German crowd-investing platforms: Literature review and survey

This article presents a comprehensive overview of the current German crowd-investing market drawing on a data-set of 31 crowd-investing platforms including the analysis of 265 completed projects. While crowd-investing market still only represents a niche in the German venture capital market, there is potential for an increase in both market volume and in average project investment. The market share is distributed among a few crowd-investing platforms with high entry barriers for new platforms although platforms that specialise in certain sectors have managed to successfully enter the market. German crowd-investing platforms are found to promote mainly internet-based enterprises (36%) followed by projects in real estate (24%) and green projects (19%), with the median money raised 100,000 euro. Subjects: Entrepreneurial Finance; Entrepreneurship; Small Business Management

ABOUT THE AUTHORS Dr. David Grundy is a Principal Lecturer at Newcastle Business School investigating customer retention, commitment, trust, membership and community building & management in both online and offline environments for both businesses and the public sector.
Carolina Ohmer is an entrepreneur and charity fund-raiser studying a postgraduate dual degree for both a Masters of International Finance and Entrepreneurship at the University of Kaiserslautern in Germany and a Masters in Global Financial Management at Northumbria University.

PUBLIC INTEREST STATEMENT
To the dismay of national policy-makers Germany is a highly developed economy which has very much struggled to replicate rates of new business start-ups seen in comparable nations despite a high skills and education base. This article adds to the on-going debate regarding usefulness to entrepreneurs of crowd-funding platforms by examining the ability of crowd-investing platforms to address the classic early stage financing gap. While most existing papers concentrate on the US experiences of crowd-investing, this paper provides a substantial addition to the understanding of the German crowd-investing situation by uniquely highlighting and summarising key German literature in the area which is scarcely mentioned in the fast emerging literature in this area. This article then provides current survey data on the key entrepreneurial aspects of German crowdinvesting platforms, which is a highly underresearched area with almost all academic research devoted to US-based platforms.
While crowd-investing in general is rapidly growing and evolving, literature in this area is still relatively sparse (Mollick, 2014). Nevertheless, the growing importance of the crowd-funding sector, emphasises the necessity of further research in order to contribute to the state of knowledge and keep pace with changes of this innovative financing method. Hence, the objective of this article is to provide an overview of the German crowd-investing market and analyse the suitability of crowd-investing platforms for entrepreneurs. The underlying purpose is thereby to give an account of the current status of German crowd-investing to enable a categorisation, and thus a better evaluation regarding the potential of crowd-investing as funding source. There are few reports and studies on crowd-funding outside of the US. One comprehensive report on crowd-funding in relevant European countries, including Germany, was conducted by Ernst and Young on behalf of the University of Cambridge (Wardrop, Zhang, Rau, & Gray, 2015). Research was also undertaken on German crowdfunding, including crowd-investing, through a Delphi study focused on the potential of crowd-funding (Blohm et al., 2015) and an analysis of the market development (Hölzner, Kortleben, & Biering, 2014). The European Commission, for instance, is currently undertaking a study to analyse the risks and potentials of Crowd-funding (European Commission, 2015).
Not surprisingly, the literature on crowd-investing, which only represents a small proportion of the crowd-funding market, is even more limited (Feller, Gleasure, & Treacy, 2013). Several academic articles on crowd-investing, which depict the concept from an entrepreneural view, focus on legal regulations, especially the JOBS Act (Bradford, 2012;Cohn, 2012;Kassinger, Kaufmann, & Traeger, 2013;Martin, 2012) or crowd-investing as financing method (Belleflamme, Lambert, & Schwienbacher, 2010;Schwienbacher & Larralde, 2012). Furthermore, some articles provide an overview of the crowd-funding research, categorising relevant literature by the participating actors in the process (Moritz & Block, 2014) or the different subtypes of crowd-funding (Feller et al., 2013). In most articles on crowd-funding in general however, crowd-investing is not mentioned (Hagedorn & Pinkwart, 2013).
Similar to international literature on crowd-investing, German literature focuses on legal conditions (Hornuf, 2012), on the potential of crowd-investing for filling the equity gap (Dorfleitner, Kapitz, & Wimmer, 2014;Hagedorn & Pinkwart, 2013;Kortleben & Vollmar, 2012) and on providing a comprehensive overview of the concept and subforms of crowd-funding (Hemer, 2011;Hemer, Schneider, Dornbusch, & Frey, 2011;Klöhn & Hornuf, 2012). Furthermore, the website www.fuer-gruender.de, which provides support for entrepreneurs, releases quarterly figures on crowd-funding. With the Grundy & Ohmer, Cogent Business & Management (2016), 3: 1138849 http://dx.doi.org/10. 1080/23311975.2016.1138849 exception of these figures however, the different articles, evince the continuous need for research to ensure constant topicality. Hagedorn and Pinkwart (2013) for instance, provided a detailed examination of all, at that time 11, German crowd-investing platforms. At the present moment however, the crowd-investing market has almost tripled to 31 platforms, even though most of them do not have a significant market share. Furthermore, Kortleben and Vollmar (2012), categorised crowd-investing as funding source after friends and family financing but before angel financing, arguing that only smaller amounts can be raised through "the crowd", compared to venture capital were business angels invest average sums of 200,000 euros and venture capitalists sums above 500,000 euros. Although the categorisation of crowd-investing in seed and early stages still holds true, developments in the sector show the demand for a modification of crowd-investing as financing tool within the business cycle. Seedmatch for example successfully completed a project amounting for 3 million euros and Companisto even managed to raise 7.5 million euros for a project completed in July 2014 (Companisto, 2015;Seedmatch, 2015).
