Crowdinvesting made in Germany

Abstract

We finished a research work about opportunities and Threats of Crowdinvesting as a kind of coporate finance for enterprises. The research project started in 2011 and was finished in April 2014. We focussed our work on the Crowdinvesting Scene in Wetsern Europa, exscpecially in Germany. Because of our own experience in the field of corporate finance and by considering the insights from the previous economic and financial crises we watched the in 2011 in the USA upcomming Crowdfunding phänomenon, followed by the first steps of Crowdinvesting or crowdfinancing done by the online plattform in the USA, named kickstarter. At this time, we thougt about the potenzial of Crowdfunding and Crowinvesting to finance not only startups but also existing small and medium sized enterprises. It was evident at this time that the beavior of banks respecting their lending policy was not only a problem during the financial crisis but could also become a lasting problem for enterprises, also against the background of stronger rules in financial markets in Europa like BASEL III. Therefore we investigated the development of Crowdinvesting in Germany done by a hand full of online Crowdinvesting platforms like “Seedmatch” “Companisto” or actually “Bergfürst”. During our research work, we had to deal with the issue of the EURO DEBT CRISIS and the loss of confidence of depositors in the banking system. Our aim of research work was, to find out, if there are significant opportunities and threats of Crowdinvesting and how you can reduce threats and risks by simultaneous removing the opportunities to design Crowdinvesting as a sustainable instrument for financing enterprises. We also wanted to do an outlook for the future of Crowdinvesting for alternative application fields of this kind of financing via the Internet. It was also interesting, to recognize the power of social media, social networking and Internet in general. Nowadays we talk about Internet-Economy and Digital-Economy and possibly a further leap in development of the world economy, after the onset of globalization about 20 years ago. The following essay is an extract of our extensive research work in the field of Crowdinvesting and also to understand as a resume.

Keywords: Crowdinvesting, Crowdfunding, Crowdfinancing, Digital Financing, Bankless Financing, wisdom of the crowd; swarm-intelligence.

1 Introduction

Our research work on the theme Opportunities and Threats of Crowdinvesting has not limited itself to the analysis and description of the chances and risks that Crowdinvesting entails. In the context of our work, we have also investigated how Crowdinvesting has developed and to what extent it can be adopted as an alternative source of funding within corporate financing^[1]. In so doing, it was important to discuss the interesting aspects and potentials of collective intelligence, which makes Crowdinvesting in the era of the Web 2.0 technology possible in the first place. In fact, it is the information and communication technology itself, which has enabled, or at least accelerated, the globalization, that makes it possible to quickly address a large number of people and masses of individuals, inform and motivate them to adopt a certain behaviour. Our essay as an excerpt of our research work gives an overview about the relationship between Internet, Social Media, Coporate Finance, Digital Finance and Crowdinvesting, investigated for the German Crowdinvesting Scene, concerning the aim to find out, if Crowdinvesting is able to become a sustainable kind of financing for enterprises. In addition, we give an outlook on alternative application fields of Crowdinvesting.

2 Digital Economy – Internet Powers Economic Growth

It is not a coincidence that the era we are living in could be also very well described as the era of Digital Economy. At this point in time, traditional economic sectors have either been swept away from the market or have had to undergo radical and strategic changes in order to adapt themselves and survive in the current digital era. Let us think for example of traditional print media (newspapers, books, etc.) that have been outdone by new digital media, of commerce, where almost every branch has had to surrender to the Internet and implement e-commerce solutions, or of universities all over the world that have had or will soon have to introduce e-learning^[2]. Just like all these realities, the capital market could soon undergo far-reaching changes as well. Yet, generally speaking, this fast-going Internet does not necessarily represent an ideal environment. In fact, a superorganism like the Internet and its social network structures, made of a constantly evolving crowd with constantly changing operative goals, can also make it hard to plan strategically. Within this context, companies in particular are under great pressure for adaptation. However, most small and medium-sized enterprises lack the necessary financial resources.

Nonetheless, the Internet is, in Germany as in many other countries, the economic sector with the highest growing rates. Moreover, it is not only its own driver of growth, but also the key driving force of the overall economy. The current trends in the Internet sector are “Mobile”, “Media Content” and “Big Data”.^[3] Given the omnipresence of the Internet, a growing number of services are being transferred in the digital world. Among those there is also the provision of capital to companies, which is made possible by Crowdinvesting.

3 Internet Releases Banks

In the case of Crowdinvesting, the Digital Economy has the potential to replace many parts of the banking sector. Ensuring the availability of capital and enabling its employment in order to stimulate growth within a national economy is the actual role of the banking system. Yet, the banking crash and the financial crisis clearly demonstrate that banks have failed in serving their goal. The Internet could take over this role bringing about an additional advantage: with these new digital structures called Crowdinvesting, the citizens’ money, which would be held by the banks only in mere moral trust, could be used to finance businesses and that at lower costs. The savers’ money would not go into terribly high salaries of bank managers or into banks’ real estate offices. This said, our research work has also tried to understand how Crowdinvesting can be used as a corporate financing tool. Therefore, we have analyzed the financing structure and the financing behaviour of the German SME sector, in order to understand whether there is a necessity for alternative sources of funding in the first place, to what extent the company’s size influences such a need, and how the financing behaviour of small and medium-sized companies has developed over the past years.

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^[1] C.f. Schenk, R., The Further Development of Crowdfunding as a Modern and Unconventional Kind of Financing for Small and Medium Sized Companies, München, 2012.

^[2] E-learning aims, inter alia, at making it possible for everyone, i.e also young people who live in remote areas of the Planet, to get an academic education and at reducing the costs associated with education.

^[3] Little, D. die deutsche Internetwirtschaft 2012 bis 2016 [The German economy from 2012 until 2016], p. 26-33 http://www.adlittle.de/uploads/tx_extthoughtleadership/2013_Report_TIME_eco_Deutsche_Internetwirtschaft.pdf, retrieved 05/04/2014.