In 2015, a new statutory regulation came into force that is designed to protect small investors. In particular, it should protect private individuals against risky investments on the so-called gray capital market. The focus is above all on start-ups that finance themselves through so-called crowd funding via Internet platforms. But also religious communities as well as social and charitable projects – for example, for the creation of low-priced housing or day-care centers – can benefit from this financial innovation. Various exceptions to the law have been introduced for these groups of finance seekers, such as exemption from the obligation to draw up elaborate prospectuses for the stocks they issue.
By 2019, the Federal Government wants to know to what extent projects involving real estate financing also make use of these exemptions for their crowd financing and whether further changes to the law are necessary. The expert opinion being prepared by the research team at the University of Bremen and funded by the Federal Ministry of Finance should make an important contribution in this respect.
Small investor market is an important economic driver
Crowd financing expert Lars Hornuf explains: “The small investor market is important because it sometimes allows start-up entrepreneurs to obtain financing and pursue a project in the development phase even before the customary equity financing. In Germany, start-up helpers, so-called business angels, who initially help small businesses with capital and knowledge, are much less common than in the USA, for example. Crowd financing can therefore be an important driver for innovation and growth. At the same time, though, investors should steer clear of financial products they don't understand and whose risks they are unable to assess.”
The use of crowd financing rules under the microscope
For their expert opinion, the Bremen researchers want to evaluate examples of how crowd funding works in practice. They will question relevant stakeholders such as market participants, investor protection bodies, consumers, banks, religious communities and regulators. “The results could indicate whether the scope or thresholds for crowd financing should be adjusted. On the basis of these research findings, the Federal Government will also decide whether the market should be made more transparent and Europeanized”, says Hornuf.
If you would like more information on this topic, feel free to contact:
Professor Dr. Lars Hornuf, M. A. (Essex)
Faculty of Business Studies and Economics
Chair for Business Studies, with focus on financial services and financial technology
University of Bremen
Phone: +49 421 218-66820
email: hornufprotect me ?!uni-bremenprotect me ?!.de
