German crowdfunding law will choke start-up financing - lobby group
By Michael Nienaber and Matthias Sobolewski
BERLIN (Reuters) - A German draft law to supervise crowdfunding and protect small investors against heavy losses risks choking off support for fledgling businesses, an lobby group said in a paper for a March 16 parliamentary hearing on the proposed legislation.
Worried that German companies are falling behind in the digital age, Chancellor Angela Merkel's governing coalition is keen to promote innovation and start-ups, but industry group Bitkom said the proposed law would undermine that goal.
"The bureaucratic rules of the planned Small Investors Protection Law are superfluous and would only make crowdfunding unattractive in Germany," Bitkom said in the statement seen by Reuters.
German start-ups are already struggling to raise funds and received only 2 billion euros (1.45 billion pounds) in venture capital investment in the past three years, against 64 billion euros for U.S. companies, according to a December study by consultancy EY.
Crowdfunding, often hosted on online platforms such as Kickstarter or Crowdcube, allows individuals and small businesses to raise funds from pools of investors who put money into peer-to-peer schemes or securities such as unlisted shares.
But consumer protection watchdogs have warned that the industry, which raises a billion euros a year in alternative financing, falls between the cracks of existing regulation.
Since crowdfunding platforms can skirt requirements for businesses to publish a prospectus, investors often have little information and face high failure rates. Platforms are also able to avoid holding enough capital to keep themselves solvent.
In December the European Securities and Markets Authority (ESMA) called for new European Union rules to supervise crowdfunding and protect investors who face significant risks from the evolving sector.
The German government has presented a draft law that would oblige crowdfunding platforms to publish a detailed prospectus when a project volume exceeds 1 million euros.
Merkel's coalition also plans to limit individual investments to 1,000 euros, thereby reducing potential losses. Individuals would be allowed to invest up to 10,000 euros only if they can provide proof of assets or income of a level deemed sufficient to bear the risk of loss.
Bitkom's submission said the planned rules are too strict and urged coalition lawmakers to add more exceptions to the draft law during the parliamentary process.
If the draft law is implemented without changes, crowdfunding will no longer provide a financing alternative for start-ups in Germany, the association warned.
(Editing by Caroline Copley and David Goodman)
