Alternative financing models in Germany and other countries – admissibility and design

Companies, founders and start-ups are increasingly looking for innovative financing methods beyond traditional bank loans or venture capital. Alternative financing models such as revenue share agreements, tokenization of assets and digital participation models are gaining in importance. These make it possible for investors to participate in the success of a company in a new way – for example through share or profit participation via digital tokens instead of traditional shares. However, complex legal questions arise, especially in highly regulated markets such as Germany and the European Union (EU): What is permissible and under what conditions? Which regulations – from the new EU crypto regulation MiCA to special German laws such as the German Banking Act (KWG), the German Securities Trading Act (WpHG), the German Asset Investment Act (VermAnlG) or the German Electronic Securities Act (eWpG) – apply to these forms of financing? And do other jurisdictions in Europe, such as the Baltic states (Estonia and Latvia), possibly offer more advantageous framework conditions?

This article takes a detailed look at the permissible forms of alternative financing in Germany and the Baltic States. First, the legal framework in Germany, the EU and under MiCA is analyzed (1). This is followed by an examination of suitable legal forms and corporate law structures for the implementation of tokenized models, both in Germany and in Estonia and Latvia. Building on this, industry-specific use cases – from FinTech/DeFi and the creator economy to SaaS platforms and NFT models – are considered). The various financing options such as crowdinvesting, private placements, security token offerings (STOs) and the comparison of revenue share and traditional equity financing are also explained (4). The article goes on to look at regulatory practice and case law, in particular the role of BaFin and European regulation, and discusses whether Europe is a hindrance to such models or offers opportunities. The current market development – keyword “crypto winter” and the future of altcoins under regulatory uncertainty – is also analyzed (6). Finally, strategic considerations are made for start-ups: When and how to use alternative financing models, how to deal with investors, and which growth strategies are advisable in light of the legal framework? .

The aim is to provide a comprehensive, professional presentation with a strong legal focus. The article deliberately avoids any advertising or superficial simplification. Instead, relevant standards, requirements of the supervisory authorities and, where applicable, court decisions are used to provide a well-founded presentation of the design options available for innovative forms of financing – and where the legal limits lie.

Legal framework in Germany and the EU

Alternative financing models affect a number of areas of law. In Germany, financial supervisory law (including securities and banking regulation) and civil law are particularly relevant. At EU level, there are new regulations such as the Markets in Crypto-Assets Regulation (MiCA), which create uniform requirements for crypto tokens. This section will first describe the MiCA Regulation and its relevance. This is followed by the German regulatory requirements, in particular the role of the German Federal Financial Supervisory Authority (BaFin) and the applicability of the KWG, WpHG, VermAnlG and eWpG. Finally, the civil law classification of the atypical silent partnership is explained, as this contractual form often serves as the basic model for revenue share or digital investments.

MiCA Regulation: Uniform EU framework for tokenized models

With Regulation (EU) 2023/1114, known as the Markets in Crypto-Assets Regulation (MiCA), the EU is creating a comprehensive legal framework for crypto assets for the first time. MiCA came into force on June 29, 2023; key parts have been in force since December 30, 2024, and some requirements for stablecoins since June 30, 2024. The aim of MiCA is to establish uniform EU-wide rules for the issuance of crypto tokens and for providers of crypto services in order to create legal certainty, protect investors and prevent market abuse.

Definition: MiCA defines crypto assets as “digital representations of value or rights that can be electronically transferred and stored using distributed ledger technology (DLT) or similar technologies” (Art. 3 para. 1 no. 2 MiCA). MiCA therefore covers all blockchain-based tokens that are not already covered by other financial market regulations. It is important to note that MiCA excludes certain instruments from its scope of application, in particular those that are already regulated as financial instruments or deposits – these include securities within the meaning of the MiFID II Directive or the WpHG, payment instruments, deposits and e-money within the meaning of the E-Money Directive. A token that legally constitutes a security (e.g. a tokenized share in a stock or bond) is therefore not covered by MiCA, but by securities law. MiCA primarily addresses previously unregulated crypto-assets.

Token categories: The Regulation distinguishes three main categories of crypto assets: (1) electronic money tokens (EMT) – tokens that are linked to the value of a single fiat currency (essentially blockchain-based stablecoins that are functionally equivalent to e-money); (2) asset-referenced tokens (ART) – tokens that are stabilized by a basket of values or rights, e.g. by reference to multiple currencies, commodities or other assets; other crypto assets that are neither EMT nor ART.e.g. by reference to several currencies, commodities or other assets; other crypto-assets that are neither EMT nor ART – these include in particular utility tokens, i.e. tokens that provide access to a service or platform, as well as all other tokens that do not have a specific value stabilization. MiCA sets out specific requirements for each of these categories. EMTs and ARTs, for example, are subject to particularly strict requirements: issuers of such stablecoins require a license, must, for example, hold minimum equity, have a whitepaper approved by the supervisory authority and fulfil ongoing obligations (such as holding reserves, maximum circulation volumes for significant stablecoins, etc.). Utility tokens and other crypto-assets, on the other hand, also require a detailed crypto whitepaper, which must be notified to the supervisory authority (BaFin in Germany, depending on the national jurisdiction), but without a formal approval requirement – unless it is a 12-month offering with an equivalent value of more than EUR 1 million, in which case additional obligations may apply. Overall, MiCA introduces similar transparency requirements for public offerings of tokens as securities law (prospectus requirement), but tailored to crypto: the whitepaper must contain information on the project, the token, risks and rights of the token holders, among other things, and must always be made publicly available.

Service providers and licensing requirements: MiCA not only regulates issuers, but also crypto service providers, known as Crypto Asset Service Providers (CASP). This includes, for example, trading platforms for crypto assets, wallet providers (custody), brokers, intermediaries, investment advisors in the crypto sector and operators of crypto exchanges. In future, these service providers will require a permit/license under MiCA, which is applied for in an EU member state and is then valid throughout the EU (passportable), similar to the principle of financial services passporting under MiFID. The license requires the CASP to meet various organizational, financial and compliance requirements (e.g. sufficient initial capital, manager reliability, establishment of security mechanisms, compliance with due diligence obligations against money laundering, etc.). This means for start-ups: Anyone who, for example, operates their own platform via which tokens are issued or traded must be prepared to require a license as a crypto service provider from 2025, unless another license (such as a securities institution) applies anyway.

Harmonized rules vs. national law: MiCA is intended to create a “European passport” for crypto business models – away from the previous fragmentation in which each country had its own rules. In Germany, however, extensive regulations already existed before MiCA, so there will be no regulatory gap until MiCA becomes applicable. BaFin explicitly points out that crypto custody (i.e. the custody of crypto assets for third parties), for example, has been a financial services business requiring a license under the German Banking Act (KWG) in Germany since January 2020 and will remain so until MiCA comes into force. Nevertheless, MiCA will further harmonize the legal situation from 2025. The whitepaper requirements, for example, will then apply identically across the EU and it will be more difficult to avoid stricter rules by choosing a location within the EU. For start-ups, MiCA therefore offers two things: on the one hand, more legal certainty and access to the EU single market, but on the other hand, higher compliance hurdles, as almost all token issues are now subject to legal regulation (while utility tokens without profit rights were previously issued unregulated in some countries).

In summary, the MiCA Regulation provides a clear legal framework for token-based financing in Europe. In future, tokenized financing models will always have to check whether their token falls under MiCA or – if it is a security in the traditional sense – is subject to financial market regulation outside MiCA (prospectus requirement, MiFID, etc.). In any case, the era of completely unregulated initial coin offerings (ICOs) in the EU is over; they will be replaced by regulated token offerings with defined eligibility requirements.

BaFin requirements and classification of digital tokens under financial supervisory law

The German Federal Financial Supervisory Authority(BaFin) has played an active role in the classification of crypto tokens and alternative financing instruments in recent years. Even before MiCA, BaFin developed guidelines and administrative practices to classify new digital business models within the existing legal framework. BaFin’s principle is “substance over form”: The economic characteristics of a token or model are decisive, not its name or technical form】. In practical terms, this means A token that corresponds to a traditional financial instrument in terms of its content is treated as such in legal terms – even if it is advertised as a “utility token” or similar.

Categorization by function: For information purposes, BaFin distinguishes between different token types according to their predominant function, such as payment tokens, usage/utility tokens, security/investment tokens, etc. Although these categories have no direct legal basis, they help with the preliminary classification:

• Payment tokens such as Bitcoin or Ether are primarily used as a means of exchange or payment. They are often regarded by BaFin as “units of account” within the meaning of the KWG (Section 1 (11) KWG old version) and are therefore classified as financial instruments. Since the 2020 amendment to the KWG, crypto assets are explicitly considered financial instruments; the category “units of account” has been supplemented by the legal term “crypto asset”. A crypto asset is legally defined as a digital right of value that is not legal tender but is accepted by parties as a medium of exchange or payment or is used for investment purposes (Section 1 (11) sentence 4 KWG). This means that purely digital currencies and many tokens are subject to financial supervision – in particular trading platforms or custodians of such tokens require a license (e.g. crypto custody license pursuant to section 1 para. 1a sentence 2 no. 6 KWG). Payment tokens are generally not securities in the civil law sense, as they do not embody any securitized rights, but they are subject to the KWG and from 2025 also MiCA (as crypto-assets in general, possibly as ART/EMT if stabilized).
• Security token (security token): This includes tokens that securitize rights similar to shares or bonds, in particular membership rights (e.g. voting rights, profit shares) or debt claims with an asset value (redemption, interest, profit participation). BaFin clarifies that such tokens are securities within the meaning of securities prospectus law (Prospectus Regulation/EU and WpPG) and financial instruments within the meaning of KWG/WpHG. BaFin approved the first securities prospectus for a security token (a blockchain-based bond) back in 2019. The legal consequence of this classification: anyone offering a security token to the public must comply with the prospectus requirement (unless they fall under exceptions such as crowdfunding, more on this later). Furthermore, services related to security tokens are subject to the same licensing requirements as traditional securities – e.g. investment advice or brokerage of a security token requires a license as a financial services provider or securities institution. BaFin has emphasized that no securitization on paper is required for securities status; a digitally transferable token with rights similar to securities is considered a “sui generis security”. This effectively closes the gap between VermAnlG and securities law: If, for example, a profit participation right or profit-participating loan (classic asset investment) is issued in freely tradable token form, BaFin classifies it as a security. Only if the tokenization does not lead to free transferability (e.g. because contractual clauses severely restrict assignment) does it remain classified as an asset investment.
• Utility tokens: These are tokens that have a purpose in the ecosystem (e.g. access rights to a platform, authorization to purchase services or goods). From BaFin’s perspective, such tokens may nevertheless be regulated if they exceed certain thresholds. Utility tokens, which only grant a future non-cash benefit or service entitlement and have no investment character, are neither securities nor investments – but only as long as they are not sold as an investment to acquire value. In ICO times, utility tokens were often declared as pre-sale vouchers, but were actually regarded by buyers as a speculative object. BaFin therefore closely examines whether an alleged utility token is actually being used as an investment. If so, it may be considered an investment (e.g. “other investment” in accordance with Section 1 (2) No. 7 VermAnlG) or a security due to its tradability. In any case, utility tokens are also subject to reporting and publication requirements (whitepaper) from MiCA onwards if they are offered to the public.

In addition to this functional classification, BaFin has published various information sheets and notes to inform market participants. For example, one information sheet clarifies that payment tokens are usually financial instruments under the KWG, even if they do not constitute securities or investments – which is important for trading platforms, crypto exchanges, etc. Furthermore, BaFin clarified at an early stage that certain terms such as “crypto asset” already existed in the KWG before the MiCA came into force and must be applied.

