Outside of a regulated stock exchange, German corporations do not have access to the capital market. Instead, they rely on finding individual investors who mostly take over company shares or grant loans. Access to a German stock exchange is very limited in the (BaFin) regulated capital market. Only stock corporations that have a minimum subscribed capital of €1,250,000 and meet other conditions have access. This is to be changed by the new “Future Financing Act”, which was passed by the German government on August 19, 2023 and is to come into force this year. According to this, among other things, an IPO with EUR 1 million instead of the current EUR 1.25 million equity is to become possible, tax relief for investors and more flexible employee participation models are to be made possible.
Nevertheless, the hurdle is too high for most companies. For most startups and other dynamic companies that work with small budgets and need standardized, inexpensive and, above all, fast solutions, going public remains not an option.
These companies have so far been dependent on banks or individual investors and a correspondingly non-transparent private placement or M&A process often based on good luck. German corporate law and tax law still promote a cumbersome, paper-based investment process that the parties involved shy away from. This process is lengthy and expensive because M&A advisors, lawyers, auditors and tax advisors must be paid in advance. Institutional investors therefore rarely pursue smaller deals below EUR 25 million in volume. Therefore, many companies are unable to leverage their potential.
In the future, corporate financing will also be possible for small and medium-sized companies through the provision of online marketplaces. Loan or investment contracts will be digitized through soft contracts and the rights and obligations from such contracts will be embodied in investment tokens. These tokens are stored on an immutable blockchain in the name of the beneficiary and can also be traded according to certain conditions. As a result, not only do companies benefit from quick access to capital, but also investors, who not only get a quick overview through an information sheet on company issues, but also receive a liquid investment instrument through tradability, which has not previously existed in this form. This will revolutionize the capital market in Germany. Of course, this is done in accordance with the latest state of the art, in particular security technology and applicable supervisory law.
In addition, the marketplace can be made more secure by service providers such as bitscrunch. bitscrunch is a “crypto police” that is supposed to identify so-called “short sales” or “wash trades” on token exchanges and prevent damage to participants by “whistleblowing”.