Overall German crowd-investing in general is still a largely un-researched area, which at the same time is rapidly expanding and evolving. Therefore, this article aims to contribute to crowd-funding literature by providing an overview of the German crowd-investing market and analysing crowd-investing platforms predominantely from an entrepreneurial perspective. The focus is thereby put on crowd-investing, whereas the terms crowd-investing and equity-based crowd-funding are applied interchangeably.
Additionally, the analysis is intended to enhance the assessment of crowd-investing platforms, to identify whether platforms are a suitable financing alternative for entrepreneurs and to support funders in the selection process. Consequentally, this article (1) provides a comprehensive analysis of the potential of crowd-investing as funding method in Germany, (2) analyses a census sample study where the German crowd-investing market, which consists of 31 platforms, and (3) presents a basis for the classification and evaluation of the German crowd-investing market.

Crowd-investing: origins, development, classification and definition
Crowd-funding refers to a form of financing, where projects or ventures are funded by raising small monetary contributions from a large group of people ("the crowd"), typically via internet, rather than a limited number of sophisticated investors (Belleflamme et al., 2014). The concept of crowd-funding emerges from crowd-sourcing, which is the approach where profit-oriented businesses address "the crowd" through an open call via internet, in order to obtain support, feedback and possible solutions that can be implemented in production processes (Kleemann, Voß, & Rieder, 2008). Crowdsourcing can be further divided into the four subtypes: crowd-wisdom, crowd-creation, crowd-voting and crowd-funding (Kortleben & Vollmar, 2012). The term itself is an acronym derived from crowd and outsourcing (Hagedorn & Pinkwart, 2013). The voluntary involvement of "the crowd" is usually free of charge or compensated by a significantly smaller amount than the actual value generated for the company (Schwienbacher & Larralde, 2012).
Although the term crowd-sourcing was first introduced by Jeff Howe in the June 2006 issue of the US technology magazine Wired (Belleflamme et al., 2010;Howe, 2006) its underlying idea can be traced back to the 18th century (Brabham, 2013) with historical examples such as the Longitude Prize, where the British Government offered £20,000 for anyone who could provide a credible calculation for the longitude of a ship, or the Oxford English Dictionary, where 800 volunteers catalogued words for the first publication (Dawson & Bynghall, 2012). An early, and what is argued to be the first, example of crowd-funding is the construction of the Statue of Liberty's base, where money was raised from 120,000 investors in exchange for the publication of their names, after financial resources for the building had become scarce (Leimeister, 2012).
Additionally, crowd-funding resembles the principle of microfinance (Mollick, 2014), which is a source of financing for entrepreneurs and small businesses that do not fulfil the prerequisites to obtain a bank loan or other financial services (Bradford, 2012). Reasons why these entrepreneurs are http://dx.doi.org/10.1080/23311975.2016.1138849 denied financial resources are lack of securities, high repayment risks, or too small sums of required capital (Bruton, Khavul, Siegel, & Wright, 2015). Furthermore, microfinance-based funding can take the form of loans, donations or investments with potential money providers being both individuals and institutions .
Despite the early emergence of offline crowd-funding, various authors argue that the development of Web 2.0 was a decisive factor for the dissemination of information regarding the concept of crowd-sourcing, and consequently online crowd-funding (Brabham, 2008;Kleemann et al., 2008;Olson & Rosacker, 2013). Web 2.0 is regarded to be a version of the World Wide Web, where the network is seen as platform which allows the interactivity of users through technologies such as social networks, web applications or blogs (Rosen, 2011). The concept of 2.0 web-based crowd-funding initially emerged in the music industry (Belleflamme et al., 2010). Even though online crowdfunding projects like the one from the rock band Marillion, who financed their US tour by raising $60,000 from their fans via internet, date back to the mid-1990s, crowd-funding websites first appeared in the early 2000s. While some authors view online crowd-funding to have started with the US internet platform ArtistShare, which launched its first project in 2003 (Freedman & Nutting, 2015;Laemmermann, 2012), others regard the German-based platform SellaBand, founded in 2006 as pioneer (Kappel, 2009;Macht & Weatherston, 2014). The basic idea behind both concepts is to enable musicians to finance their projects without the need of record labels. In exchange, money providers can obtain rewards such as backstage passes or gain access to the creative process of a project (ArtistShare, 2014;SellaBand, 2013). This form of crowd-funding, is therefore often referred to as reward-based crowd-funding (Bradford, 2012;Collins & Pierrakis, 2012). Haas, Blohm, and Leimeister (2014) categorise reward-based crowd-funding, where non-monetary incentives are given to financial backers, as hedonistic. Although both crowd-funding websites, ArtistShare and SellaBand, follow the same approach of enabling musicians to finance their projects through "the crowd" instead of record labels, ArtistShare initially characterised its concept as fan funding while SellaBand was the first platform to apply the term crowd-funding (ArtistShare, 2014;Freedman & Nutting, 2015;SellaBand, 2013). However, the term crowd-funding itself was first introduced by Michael Sullivan in 2006 (Gass, 2011;Lawton & Marom, 2010). Furthermore, Lambert and Schwienbacher (2010, p. 6), who offered the first academic definition, defined crowd-funding as: an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes Crowd-investing (equity-based crowd-funding) is a form of crowd-funding based on the same fundamental principles as the above-mentioned early form of reward-based crowd-funding but with certain distinctions (Kortleben & Vollmar, 2012). The main similarities between crowd-investing and (reward-based) crowd-funding are that both are methods of project financing through "the crowd" via internet. Nonetheless, both models differ with respect to the underlying financing method (Hagedorn & Pinkwart, 2013). Unlike reward-based crowd-funding where money providers, usually, obtain non-monetary rewards, such as the mentioning of the name on a CD cover, tickets for the funded event, or material incentives, like the pre-purchase of products in exchange for contributions , supporters of crowd-investing projects have the possiblility to receive monetary contributions in the form of interests or dividends (Hagedorn & Pinkwart, 2013;Kortleben & Vollmar, 2012). Hence, crowd-investing is based on a for-profit approach, were financiers expect returns rather than donations (altrusim/patronage-model) or non-monetary compensations (hedonism).