License and prospectus obligations in Germany: For a company that wants to use alternative financing models, the interaction of the laws is crucial:

• The German Banking Act (KWG ) regulates who may provide banking transactions or financial services. Although issuing your own tokens is not a banking transaction, it can be related to financial services – e.g. proprietary business: If a startup issues a token itself, this is not initially a third-party financial services transaction. However, be careful: if a token is to be used as a means of payment, it could be e-money (in which case an e-money license would be required in accordance with ZAG, provided it is issued centrally and is redeemable). Or if the company manages investor assets, AIFM law may be affected. The KWG applies above all if the company acts on behalf of others (brokerage, consulting, custody, exchange). Points of contact quickly arise, especially with token-based business models: The operation of an online platform for tokenized investments can be classified as a multilateral trading facility or investment brokerage – a KWG or WpIG license would then be required. Likewise, the safekeeping of third-party private keys for customers triggers the license requirement as a crypto custodian (Section 1 (1a) sentence 2 no. 6 KWG). A startup must therefore carefully check whether it carries out activities requiring a license as part of its business. If so, a BaFin license must be applied for at an early stage or the business model must be adapted.
• The German Securities Trading Act (WpHG) and, since 2021, the German Securities Institutions Act (WpIG) regulate conduct and supervisory requirements for investment services. If an issued token is a security, intermediaries and advisors are subject to the WpHG rules (investor protection, information obligations, etc.). The WpIG contains the licensing requirements and ongoing capital requirements for securities institutions (such as brokers, investment advisors) that are not subject to direct ECB banking supervision. For the issuing company itself, the WpHG primarily applies if, for example, it has insider information on published tokens (market abuse rules) – although these only become relevant once tokens are listed on a trading venue. Overall, it should be noted that tokenized financial instruments are largely treated like traditional securities: Prospectus requirements, Market Abuse Regulation, and for public offerings in Germany the need for an approved prospectus or an admissible prospectus-like document (e.g. asset information sheet in the case of exemptions) apply.
• The Asset Investment Act (VermAnlG) comes into play if the investment offered is not a security but nevertheless accepts capital from investors. Classic examples: Profit participation rights, participatory subordinated loans, silent participations (typical silent partnership), direct participations in investments, etc. According to Section 1 (2) VermAnlG, various structures fall under the law as “asset investments”. A sales prospectus obligation generally applies to these, unless an exception applies. However, as outlined above, BaFin does not permit an escape into VermAnlG if tokenization creates a similarity to securities. In practice, many crowdinvesting models are structured as investments, often with deliberate restrictions on tradability in order to avoid being considered a security. Example: A startup issues a profit-participating loan (investor receives e.g. 5% of turnover for 5 years, subordination in the event of insolvency). It is contractually stipulated that the claims may not be assigned without the consent of the company – the instrument thus remains “not freely tradable” and therefore subject to the VermAnlG regime. The VermAnlG allows prospectus exemptions under certain conditions (see section 4.1 on crowdinvesting). It is important to note that as soon as a company makes a public offer of an investment (more than 20 persons), either a prospectus published by the Federal Gazette must be prepared or an exemption must be used (Sections 3, 2 VermAnlG). A relevant exception is, for example, Section 2a VermAnlG (swarm financing), which allows exemption from the prospectus requirement below certain thresholds.
• Although the Electronic Securities Act (eWpG) is not a regulatory law, but primarily a civil law law, it has a significant impact on tokenized models. Until 2021, the principle of documentary securitization of securities applied in German civil law. The eWpG has relaxed this requirement by allowing electronic securities. Initially, it was limited to electronic bonds and shares in investment funds. The Future Financing Act (ZuFinG) of December 2023 extended the scope of application: since the beginning of 2024, shares can now also be issued electronically. The eWpG distinguishes between central register securities (entry in a central register, typically at a central securities depository such as Clearstream) and crypto securities (entry in a decentralized, tamper-proof crypto securities register, e.g. a blockchain, pursuant to Section 4 (3) eWpG). For founders, this means that it is now possible to establish a public limited company and issue its shares as digital tokens without physical share certificates. However, one restriction applies: bearer shares (anonymously transferable shares) may only be kept as central register securities, not in a decentralized register. Registered shares, on the other hand, can also be entered in the blockchain register as crypto securities, provided the articles of association of the AG provide for this. This legislative step is crucial for tokenized equity – it creates a secure legal basis for digital shares for the first time. In addition, a bona fide acquisition and transfer of ownership was regulated analogously to paper shares (Section 24 eWpG new version), so that electronic shares enjoy the same marketability. However, there is a licensing requirement for keeping a crypto securities register (Section 1 (1a) sentence 1 no. 8 KWG); i.e. anyone who operates their own blockchain for shares as a register needs a license. In practice, start-ups are more likely to use a specialized service provider or central securities depository. In summary, eWpG is an important building block: tokenized securities are recognized under civil law, which enables integration into legal transactions.

Overall, the following picture emerges in German supervisory law: alternative digital financing instruments are permissible, but they must fit into the existing categories of financial market and civil law. The regulatory authorities – in particular BaFin – pursue a technology-open approach, but demand that the same rules apply to the same functions. Startups should involve legal expertise at an early stage to ensure that their chosen financing model (be it via token, crowdinvesting or revenue share) is structured in such a way that it is legally compliant. Unintentional violations, such as illegally conducting banking business without a license or making a public offer without a prospectus, can have serious consequences – from prohibition orders from BaFin to criminal law risks. The good news, however, is that the framework is now clearer than it was a few years ago: With MiCA at EU level and adapted national laws, there is now regulatory clarity within which innovative financing can be structured.

Civil law classification of atypical silent partnerships

A frequently used vehicle for alternative financing is the silent partnership, particularly in the form of the atypical silent partnership. This construct originates from German company law (regulated in Sections 230 ff. of the German Commercial Code, HGB) and, from a civil law perspective, is an internal company relationship between the company and the investor (silent partner). It is suitable for allowing investors to participate in profits and possibly in the value of the company without transferring formal company shares or voting rights to them. Revenue share models in particular are often represented by silent partnerships: The investor makes a contribution to the company and in return contractually receives a share of the turnover or profit.

Typical vs. atypical silent partnership: A distinction is made between a typical silent partnership and an atypical silent partnership. In a typical silent partnership, the silent partner only participates in the profit (and possibly contractually in the loss up to the amount of his contribution), but has no further rights in the company. He does not appear externally and does not acquire any share in the company’s assets – his contribution usually appears as a liability in the company’s balance sheet. The legal position of the typical silent partner is therefore more similar to that of a lender with profit-related remuneration.

The atypical silent partnership goes one step further: here, the silent partner is granted additional rights that put him on an equal footing with a co-entrepreneur. In particular, it is agreed that they not only participate in the current profit, but also in the hidden reserves and goodwill (i.e. increases in value). In addition, they can be granted participation rights in important decisions. As a result, the atypical silent partner also bears a co-entrepreneurial risk and co-entrepreneurial initiative. For tax purposes, this means that an atypical silent partnership is treated as a partnership – the silent partner becomes a co-entrepreneur with income from business operations, and the company and the silent partner are assessed jointly, which can, for example, trigger trade tax liability at company level (the trade income is attributed to the partners). Under civil law, however, it remains an internal company relationship without its own legal personality: the atypical silent partnership is not entered in the commercial register and only the main entrepreneur (e.g. the GmbH) operates externally.

Legal nature and contract design: The silent partnership is established by means of a participation agreement. This is largely free of form and can therefore be adapted to requirements. It should regulate: the silent partner’s contribution, his share of profits/losses, any withdrawal rights, information rights, the term/termination and, in the atypical case, participation in reserves and liquidation proceeds. The atypical silent partner is typically entitled to a share of the company value upon termination, which makes him similar to a shareholder. However, he remains “silent”, i.e. not a shareholder externally; creditors of the company cannot access his private assets (he is only liable for the agreed contribution). Conversely, he also has no say in day-to-day management issues, unless something has been contractually agreed.

Advantages of this model: For the company, the atypical silent partnership offers flexibility – it can raise capital without taking on new shareholders in the legal sense. This avoids, for example, time-consuming notary appointments or shareholder resolutions, as would be necessary for an official capital increase of a GmbH or AG. Control also remains entirely with the existing owners, unless the silent partner is expressly given certain rights of approval. From an investor’s point of view, it is attractive that one can participate directly in the economic success, including value growth, similar to a shareholder, but in a contractually defined manner and often with a time-limited or earmarked participation.

Disadvantages and limits: A silent partner – especially an atypical silent partner – has no voting rights in the shareholders’ meeting (e.g. if it is a GmbH), as it does not hold a company share in the corporate sense. Its influence is based solely on the contract and is usually limited to control rights (inspection of books, etc.) and veto rights for certain measures, if agreed. In addition, the tax status of an atypical silent partner can be complex: Profits are taxed directly, even if not yet distributed, and the silent partner is subject to trade tax on a pro rata basis, which is usually offset by tax clauses in the agreement (the company pays the silent partner its share of the trade tax paid). Liability: The silent partner is not liable to third parties for the company’s debts – in the worst case, he loses his contribution. However: In the event of the company’s insolvency, the typical silent partner is considered a creditor of the company (subordinated if subordination is contractually agreed), while the atypical silent partner is treated more like a shareholder (he cannot make claims in insolvency proceedings like a normal creditor, but only participates in the surplus if one remains).

Application in digital investment models: Many digital financing platforms in Germany use the (atypical) silent partnership model or related mezzanine instruments (profit participation rights, profit-participating loans) to enable small investors to invest in start-ups or projects without having to transfer company shares. Through standardization (e.g. model contracts) and use of the exception under Section 2a VermAnlG (swarm financing), such investments can be offered without a large prospectus effort (up to EUR 6 million, see Section 4). It is conceivable that tokenization will also be used here in the future: A startup could issue the rights of an atypical silent partner securitized in a token. As long as this token is not freely tradable (transfer only with the consent of the company), it would remain within the VermAnlG framework. If it is made tradable, BaFin would classify it as a security (see above), which triggers other obligations.

In summary, the atypical silent partnership is a hybrid instrument between equity and debt capital with a high degree of contractual flexibility. Under civil law, it enables participation in the company’s success without transferring company shares. It is particularly suitable for revenue share models, as the silent partner can participate pro rata in the profit or turnover. However, the regulatory aspects must be taken into account: If numerous silent partnerships are awarded to small investors, this is a public offering of an investment product – prospectus and information obligations apply. In addition, administration (distribution of profit shares, communication, tax certificates) is time-consuming for a larger group of investors, which in practice is often handled via platforms. Nevertheless, the silent partnership remains a central building block in the modular system of alternative financing in Germany, which can be used both in isolation (classic contractual) and in combination with tokenization.

Legal forms and classification under company law

The choice of corporate structure is essential for start-ups when it comes to implementing alternative financing models. Not every legal form is equally suitable for issuing tokenized shares or mapping revenue share models. This section first provides an overview of German company forms (AG, GmbH, UG, GbR, etc.) and assesses their suitability for token-based financing. This is followed by a look at the Baltic states, specifically Estonia and Latvia, where similar but in some cases more flexible legal forms exist in the form of the OÜ and the SIA. The focus here is on the regulatory requirements, financial supervision, taxation and administrative handling in these jurisdictions – i.e. whether and how a switch or outsourcing to the Baltic states has advantages or disadvantages.

German company forms for tokenized financing models

German founders have the choice between various legal forms, from partnerships to corporations. In the context of external investors and digital investments, corporations are practically the main option, as they offer limited liability and, as legal entities, can accept investors without jeopardizing their private assets. The most common forms are GmbH, UG (haftungsbeschränkt) and AG. There are also SEs, KGaAs, cooperatives, etc., which are rare among start-ups, as well as partnerships (GbR, OHG, KG), which occupy certain niches.

