Crowdfunding in Germany

Donation-based crowdfunding supports a project without a financial return, while reward-based crowdfunding promises a product, service or another defined benefit. In crowdinvesting, investors receive financial rights through participation instruments, securities or other contracts. In crowdlending, several lenders finance a loan with agreed interest and repayment terms.

The instrument determines the investor's rights and the applicable rules. A subordinated loan can rank behind other creditors, while a security or participation instrument may have different transfer and payment terms. BaFin is the German financial supervisory authority; donation campaigns, securities offers, consumer loans and business loans should not be treated as one regulatory category.

The ECSP Regulation, Regulation (EU) 2020/1503, creates a European framework for qualifying investment-based and loan-based business crowdfunding. Covered offers can reach up to €5 million per project owner over 12 months, subject to the regulation's aggregation rules. Consumer project owners, larger offers and instruments outside the legal scope require a different assessment.

A provider established in Germany applies for ECSP authorization to BaFin. The authority checks completeness within 25 working days and decides within three months of receiving a complete application. ESMA maintains the public register of authorized providers, and the regulation's notification process enables covered services in other member states.

The regulation treats most private investors as non-sophisticated. Before they can invest, the platform runs an entry knowledge test and asks them to simulate their ability to bear a loss of 10 percent of their net worth. If a single investment exceeds 1,000 euros or 5 percent of the investor's net worth, whichever is higher, the platform shows a risk warning and asks for explicit consent. Every non-sophisticated investor can revoke an offer within a reflection period of four calendar days, and each project has a key investment information sheet of at most six A4 pages, as set out in Articles 21 to 23 of the regulation.

BaFin warns that a failed project can cost investors all of their money, that a subordinated loan with a pre-insolvency enforcement bar may never be repaid, and that crowd investors usually have no vote and no easy exit. BaFin checks that a capital investment information sheet meets the legal requirements, but not whether its content is correct or whether the business model works.

Startups in Germany are usually limited companies, and a share in a GmbH can only change hands through a notarized contract. That makes a seed round with many small tickets expensive. Platforms such as tokenize.it, now beel, answer with virtual shares, contracts that pay the holder like a shareholder without making the holder one. Crowdinvesting offers can also take the form of tokenized instruments, and the page on issuing tokenized securities in Germany explains the crypto securities register behind them.

DIGITAL INVEST GERMANY, formerly Bundesverband Crowdfunding, represents digital investment platforms and organizes professional exchange on investor information, industry practices and regulation. A Code of Conduct and reporting guidelines support consistent platform practices and comparable industry information. Association membership and supervisory authorization are distinct questions.

Choosing a financing model begins with the project owner's capital need and the rights offered to contributors. The contract should make the use of funds, the payment obligations, fees and termination arrangements understandable. Crowdlending covers the credit-based route, while tokenized securities concern investment instruments recorded using electronic infrastructure.

Finance Loop is the meeting place for founders, business angels, platform operators and the bankers and lawyers who work on startup finance in Germany, Austria and Switzerland. Finance Loop connects the finance, IT and AI communities, with events in Frankfurt, Munich, Berlin and Hamburg.

tokenize.it, now beel, is one of the event and network partners of Finance Loop. Finance Loop is a partner of the FinTech Founder & Investor Evening in Frankfurt, presented by Finteda, the law firm Schalast and Fincite under the theme "Capital, Regulation & Scale".

Investment-based crowdfunding and crowdlending can fall under financial regulation, with the applicable permission depending on the activity, instrument and borrower. Platforms facilitating covered business crowdfunding need ECSP authorization; BaFin grants that authorization to providers established in Germany. Donation and reward campaigns are different from regulated investment offers.

The ECSP framework covers offers of up to €5 million per project owner over a 12-month period, including the relevant aggregation of other financing offers. A larger offer falls outside this framework and needs assessment under other applicable rules. The ECSP Regulation explains the threshold and the platform obligations.

In crowdinvesting the investor takes a share in the company's success, often through a profit participation, a subordinated loan or a token. In crowdlending the investor finances a loan and expects interest and repayment on a fixed schedule. Both carry the risk of total loss.