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Startup financing through tokenized profit participation rights and related financing options.


In Germany, startups still try to finance themselves in the classic way: Business Angel, capital from Friends & Family, a lot of work and deprivation or by bootstrapping their own company, hoping to raise a “real” investment later on. This often raises the question of how to make it possible to set up and make the necessary initial investments, because when bootstrapping or “just getting started”, many founders, especially in the media and/or IT sector, face a certain chicken-and-egg problem. Real sales can only be achieved with customers who buy the products or services. However, attracting new customers costs a lot of money and in order for advertising for new customers and sales to be possible or make sense, the startup must already be built, the website/service completed or even the production of products for sale pre-financed.
This chicken-and-egg problem is often difficult to circumvent and leads to startups getting off to a very slow start, not achieving any real relevance and, in the worst case, the ideas, products or business concepts still being “copied” or at least similarly implemented by competitors.

A little help has been provided by portals such as Kickstarter, which support raising money without a product/project having already been completed. However, startups often underestimate the effort required for a successful Kickstarter campaign (apart from pure luck) and the enormous competitive situation.

Especially startups in the media industry, such as online services or even Esport teams, therefore have a hard time reaching a critical mass of customers, revenues, sponsors or a critical reach to be able to build a startup quickly. Startups therefore often find it difficult to raise the initial financial cushion for employee salaries, office, travel and other expenses, for example.

Therefore, mostly only investors (or at least business angels) remain. However, in order to convince them, you have to create a convincing business plan, where the business component is often more important than details of the products or services. While potential end customers are often only interested in whether a product is interesting or the service offers them added value, investors want to know much more. You want to get an overview of the risks, the team, the competitive situation and much more, in order to be able to assess whether the risk of losing the investment is manageable or in proportion to the chance of achieving a profit with the investment.

In addition to crowdfunding platforms and crowd-investment platforms (such as Seedmatch or Crowddesk, Attention I do not recommend any specific platform herewith!), but which often also make extensive business plans a condition, the possibilities of financing directly by the end customer (or by very risk-conscious investors) in the area of crypto, blockchain and tokens are therefore developing enormously in the IT and media industry.

In the following I would therefore like to present some possibilities, which I have also accompanied legally or am currently accompanying. Some of them are true crowdfunding, others can just be described as tokenized profit participation rights, and still others are hybrids. What these options have in common is that many things are still legally unresolved. This applies both to the tax law implications, the differentiation from financing options that might have to be approved by Bafin, but also to copyright problem areas.

Legal or lawyer’s advice is therefore often advisable. I offer these at all stages of planning.

The current status

Up to now, classic forms of investment have dominated, as explained above. Frequently, an investor in the company becomes a new shareholder, who then in turn provides a shareholder loan or makes funds available as a premium. Silent partnerships, as regulated by the German Commercial Code, are also common. By contrast, corporate bonds, which are still offered quite frequently by companies in the traditional sectors of the economy, are rather rarely represented among startups.

Tokenized investment opportunities are still rather rare. There are many reasons for this. The lack of trust in digital investment opportunities, also reinforced by numerous fraud cases in the area of Initial Coin Offerings in recent years, is certainly the most important reason. However, this is changing and can therefore be a great opportunity for young startups.

Tokenized profit participation rights

For media and IT startups in particular, the digitalized variants of corporate financing are interesting because they often fit in with the digital transformation currently taking place in the economy, and thus even more so with a modern media startup. Investment opportunities based on crypto technology, blockchain or smart contracts are part of the “cultural shift” of today’s society, which is giving rise to new business opportunities such as esports, influencers or streamers, and will certainly continue to enable business models if you are innovative and open to trends when planning your own venture. The implementation of tokenized profit participation rights or the issuance and sale of NFTs is now easier to implement with the numerous new service providers than it was a few years ago. However, the legal hurdles of GTC, design and possible approval have to be circumnavigated.

But what actually is a tokenized profit participation right? Profit participation right is a somewhat antiquated legal term for a type of contract that typically grants its owner a claim under the law of obligations to a share in the profits. Because the legislator has not regulated the exact form of profit participation rights, many different forms are possible. For example, the granting of other claims, such as to specific access to a community or the acquisition of products or services yet to be developed, is also conceivable.

The effects and forms of use are subject to the design sovereignty of the issuer, i.e. the issuing company. For example, profit participation rights may be classified as equity or as debt. The different options all have advantages and disadvantages that should be weighed against each other. In addition, the contractual basis must be clearly defined in order to avoid various surprises later on.

As a rule, tokenized profit participation rights are not subject to the requirements of the Banking Act and other related standards if the acceptance of the investor funds by the issuing company is not to be classified as a deposit transaction and thus as a banking transaction. There are then also no “crypto values” according to § 1 para. 11 S. 1 No. 10 KWG, even if the options are often referred to in this or similar ways and the term cryptovalue is used in the press and by colleagues for tokens that are not cryptovalues at all under the law.