GmbH (limited liability company): The GmbH is by far the most common legal form for German start-ups. It offers limited liability (share capital of at least €25,000, of which €12,500 must be paid in when the company is founded) and flexible internal organization. It is standard for classic venture financing, but it faces a few hurdles with tokenized models: The shares of a GmbH are not freely transferable without further ado – any assignment of a GmbH share requires notarization (Section 15 GmbHG). This means that you cannot simply add hundreds of investors as direct shareholders, and certainly not at the click of a mouse via a blockchain. In addition, a GmbH cannot easily issue new shares or participate in stock exchange trading like an AG. Although the legislator has planned certain simplifications in 2022/23 (e.g. online notary for GmbH share transfers, digitization approaches in the MoPeG), the principle remains: A GmbH is designed for a manageable group of shareholders. Many crowdinvesting structures with GmbHs circumvent this by the crowd not becoming shareholders directly, but investing via trustees or via silent partnerships/debt securities. For tokenized investments, a GmbH could, for example, issue a bond that is tokenized (this is possible, see eWpG for electronic bonds). But tokenized equity in the form of GmbH shares is difficult due to the lack of a legal basis. A “GmbH token” with real voting rights and ownership status is currently not readily possible, as there is no law comparable to the eWpG for GmbH shares. Nevertheless, the GmbH often remains the starting point; if you want to use alternative models, you supplement it with contracts (profit participation rights, silent partnership, etc.) or convert it into an AG in due course in order to actually issue tokens as shares.

UG (limited liability): The UG is a special form of GmbH (“Mini-GmbH”) with share capital of less than € 25,000 (minimum € 1). It serves founders with little start-up capital, but requires retention of 25% of profits until the minimum capital is reached. Legally, it is largely a GmbH, with the same restrictions on share transfers. A UG is often less attractive for investors as it is considered small and has a low level of capital. For tokenized financing, the UG has no particular advantages or disadvantages over the GmbH – except that if you have a very small capital base, you may not want to set up an AG right away. In practice, larger alternative financing (such as an STO) would only be carried out after conversion into a fully capitalized GmbH or AG in order to signal seriousness. In short: A UG is suitable for start-ups and possibly internal tokenization (e.g. virtual shares for employees), but it is unusual for public offerings.

AG (public limited company): The AG is traditionally the legal form for larger companies capable of operating on the capital market, with a share capital of at least € 50,000. It allows the issue of shares that are freely transferable (in the case of bearer shares, even by simple agreement and transfer of the certificate or now entry in the eWp register). The AG offers considerable opportunities for tokenized models: the reform of the eWpG allows shares to be issued as tokens (see 1.2 above). An AG could therefore be founded and, instead of paper share certificates, simply issue tokens to investors that represent their shares. Another advantage of the AG is that it can accept many investors without the need for formalities per investor – the transfer of shares is uncomplicated (no notary). In addition, an AG can trade more easily on regulated marketplaces; shares can even be traded or pledged over the counter, which is relevant for secondary market liquidity, for example. Disadvantages of the AG for start-ups: The formation and administration is more complex and expensive. A supervisory board must be set up (at the latest if more than 3 employees or capital > 3 million, even mandatory with employee representatives above a certain size). The disclosure requirements (publication of annual financial statements, etc.) are stricter than for GmbHs. Changes (e.g. amendments to the articles of association, capital increases) are also formal and can take longer. Nevertheless, more and more young companies are considering choosing an AG if they are planning a digital shareholding structure – especially in order to be able to involve many small investors via tokens. Not to forget: An AG enables different classes of shares (ordinary/preference shares), which could be used in token form, for example, to provide investors without voting rights (only with a share of profits) if desired.

SE (European Company) and KGaA (partnership limited by shares): These legal forms are special cases. An SE generally requires a larger company and is mainly of interest for cross-border mergers; however, it offers flexible co-determination solutions. A KGaA combines elements of a KG and AG – it could theoretically become relevant if, for example, a founding team (as general partner) wants to secure control, but still wants to issue shares (for limited liability shareholders). This is rare in startup practice, as KGaA is complicated and tends to deter investors due to two-class shareholder roles.

GbR, OHG, partnership: partnerships usually remain unsuitable for broad investor participation
In a GbR (Gesellschaft bürgerlichen Rechts), all partners have unlimited and personal liability for company liabilities. This is generally not attractive if external investors are to be brought in. It is true that a GbR can be founded very easily by means of an informal contract, and since 2024 (after the MoPeG reform) there has even been a GbR register that expressly provides for the legal capacity of the GbR. Nevertheless, tokens representing GbR shares are unlikely to be placed publicly because each token trade could put new co-partners in a personal liability situation. In this respect, the GbR remains interesting at best for close circles of founders or special joint ventures. The same applies to the OHG (general partnership), in which all partners have unlimited liability.

KG (limited partnership) as a mixed model
With its limited partners, the KG already offers a limitation of liability to the contribution. There are numerous closed-end funds (e.g. real estate or shipping funds) that are structured in the form of a KG. In modern contexts, a GmbH & Co. KG is also common, in which the GmbH as general partner limits the liability risk and the limited partners participate in the capital. This creates the advantages of a partnership (transparency, flexible distribution of profits) while at the same time limiting liability. Limited partnership shares can be transferred comparatively informally, which in principle also facilitates tokenization – in contrast to GmbH shares, where a notarial deed is required.

However, this model involves administrative hurdles: if a large number of limited partners are involved, many entries must be made in the commercial register, which can be impractical. In addition, some investors are somewhat reluctant to invest, as a limited partnership share entails the status of a co-entrepreneur with commercial obligations (possibly compulsory IHK membership). Especially in the start-up sector, GmbHs or AGs are more established, and investors often prefer the standard of a corporation with clearly regulated share ownership and without partnership structures.

Potential for tokenization
Nevertheless, the limited partnership can be interesting for special cases. It would be conceivable, for example, to represent limited partnership shares digitally in a token. The transfer could take place without any formalities – i.e. without a notary. A purely electronic transfer of the token would then trigger the change of shareholder, provided that everything is regulated accordingly in the contract and register. In practice, however, close attention must be paid to compliance, tax consequences and the administrative effort involved so that the advantages of tokenization are not nullified by complex registration procedures.

Outlook for 2025
In view of new laws and advancing digitalization, it remains to be seen to what extent legislators in Germany will further liberalize partnerships in the future or explicitly regulate digital shares in partnership law. Nevertheless, corporations – such as GmbHs and AGs, especially since the introduction of electronic securities – will remain the common and market-accepted choice for start-ups looking to raise external growth capital for the foreseeable future.

Summary Germany: Most digital financing models either work at the level of a GmbH with contractual constructions (silent partnership, loans, profit participation rights) or aim for an AG structure in order to issue genuine tokenized securities. Many start-ups begin as a GmbH and consider converting to an AG as soon as they address a large group of investors or plan a platform issue. With the latest legal reforms (electronic shares), the hurdle for an AG has also been lowered in the tech environment – you no longer necessarily have to commission physical share printers etc., but can work digitally. Nevertheless, the effort and costs of an AG should not be underestimated (e.g. higher audit effort for the annual financial statements, stricter formalities). A pragmatic approach could be Use mixed models. For example, the company remains a GmbH, takes in subordinated loans or silent partnerships via a crowdinvesting platform (which may be securitized in tokenized form, but remain legal assets). Or the company issues a bond as a security token via a special-purpose stock corporation or subsidiary. Such hybrid structures can combine the advantages: The operating unit remains flexible (GmbH), while financing is provided via a specially tailored vehicle.

Company forms in Latvia and Estonia: SIA and OÜ in comparison

Estonia and Latvia have made a name for themselves as start-up-friendly locations in recent years. Both countries offer modern company registers, digital administration (e-residency in Estonia) and attractive tax systems. The common company forms – the Estonian OÜ (Osaühing) and the Latvian SIA (Sabiedrība ar ierobežotu atbildību) – are roughly equivalent to the German GmbH as a private limited company. There is also the AS (Aktsiaselts) in Estonia, comparable to the AG, and the AS (Akciju Sabiedrība) in Latvia for public limited companies. However, the focus here is on OÜ and SIA, as start-ups primarily choose these.

Formation and administration: An Estonian OÜ can be formed with minimal effort – the share capital is typically €2,500, but this does not have to be paid in immediately (it can be deferred until dividends are paid; the OÜ can also be registered with €0 until then, but shareholders are liable for the difference until it is paid in). Incorporation is possible via the online portal if you have Estonian e-residency or an electronic ID. Registration often only takes 1-2 days. The same applies to Latvia: an SIA requires a standard share capital of 2,800 euros (this used to be 2000 lat), but there is the option of a small SIA with reduced capital (if <=5 shareholders and some conditions, share capital can be from 1 euro, with 25% retained earnings up to 2,800). SIA formation can also be done online, takes approx. 1-5 days. Overall, administrative procedures are highly digitized. Administration (submission of annual reports, changes of managing directors, addresses, etc.) is fully electronic in Estonia via the company register; in Latvia it is also largely digital.

Legal framework and transfer of shares: OÜ and SIA are more flexible than the German GmbH in some respects. The transfer of shares also requires a written form, but in Estonia no notary is required, a written contract (which can be signed electronically) is sufficient. However, there is a register in which the shareholders are listed and a change must be registered there – this can be done online. In theory, this would also allow frequent changes (many investors in/out) to be made without having to go to the notary in person every time. In Estonia, there are efforts to manage shares or OÜ shares on a blockchain basis; pilot projects on how the share register could be managed digitally have been discussed within the e-residency community. However, OÜ shares are currently not legally defined as securities – a token representing OÜ shares would therefore be more of a novel concept, which would probably have to function analogously to a declaration of assignment (similar to the way in DE a GmbH share tokenization is currently only possible via a trustee). Nevertheless, Estonia’s fundamental openness to digital solutions is high.

Regulatory requirements & financial supervision: Estonia and Latvia are EU members, so the EU-wide regulations (MiFID, MiCA in future, Prospectus Regulation, etc.) also apply there. This means that a security token offering or a public offering of investments is in principle subject to the same EU regulations. The difference lies in national supervisory practice and implementation. Estonia gained a reputation as a “crypto hub” early on, as a relatively simple license for crypto services existed until 2021 (issued by the Estonian FIU, Financial Intelligence Unit). Hundreds of companies obtained them as the process was quick and inexpensive. However, Estonia drastically tightened the rules at the beginning of 2022: now a minimum share capital of €100,000 (for custody/exchange service providers, up to €250,000 for trading platforms) is required, the management must be based locally, extensive AML regulations and a state fee of €10,000 apply. In effect, Estonia now operates almost a full license regime similar to MiCA. Latvia, on the other hand, has been more cautious in the crypto sector – until recently, there were hardly any specially licensed crypto companies there, with many Latvians using either Estonian or Lithuanian licenses. However, Latvia has also taken steps to implement anti-money laundering regulations for crypto in 2023 and requires registration. Overall, it can be said that in terms of pure financial market law (licenses for token offerings, etc.), the Baltic states are no longer “no questions asked” havens, but are tightening the reins in step with EU requirements. One advantage may be that the supervisory authorities are smaller and possibly somewhat more accessible – for example, an innovative model in Estonia could meet with more openness, whereas in Germany the procedures are more complex. In addition, Estonia and Latvia offer regulatory sandboxes or innovation support: Estonia has an e-residency tech ecosystem, Latvia has fintech support and incubators, although concrete regulatory facilitation (such as a sandbox with supervisory dispensation) is less formalized than in the UK, for example.