In the crowd-investing model, money providers are regarded as investors and the financed projects are linked to start-ups or already established companies, rather than to individuals (Hemer et al., 2011). Moreover, there are different involvement possibilities for investors who make monetary contributions such as company shares, silent participations, profit participating rights or participating loans (Belleflamme et al., 2014;Hagedorn & Pinkwart, 2013). Consequently, equity crowd-funding can be regarded as a form of external financing with a liability feature and respectively as equity http://dx.doi.org/10.1080/23311975.2016.1138849 capital (Kortleben & Vollmar, 2012). Additionally, capital inflow through equity-based crowd-funding can serve as a hybrid financial instrument such as mezzanine capital (Klöhn & Hornuf, 2012).
Even though there is yet no uniform and established definition of crowd-investing, the need for an extended definition of crowd-funding becomes evident taken the above mentioned into account. Mollick (2014) extended the definition of Belleflamme et al. (2010) to fit an entrepreneurial context by providing the following enhancement: Crowd-funding refers to the efforts by entrepreneurial individuals and groups-cultural, social, and for-profit-to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries Although this definition includes "the crowd" and addresses entrepreneurs, it still does not refer to crowd-investing or equity crowd-funding as such, implying the need for a separate definition. An example of a definition that approaches this issue is provided by Hagedorn and Pinkwart (2013): Crowd-investing is a financing method for young ventures and other commercial projects that supports the acquisition of equity by coordinating the submission of different forms of shares to an undefined group of possible investors through social virtual communities Moreover, although both forms of crowd-funding are available to entrepreneurs, Belleflamme et al. (2014) found that entrepreneurs prefer reward-based crowd-funding if small amounts of capital are required and equity-based crowd-funding for larger sums. Additionally, academic literature is increasingly supporting the view that crowd-investing can provide a valuable supplement or even alternative method, to for example bank loans or venture capital, for entrepreneurs to acquire the necessary financial resources, especially in early stages of business start-ups (Agrawal, Catalini, & Goldfarb, 2013;Hagedorn & Pinkwart, 2013;Mollick, 2014). Considering the difficulties that entrepreneurs face when trying to raise capital in initial stages (Cosh, Cumming, & Hughes, 2009) and the number of start-ups that already fail in the attempt (Casamatta & Haritchabalet, 2013) crowd-investing could have an impact on enterpreneurial culture in filling the funding gap.

Financing difficulties for entrepreneurs in early stages
Successful entrepreneurial enterprises pass through different growth stages throughout their life cycles (Mac an Bhaird, 2010; Stokes, Wilson, & Mador, 2010). However, a number of varying venture growth models have been developed, characterising three (Steinmetz, 1969;Vozikis, 1984), four (Dodge & Robbins, 1992) or even five different stages (Greiner, 1972;Scott & Bruce, 1987) in the business life cycle. Although the venture life cycle model is not always applicable due to its linear structure, rigid assumption of a constant growth through all stages, and lack of adjustment, to for example different industries, the model is useful for providing a better understanding and illustration of the entrepreneurial process (Poutziouris, 2003). Furthermore, the different life cycle stages are characterised by different entrepreneurial activities and changing financial requirements and sources (Leach & Melicher, 2011). Within the context of this article the taxonomy and limitations of the model will not be further specified, but rather a five-stage cycle applied ( Figure 1) with focus put on the financial aspects of the different stages.
In the development stage, the initial stage of the venture life cycle, entrepreneurs require a multitude of different resources besides capital including manpower, furnishings, tax accounting and legal advice (Gibbons, Hisrich, & DaSilva, 2014). At this stage entrepreneurs use seed capital as primary form of financing, to ascertain the lucrativeness and feasibility of the business concept (Leach & Melicher, 2011). During the seed phase, also referred to as initial-stage financing, the product or service has not yet been developed and the young company is therefore unable to generate profits and both net income and cash flows are negative (Caselli, 2010;Smith, Smith, Smith, & Bliss, 2011). Moreover, entrepreneurs primarily make use of their own financial resources (Sherman, 2012)  often employ methods such as bootstrapping during this process step (Gibbons et al., 2014). Moreover, family and friends function as a further source of financing in the course of the seed stage by providing money in terms of either loan or equity capital (Molle & Djarova, 2009;Theeuwes, 2013). Throughout literature, the umbrella term used for financing through Founders, Family and Friends is FFF. Although Business Angels may invest at this stage, the required investments are often too small for investors to become interested (Tomczak & Brem, 2013). Typically, this primary phase concludes with the preparation of a concrete business plan and the selection of a suitable legal form for the company (Vinturella & Erickson, 2013).
