Rewards-based crowdfunding is well established now, with several large platforms operating that are capable of accepting pledges internationally. Equity crowdfunding is still highly regulated in many places, though it has been legal in Germany for a while now. A new draft for the German Crowdfunding Regulation that was recently published on November 10, 2014 has many people worried about how these changes will affect the industry’s growth.
A Forbes article on crowdfunding regulation around the world pointed out that crowdfunding’s early roots could be seen in 17th Century Europe:
“Hopeful book purchasers were able to pre-order printed publications in advance—making it one of the world’s first subscription services as well … Even the famous Mozart lacked sufficient funds to bankroll concerts, and used crowdfunding to raise money to hold three events at a Viennese concert hall. Mozart also had the jump on great backer rewards, offering manuscripts of the concertos to his most loyal fans. Not surprisingly, without the power of the Internet it took Mozart over two years to finance the performance.”
When it is put that way it really seems like Germany is taking a huge leap back, especially since the proposed regulation includes a ban on advertising for equity crowdfunding campaigns on social media. Individuals will be able to get their projects published in print media and their online editions, though a German Crowdfunding Network post says:
“The initial draft limited the possibilities to advertise investment products … to certain media, whose main topic is … the presentation of economic topics. Furthermore, the advertisement had to be related to such presentation of economic topics.”
Other changes include a maximum investment limit of €10,000. Investments under €1,000 can be made without restrictions. Higher investments will require an income statement, and amounts allowed will be a percentage of the investor’s monthly income. These restrictions apply to everyone, including angel investors – but the crowdfunding industry sees the need for an exception for experienced investors. The rules may also discourage average people from embracing equity crowdfunding because of the need to report their income.
An article on Crowdfund Insider quoted German crowdfunding platform Companisto’s reaction to the changes, saying:
“After initial inspection, 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 restrictions only apply to equity-based platforms and not rewards-based ones. A Crowdsourcing post suggests that Germany should follow the lead of other European countries, where equity crowdfunding has been embraced faster than in North America:
“Having the investors declare their income to the platform was adopted with a look towards the US JOBS Act and its regulation on crowdfunding. However, given that the American equity-based crowdfunding market is still not functioning, policy makers should instead look towards the UK or France, which have not implemented such a requirement.”
The final law will be passed in July, 2015. This gives time for changes to happen in response to reactions to the draft, so it will be interesting to see what the final result looks like.