Taxation: A major incentive for companies in the Baltic States is the unique tax system in Estonia and Latvia. Both countries do not levy corporation tax on undistributed profits. This means that as long as the company retains or reinvests profits in the company, there is 0% corporation tax. Only when dividends are distributed to the shareholders does tax become due (Estonia: 20% on the dividend; Latvia: effective 20% on dividend payout, which corresponds to 20/80 = 25% on the underlying profit). For a growth-oriented startup, this means that it can retain profits and invest them entirely in further growth without having to pay corporation tax each year – an enormous liquidity advantage compared to Germany, where approx. 30% (corporation tax + trade tax) of the profit is due, regardless of whether it is distributed or not. Example: A young company in Estonia generates a profit of €1 million, leaves the money in the company for development and marketing – tax = 0. In Germany, only ~700k would remain after tax. This mechanism promotes reinvestment. Especially with revenue share models: If a startup is quickly profitable through alternative financing, it can work in Estonia with the invested capital, without tax deduction, until it actually makes a distribution (e.g. in an exit). However, investors who participate via revenue share want to receive distributions (revenue shares). For tax purposes, these distributions are regarded as operating expenses for the company (i.e. they reduce profits, which is irrelevant in Estonia because profits remain untaxed, whereas in Germany they would reduce profits and thus save tax). The investor would be taxed in his country (in Estonia it would count as income, in Germany as capital gains or business income, depending on the structure). All in all, the Estonian/Latvian tax system is very attractive for companies that reinvest profits and is therefore ideal for start-ups in the growth phase.

Administrative and compliance costs: Both Estonia and Latvia score with a lean bureaucracy. Company reports can be submitted in English (at least voluntarily in addition to the local version, which is often accepted). Official communication is fast. Labor laws are also somewhat more flexible (e.g. easier to hire/fire than in Germany). In Estonia, English is widely used by the authorities, which makes it easier for foreign entrepreneurs. Latvia also uses English, but a little less. Thanks to e-residency, you can run an Estonian company entirely from abroad, and digital signatures are legally binding. One risk, however, is that if the management is mainly based in Germany, the German tax authorities could argue that the “place of effective management” is in Germany and therefore the Estonian/Latvian company is liable for tax here (keyword: double taxation agreement and conflict of residence). This can be countered by actually having local management structures or making sure that operational decisions are made from Estonia/Latvia.

Banking and payments: A practical problem that affected some in the early years of Estonian e-residency: an Estonian company still needed a bank account, and the banks there were wary of letterbox companies without local ties. There are now fintech solutions (fintech banks) that make this easier. Latvia has had problems with money laundering in the past (scandals around 2018), which led to banks there becoming very strict with foreign customers. This can be relevant in individual cases: a startup that is only formally based in Riga but has founders in Berlin has to make it plausible to the bank why it is in Latvia and that it does not pose an AML risk. Similar in Estonia, but somewhat improved thanks to stricter new crypto regulations.

Regulatory differences for securities/tokens: While all countries have the same approach to EU-wide regulation such as MiCA, there may be differences in national securities prospectus laws and thresholds: Latvia, for example, traditionally exempted the prospectus requirement threshold for national offerings up to €1 million in 2018 (this was standard across the EU). Estonia also followed the EU standard. However, with the EU Crowdfunding Regulation 2020/1503 (more on this later), there is also a new regime in the Baltic States. Individual differences: In Estonia, for example, crowdfunding may not yet have been as extensively regulated nationally because Estonia waited until EU rules came in. Latvia enacted a crowdfunding law in 2021. These details influence whether a small STO with e.g. €3 million might be easier to manage with a national information sheet in Estonia than in Germany – in this case, local advice is worthwhile.

In summary, OTs and SIAs offer similar opportunities to a German GmbH, but with greater digital efficiency and tax advantages. For tokenized models, this means that a startup could certainly consider founding an OÜ in Estonia, conducting its token offering there and serving investors from all over Europe (after complying with MiCA/prospectus requirements, etc.). The Estonian regulator could be more flexible to approve a token whitepaper, for example. Under MiCA, the whitepaper can be notified in one country and valid in others. After a successful offering, an Estonian company would have more net funds available to drive the business forward thanks to the tax regime.

However, it must also be clear: There are disadvantages and risks. Language barriers and legal uncertainty if you operate with Baltic companies in Germany – e.g. German business partners or customers are less familiar with OÜ/SIA and may be skeptical. Furthermore, disputes may have to be resolved in accordance with Estonian/Latvian law. In addition, the founders have less “home market” support (e.g. German funding, local investor network). Another important aspect is investor acceptance: many professional investors (VCs) prefer familiar jurisdictions. While a UK Ltd or Delaware C-Corp is often accepted, an Estonian OÜ is even less common among Western VCs – although there is nothing legally wrong with this, there may be reservations. The situation is different in the crypto sector, where Estonian structures are quite common and recognized, as Estonia attracted positive attention early on.

Overall, it can be said that Estonia and Latvia offer favorable conditions for alternative financing models, particularly those related to crypto, but within the framework of EU regulations. “Outsourcing to the Baltic States” can bring administrative and tax advantages, but does not enable a complete escape from regulation (EU law still applies). Startups should weigh up whether they want to trade the better infrastructure and proximity to the local market (Germany) for the efficiency and tax benefits of a Baltic domicile. Many also opt for a middle way: for example, founding an Estonian subsidiary that carries out the token sale while the operating company remains in Germany – or vice versa, the holding company in Estonia, operating branch in Germany. Such constructs must then be carefully coordinated from a legal perspective (keyword: group tax law, transfer prices, regulatory responsibilities).

In conclusion, it should be noted that the classification under company law must always be seen in the context of the financing model: An innovative financing idea may be easier to implement in one legal form than in another. With the AG, Germany now offers an opportunity to bridge the classic gap between FinTech and corporate law (digital shares), while the Baltic states offer the lure of pragmatic administration and tax advantages. Companies can use these options strategically to set up their financing projects in the best possible way.

Industry-specific use cases and business models

Alternative financing models offer different advantages depending on the sector and business model. In this section, we take a look at some sectors in which revenue share, tokenization and digital investments are particularly relevant: FinTech and DeFi, the creator economy (e.g. artists and influencers monetizing via tokens), software-as-a-service (SaaS) companies with digital cap tables and blockchain platforms, and NFT-based participation models. Each of these industries has specific requirements and regulatory pitfalls that need to be considered when structuring financing.

FinTech and DeFi: Tokenization in the financial industry

The FinTech sector – i.e. technology-driven financial services – was one of the first adopters of token-based financing methods. Especially in the blockchain and decentralized finance (DeFi ) space, numerous startups emerged that issued their own tokens to raise capital while giving their users a stake in the platform. Examples include crypto exchanges that issued exchange tokens (with advantages in terms of fees) or DeFi protocols that distributed governance tokens.

Use of tokens in the FinTech context: A token can fulfill several purposes in this area. On the one hand, it is used for financing: capital flows into the company/project through the sale of tokens (whether in an ICO, IEO or STO). Secondly, it creates an ecosystem instrument: token holders can be tied to the platform through its use and value (network effect). In DeFi, tokens often serve as governance tokens, which give voting rights on protocol changes, or as a utility (e.g. you need the token to use a service or to operate liquidity mining). Some FinTechs design their tokens to resemble a profit-sharing right – for example via buyback-and-burn mechanisms (where part of the profits are used to buy back tokens, increasing the value of the remaining ones).

Regulatory aspects: Caution is required here in particular, as financial services are strictly regulated. For example, if a FinTech startup sets up a crypto lending platform, it must check whether it is a deposit-taking business, lending business or collective investment – corresponding licenses would be required (KWG, ZAG, KAGB). In the DeFi world, attempts are often made to circumvent these obligations by operating the protocol “decentrally” and without a company. In reality, however, development teams are usually behind this, and supervisory authorities are increasingly looking at this. BaFin, for example, has made it clear that offering certain crypto interest products (crypto lending/deposits) without a license may be illegal. A FinTech that collects funds using tokens and pays them out again with interest could be conducting unauthorized banking business (deposit business) if there is an obligation to repay. To avoid this, some projects structure their tokens as risk tokens that do not guarantee a fixed repayment claim (similar to an equity token instead of a debt token). This shifts the classification towards securities or investments – which means a prospectus requirement, but at least not a banking license.

DeFi projects – e.g. decentralized exchanges (DEX), loan pools (Aave, Compound etc.), yield farming platforms – often operate globally and anonymously. European DeFi start-ups are faced with the question: do we enter the regulatory gray area or do we strive for compliance? Until now, there has been a lot of gray area due to a lack of clear rules. With MiCA, at least the token part is addressed: A DeFi project that offers a utility/governance token EU-wide must publish a MiCA whitepaper from 2025. But MiCA does not (yet) regulate decentralized protocols as such – future EU legislation could come. BaFin practice is to hold the operating company liable in case of doubt. Strategically, a FinTech/DeFi can therefore try to choose its legal anchoring outside Europe (e.g. foundation in Switzerland, Singapore, or completely anonymously as a DAO without a recognizable operator). However, this has its own disadvantages: Access to regular financial channels, and law enforcement are more difficult, and European users could be locked out (geo-blocking), reducing market opportunities.

Revenue share in FinTech: In the FinTech sector, there is also the concept of revenue-based financing specifically for FinTech start-ups. Some FinTechs, for example, have agreed revenue shares instead of equity with early partners or banks in order to build up their customer base. Also FinTech-specific accelerators sometimes offer models where they receive about 2% of future revenue for X years instead of 5% equity. This model can make sense for B2B FinTechs that have predictable revenues. The legal framework is then similar to that of classic revenue shares: you enter into a contract under the law of obligations (profit-participating loan or silent partnership), usually without a token. However, tokenization could also be introduced here, e.g. a FinTech could issue a cash flow-based token that distributes 5% of its transaction revenue to token holders on a quarterly basis. This would basically be a tokenized profit-participating loan. Regulation would most likely view this as a security (bond with variable interest, depending on success), which means a prospectus/information requirement.

Example: Let’s take a hypothetical FinTech “LendChain” in Germany that organizes peer-to-peer loans on blockchain. It wants to collect money with a token in order to have a liquidity pool. If it structures the token in such a way that token holders regularly receive a portion of the interest on the P2P loans, the token is an investment token (security/asset investment). LendChain would therefore need at least an investment information sheet (if it raises <6 million) or prospectus, plus it would have to check whether the P2P business itself is not already regulated (probably yes, as a credit intermediary). Alternatively, LendChain could just issue a utility token that allows users to borrow/lend on better terms, but no direct profit sharing. Then the token would possibly be under MiCA as a utility crypto-asset – easier to manage, but harder to convince investors as no clear ROI. Many DeFi tokens in recent years were formally utility/governance, but de facto all hoped to increase in value through the success of the protocol – making them economically akin to investments, but without legal title. The shadowy existence of this practice is increasingly illuminated by stricter regulation, forcing FinTechs in Europe to adopt cleaner structures.

Conclusion FinTech/DeFi: In this sector, tokenization and alternative models are almost an integral part of the business models. However, projects based in Europe need to pay close attention to licensing and prospectus requirements. The trick is to combine innovation (decentralized technology, new forms of investment) with legality. Some will take the route via BaFin licenses (e.g. registering crypto custody business, own broker license, etc.), others will switch to structures abroad (which will be discussed in section 5). FinTech start-ups should be aware that the regulatory burden can be particularly high here – but also the chances of being the first compliant provider to have a head start in the market.

Creator economy: tokens for artists and influencers

The creator economy includes individuals such as artists, musicians, video creators and influencers who interact and monetize directly with their audience outside of established structures. In recent years, some have tried to issue their own tokens or NFTs to give fans a kind of share in their success or exclusive benefits. Examples include musicians sharing song rights via NFTs or influencers minting “social tokens” that fans can use to unlock special content.

Motives for creator tokens: For creators, the appeal lies in breaking away from platform dependency (YouTube, Spotify, etc.) and establishing a direct fan-investment relationship. Fans could benefit financially from the growth of a creator – for example through the increase in value of a token – and are therefore more motivated to support the creator. Creator tokens can also serve as a community-building tool: Token holders receive, for example, the right to have a say (voting on future content), meet & greet access, limited editions, etc.