The start-up stage, the subsequent stage, commences with the legal foundation of the company and ends with the market entry (Fischer, 2004;Kuratko, 2014). This phase is characterised by initial production and sales numbers as well as first returns (Hahn, 2014). Nevertheless, the launching costs are very high, revenues usually low and if any profits are generated they are only marginal (Reichle, 2010). The form of financing required to achieve the initial production is referred to as, start-up financing (Leach & Melicher, 2011). Although at this stage, FFF financing is still relevant, entrepreneurs begin to search for sources of venture capital such as venture capitalists and business angels for external equity financing. However, business angels can also be organised networks or groups, such as the German business angel network-BAND (2015) or the European network-EBAN (2014), that serve as platforms for raising capital, sharing know-how and supporting co-operations. Angel investment especially comes into consideration when FFF capital is already exhausted but capital requirements are still too low for venture capitalists' investments, and are often the first source of external financing (McKaskill, 2009;Tomczak & Brem, 2013). The money pooled from the individual investors is usually distributed to fund different startups as a measure of risk reduction. It may occur, that business angels and venture capitalists invest in the seed-phase of businesses, especially businesses with high-potential, this is however rather rare due to the small amounts of capital required by entrepreneurs at this stage (Cornwall, Vang, & Hartman, 2013). As the company continues to grow and pass through further stages, the types and sources of financing increase and vary (Benjamin & Margulis, 2005). During the expansion stage entrepreneurs expand their businesses through growth financing in the form of debt, equity and mezzanine capital but also government assistance programmes might be applied (Volkmann, Tokarski, & Grünhagen, 2010). During the subsequent bridge phase, the venture has generated a sales and revenues history and both private and public capital become available to the company (Seidman, 2005). Once this life cycle stage has been reached, the business can also obtain financing through stock exchange (Leach & Melicher, 2011). At maturity stage, the company experiences a further increase in cash flows and revenues and capital is obtained from similar resources as in the previous stage (Damodaran, 2010).
Within the framework of this article, solely seed and start-up financing, which both refer to the early phase of young enterprises (Whalley, 2011) will be further analysed, especially with regard to crowd-investing. During these both initial stages, the primary source of financing is the business angel market place followed by venture capital firms (Mason & Harrison, 2000). The investments obtained by angels range between 25,000 euros and 500,000 euros and venture capitalists above 500,000 euros (Belleflamme et al., 2013).

Crowd-investing platforms
The crowd-funding process was originally carried out through direct interaction between financial providers and project owners, via social media tools (Zvilichovsky, Inbar, & Barzilay, 2014), such as "Twitter, Facebook, LinkedIn and different other specialised blogs" (Heminway & Hoffman, 2012, p. 881). Different factors such as the development of Web 2.0, the increasing popularity of crowdsourcing and the impeding conditions for entrepreneurs seeking funds in the aftermath of the financial crisis, have given rise to the development of crowd-funding platforms (Giudici, Nava, Rossi Lamastra, & Verecondo, 2012). Crowd-funding platforms function as facilitators between crowdfunders and project initiators (De Buysere, Gajda, Kleverlaan, & Marom, 2012;Sannajust, Roux, & Chaibi, 2014;Schwienbacher & Larralde, 2012), whereas in the case of crowd-investing or equitybased crowd-funding the projects are mainly undertaken by entrepreneurs and enterprises who seek equity funding from "the crowd" (Belleflamme et al., 2014). These service providers gather monetary contributions from equity investors via internet, and transfer these to the appropriate project owners, thus "creating a dynamic funding network" (Zvilichovsky et al., 2014, p. 1). In this context, crowd-investors and entrepreneurs represent the relevant parties in the two-sided, or rather multi-sided market with crowd-funding platforms as intermediaries (Belleflamme et al., 2014;Zvilichovsky et al., 2014).
In accordance with Belleflamme and Lambert (2014), crowd-investing platforms function similar to traditional financial intermediaries in reducing information asymmetries, transaction costs and risk. Hagedorn and Pinkwart (2013) argue that crowd-investing platforms in their function as intermediaries closely resemble venture capital firms, which also perform tasks such as risk and size transformation. Risk reduction on platforms, for instance, is achieved by downsizing and transferring the default risk to relevant investors. Furthermore, crowd-investing platforms, similar to venture capital firms, screen, select and coordinate potential projects and proof their suitability. On the contrary, Kortleben and Vollmar (2012) emphasise that although both venture capital firms and crowdinvesting platforms search for companies in a similar manner, all other process steps differ considerably. Venture capital firms, for example, undertake an elaborate due diligance procedure ( Reißig-Thust, 2003 ) whereas, in the case of crowd-investing, investors have to evaluate the respective business plans since platforms only undertake an initial selection. Additionally, unlike venture capitalists crowd-investors are not actively involved in the decision-making process and the personnel of platforms might not be as experienced as that of venture capital firms in assisting entrepreneurs (Kortleben & Vollmar, 2012).
