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This blog post first appeared first on old medium publication (https://medium.com/startuprad-io), and was moved to this blog with the relaunch of our website in summer 2024.
The Upcoming Changes to EU Crowdfunding Rules for Startups
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The Expert
We talk to a former guest, Jamal El Mallouki (https://www.linkedin.com/in/jamalelmallouki/), Managing Director (MD) and Co-Founder of Crowdfunding SaaS tech company CrowdDesk. He is also chairman of the board of directors of Germany’s Crowdfunding Association (https://www.bundesverband-crowdfunding.de/about-the-german-crowdfunding-association-bundesverband-crowdfunding-ev/).
He talks with us about the upcoming rules, which will harmonize crowdfunding for startups across the European Union.
The new Rules / European Crowdfunding Service Provider (ECSP)
Currently, Germany has national rules, getting retail investors without any prospectus to invest in startups. Each retail investor can invest up to 25.000 € in total. This limit does not exist for professional investors. A startup can now raise up to 6 million Euros with crowdfunding.
These rules are about to change with upcoming EU rules. You can dig deeper in the rules with the links below. The main points are:
Crowdfunding campaigns can now target retail investors across the EU. They can now scale up to the whole EU market.
(Crowd)Fundraising startups can now target directly online retail investors across the EU
Crowdlending in Germany is now possible, directly via the crowdfunding platform, the need for an intermediate bank is gone.
This also means that crowdfunding is competing with classical bank credit here.
EU Startups, running a crowdfunding campaign can now raise funds in the German market, the largest in the EU with 6.7 trn € (8.14 trn US$) in private household wealth (according to Bundesbank, as end of 2020).
Fundraising without prospectus is possible, up to 5 mn Euros
The Video Interview is set to go live on Tuesday, May 18th, 2021, at 17.00 CET
The Audio Interview Podcast
The audio podcast will go live the same day as the video podcast, just slighly earlier.
Other Interviews with the CrowdDesk-Team (Johannes, the other half of the founding team)
Further Readings / Additional Resources
More detailed reading:
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The Interviewer
This interview was conducted by Jörn “Joe” Menninger, startup scout, founder, and host of Startuprad.io. Reach out to him:
Transcript
[0:00] Music.
[0:08] That I owe you were podcast and YouTube blog covering the German startups.With News interviews and Live Events hello and welcome everybody this is Joe from startupradio diodeyour startup podcast and you to block from Germany as well as the world’s first internet radio station dedicated to startups and.Companies today I do have an expert on crowdfunding here with me hey tomorrow how you doing hi yeah thanks for having me.
[0:41] Probably my pleasure there’s a very simple reason for youbeing in my podcast not only that you’re one of the founders of crowd desk where my frequent audience may already know you harness your co-founder but there are changesonCrowdfunding regulations on the horizon on the European level and that is something we want to take up especially since the changes are a little bit in the future so everybody can get ready now stay ahead of the curve with us can you give us likea little overview what is now possible in terms of crowdfunding in Germany.Yeah in Germany we have several chance to to to raise Capital first of all we introduced on National basis National level several.Legal.My collations 2015 and then in 2017 which enables customers which enables a company’s and she was to race up to 6 million euros without.Creating a Prospectors.
[1:49] And addressing retail investors via an internet platform.That is already possible the maximum the limit of an investorwho canvas one single acid on single company is up to 25,000 Euros unless he is.His no return investor if he’s a professional Institutional Investor he has no limit for his investment yeah that’s theof the brief a brief summary to the regulation which is given a Germany on a national level let mequickly get to buzz words out of the way a prospectus means you have to hire a very expensive usually very good law firm and they have to draw the perspectivewhich can reach something like Fifty a hundred Pages where you have to detail like all the stuff that is going on it’s very expensive it has liabilities in it so startups usually want to circumvent it becauseas I said it can be very costly but if you are looking for that amount of money you should totally have to do that and the second one was a you were talking about a professional investor and that is somethingin Germany and in the US it is always defined by certain income and asset levels or profession.
[3:15] Levels of Professional Knowledge that are in the local in the National Security laws and therefore you have a special.Separation here so retail investors on a little bit more protected by law and for professional investor well you lose the money you have to live with it.That’s basically the rule so now we’re talking yeah absolutely sorry.
[3:41] Yeah absolutely right yeah have to live with it you took the risky you do it you lasted that’s it now complaining but let us now talk a little bit aboutwhat changes are on the horizon what’s like the dimension of the Lord and where does it apply.What’s what is coming now is the the escp that means e CM d c — s p stands for upin crowd.Crowdfunding service provider it’s a new law which enables crowdfunding platforms to operate not only in their country in this specific country where they where they started but.Also to address.
[4:23] Particular 500 million European potential investors that means it is the the first regulation for crowdfunding in Europe which enables crowdfunding platforms to scale up on a European levelthat is the main the main difference to the to the current situation the EC SP enables issuers thento raise up to 5 million euros without Prospectors but they can address our investors in every European country.And that is something which is absolutely groundbreaking because this is this is something absolutely new especially for for companies whichoperating within the financial sector this heterogeneity which is given by the the national regimes.