Examples: A well-known international example was the attempt by some athletes (e.g. NFL players) and artists to issue their own “personal tokens”, partly via platforms such as Rally or BitClout (BitClout, however, controversially generated unsolicited tokens for well-known people). There have been few such experiments in German-speaking countries to date, as the legal hurdles and uncertainties have been a deterrent. However, NFTs have become prominent in the art scene: digital artworks by artists have been sold as NFTs, sometimes with the promise that the NFT owner will receive a share of future sales (via smart contract royalties) or access to exclusive works. Although these are not traditional financing rounds, they are a form of monetization via tokens.

Legal classification of creator tokens: The line between fan merchandise and financial instrument is blurred here. If an influencer issues a token that merely serves as a “club membership card”, for example (access to exclusive content, merchandise discounts, mention as a supporter), then the token is primarily of a consumer or utility nature – comparable to a Patreon membership, only tradable. Such pure utility tokens for fanperks would be considered crypto-assets under MiCA, but do not require a securities prospectus, only a MiCA whitepaper, provided it is a public offering with consideration. It could be subject to MiCA if >1m or offered in multiple countries. But you could argue it’s more of a pre-sale of benefits – depends on details. It becomes critical if the token is marketed as an investment, e.g.: “Buy my Creator Token, you get paid 5% of my future streaming royalties revenue”. This would be a clear case of an investment (performance-based participation in income) or even a security (if tradable). Most creators do not have the means to draw up a prospectus for this – and are therefore unlikely to do so. If they do so informally, there is a compliance risk: BaFin or the relevant EU supervisory authorities could intervene, especially if large sums or many investors are involved.

NFTs and rights transfer: For artists, one idea was to sell shares in songs via NFT and let fans share in the success. Legally, this raises questions as to whether copyrights or usage rights are transferred and how the proceeds are distributed. A company that did this would actually have to enter into contracts stating that NFT holders receive xy% of the license revenue. This is then economically like a security (a kind of royalty-bearing share). In Germany, this would probably be considered part of a loan or a claim right – an investment or security, depending on the structure and transferability. So far, instead of real profit sharing, it has often been “royalties by usage”: the artist may voluntarily pay something to the NFT holder, but no hard legal claim to avoid regulation – which is unattractive from an investor’s point of view.

Social tokens and platforms: Platforms are also emerging (for example Rally, Roll etc.) that offer creators to simply launch their own tokens. These platforms are trying to appear as pure tech service providers from a regulatory perspective, but they are operating in uncertain territory. In Europe in particular, a platform operator could be considered a crowdfunding service provider under the ECSP Regulation if it engages in the brokering of investor funds to individuals. Or it is comparable to crowdfunding. Such platforms may use US locations to operate outside direct EU supervision, but as soon as EU citizens invest, EU law theoretically applies (which makes enforcement tricky, but risk remains).

User and investor protection: The regulatory authorities are particularly concerned about small investors who might invest in such a token out of enthusiasm for a star and lose money. There will therefore be a tendency to scrutinize whether such token offerings require a prospectus. So far, there have been no major proceedings because this trend is still niche and amounts are small. But one can expect that professional advice will be essential for larger creator token sales to properly draw the utility vs. security line.

In summary, it can be said that the creator economy has enormous potential to benefit from tokenization (keyword “community ownership”). However, the compliance hurdle in Germany/EU is high, which is why implementation has been hesitant so far. However, creators can choose less complex models: e.g. NFT drops of limited artworks (this falls under purchase of art, usually not a security, as long as they are unique items). Or they can use existing crowdfunding exceptions – e.g. offer a fan investment in a project company via a crowdinvesting platform (e.g. a band like “Tokio Hotel” has offered fan bonds via a platform in the past). MiCA could also bring relief here in the future: A creator could publish a whitepaper and collect up to €5 million in utility tokens that fans buy – legally cleaner than an unregulated ICO. The fans would then have tradable tokens whose value fluctuates with the level of awareness of the creator (a kind of indirect participation). Nevertheless, this remains the case: If you want to do real revenue share with fans, you have to take the rocky road of prospecting or restrict it to small limits (crowdfunding exception <6m, investor max 1k/10k each). Many creators will shy away from something like this and tend to take unregulated paths (e.g. NFTs as “collector’s items”).

SaaS models with a digital cap table

Software-as-a-Service (SaaS) companies are characterized by recurring revenues and often rapid growth. There are two interesting points of contact with alternative models in the financing structure of SaaS start-ups: Revenue-based financing and digital cap tables (i.e. using digital tools or tokens to map and flexibly design the shareholding structure).

Revenue-based financing (RBF) for SaaS: SaaS start-ups with monthly recurring revenues (MRR) are predestined for revenue-based financing because it is easy to calculate how much can be forked out each month to service an investment. In recent years, specialized RBF providers (in Europe, companies such as re:cap, Uplift1, Victory Park via Pipe, etc.) have emerged that advance capital to SaaS companies and in return collect, for example, 5-10% of future monthly revenue until a multiple (e.g. 1.3x) is repaid. From a legal perspective, these are loan agreements or promissory bills with a flexible repayment structure. What is interesting for our topic is that some SaaS start-ups could also implement RBF with a larger group of investors via a platform instead of with such providers – for example by offering small investors: “We will pay you x% of turnover every month until you have repaid your investment 1.5 times over.” This would be a classic profit-participating subordinated loan. In Germany, something like this would be considered an asset investment (profit share loan) and can be realized relatively unbureaucratically within the crowdfunding framework up to 6 million (with an asset investment information sheet instead of a prospectus). This form of financing is attractive because the startup does not have to give up any shares and the payments are adjusted to the course of business. In economically weaker months, the absolute returns to investors decrease, which conserves liquidity. For investors, on the other hand, it is more tangible than equity – they see ongoing repayments and do not have to hope for a distant exit.

Digital cap table: Independent of RBF, many SaaS (and tech) startups are thinking about digitizing their equity management. Cap table management tools (e.g. Carta, Ledgy, Capdesk) are already widely used to manage stock options, convertible loans, etc. in a clean way. The next step is the digital share itself: Instead of traditional deeds or PDF certificates, shares could take the form of tokens. With the eWpG and the Future Financing Act, this has become possible in Germany – at least for AGs and perhaps also for GmbHs in the future (via reforms). A digital cap table could mean: Every transaction (issue of new shares, transfer to new investor, exercise of options) is documented on-chain. This saves lawyers and notaries per transaction (simpler in the AG case anyway, but still a notarial obligation problem in the GmbH case). It increases transparency: all authorized persons can see their participation in real time. And it could facilitate secondary trading under certain conditions: for example, existing small shareholders of a SaaS start-up could trade their token shares more easily among themselves if an internal bulletin board or a regulated trading venue exists, which increases liquidity.

Employee stock options: SaaS startups often grant ESOPs (Employee Stock Option Plans) to employees. The administration of such options and subsequently issued shares is complex. Digital securities can bring automation here. For example, a smart contract could be programmed to automatically release tokens to employees when certain vesting dates are reached. However, this must be done within the scope of legal tech possibilities – it can only be fully automated if the legal situation also covers it. At present, for example, share options still have to be notarized in Germany (in conditional capital), but this may also become easier in the future.

Investor relations and exercising rights: With many small investors, as is the case with crowdfunding, there is traditionally the problem of coordination and exercising rights (meetings, resolutions). Digital platforms can provide a remedy, e.g. by means of online general meetings or token-based voting (smart voting). German law now allows online participation in meetings under certain conditions. A fully digital stock corporation with hundreds of token shareholders could hold its AGM using blockchain voting – technically feasible, but uncharted legal territory.

Example of a tokenized SaaS investment: A SaaS start-up (e.g. in the cloud software sector) decides to sell 10% of its company to interested customers and investors via a security token offering in order to raise capital for growth. For this purpose, it transforms itself into a stock corporation (or founds a subsidiary stock corporation) and issues electronic registered shares as tokens. These tokens entitle the holder to dividends and voting rights, just like normal shares. Interested customers can subscribe to the tokens via a platform (minimum investment e.g. €100). The company prepares a securities prospectus or uses the EU crowdfunding prospectus to collect up to €5 million. The shares are issued and are held, for example, in the wallets of investors (or in trust with a custodian). In future, holders will be able to trade them among themselves, and perhaps even a small secondary exchange will list these share tokens (as part of the DLT pilot regime or MTF). At the same time, the startup uses the publicity of this offer to turn customers into co-owners, which strengthens customer loyalty. Such a model is challenging to implement, but no longer science fiction: technically and legally, we are at a point in 2025 where it will be feasible. The advantage for the SaaS company lies in the combination of financing and marketing – which has always appealed to classic crowdinvesting, but now with actual company shares instead of profit participation rights.

Of course, there are limits here too: small start-ups should weigh up the administrative costs (prospectus creation, investor relations) against the benefits. Not every SaaS is worth bringing in tokenized micro-investors – traditional venture capital is often more efficient in the early stages. But community-oriented SaaS in particular (e.g. open source software companies) could benefit from a free float.

Blockchain platforms and NFT participation models

Platforms that themselves have blockchain technology or NFTs (non-fungible tokens) as their core product are to a certain extent “natural” users of alternative financing, as their users are crypto-savvy anyway. Two sub-topics can be distinguished here: Tokenization of platforms (community ownership via platform tokens) and NFT-based participations (e.g. in specific assets or projects).

Blockchain platforms (L1/L2, DApps): Many blockchain projects are financed via their own tokens – be it protocol tokens of a layer 1 blockchain or governance tokens of a DApp (decentralized app). These were often initially distributed via ICO. In the EU future, a project that sets up a new blockchain, for example, will probably have to make a formal MiCA-compliant token offering. The platform token then serves not only as an investment vehicle, but also as a utility in the system (e.g. gas token for transactions, staking to secure the network). From a legal perspective, this is a dichotomy: on the one hand, the token has monetary value and investors buy it speculatively – on the other hand, it is an indispensable part of the technology (unlike a pure security token, for example, which only represents a share but would be technologically superfluous). Regulators will have to take this duality into account. MiCA, for example, does not create a precise exemption status for utility tokens, but treats them more leniently than stablecoins. For a startup building such a platform, this means that despite the utility character, the investor aspects must be kept in mind. It may make sense not to load the token with too many promises of profit (so as not to be classified as a security), but to define the added value for holders via usage (similar to Ethereum: the value comes from the fact that you need it to use the network).

Many platforms are also striving for DAO structures (Decentralized Autonomous Organization), where token holders have a say in parameters, projects, allocation of funds, etc. However, a DAO as such is not yet a recognized legal entity in EU countries. This leads to tensions: A project could operate as an association, cooperative or foundation in order to give the construct a legal form – which in turn triggers respective legal obligations. In Liechtenstein, for example, DAOs can now be registered as legal entities, but not in Germany. Until this is clarified, many platforms operate semi-legally with a foundation in Zug (Switzerland) or Cayman, which issues the tokens while the community makes the decisions.