Furthermore, contrary to other intermediaries, platforms do not directly fulfil a brokerage function, since they neither undertake own investment decisions nor fund management activities (Hagedorn & Pinkwart, 2013). Although crowd-investing platforms connect investors and http://dx.doi.org/10.1080/23311975.2016.1138849 entrepreneurs, coordinating supply and demand of assets, the collected money is directly distributed to entrepreneurs (Klöhn & Hornuf, 2012). This increases the transparency of capital flows and allows investors to make direct investments, compared to other financial intermediaries such as banks and venture capital firms. A further advantage of crowd-investing compared to traditional intermediaries is the provision of social capital which has a positive effect on the financing success of the entrepreneur (Blohm et al., 2015;Zvilichovsky et al., 2014). Consequently, crowd-investing platforms "are not only intermediaries of monetary transactions, but also loci of social connections" (Colombo, Franzoni, & Rossi-Lamastra, 2015).

Crowd-investing in Germany
An important factor that providers of crowd-funding platforms, but also entrepreneurs and investors, must take into consideration, is the statutory requirements for crowd-investing. Contrary to other subtypes of crowd-funding, crowd-investing is subject to legal regulations (Belleflamme et al., 2014). The primary reason for this is that equity-based crowd-funding allows investors to obtain returns or profit shares, thus involving securities ( Bradford, 2012 ). In the wake of financial crises, especially the financial crisis of 2008, reporting scandals and corporate governance issues security market regulations have been significantly intensified (Ball, 2009;Shleifer, 2002). Accordingly, in many countries legislations have been adapted to regulate crowd-investing primarily in order to migitate information asymmetries between investors and entrepreneurs and thus increase investor protection (Kappel, 2009;Mollick, 2014;Wardrop et al., 2015). Although in some countries, such as Japan, crowd-investing has been banned (Kirby & Worner, 2014) other areas, for instance the US, UK and continental Europe, have had a more positive view of equity-based crowd-funding (European Commission, 2014;Hölzner et al., 2014;Kitchens & Torrence, 2012). However, while some authors argue that approaches to regulation facilitate the access to capital for entreprenurs (Klöhn & Hornuf, 2012;Stemler, 2013) others argue that increased regulations might harm entrepreneurs, especially of small firms (Heminway, 2013;Hornuf & Schwienbacher, 2015). Legislation on crowd-investing often impedes the funding of entrepreneurial projects by restricting investments to sophisticated investors, limiting the number of financiers per project, or imposing restrictions on entrepreneurs by regulating the permissible size of companies interested in applying equity-based crowd-funding (Griffin, 2013;Kirby & Worner, 2014).
Although Germany followed a laissez-faire approach regarding crowd-investing regulation, regulatory changes were undertaken in the German Small Investor Protection Act which came into force in July 2015 (Fricke, 2015;Hornuf & Schwienbacher, 2015). The US CROWDFUND Act, or JOBS Act Title III, which will come into force in October 2015, served as model to the legislative adaption (Almerico, 2014;Hölzner et al., 2014). However, US regulations on crowd-investing are stricter since they, for example, only allow investments to accredited investors (SEC, 2012). With Title III of the act however, investments will be extended to non-accredited investors and intermediary functions restricted to registered broker-dealers and crowd-investing platforms ( Lion, 2015 ).
The legislative changes in Germany provide that crowd-investing platforms ensure to inform investors of potential risks during the investment process ( Fricke, 2015 ). These amendments restrict private investors to investments of up to 10,000 euros, depending on their income, but allow professional investors and limited companies to invest higher sums ( Müller-Schmale, 2014 ). Additionally, capital seeking companies can raise up to 2.5 million euros without the need of platforms registering a prospectus. Although this is an improvement since the legislative proposal planned to restrict the sum to 1 million euros, other European countries like Austria or Italy have limits of 5 million euros (German Crowd-funding Network, 2015). Further changes include the implementation of the right of withdrawal for investors as well as the electronic processing of investment information sheets to facilitate process handling.
Before the German Parliament passed the act on crowd-investing, platforms bypassed the security law through profit participating loans, which were not regulated in the German Security Prospectus Act (Hornuf & Schwienbacher, 2015). Through this financial instrument, which allows http://dx.doi.org/10.1080/23311975.2016.1138849 investors to benefit from returns, but only if profits are made by entrepreneurs, crowd-investing platforms were able to manage projects with unlimited sums (Wardrop et al., 2015). However, with the act the regulatory gap was removed and an exemption for crowd-investing were established.
Even though some exemptions have been made for German crowd-investing platforms, too complex regulations might increase operating expenses and reduce the market accessibility of equitybased crowd-funding (Wardrop et al., 2015). The new crowd-investing legislation has already led to uncertainty in the sector and is likely to evoke stagnation rather than further growth (Blohm et al., 2015;Für-Gründer.de, 2015). Therefore, a number of authors suggest that German legislators should follow other regulatory models, such as that in the UK, which currently has the most developed crowd-investing market, instead of orienting on the US JOBS Act (Hölzner et al., 2014;Wardrop et al., 2015). The tax incentives offered to crowd-investors in the UK, for instance, could lead to a substantial increase in the financing volume of crowd-investing in Germany (Hölzner et al., 2014).
