. The conclusion was that some of them were open for blockchain-based assets, but most of them were not. So we concentrate on pursuing our strategy.

What are your thoughts on the regulatory environment in Germany? What about interest from investors?

Christin Friedrich: The German regulatory environment is driven by consumer protection which is by itself not a bad thing, but unfortunately there is a lack of deep understanding or restrictions in the process for policymakers with respect to how digital financing works and its potential for investors and companies alike. We would welcome a more differentiated discussion and analysis with emphasis on the opportunities of this financing form as a convenient, simple, and cost-efficient investment and financing instrument, where risks are always made transparent and understandable.

We see currently that the German “Sonderweg” in the adoption of the ECSP regulation is a threat for the German crowdfunding industry, counteracting the goals of the European harmonisation of crowdfunding. The different associations are working hard to make the German policymakers aware of this fact.

German investors are known to be quite risk-averse and retail investors are generally not as active in the capital market in comparison to people in many other countries. Germans invest on avg $15/per capita in crowdfunding opportunities and therefore much less than in other European countries, like the UK ($156/per capita) or the Netherlands ($105/per capita). But in the last year we can notice a change, even though this increase is coming in particular through participation in the stock market.

Crowdfunding is still surrounded with a lot of myths, supported by media coverage which focuses mainly on defaults than positive examples, which are more abundant. I would say equity- and lending-based Crowdfunding still has an image problem in Germany, which we as an industry try to counterbalance by sharing best practices and sufficient data.

The German regulatory environment is driven by consumer protection which is by itself not a bad thing, but unfortunately, there is a lack of deep understanding with respect to how digital financing works and its potential Click to Tweet

With the advent of pan-European crowdfunding rules, will Innovestment commence securities offerings across the EU? Do you anticipate a significant increase in securities offerings once the new rules may be used?

Christin Friedrich: We are evaluating ECSP implications and are directly involved as members of the ECSP working group in the ECN.

We are in close communication with our peers throughout Europe about the impacts and implications. Currently, there is a consultation by ESMA on their draft of technical standards under the ECSP regulation ongoing, which helps us to understand the adjustments better, giving us practitioners the chance to comment on it.

In Germany there is a draft regulation, the so called “Schwarmfinanzierungsbegleitgesetz”, which as mentioned above, we see as a threat to the German crowdfunding space. This draft states for example that not only the projects and platform itself are fully liable for the correctness of the key information sheet, but all platform board members and supervisory board members are also personally liable for the key information sheet, which is stricter than comparable capital market regulation.

My assumption is that German policy makers and regulators are trying to protect investors, which is a good thing, but the regulation is overly onerous and burdensome on the industry. As an industry we argue that this will massively disadvantage the German crowdfunding industry in relation to platforms in other member states and therefore its potential to provide access to capital for companies and attractive investment opportunities for investors.

How has COVID impacted the operations of Innovestment? Are you 100% virtual now?

Christin Friedrich: Well, we had indeed a very special timing for our restart. Our platform innovestment.eu went live on February 27th, 2020. We all know what happened shortly after.

We can see a lot of inquiries from companies who apply for a financing campaign with us. Most of them do not fit our criteria as we focus on growth capital while they need bridging loans. We are very careful in choosing and qualifying our projects because we have to consider the perspective and the safety of our investors.

Regarding our own workflow: Luckily we all were ready to work remotely, so the whole team could instantly change to home offices. It went very smoothly for us, even though we had some new colleagues at that time whose onboarding via Zoom was definitely different from what we expected. But I dare to say that the physical distancing brought us closer together as a team. Besides that, the further openness of people to use digital platforms is another advantage for further growth of our customer base.

Beyond the possibility of geographic expansion, what other types of services may you offer going forward? A secondary platform? More issuer/shareholder management features? More banking services?

Christin Friedrich: At the moment we are focusing on further optimizing our current offering with a high emphasis on customer experience on both the investor and the company side. We might add other financial instruments in the near future. Besides that, we are looking deeper into co-investments with other platforms as well as involving more institutional investors.

Any comments on your roadmap to profitability?

Christin Friedrich: The most important aspect is to have happy recurring customers, who feel taken care of and trust as well as appreciate our choice of investment opportunities. Besides we automate what’s possible by using state-of-the-art technology.

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