NFT participation models: NFTs have primarily revolutionized the art and collectibles sector, but increasingly they are also being used as vehicles for rights that go beyond pure collecting. Examples:

• Fractional ownership: An expensive physical or digital asset (work of art, real estate, rare vintage car) is divided into tokenized shares. Often these are not NFTs, but fungible tokens (security tokens) – but it can also be designed so that a series of NFTs each represent, for example, 1/1000 of a painting. Theoretically, each NFT is unique (different ID), but they are fungible in the sense that they have the same value per unit. Such models are effectively securities investments, as investors acquire a part of an asset, often with the intention of making a profit (e.g. by selling the whole asset later). A company offering this would need a license (possibly as a financial services provider) and must provide prospectuses or at least information sheets. In Germany, some start-ups have done this for real estate (partial sale to many small investors via tokens, e.g. Exporo with digital securities). It is still new for art because copyrights also play a role here.
• Royalty NFTs: There are projects (e.g. in the music sector in the USA) where musicians sell NFTs that give the holder a share in the future royalties of a song. This is more or less like a small security: the NFT owner has a claim, e.g. if the song is streamed and royalties are generated, something is paid out on a pro rata basis. This can be done under smart contract control, but legally in the EU it is again an investment (participation in earnings). Strictly speaking, there would have to be a prospectus if it were to go public. Alternatively, one could argue that each NFT is unique and therefore not a standardized offer – it is questionable whether this would work, as the content of all NFTs in a series gives identical rights.
• Membership NFTs vs. investment NFTs: Many NFT communities have realized that they don’t want to sell securities, so they link the NFT to membership and usage, not returns. E.g. Bored Ape Yacht Club NFTs grant access to exclusive events, nothing else financial. Their enormous value nevertheless arose speculatively on the secondary market, but this was not guaranteed or promised by the issuer. Legally, this is rather unproblematic (sale of collector’s items, freely tradable). It becomes problematic when an issuer actively fuels the secondary market with statements such as “these NFTs will rise in value, you will earn money from them” – this can then be interpreted as an investment offer in retrospect.

Industry examples:

• Gaming platforms often use NFTs to represent in-game assets that players can own and trade. For example, if a game developer sells virtual properties as NFTs, this can be considered a sale of in-game usage rights. As long as it is purely a game asset, no problem. However, if people speculatively buy land in the expectation of selling it on at a higher price, this is a reality, but is usually tolerated from a regulatory perspective, as it is primarily for entertainment/consumption purposes. However, there have been discussions in the past as to whether in-game items, for example, are a regulated commodity – but most countries do not regulate this as a financial product.
• Metaverse real estate (virtual properties in Decentraland etc.) was traded at astronomical prices in some cases. This raises the question of whether such virtual assets could fall under MiCA in the future (possibly not, as unique = NFT, MiCA says individual NFTs are not automatically covered, but series could). If a company advertises virtual land sales as an investment, it could, strictly speaking, also be subject to prospectus requirements. In practice, no one has ever done this formally – it is sold as an opportunity to participate in the metaverse, not as an investment.

To summarize: Blockchain platforms and NFT models open up entirely new forms of investments, but they must ultimately adhere to established legal principles: If it is an investment with an expectation of profit, it will have to be treated like a security/investment. If it is primarily a use/consumer good, it remains outside the strict financial market law (at most relevant under civil law, e.g. sales law, copyright law). Companies in this area must therefore define and communicate very precisely what the tokens/NFTs mean. Hybrid approaches often make sense: e.g. an NFT grants primary use (membership) and optionally offers the prospect of secondary benefits if successful – but this is not guaranteed. This balancing act must be managed with legal advice in order to avoid unintentionally falling into regulatory traps.

Financing options: Crowdinvesting, STOs, revenue share vs. equity

After examining the legal foundations and industry-specific features, we will now look at the practical forms of financing that start-ups and companies can use today. In particular, the focus is on crowd investing, private placements and security token offerings (STOs), as well as a comparison between revenue-based models and traditional equity financing. We also look at digital investment platforms that facilitate such financing. This section aims to show which options exist for raising capital, what advantages and disadvantages they entail and which legal framework conditions apply in each case.

Crowdinvesting and private placements

Crowdinvesting (also known as equity crowdfunding) refers to the collection of capital from a large number of small investors via online platforms. This form of financing has been widespread in Germany since around 2012; a number of start-ups (as well as real estate projects, energy projects, etc.) have received capital from the “swarm intelligence” in this way. In terms of legal form, asset investments were mostly used in order to remain below the prospectus threshold. As mentioned above, Section 2a VermAnlG allows a prospectus exemption for swarm financing of up to €6 million per 12 months if certain conditions are met (individual investor limit, information sheet, warnings, etc.)【26†L426-L435】【26†L428-L436】. The typical structure was: A startup GmbH issues a subordinated profit-participating loan to crowd investors, with a term of e.g. 5-8 years, with profit-related interest or a bonus in the event of an exit. The crowd investors are thus entitled to payments, but have no voting rights in the company, and in the event of insolvency they are serviced after all other creditors (subordination). These contracts are offered as standard on the crowdinvesting platforms (Seedmatch, Companisto, FunderNation, etc.).

Advantages of crowdinvesting: Companies can combine marketing and financing – the crowd acts as a multiplier. There is no need to provide traditional collateral or promise high returns as with VC; performance-based components are often sufficient. The legal hurdle is relatively low thanks to the VermAnlG exemption; a VIB (asset investment information sheet) with a few pages of information must be filed with BaFin, not an extensive prospectus. This process is significantly cheaper and faster than a securities prospectus.

Disadvantages of crowdinvesting: The amount is limited to 6 million (previously 2.5 million, now increased). For larger financing rounds, this is therefore only a supplement, not a substitute for institutional capital. In addition, despite the lack of rights, crowd investors are economic stakeholders, which can be a problem for future investors. VCs often demand that crowd investors only receive a fixed maximum repayment in the event of an exit (so as not to participate in the large upside), but lose everything on the downside – in other words, classic mezzanine. In some cases, crowd investors were swapped for real shares in follow-up financing (debt-equity swap), but this is difficult to coordinate.

EU Crowdfunding Regulation (ECSP Regulation): Regulation 2020/1503 on European crowdfunding service providers has been in force throughout the EU since November 2021. It creates a licensing framework for crowdfunding platforms that allows them to carry out cross-border offers of up to €5 million per project/company and year. Some German platforms (e.g. Seedmatch/OneCrowd) have applied for or received this license. Under the ECSP Regulation, a KIIS (Key Investment Information Sheet) must be prepared, similar to the VIB, and the platform is regulated (e.g. must have a fit&proper manager, keep customer funds separate or cooperate with payment providers, etc.). The instruments here can be either securities or certain asset investments (“swarm financing instruments”). This theoretically also enables equity crowdfunding with real shares or tokenized securities throughout the EU without a national prospectus, as long as it runs via such a licensed platform. This development should make crowd investing even more attractive because the reach is EU-wide and shares/bonds could also be made tradable. In future, companies will therefore be able to process an STO via a crowdfunding platform, which combines the best of both worlds: a regulatory-compliant security, but with a smaller information document and a large circle of small investors.

Private placement: In contrast to the public offering (crowd), the private placement is aimed at a limited, selected group of investors. In legal terms, this relies on prospectus exemptions in accordance with the EU Prospectus Regulation: offer only to qualified investors, or to <150 persons per member state, or minimum investment amount of €100,000 per investor, or securities with a unit value of €100,000 or more – none of these cases trigger a prospectus requirement (Art. 1(4) Prospectus Regulation (EU) 2017/1129). This is particularly relevant for start-ups: Rounds with angels and VCs are considered private placements, as you only negotiate with a few professional investors. The question of a public approach does not even arise.

In the token age, private placement can mean: A startup sells tokens or rights to e.g. 20 angel investors via SAFT (Simple Agreement for Future Tokens) – that would be prospectus-free. However, you have to be careful: If these investors then receive the tokens after a short time and make them freely tradable, it could be argued that a de facto public sale has taken place (the SEC in the USA is prosecuting cases in which tokens were first sold to VCs and then immediately passed on to retailers as circumvention). This sequence has also been observed in Europe. From a legal perspective, there should be sufficient time and information transparency between placement and secondary trading, otherwise there is a risk of a prospectus requirement for circumvention.

Conclusion on crowdinvesting vs. private: A company should choose according to its goals: If you want broad publicity and many small supporters, then crowdinvesting – but be prepared to disclose info and manage many investor relationships (at least reporting). If you want to raise capital quickly and confidentially – then private placement to selected investors, but this may not raise enough capital if the network is limited. Companies often combine the paths sequentially: first crowd (for proof of concept and fans), later VC (for scaling). It must be ensured in the contract that the claims of the crowd do not deter the VC (e.g. subordination or cap on repayment, as mentioned).

Security Token Offerings (STOs)

Security Token Offering (STO) was a buzzword, especially around 2018/2019, when companies tried to channel the euphoria surrounding ICOs into regulated channels. An STO refers to the issue of digital securities (equity tokens, debt tokens, etc.) with regulatory compliance, i.e. a prospectus or comparable approval documents. In Germany, for example, the first official STO was the bond issue by Bitbond GmbH in 2019 – they issued a tokenized bond with a term of 1 year and a BaFin-approved securities prospectus. This was followed by several others, often in the real estate sector (digital bonds via platforms such as Bitbond/STOKR etc.). The first STO share in Germany was also realized in 2020 (a small AG from Bavaria, “Ziehl Industrie”, issued electronic shares with a BaFin prospectus).

Benefits of an STO: Compared to traditional crowdinvesting (asset investments), an STO has the advantage that real securities are issued that grant the investor ownership or claim rights that are clearly anchored in law. In addition, these securities are often transferable and can be listed on trading venues, which creates liquidity. This distinguishes them from the usual crowd mezzanine, which was often not tradable (at most via the platform’s internal bulletin board). With an STO, you can therefore hope that investors will be more willing to invest, as they can exit the secondary market early in case of doubt. It can also enhance a company’s reputation: a BaFin-approved prospectus signals maturity and seriousness.

Effort and costs: The major disadvantage is the cost and effort involved in preparing a prospectus. A securities prospectus is hundreds of pages long, requires detailed financial and risk information, legal review and often also audited financial data. Depending on the complexity, this can cost 50,000 to 200,000 euros or more in consultancy fees. This is hardly worthwhile for a very small volume. Therefore, the first STOs were either from companies that could handle this effort, or they used alternative paths such as the securities information sheet (WIB) in accordance with Section 4 WpPG (once possible up to 8 million, but the WIB was partly replaced by EU crowdfunding regimes). Until 2019, Germany had a national instrument, the so-called three-page securities information sheet, for small securities issues up to €8 million. Bitbond used this in 2019 (the prospectus was 3 pages plus investment conditions), approved by BaFin. However, such simplifications only exist to a limited extent – the EU Crowdfunding Regulation provides a similar tool (KIIS), but only for licensed platforms.

Regulatory infrastructure: To carry out an STO, you also need a processing partner: you need an issuing institution (if you do not hold it as a license yourself), a payment channel, usually a service provider that handles the KYC/AML of investors, and possibly a platform for subscription. Some FinTechs offer STO services as a package (e.g. tokenize-it service provider). A small ecosystem has formed in Germany: For example, the platform STOKR (Luxembourg) or Tokentrust/LCX (Liechtenstein) have organized STOs across countries. Banks have mostly stayed on the sidelines due to a lack of margins, but in future traditional banks will also be able to offer tokenized securities (e.g. the Stuttgart Digital Exchange – BSDEX – trades crypto, and Börse Frankfurt is planning marketplaces as part of the DLT Pilot Regime).

Investor side: An STO can be aimed at both retail and institutional investors. So far, the focus has been more on retail, as institutional investors could easily invest traditionally. One trend: real estate STOs, where private investors invest from €100 in a tokenized bond programme for real estate projects. This has filled the gap after the prospectus exemption for real estate crowd loans expired in 2019-2021 and stricter VermAnlG requirements came into force.

Future of STOs with eWpG and MiCA: As already mentioned in 1.2 and 2.1, the combination of eWpG and MiCA/STV crowdfunding makes it easier to carry out STOs. It is now also possible to tokenize shares, which allows e.g. tech startups to sell shares directly (previously almost all STOs were bonds or participation rights because share securitization was a hindrance). The regulatory framework (pilot regime etc.) is in flux, which will likely see the emergence of regular trading venues for tokenized securities in the next few years. This could make STOs truly mainstream, as an alternative or supplement to traditional IPOs for small issues.