One of the reasons why German start-ups demand further regulatory developments in favour of crowd-investing is the still underdeveloped financing situation for entrepreneurs in Germany (German Startups Association, 2014). In particular, access to seed capital remains problematic compared to other countries such as the US or the UK and entrepreneurs at this financing stage are largely dependent on domestic funding. The advancement and growth of crowd-investing, which is also determined by the according regulations, could therefore have a considerable impact on German entrepreneurial culture.
Although until 2013, there had been a decline in the total number of business start-ups, with liquidations exceeding foundations, numbers have been rising again since 2014 (BMWi, 2013;Metzger, 2015). Nonetheless, the number of entrepreneurs facing financing difficulties has elevated, due to increased capital expenditures regardless of lower fractional amounts and a higher number of entrepreneurs without capital use ( Metzger, 2015 ). Data on the funding sources of start-ups indicate that entrepreneurs primarily use their own savings followed by funding through family and friends and governmental funds (Ripsa & Tröge, 2014). Although entrepreneurs classify venture capital as important funding source, only 21.4% of the surveyed start-ups have used it as financing method and most entrepreneurs report difficulties in accessibility (Hagedorn & Pinkwart, 2013;Ripsa & Tröge, 2014). However, venture capitalists are more difficult to access than business angels. In another study by Hagen, Metzger, and Ullrich (2012), 71% of the start-ups reported to have severe difficulties in raising capital in early stages. Nevertheless, crowd-investing still plays a tangential role in German start-up financing compared to other funding sources and is currently even less relevant than bank loans (Ripsa & Tröge, 2014). One of the reasons for the limited relevance of crowd-investing in Germany could be the low awareness level of crowd-funding in general. A survey conducted by Harms (2015) revealed that only 51.8% of the respondents had heard of crowd-funding and merely 24.5% actually knew what crowd-funding is? Furthermore, solely 7.3% of the respondents had helped finance a crowd-funding project.
A Delphi study with 117 experts across different sectors predicted that the German crowd-investing sector, similar to global developments, will experience a compound annual growth rate of 30% until 2020 being an important source for start-ups funding (Blohm et al., 2015). Statistics for the first half of 2015 show a dynamic growth for crowd-lending, with a volume twice as high as for the entire year 2014 (74.2 million euros compared to 35.6 million), whereas only 9.6 million euros were raised through crowd-investing (Für-Gründer.de, 2015). These results are consistent with the general trend in European countries, where crowd-lending by far exceeds crowd-investing (Wardrop et al., 2015).
Even though Germany has the third largest crowd-funding market in Europe, the market volume is virtually insignificant compared to the UK, where 3.56 billion euros have been raised in total, and 2.38 billion euros in 2014 alone (Wardrop et al., 2015). Additionally, the UK has a market share of 74.3% compared to 25.7% which accounts for the rest of Europe. Altogether, the annual average http://dx.doi.org/10.1080/23311975.2016.1138849 growth rate of 146% for Europe as a whole (115% without UK and 159% for UK alone) exemplifies the potential of crowd-funding and crowd-investing as alternative financing tool. The future growth (or even decline) of German crowd-investing however will be very much determined by reaction of investors to the 2015 changes in the German legal framework. Klöhn, Hornuf, and Schilling's (2015) critique of the impact on investors of the 2015 Small Investor Protection Act is scathing; "… it does not do justice to the economic potential of crowdfunding and crowdinvesting nor can it be expected that it will materially improve investor protection" (p. 11). While the law does for the first time provide a cohesive set of regulations for the crowd-investing sector, it also introduces significant disclosure requirements and limits on investors who wish to subscribe for more than €1,000, in that they need to declare €100,000 or more liquid assets to be able to do so. Klöhn et al. (2015) point out that it is entirely possible that investors may decline to invest more than €1,000 on German crowd-investing platforms now "… for fear of losing confidentiality of their financial data." (p. 17) and that while investments over €1,000 constitute only 15% of all investors, those 15% contribute 76% of the total market volume. Therefore, if these investors were put off by the substantial additional disclosure requirements then "… the market would suffer a significant adverse impact." (p. 17). A clear concern is that, faced with such restrictive requirements in Germany, highly liquid investors may switch from German platforms to platforms in less legally restrictive and relaxed regulatory environments such as the Netherlands and the UK which don't have such disclosure requirements.

German crowd-funding platforms
The German Crowd-funding market in September 2015 consisted of 91 platforms (Figure 2). Rewardbased crowd-funding represents the largest group with 45%, whereas 15 of the 41 reward-based platforms have a regional focus and one is even operated by a German bank. Although lendingbased platforms only account for 10% of the total market, this sector is characterised by strong growth, especially in terms of credit volume. The equity-based crowd-funding market, which will be the proportion further analysed in this article, constitutes the second largest sector with 34% or 31 in absolute numbers (summarised in Table 1 overleaf). Figure 3, the number of crowd-investing platform foundations per year has been rather volatile since the emergence of the first platform in 2011. However, it should be mentioned that the graph only includes the 31 platforms that are still currently active and not the ones that were shut down.

