Funding via crowdinvesting offers fewer hurdles than bank loans

7 May

Tuesday, 23.01.18 , written by Annabell Meyer Many founders are now relying on crowdfunding to fund their projects. The money of numerous retail investors should help them to successfully develop their business. Such a cash injection is often easier to get than a loan or a private investment,

Start-ups nutzen Crowdinvesting als Finanzspritze

Lawyer Jan-Henning Ahrens (Source: KWAG Rechtsanwälte)

Anyone who dreams of founding their own company or wants to successfully implement long-planned project ideas usually needs good financing . While classic bank loans were the first choice for a long time, many founders now rely on alternatives such as crowdinvesting . Companies receive bonds from several small investors, the so-called crowd, through various platforms.

In return, the entrepreneurs involve the investors in the economic success of their project, so that they get their savings ideally repaid with a high return. Jan-Henning Ahrens, the specialist lawyer for banking and capital market law, explains in an interview with what is important in this form of financing and what both sides should pay attention to.

Mr Ahrens, why are more and more companies using crowdfunding instead of bank loans to finance their projects? For whom is such funding particularly suitable?

Jan-Henning Ahrens: Crowdinvesting is particularly interesting for start-ups who are reluctant to use traditional bank financing for their project or start-up. The reasons are naturally complex. It is important to understand that, unlike, for example, in the USA in Germany, it is very difficult to find investors to finance a new idea or a start-up . In addition, traditional lenders such as banks mirror the risk of lending over a high risk interest rate.

For private investors such as family offices – special forms of organization that deal with the management of private large assets – the hurdles are even higher. The managers of such assets often want double-digit returns at moderate risk.

The crowd is cheaper to get a loan. For companies, it is often easier to convince many small investors with their idea, especially since these – each for themselves – carry a relatively low default risk. If the project or the company fails, the crowd comes to the conclusion of debt repayment, which can also be beneficial for the founders.

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What rights and obligations apply to crowdinvesting?

Jan-Henning Ahrens: The providers of crowdinvesting or issuers as issuers of bonds or securities must comply with the legal requirements arising, for example, from the Investment Act. It regulates which form the offer may have and which persons can invest. Thus, the amount of the investment is limited . Up to 1,000 euros, everything is rather easy, it must be submitted to a self-assessment, which is examined. But more than 10,000 euros will not work then.

In addition, the issuer may not have any corporate influence on the crowdinvesting platform. He may therefore not belong to the management or be connected to the platform under company law.

What risks arise for companies that finance themselves through crowdinvesting? For example, can investors exit the investment if they suddenly want to invest their money differently?

Jan-Henning Ahrens: A general answer is unfortunately not given, as these questions are generally regulated in detail. In most cases, investors will not be able to recover their capital until the contractual conditions have been met. In other words, if everything went smoothly when the bond was issued , the investor would get his capital back if the payment did not jeopardize the continued existence of the financed company . Other rights can only arise if the investor was not informed correctly about the offer.

What distinguishes a reputable provider of crowdinvesting?

Jan-Henning Ahrens: Of course, transparency . Both the company and the investor need to know what the crowdinvesting platform charges them.

How exactly do you support people who finance themselves through crowdinvesting when things go wrong with the investment?

Jan-Henning Ahrens: We are lawyers and therefore mainly responsible for the legal framework. Of course, we are also there when claims against platforms must be asserted or when investors assert claims against the company . Basically, we see ourselves as capital market lawyers, but also on the investor side.

Thank you for the interview, Mr. Ahrens.

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