In 2020, over €400 million was invested into securities offerings in Germany via crowd investing or investment crowdfunding platforms according to research by Crowdinvest.de augmented by data from Bundesverband Crowdfunding (the German crowdfunding association). The first quarter of 2021 saw approximately €100 million. According to the report, 2020 was the first year the crowd investing market has declined. Only offerings based in Germany are included in the report by Crowdinvest.de which may be the reason why Bundesverband Crowdfunding is reporting higher numbers (CI has reached out for clarification).
According to the report by Crowdinvest.de, the overall market declined dramatically in 2020 in comparison to 2019 impacted by the ongoing COVID-19 health crisis.
- The total market sinks to €327.8 million [-21.5%]
- Real estate crowd investments declined to €254.9 million [-18.9%]
- Mezzanine and equity-based corporate financing generated € 50.9 million [-6.2%]
- Credit-based crowd investments for businesses dropped to €3.6 million [-89.1%]
- Crowdinvestments for energy projects increased to €13.4 million[+ 44.8%]
- The cumulative crowdfunding amounts since 2011 stands at €1.440 billion
While the market dropped from €417.7 million in 2019 to €327.8 million in 2020, last year’s numbers were still higher than in 2018 when the total came in at €305.2 million.
When combining business financing including, mezzanine, equity, and debt capital, Crowdinvest.de says that corporate finance dropped by 37.6% in 2020. The decline in 2020 was largely due to the slump in credit-based financing [-89.1%]. Funding Circle, one of the leading platforms until 2019, has stopped originating crowd-based loans in Germany. To boost business, some of the platforms are now also working on private placements deals that are not recorded as crowd investments in the report.
Bundesverband Crowdfunding issued a positive statement on the market saying they are confident regarding the growth and development of the industry going forward. The group pointed towards the new European Union rules (ECSPR) that enable issuers to raise up to €5 million across all member states as a key catalyst going forward.
Bundesverband Crowdfunding states that numerous foreign platforms will be active in Germany and will further stimulate the market. At the same time, their members will be able to leverage the new regulation to expand across Europe. From November 2021 it is expected that platforms will be able to obtain a Europe-wide crowdfunding license.
To quote Bundesverband Crowdfunding [translated]:
“In the second quarter of 2020, the Corona pandemic led to uncertainty among investors. However, the market development in the 3rd and 4th quarters of 2020 and in the first quarter of 2021 shows that the interest in crowd investing is still great. The previous year’s level was reached again in the first quarter of 2021. In particular, corporate financing with equity and mezzanine instruments are at the same level as in 2020. Energy financing increases slightly, while real estate financing shows slight losses compared to the previous year. But the association platforms are already showing strong growth again in this market segment.”
“The crowdinvesting platforms make an important contribution to improving access to capital,” said Uli Fricke, Vice Chairwoman of the association.
While industry insiders are optimistic that post-pandemic and new crowdfunding rules will fuel sector growth there is an element of concern that German legislators and regulators may incorporate national rules that hamper the growth of online capital formation. For platforms to operate across the EU, they must be regulated in a home jurisdiction and if one country has more stringent rules it may undermine expansion as issuers and/or platforms cherry-pick jurisdictions that are more amenable to Fintech.