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With crowd investing, many (small) investors, i.e. the crowd, invest in mostly very young companies/start-ups that are looking for financing for their product or service. Private individuals, business angels and sometimes also professional financiers such as venture capital companies give fresh capital to a company and in return receive either real shares in the company or a share in future financial success via a loan agreement.

German crowd investing platforms (e.g. Seedmatch or Companisto) have mostly worked with so-called subordinated loans in recent years. Abroad, especially in Great Britain (e.g Seedrs or Crowdcube), on the other hand, you get real shares, i.e. shares in privately run companies that are not traded on the stock exchange.

Both subordinated loans and real shares have advantages and disadvantages:

subordinated loan (e.g. Seedmatch, Companisto)

+ Defined term, so that it is clear in advance when the investor or the company can terminate the loan agreement

+ Better personal liquidity planning possible (due to a fixed end of term)

+ Transparent evaluation of the company at the end of the term, often based on a predetermined multiple (multiple) of the company's sales and profits

+ In the case of a mixed company development below expectations, you get your loan back at the end of the term and can get out if the company has the necessary capital for the repayment

– If the company develops well, the company often terminates the contract as early as possible in order to have less profit to share with investors and to benefit as much as possible; this often results in only mediocre profits for the investor with very good company development

– The long-term return potential for the investor is sometimes severely curtailed by the company's option to terminate the contract

– The chances of return can usually not be estimated in general terms and often depend on the exact structure and the exact wording of the contract text. On each platform, the development of the contract texts must be individually observed and evaluated over time in order to be able to estimate the return potential

shares (e.g Seedrs, Crowdcube)

+ The investor owns real shares in the company (shares), similar to stocks. (However, since these private companies are not publicly listed, these shares cannot be sold at any time and are rather illiquid)

+ Due to the lack of an end date compared to a loan, you can usually be involved in the positive development of the company for longer and thus actually expect a multiplication of your own investment with the few good investments

– Lower liquidity than subordinated loans/ there is no fixed end date. You only get your own investment back

• when a large part or all of the company is sold
• if a voluntary offer to buy back the shares is made
• when the company goes public
• or when you find a buyer for your shares. Some platforms such as Seedrs also offer a secondary market where, under certain conditions, the shares can be sold to other investors.

It is difficult to weigh up the above advantages and disadvantages in total. In five years of crowd investing, I found out that for me the advantages of real shares clearly outweigh them and in my opinion the long-term return potential of shares is significantly higher than that of subordinated loans. In both cases, when investing, it must be assessed whether the company valuation called up for the investment round fairly reflects the development status and the opportunities. If we assume an identical, fair company valuation as the starting point in both cases (subordinated loan and shares), then, in my experience, the chances of being able to participate fairly and in a positive company development in the long term with shares outweigh the odds.