[5:19] It’s completely broken up so that we have here in this case and no homework how much Generegulation to scale up crowdfunding on the European levelthat means for example a startup from Estonia can make there with Local crowdfunding Company campaign and can raise funds all over the European Union in Paris in Stockholm in.
[5:47] In Berlin in wherever Lisbon.All the European Union one rule one regulation and the usual disclaimer that doesn’t hold true for taxes but that’s a topic we totally have to skip and you totally have to work out with your tax professional.
[6:04] You’ve been talking about up to five million are we talking about Equity are we talking about that are we talking like a mixed method in capital.The general there are different financial instruments this is up to the National regulations in Germany we can use securitiesas financial instruments thatcovers as well Equity financial instruments and on the other hand so called for moocs and Lang this is a group of financial statements for instance for example thesubordinated loans or participating loans are part of this groupall financial instruments these are the the financial terms covered in Germany that means if you are an issueryou want to raise money and your settle in Germany this is the specific.Dimensional specific set of financial instruments you can use to raise money.
[7:12] Until and whole Europe that totally makes sense so.We just realized you can do different instruments you could do that you could do to equity and the upper limit for across the European unit is 5 million can you give us a little bit more input on.Terms of the time Horizon when does this regulation come into force and.But let us first talk about the time frame and then about your expectation for this in the future.It is already adopted last year by the by the European Parliament and by the European Council.Arm that means it is given lawbut there is a transition period of 12 months that means until middle of November this year that needs 2021 the you can’t.
[8:14] You only can apply for a license but you are notyou cannot start to to operate under the slices that means you have to wait until until November.Um of them you are eager to start operating from your specific country where it’s settled and offer different issues and financial institution.
[8:40] Hold fewer that would mean basically the authority I assume in Germany the legal Authority would be the oversight body or financial services Buffett.Exactly the asthma is creating this process and the regulation on an European level.
[8:58] The atmosphere up in Authority for thatand the national Regulators corporate closely with with the asthma on this topic to introduce this new regulation across Europe and in Germany you absolutely right.It’s the boffin who is in charge for that.So basically on a European Level D asthma I think it’s European security markets Authority is in charge of setting the rule and the local the local regulator is in chargeof doing the real regulation and the licensingjust some technicality here for the celebs who are now eager how I want to get funding under this rule is it likethat the puffins for example here in Germany the oversight body already has the applications and basicallywhen the time is over like December 1st or November 20th or something they justsend out a letter and say okay you got the license or do they then start withthe certification process well this is this is a crucial point in The crucial aspect which you mentionwe and I represent also the German crowdfunding Association and as the as the association.Is in good discussions with the supervisory Authority who made this point clear that that we.
[10:28] That you want to do that you want this this scenario as you described but.
[10:34] Well at the moment I’m not that optimisticBots we are eager to get to to enforce everything we can do to to get thisto get the licenses in November but it will be hot so for every startup out therecheck your local crowdfunding provider most of most likely they will be already aroundtalk to them about licensing and then you can make sure like they get their license on November 15th and you can start your crowdfunding on November 16 because I do believecoming out of Corona hopefully the majority of people will you vaccinate itthat could bring an uptick in start-up activities and that is pretty good timing for new funding instruments like thisgetting to the last part because we’ve been talking back and forth a little bit before the recording and your tight on time you have to jump so can you give us a little bit outlook onwhat you would expect not not for 20 21 say the majority of licenses are granted across Europe in 2022 what effects.Do you expect their do you really think it becomes again a more important funding instrument for startups.My opinion my personal opinion.
[11:59] This makes absolutely sense and European regulation that is.Is absolutely game-changing and we already had impact on regulation other countries like the US for example andthe problems we want to address in this case to facilitate the the access to capital for small and mid-cap firms.It’s exactly that what we want to to change and and I personally think.Yes it could be a game-changer game changer this is up to the supervisory Authority in Germany and across Europe of course it’s up to them how they handle thatand there are specific points which we have we had address in the past because they have to.
[12:58] Terms of liability and who’s in charge of.Folds and what is the risk is the correct assessment for investorsbut in general I’m absolutely a fan of this of this regulation and I guess it could be a game-changer if it’s handled correctlyand for the for all the companies not only for startups it’s of course for startups with.All other companies have a new access to Capital and a digital way to raise money and this is something which which enables them to to.To handle their company as they want andso I’m absolutely optimistic about that well best of luck for that he’ll also provide uswith the link to the association website so people can stay informed and also all the investors who are now curious to invest in European or German crowdfunding service providers they can go down in this Association and have a look at all the amazing firms that aremembers there thank you very much with pleasure having you.
[14:12] Thank you and thank you much if you are a professional looking at the European startup scene Germany is a place you cannot miss.
[14:21] Music.
[14:32] Most likely you have never heard or read anything only startups before in English but you will in the future be ahead of the curve And subscribe to start up rad dot dot.
[14:42] Music.
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