STO risks: There is currently a risk that an STO may generate tokens, but that there is no liquid secondary market. Many STO investors in the pioneering years sat on their tokens without buyers because the trading venues were lacking or had low turnover. This diminishes success, because liquidity was a promise. Companies should therefore be realistic about what they promise their STO investors: possibly look for cooperation partners in advance (e.g. MTFs that list tokens) or consider buyback programs.

All in all, STOs are an important component of modern financing, albeit (still) with high fixed costs. They are particularly worthwhile for medium-sized capital requirements (5-50 million), where traditional IPOs are disproportionate but crowdinvesting would be too small. With the advance of digitalization in the securities sector, the distinction between STOs and traditional IPOs could become blurred anyway – it will then simply be a public offering in which the security is issued in digital form.

Revenue share models vs. equity financing

Revenue share (revenue-based) and equity (share-based) are two fundamentally different approaches to investor participation – each with specific advantages and disadvantages.

Equity financing: Here, investors invest in shares in the company (shares or GmbH shares) and thus become co-owners. Their potential return is open-ended – they profit proportionally from the value of the company, whether through subsequent profits (dividends) or a sale/IPO (increase in value). However, they also bear the full entrepreneurial risk; in the event of insolvency, the investment is usually lost (after satisfying all creditors, there is often nothing left). From the company’s point of view, raising equity capital means a loss of shares and therefore influence. The original owners are diluted and may have to accept the new shareholders having a say (board seats etc.). However, equity does not require any ongoing payments – it relieves liquidity, which is particularly important in the growth phase (no fixed interest or repayment charges). Equity is also more stable in crises, as investors have no immediate claims except in the event of success. This is why fast-scaling start-ups typically prefer equity financing (VC money): You can use the capital to fund aggressive expansion without a monthly debt service squeeze.

Revenue share (revenue or profit-related participation): Here, investors lend money to the company or make it available as a mezzanine, and the company undertakes to pay out a fixed percentage of its turnover or profit over a period of time. A cap is often agreed – e.g. the payment ends when x times the investment has been repaid or after a certain period of time. The investor earns a return through the ongoing distributions; a large exit later does not affect him, unless a bonus has also been agreed. His upside is therefore limited (for example, he gets back a maximum of 1.5x his investment), but the path to a return is shorter (he does not have to wait for a sale, but receives money pro rata from the first sale). For the company, revenue shares are a kind of variable debt service: You pay more in strong months, less in weak ones – better than a rigid interest/redemption schedule. And crucial: no ownership is transferred, the founders retain all shares, so no say for investors, no dilution. This can be particularly attractive if founders want to remain independent or if the company valuation is currently unfavorable and they are reluctant to give up shares too cheaply.

When is what suitable? It depends on the business model and the phase:

• Young, high-risk startup with high growth potential but uncertain cash flow: Here the tendency is towards equity. No investor would be able to finance a pure startup without revenue via revenue share, as there is no revenue to share yet. And even if profit or exit participation is agreed via a loan, that would be denial – it would be equity in disguise. VC investors also usually want real shares, as this is the only way to get the big added value in the event of success.
• Established company with predictable cash flow: revenue share can be ideal here. Example: A company is profitable but needs capital for expansion. It does not want to issue shares (perhaps there is no market for them, or the owners want to retain control). It can offer investors a share in future sales, so that they act like temporary silent partners. The company retains the full profit after expiry. Such models can be seen, for example, in SME financing, entertainment financing (film/music productions are often financed via profit-participating loans, where investors are serviced from exploitation proceeds).
• Industry: SaaS, as discussed, can make good use of RBF. A biotech start-up, on the other hand, which first has to develop a drug (no sales for years), can only be financed with equity.
• Type of investor: Classic VCs want equity. Family offices or specialized RBF funds, on the other hand, find revenue share interesting because it is more predictable and less risky (no total loss, if the company generates at least moderate sales, something flows; and you are not dependent on hype valuation). Retail investors are often more likely to get involved in fixed deals via crowdfunding (“10% of sales for 3 years” sounds more tangible than “X% company share, unknown when and how exit”).

Legal implementation: A revenue share is usually formally implemented as a loan with profit-related remuneration or as an atypical silent partnership. From a regulatory perspective, it is therefore generally an asset investment. In the case of equity, you either have to take on the shareholders (in the case of a GmbH with a notary, in the case of an AG possibly via a capital increase and prospectus, if public) – more time-consuming. But equity can also flow through venture deals without a prospectus, as they are private.

Hybrid models: There are also combinations: e.g. convertible loans. This starts like a loan (sometimes with interest or a share of the success) and later converts into equity, usually at a discount valuation in the next round. Many start-ups use this to finance pre-seed, as valuation can be postponed. The convertible loan can be seen as a bridging instrument -### … the article will be continued in the next part (sections 5-7 will follow in the second part of this publication).

Case law, BaFin practice and European regulation

In Germany and the European Union, the legal permissibility of alternative financing models – in particular tokenized instruments, revenue share constructions or atypical silent partnerships – is not only determined by laws such as the German Banking Act (KWG), the German Securities Trading Act (WpHG), the German Investment Act (VermAnlG) or the German Securities Prospectus Act (eWpG), but also by the application and interpretation of these laws by authorities and courts. The administrative practice of the German Federal Financial Supervisory Authority (BaFin) and, in a broader sense, the European Securities and Markets Authority (ESMA) is decisive here. At the same time, the first court rulings on the classification of cryptocurrencies, security tokens and similar structures have emerged in recent years. There is a broad consensus that regulatory or at least investment law provisions will quickly take effect in the event of asset-related interests, in particular expected returns.

Development of BaFin practice

BaFin clarified early on that the legal character of a token or model is to be determined according to the principle of “substance over form”. As soon as a token is essentially a security or an investment, the relevant regulations apply. There are two key questions here:

1. Does the token (or participation) have an independent asset that is tradable on the market?
   As soon as a right to profit participation, interest, income or repayment is securitized with the token and the token is designed to be freely tradable, it is regularly considered a security or asset investment in the regulatory sense. BaFin interprets the criterion of free tradability relatively broadly. Even the digital transferability to third parties can – depending on the contract – be classified as tradability.
2. Does the token – from the issuer’s communication perspective – primarily serve the purpose of raising capital or financing?
   If the financing function is in the foreground, BaFin assumes that the token falls within the scope of application of the financial market laws. Despite designations to the contrary (e.g. “utility token”), it can therefore be classified as an investment for regulatory purposes if the communication on the market gives the impression of a yield-oriented offering or the actual use of the token is merely incidental to the platform.

Due to this broad interpretation, start-ups often come up against the licensing requirement as soon as they make a public offering of tokens that embody financial equivalents or participation rights. In future, the MiCA Regulation will establish uniformity across the Union and certain thresholds that stipulate, for example, the issue volume or character (utility, e-money token, value-referenced token) above which stricter requirements apply.

With regard to revenue share models, it can be observed that BaFin generally classifies these as profit-participating loans or silent partnerships if the documentation refers to a participation in proceeds or profits. There are then regulations for the public offer in accordance with the Asset Investment Act, according to which a simplified information sheet is sufficient under certain limits. However, if thresholds are exceeded or tokenized forms are chosen that resemble a classic capital market structure, BaFin can define the model as a security. In such cases, securities prospectus law applies.

Relevant judgments of German courts

Although the blockchain issue is still relatively new, German courts have already ruled in individual cases that crypto tokens are to be classified as either a unit of account, crypto asset, security or asset investment, depending on their structure. In essence, the substance is always considered: Is it actually an instrument that is close to a traditional security or is it purely a use in kind?

In addition, courts have emphasized that even the advertising as an investment plays a role. If, for example, an issuer publicly advertises that high profits or returns are to be achieved with the token, this can trigger the application of financial market regulations – regardless of the technical structure. This is in line with BaFin’s administrative practice: anyone wishing to attract investors must comply with capital market law.

Another topic in case law is investor protection. As soon as large numbers of investors, especially private investors, invest capital, case law sets standards for information and risk presentation. The courts emphasize here that the cross-border nature of digital offers does not mean that German capital market law is undermined. Rather, a provider who deliberately addresses German investors must expect to be subject to the local regulations.

European regulation: MiCA, pilot regime and outlook

At European level, several initiatives have been launched in recent years that are changing the legal environment for digital financial instruments:

• Markets in Crypto-Assets (MiCA): Creates for the first time a uniform EU-wide regulation for all crypto-assets that are not already classified as regulated securities. In future, a white paper containing basic information will be required for public offerings of utility tokens. Value-referenced tokens and e-money tokens (stablecoins) are subject to additional capital and licensing requirements. This means that unregulated ICOs will no longer be easily possible in Europe in the future. Anyone declaring a revenue token as a simple utility token, for example, will have to prove that no capital market-like function is associated with it.
• DLT Pilot Regime: This EU regime gives stock exchanges and trading platforms the opportunity to trade securities (shares, bonds, funds) via distributed ledger technology on a trial basis. The regulations allow exemptions from the traditional central securities depository system, provided certain conditions are met. The pilot regime thus promotes the establishment of smaller exchanges that can list security tokens, which should increase liquidity for STOs.
• Future legislation for DeFi and NFTs: Although MiCA only marginally addresses NFTs, it is foreseeable that the EU Commission will issue further regulations as NFT-based investment models become more widespread. The situation is similar for DeFi structures: Here, further regulatory mechanisms are being considered at European level in order to strengthen compliance and consumer protection.

A key aspect of all these initiatives is that they proclaim openness to technology, but at the same time focus on compliance with known protection objectives (investor protection, market integrity, money laundering prevention). From the perspective of start-ups, this means that although new opportunities for digital business models are emerging, it is imperative to deal with licensing issues, licensing obligations and documentation requirements. Europe does not offer any blanket freedom for crypto projects, but instead attempts to integrate them into existing structures of capital market law.

Is Europe a hindrance or an opportunity?

Particularly in the area of alternative financing, it is often asked whether Europe is not too strictly regulated and start-ups are moving away as a result. There is no doubt that the hurdles in Europe tend to be higher than in some non-European countries. At the same time, EU law with MiCA, the Crowdfunding Regulation and the Pilot Regime certainly allows for innovative solutions.

The key point is the size of the market: if you enter Europe with a compliant model, you can address a domestic market of over 400 million people and use EU passporting. For example, a startup that acquires a crypto service license in Estonia can offer its services throughout Europe in compliance with MiCA. Too little regulation would have short-term appeal for speculative projects, but would lead to problems with money laundering and fraud, as seen in other parts of the world. Many professional investors appreciate a regulated framework because it creates legal certainty. It therefore depends on the company’s strategy: those who want to approach private investors quickly and unregulated will certainly find the European requirements a “hindrance”. Those who want to operate seriously and Europe-wide in the long term will now find a clearer and increasingly uniform framework in the EU than just a few years ago.

Current market developments: crypto winter, altcoins and the regulatory climate

The attractiveness of digital financing models has been strongly influenced by prices and sentiment on the crypto market in recent years. After the hype surrounding initial coin offerings (ICOs) came disillusionment with the so-called “crypto winter”. Many altcoins lost considerable value and the buying mood of institutional and private investors cooled noticeably. However, market development is dynamic and the question now is whether the situation is brightening up again or whether investor skepticism will continue to prevail.

Review: ICO boom and subsequent slump

In the years from 2017 to 2018, ICOs recorded exponential growth. Start-ups around the world raised billions, sometimes without much proof of substance. The euphoria ended abruptly when many projects failed or did not deliver the promised platforms. Prices plummeted and a large number of tokens lost over 90 % of their market value within a short period of time. This left investors feeling disillusioned. As a result, calls for regulation increased: as many investors felt misled or insufficiently informed, national supervisory authorities and legislators were called upon to create clearer rules. In retrospect, this period is often referred to as the beginning of the “crypto winter”.