As illustrated in
Although all crowd-investing platforms founded in 2011 were "cross-sectoral", meaning that they administer projects of companies from different sectors, since 2012 platforms have emerged that exclusively manage projects from one sector. The cross-sectoral platforms still represent the largest group, with 61%; followed by the environmental platforms which constitute 19% of all crowd-investing platforms and real estate platforms, which make up 13%. Substantial differences in the performance of the individual platforms are evident. Although some of the differences, for example in  project numbers or total sums raised by the individual platforms could be analysed, other variables such as the success rate could not be identified because most platforms do not display their failed projects. On platforms where enough information was disclosed, success rates ranged from 33% to 100%. Furthermore, the analysis evinced substantial differences in the sums raised by a platform. Figure 4 illustrates the sum raised by the platforms in which seven largest platforms account for 83% of the total sum raised by all crowd-investing platforms, whereas Seedmatch, the largest platform, has a share of 31% (24,374,500 euros) and Companisto, the second largest, one of 27% (21,270,295 euros).

German crowd-investing projects
Since 2011 there have been 265 successful projects which amount to a total of 78,944,892 euros (Table 2).
A further analysis of the individual projects shows that the number of projects is more or less evenly distributed among different sectors with exception of the film and medical sector were only very few projects have been funded ( Figure 5). It is notable that although only a small number of projects have been realised in real estate, projects in this sector account for the largest share. This is because, these projects usually require large investments. For instance, the project with the highest investment (7,500,000 euros) was a real estate project funded on Companisto. What was also  notable, was that a large number of projects were online or rather internet based. This is represented by the sector IT/App, which included data storage systems and a range of different apps, but also by the category Online Services/E-Commerce which depicts companies that exclusively provide their projects and services via internet. Due to the large quantity of these internet-based projects, they were divided into two categories to present a more detailed overview. Green Projects, also represent a large proportion of crowd-investing projects. The investments in this sector were as low as 4,750 euros but also large sums of up to 3,500,000 euros were raised through green projects.

German crowd-investing platforms terms and conditions
From an entrepreneurial perspective, it is also important to consider the terms and conditions for using a platform for company financing purposes. Although there were some slight differences regarding the project conditions, costs involved and access barriers, the structure of the individual platforms was comparable. Apart from exceptions like Seedmatch which primarily selects funding projects starting at 100,000 euros, almost no platform specifies the minimum of maximum project investment (Table 3). For investors, the minimum investments vary between 1 euro and 1,000 euros, whereas LightFin offers institutional investor contributions starting from 100,000 euros. Although maximum investments are predominantly not limited, some platforms restrict the investments to 1,000,000 euros, 100,000 euros or even 10,000 euros depending on the investor participation form.
As illustrated in Table 4, the cost structures for entrepreneurs also vary slightly depending on the platform.

Summary and conclusions
In accordance with a number of authors (inter alia Macht & Weatherston, 2014;Mollick, 2014;Tomczak & Brem, 2013) the findings of this study support the view that crowd-investing provides a suitable financing method for entrepreneurs in early stages. Nevertheless, unlike Hagedorn and Pinkwart (2013) who categorise crowd-investing for projects starting from 100,000 euros and Kortleben and Vollmar (2012) for projects below 200,000 euros, this article would extend this classification, since results showed that projects can range from sums far below 100,000 euros to sums over several millions. However, results were consistent with Dorfleitner et al. (2014) in regard to project sums currently still being in the low-six figure range, although there is a clear tendency upwards. Furthermore, the additional administrative and accounting challenges for entrepreneurs applying crowd-investing, highlighted by some authors (Kitchens & Torrence, 2012;Valanciene & Jegeleviciute, 2013) do not apply for German crowd-investing, since the platforms undertake these tasks.
The overall German crowd-investing market currently still represents a niche, constituting only 3% (Hölzner et al., 2014) of the venture capital market. Since average project sums are as low as 100,000 euros, crowd-investing should (currently still) be regarded as supplement to other equity funding methods rather than alternative. However some platforms, for instance Companisto, have close cooperation with venture capital firms and corporate finance specialists to assure venture capital compatibility to entrepreneurs ( Companisto, 2015 ).
The German crowd-investing platforms represent 34% of the overall crowd-funding market. Although most platforms manage projects from different sectors, platforms which specialise in one particular sector are increasingly emerging. Furthermore, the market is dominated by only a few platforms regarding both total sums raised by platforms and number of projects. Moreover, crowdinvesting projects are realised across different sectors, with internet-based projects constituting the largest proportion (36%) followed by projects in real estate (24%) and green projects (19%). Although the individual project sums range from 3,600 euros to 7,500,000 euros the median is 100,000 euros. In the light of the increased difficulties entrepreneurs face in the search for external capital, especially since the financial crisis, crowd-funding could gain importance within the context of entrepreneurial finance (Hagedorn & Pinkwart, 2013). In particular, crowd-investing, which closely resembles other forms of external equity financing, could facilitate the access to capital, via an open call through the internet, and thus help founders overcome funding gaps in early stages (Macht & Weatherston, 2014). Crowd-investing platforms as intermediaries thereby play a crucial role, since funding processes take place on platforms, where the according providers coordinate and manage entrepreneurial projects (Tomczak & Brem, 2013). Therefore, this study focused on analysing the German crowd-investing market, consisting of 31 platforms, to enable a categorisation of the market potential of crowd-investing in Germany as well as an evaluation of the applicability for entrepreneurs. Thus, an attempt was made to identify different characteristics of platforms that could serve as orientation for entrepreneurs throughout the platform selection process.
