Germany has found itself more and more in the global financial spotlight, initially as a result of the possible boons that Brexit could bestow upon Berlin (Talent! Investment! Glory!), and latterly as a result of the U.S. Department of Justice threatening Deutsche Bank’s with a $14 billion dollar fine (Shame! Risk! Possible collapse of economies everywhere!).
However, on a national scale, Germany has some homegrown fintech products that are really coming into their own. Tradestreaming sat down (ok, Skyped down) with Michel Harms, editor-in-chief of crowdfunding.de, to get an eagle eye’s view of Germany’s fast-growing crowdfunding industry. Fair warning: most of the links in this article are in German.
Equity crowdfunding is on the rise in Germany.
Just how fast is equity crowdfunding growing in Germany? Pretty fast. The German business publication For-Gründer reported €37,3 million raised in equity crowdfunding in 2015, up 57% from 2014. In keeping with global trends, real estate crowdfunding platforms have experienced a real surge in Germany, up approximately 80% in 2015 from the previous year, according to For-Gründer, though startup financing is still the clear leader.
Surprise! German equity-based crowdfunding is dominated by … middle-aged men.
While some predicted that crowdfunding would close the gender gap, crowdfunding is still dominated by men — at least in Germany. Research that Harms published in May 2016 found that crowdfunding is very much the domain of the elite: the group that was most aware of crowdfunding were males, under forty, with higher income and higher education than the average.
It’s not just awareness, it’s users as well. In 2015, two leading real estate platforms in Germany told the Frankfurter Allgemeine that their users were, on average, internet-savvy 55-year-old men, who were able to pay an average initial investment sum of €5000 to €6000. Similarly, German startup crowdfunding platform Seedmatch reported in 2014 that nearly 90% of its investors were male, with an average age of 38, and who had 868 Euros to invest in a startup.
The “Kleinanlegerschutzgesetz”, the first law that gives equity-based crowdfunding a legal framework, actually protects consumers.
The law, which went into affect in 2015, has a number of provisions to protect investors, including a clause that when investing more than€1000, the investor needs to show that he holds disposable assets of at least €100,000 or that he invests less than twice of his monthly net income.
In The Current State of Crowdfunding in Germany, Harms notes that the law “provides clear guidelines and serves also as a sign that politician recognize the relevance of crowdfunding.”
Most people in Germany don’t know much about crowdfunding, period.
Getting the word out to people who aren’t rich men over forty with a good higher education continues to remain a major challenge for German crowdfunding. Harms suggests that the misuse of the word crowdfunding has sowed distrust among the crowd and that further regulation could help restore faith in the industry.
Germany has one bank that’s doing crowdfunding, but it’s only for internal bank customers, not for the public.
Germany’s Commerzbank launched its own P2P lending platform in 2016 for its customers. “I assume Commerzbank keeps it internal to have more control,” said Harms. “Also to let only a specific type of customers invest — those who are aware and can handle the risk. I don’t know if Commerzbank wants to open that to public. If you have fallout, it will probably affect the brand.”