Revival through DeFi and NFT hype

After the low phase, 2020 saw new movement in the market. Decentralized finance (DeFi) spawned many new protocols (decentralized lending, decentralized exchanges, yield farming), which in turn issued tokens. Later, the 2021 NFT hype caused a speculative price rally in digital collectibles. Investors flocked back into the crypto sector, but with the realization that purely speculative projects are unlikely to last in the long term. This boom brought fresh liquidity to the market, but also brought dubious token projects back to the fore. When global crises such as inflationary tendencies and geopolitical uncertainties increased, many cryptoassets saw a massive drop in value from 2022 onwards. Once again, the media used the terms “crypto winter” and “crash”.

Is the crypto winter over?

Whether the crypto winter is already over depends on various factors:

1. Regulatory clarity: MiCA and other laws give projects more planning and legal certainty. This can motivate investors to invest in reputable token offerings again.
2. Macro-economic environment: Rising interest rates worldwide have reduced the risk appetite of many investors. Young, speculative companies – including blockchain projects – are finding it harder to raise money. A sustainable market revival often requires stable global economic conditions.
3. Technological development: Many well-known blockchains are facing scaling and sustainability issues. Advanced layer 2 technologies or new consensus-based networks are trying to address scalability and energy issues. If this succeeds, long-term trust in the technology will increase.
4. Use cases beyond speculation: The market will recover where real use cases exist. Projects that deliver real added value, for example in the form of efficient digital rights management, secure smart contracts or high user numbers, tend to find investors more easily. Pure meme coins or unclear “utility tokens” without substance, on the other hand, remain subject to highly volatile prices.

Overall, it can be said that there have been more positive developments since 2023, such as institutional funds selectively investing in crypto assets or international corporations testing blockchain technologies in supply chain and financial transactions. However, the market is a long way from the speculative exuberance of previous years. Moderate, sustainable growth could even be more favorable for legally secure forms of financing than short-term hype.

Significance for altcoins

Altcoins, i.e. alternative cryptocurrencies beyond the well-known pioneers, are facing major challenges. Many altcoins have no clear benefit and are struggling with a lack of demand. The oversupply of projects and tokens has led to oversaturation in recent years. Only a few projects manage to integrate their coin into a functioning ecosystem and generate lasting added value.

For new start-ups with a token idea, this means that a new utility token that has no unique selling point or de facto only serves as a speculative object is unlikely to attract investors. The market expects convincing arguments for a token – ideally coupled with a clearly recognizable business model with sustainable sources of income. Companies that do not present a coherent concept here risk being lost in the crowd.

Conclusion on the market situation

Companies planning alternative financing via tokenization, revenue share or digital investments should realistically assess the current market dynamics. Investor interest in substance is high, while pure speculative factors have lost much of their appeal. Institutional investors and reputable private equity or family office funds in particular are now paying very close attention to the regulatory status and technical feasibility.

Those who position themselves well, act in a legally compliant manner and issue a token or participation with real utility value can meet with solid demand despite, or perhaps because of, the lingering crypto winter. As a rule of thumb, transparency, compliance, a real benefit and good communication are key to surviving in this environment.

Strategic considerations for start-ups: When to approach investors? Advantages and risks

Particularly in growth phases, start-ups and young companies are faced with the question of when and how external investors should be involved – and whether to rely on traditional investments or innovative financing methods. The decision depends on numerous factors, including the business model, capital requirements, risk profile and expansion strategy. At the same time, you should always check which regulatory and contractual framework conditions apply.

Timing for raising external capital

The right time to approach investors varies. As a rule, there must first be product-market fit or at least a clear proof of concept. Early financing (pre-seed, seed) is often provided by family, friends, business angels or start-up loans. Only when a start-up can demonstrate a certain market resonance does the circle of potential investors become larger.

• Pre-foundation phase (idea stage): Involving investors here is difficult and in most cases hardly makes sense, as the company valuation is very low and you can be disproportionately diluted if you give up equity too early. At best, profit-participating loans from related sponsors could be an option.
• Early growth phase (seed to series A): Typically, an initial institutional VC fund gets involved here once the product has been placed on the market and initial sales or user figures are available. Crowdinvesting can also make sense here if there is a strong community connection. Alternatively, revenue share or token-based financing can be interesting if the business model can be tokenized well and there is a sufficient user base.
• Later growth phases (Series B, C and upwards): The company has substantial sales and scalability. The door to professional equity capital is open here. Tokenized shares can serve as a supplementary variant, provided that transparency, governance and liquidity are guaranteed. Classic private placements without a prospectus are also an option if you are talking to a limited circle of larger investors.
• Pre-exit phase: Some companies are considering a stock market listing or a major sale. An STO (Security Token Offering) could be used as an intermediate step to a capital increase in order to increase the value of the company and gain more visibility.

Advantages and disadvantages of different types of investors

• Crowd investors:
  • Advantage: Marketing effect, high level of community involvement, relatively low governance interference.
  • Disadvantage: Frequently limited total volume (up to a maximum of EUR 5-6 million via crowdfunding platforms), greater administrative effort for many small investors (reporting, distribution processes, information obligations).
• VC funds:
  • Advantage: Larger tickets, know-how, networks, possible follow-up financing.
  • Disadvantage: Relatively strong influence on company policy, co-determination rights in the form of board seats, dilution of founders’ shares.
• Business angels:
  • Advantage: Often great personal commitment, industry contacts, fast decision-making processes.
  • Disadvantage: Often only limited capital, strong dependence on a single person.
• Private equity/family offices:
  • Advantage: Large sums can be made available in advanced phases, often with a long-term horizon.
  • Disadvantage: Sometimes conservative requirements in terms of transparency and returns, longer review processes.
• Token investors (crypto community):
  • Advantage: Rapid market access, globally distributed retail investors, affinity with technology.
  • Disadvantage: High volatility, sometimes confusing investor groups, high regulatory hedging effort, especially if you want to offer the token publicly.

Opportunities and risks of alternative financing

Opportunities:

1. Fast access to capital: If they are well prepared, token-based models in particular can mobilize considerable funds in a short space of time.
2. Addressing target groups: A revenue share or token offer can specifically address fans, users or customers and at the same time bind a strong community.
3. Structural flexibility: Atypical silent partnerships, profit-participating loans or tokenized bonds can be structured very individually without having to transfer shares in the company immediately.
4. Internationalization: EU law (MiCA, Pilot Regime) and potential passporting allow startups to tap into European markets relatively quickly, provided the regulatory requirements are met.

Risks:

1. High regulatory requirements: Prospectus or information obligations can apply even to relatively small issue volumes. Those who underestimate these obligations run considerable liability risks.
2. Complex investor structures: If you have hundreds of small investors or token holders, you need strong investor relationship management. In addition, subsequent VCs may be suspicious if many silent partners or token holders are already asserting claims.
3. Volatility and market risk: With tokenized offerings, market interest and pricing depend heavily on crypto trends, which the company itself can only influence to a limited extent. A negative market situation can block financing or irritate investors.
4. Possible reputational damage: If a tokenized project fails or comes into conflict with supervisory authorities, this can have a long-term negative impact on the company.

Growth hacking and legal aspects

Many start-ups want to use growth hacking methods to achieve great growth with limited resources. Alternative financing can be an important catalyst, but only if you stay within the law. Promising excessively high returns or advertising aggressively without warnings can lead to injunctions and fines. In addition, public offers are subject to strict rules on financial advertising (no misleading marketing, clear presentation of risks).

In the crypto sector in particular, spectacular marketing campaigns were common in the beginning, which fueled great price fantasies. Today, however, a whitepaper must be reported to BaFin or even approved (MiCA regulations) and no misleading promises may be made. Even if growth hacking methods such as social media campaigns, influencer marketing or referral programs can still be very effective, you should always keep an eye on the boundaries between legitimate advertising and unauthorized securities sales. Even posting on social media that is aimed at an indefinite number of people can trigger a public offer within the meaning of the VermAnlG or WpHG if the intention is to actually raise capital.

Recommendations for successful implementation

1. Early legal advice: Before an alternative financing model is publicly announced, specialists (lawyers, tax advisors, regulatory law experts) should be involved. This is the only way to prevent conflicts with BaFin and other authorities.
2. Clear structuring: Whether an atypical silent partnership, profit-participating loan, tokenized security or crowdfunding – the chosen structure should be clearly defined in the contract. All relevant aspects such as the ranking of claims, term, interest or profit sharing must be clearly regulated.
3. Realistic marketing: Despite all the euphoria for your own project, promises should remain realistic. Exaggerated expectations lead to liability risks and loss of reputation.
4. Solid reporting: Investors appreciate transparency. Regular reporting, key figures and roadmaps create trust and facilitate subsequent financing rounds.
5. Projection into the next growth phase: Every capital raise should be made with a view to follow-up financing. What happens if a large VC round is due a year after the crowd investment? How do you integrate token holders into a shareholder structure? Forward-looking planning saves costly restructuring.

Conclusion and outlook

Alternative financing models such as revenue share, tokenization and digital investments have developed from niche innovations into serious tools for companies and founders. Modern technologies, especially blockchain, open up completely new opportunities to involve investors and mobilize capital. At the same time, increasing regulation – both nationally and at EU level – is leading to greater legal certainty, but also higher compliance requirements.

Legal framework: Various laws and regulations apply in Germany (KWG, WpHG, VermAnlG, eWpG), the application of which depends heavily on the economic function of the investment. Tokenized instruments can quickly fall within the scope of securities or banking supervisory law. At EU level, the MiCA Regulation will fundamentally restructure the crypto-asset landscape and harmonize the patchwork of national regulations in the future. Start-ups and entrepreneurs who want to follow this path must be aware that technological innovations do not exempt them from traditional protection instruments: Investor protection and market integrity remain key guiding principles.

Design: Legal forms such as GmbH, AG or corresponding counterparts in the Baltic States (SIA, OÜ) can be used flexibly for digital financing projects – sometimes combined with token structures. The choice of a suitable form and clarification of supervisory issues are crucial. Token AGs in Germany in particular can become more attractive as a result of the eWpG, as shares can be issued and transferred digitally.

Industries: Whether FinTech/DeFi, creator economy, SaaS or blockchain platforms – in every use case, the question arises as to whether digitally tokenized capital raising brings more benefit than effort. Especially for companies that have a strong community or can demonstrate predictable cash flows (e.g. SaaS revenue), digital revenue or profit sharing sometimes offer an attractive alternative to traditional venture capital.

Market development: The temporary slowdown (“crypto winter”) has cleaned up the market and raised awareness that long-term success is not possible without substance. Regulatory clarifications and an increasing number of reputable token marketplaces are laying the foundations for the next innovation push. Altcoins without utility will probably continue to fade into insignificance, while genuine value-added projects can grow.

Strategy for founders: It is advisable to plan the financing project in detail and to carefully clarify all relevant issues – including regulation, investor structure, tax treatment and liability. It may be advisable to seek professional advice in order to draft watertight contracts and choose the right legal form. Whether and when to bring external investors on board depends heavily on the maturity and vision of the company.

Anyone who enters the token market prematurely without thorough examination or offers unclear revenue share concepts runs the risk of either being stopped by regulatory authorities or disappointing investors. In contrast, well-planned and seriously implemented projects can cover their capital requirements and at the same time integrate new customers, fans or community members into the company – a key success factor in the digital age.

Overall, it can be said that alternative financing and tokenization in Europe have now reached a professional level. Although complex requirements remain, they provide a solid foundation from which start-ups and growth companies can realize their visions. Those who follow this path and prepare both the legal and business aspects properly can secure a head start – in terms of financing, acquiring new partners and, last but not least, building a loyal following that supports their entrepreneurial success.