This article gave a critical overview of the relevant literature, by predominantly discussing the relevance of crowd-investing from an entrepreneurial perspective as well as the function of crowdinvesting platforms. The results from both the literature review and the research showed that compared to leading countries, such as the UK, the German crowd-funding market is very small, consisting of only 91 crowd-funding platforms, of which 31 are crowd-investing platforms. Within Continental Europe however, Germany represents the second largest market only slightly behind France (Wardrop et al., 2015). So far, the 31 German crowd-investing platforms have successfully completed 265 projects which accumulate to nearly 79 million euros. Nevertheless, a large fraction of the market is divided among a small number of successful platforms. Findings indicate that the seven largest platforms take account for 83% of the total sum raised by all platforms and 67% of all realised projects. Seedmatch, the largest platform, has a market share of 31% for both total sum and number of projects and Companisto, the second largest platform, accounts for 27% of the total sum and 16% of all the projects. Although crowd-investing projects are realised across different sectors, most completed projects are internet based (36%), followed by real estate projects (24%) and green projects (19%). Moreover, even though the median project sum is 100,000 euros a number of projects amounted to several million euros. It was also noticeable that although most platforms manage and coordinate projects of different sectors, in recent years a number of platforms have emerged which specialise in one specific sector. Especially some of the platforms in the environmental and real estate sector have gained market share.
In accordance with Bechter andSigar (2012) the analysis of the German crowdinvesting platforms showed, that access barriers for entrepreneurs are much lower compared to other equity sources, such as business angels and venture capital firms. However, although most crowd-investing platforms do not specify any demands for entrepreneurs, some platforms such as Seedmatch and Innovestment require start-ups to have a legal form, which could represent a first financing obstacle for young entrepreneurs, since the foundation of, for instance GmbH, requires 25,000 euro share capital (Katins, 2013). However, most platforms do not have this requirement. Similar to findings from Valanciene and Jegeleviciute (2013), this research also showed, that contrary to other equity sources, entrepreneurs who make use of crowd-investing mostly do not lose control over managerial decisions unless they wish so, since few platforms have models which give participation rights to investors. Additionally, in some of the platforms, especially the most successful ones, entrepreneurs actively use the platform as communication tool to inform their investors and keep them up to date. Furthermore, similar to the findings of Dorfleitner et al. (2014), it was found that the underlying concepts of the different crowd-investing platforms provide a high degree of flexibility to investors regarding the duration of capital commitment, rate of returns and participation models. Nevertheless, some of the findings contradicted those found throughout the literature. The disadvantages stated by some authors, related to increased administrative and accounting challenges (Kitchens & Torrence, 2012;Valanciene & Jegeleviciute, 2013) did not apply to German crowd-investing platforms, since platform providers undertake these tasks. http://dx.doi.org/10.1080/23311975.2016.1138849 German crowd-investing platforms can serve as useful funding source for entrepreneurs, however, since median project sums are still very low, at 100,000 euros, crowd-investing should currently still be regarded as supplementary to other external equity sources, rather than alternative. Nevertheless, crowd-investing can help entrepreneurs overcome funding gaps. Additionally, given that some platforms closely cooperate with venture capital firms and corporate finance specialists to assure venture capital compatibility, follow-up financing, for entrepreneurs applying crowd-investing, could be facilitated. Moreover, the analysis of the individual projects also demonstrated that higher amounts, of several millions, could be obtained for individual projects, and further research showed that average project sums are increasing (Für-Gründer.de, 2015), implying future potential in the crowd-funding market. Although there is growth potential in the crowd-investing market regarding the number of projects and total sums, the analysis of the different platforms suggest a saturation of the market since a small number of platforms make up most of the market. Additionally, these few successful platforms follow slightly different concepts, for example through different customer or rather investor segmentation, thus increasing market entry barriers for new platforms. However, some of the platforms which focus on niche sectors have managed to successfully enter the market.

Further avenues
Although this article aimed to provide a comprehensive overview of the German crowd-investing sector, a number of questions accrued throughout the research process that could serve as a basis for further research. An additional analysis of crowd-lending platforms could provide an insight into the funding possibilities offered to entrepreneurs and applied supplementary to this research. Moreover, a comparison of German crowd-investing platforms with crowd-investing markets of other countries could contribute to a better categorisation of the development status of crowd-investing in general and assessment of the future market potential. In this context, a comparison of German crowd-investing platforms with UK platforms as benchmark, could serve as orientation to enhance the performance of German platforms. Furthermore, since a number of international crowd-funding platforms are planning to enter the German crowd-funding market, it would be interesting to analyse the effect their market entry would have on the crowd-investing volume and the market structure, given that entry barriers seem high. German legislators could enhance the future market growth of crowd-investing by adapting the UK model, where for example tax incentives are provided to investors (Hölzner et al., 2014). Even though the German crowd-investing market is still relatively small it should be supported by policy-makers since it represents a promising funding method that could influence entrepreneurial culture, after all, "economic success of nations worldwide is the result of encouraging and rewarding the entrepreneurial instinct." (Tracy, 2005).