Profit participation rights as instruments of corporate financing are actually nothing new, because even the “silent partnership” regulated in the German Commercial Code is a type of profit participation right. Classically, profit participation rights are used for individual properties or individual projects, because the risks and opportunities of individual projects are easier to present than a complete business plan. Unlike a share or a partner’s share, someone who acquires a profit participation right does not have a say in decisions under company law, but only has a purely legal claim against the issuing company. In the blockchain area, this claim can then certainly also be implemented or ensured via smart contracts.

Participation rights are currently experiencing an immense upswing due to so-called “swarm financing” and, in conjunction with the consistent use of blockchain instruments or blockchain technologies, could interest young people in particular, as they are often more open to the topic of crypto or blockchain. Profit participation rights can be issued in a very simplified manner via specialized providers, as long as certain maximum amounts per investor are not exceeded. Depending on the design, it is also relevant what type of “investors” are to be served. According to the will of the legislator, institutional investors should earn less protection than private investors who may want to invest even small amounts in their “favorite product”. This allows startups of any size to raise capital from a broad investor audience and with a manageable investment per investor. Under certain circumstances, it is also possible to grant a certain amount of, for example, a virtual currency or to transfer products that the company sells instead of a return on the investment. It is only important that the conditions, the terms of the profit participation rights and the other modalities are presented transparently and agreed securely with the “investors” or customers. However, there are service providers who can ensure this as well. This aspect should not be underestimated, because in addition to problems of a regulatory nature, general civil law must of course also be observed when offering profit participation rights and/or NFTs, so that legally secure GTCs and/or other contracts can be essential.

Such participation rights are usually mapped or stored on a blockchain as so-called tokens, which can later be used as a payment method for services, as voting rights in ecosystems or as digital assets according to previously agreed conditions.

Since the terms, legal definitions and design are sometimes used differently and blur together, the definition as a profit participation right, token, asset, corporate bond or other financing option depends on the specific design.

However, due to their digital nature, tokens are also particularly suitable for small-scale investments, for example for fans, customers, suppliers or other stakeholders of the company. No paper documents are required and, depending on the provider, both the cash deposits and things like secure identification of “investors, checks of money laundering prevention measures and other aspects can be mapped fully digitally and without media disruption. In this way, the fans or supporters can participate financially in the construction of an Esport team, a startup, a service, a community or other constructions and profit from their own investments in case of financial success. In addition to a convincing business plan, motivation can be a high emotional connection to the project, the topic, one’s own hobby or one’s own political views.

In detail

Technical basics

The basis for all tokenized rights or functions is a blockchain. Ethereum” is currently used for most of these tokens, often as a private, i.e. not publicly accessible, blockchain. The technical standard for implementing a token on this blockchain is called “ERC20”. As a rule, a “wallet” known from the Bitcoin area is also required to store the necessary keys or access data to the tokens.

Utility token

Utility tokens, as the name suggests, serve a specific purpose and are therefore not just a pure investment vehicle, as are security tokens in particular. They are not corporate investments and therefore not securities in the narrower sense. For this reason, among others, it is being discussed whether these are profit participation rights at all. Rather, such a token can be classified as a voucher or medium of exchange that can be exchanged for virtual currency in online games, for example, or that provides access to certain community areas, streams, or other functions. Of course, utility tokens could also be exchanged for previously defined products in an online store, which is why they behave no differently in principle than classic vouchers in non-digital commerce.

For VAT purposes, the most relevant issue is whether the utility token is to be classified as a so-called single-purpose or multi-purpose voucher. According to the Federal Ministry of Finance, a multi-purpose voucher exists if the place, the performing entrepreneur or the object of performance and therefore the VAT owed are not yet determined when the voucher is issued. This is the case, among other things, when vouchers that can be redeemed for a specified service in different EU member states or for different services with different tax rates.

Single-purpose vouchers, on the other hand, exist if the supply or other service is sufficiently specified so that the respective member state and the tax rate applicable to the service, and thus the VAT due, are known at the time of issue. Depending on the design of the Utility Token, the VAT owed is therefore only due at the time the service is provided or immediately.

The differentiation from other tokens and investment opportunities is important in order to be able to assess whether the token is subject to regulatory requirements. It is therefore necessary to regulate the specific rights, content and conditions under which the Utility Token can be purchased, used and possibly returned. Regularly, this is done in the field of ICO (Initial Coin Offerings) and tokens by means of a white paper and/or within a token sale agreement. This then contains information on the planned business purpose, the acting persons and the technical design of tokens. These agreements do not have to meet the requirements of a prospectus (in the sense of the German Banking Act), as the main focus of a Utility Token is access to certain services or technical functionalities, i.e. real economic services.

Such agreements are generally GTCs, which is why GTC law and the restrictions imposed by the German Civil Code on the use of GTCs apply. Nevertheless, there is a significantly higher degree of freedom in the form and content of whitepapers and/or token sale agreements than in the case of prospectuses, which can be a prerequisite for other investment vehicles. For the above-mentioned considerations regarding the design as GTC, however, it is not advisable to use whitepapers only as a PR measure and means of communication, even if even BaFin as a theoretical supervisory authority attributes this purpose to a whitepaper.

NFT (Non-Fungible Token)

NFTs (non-fungible tokens), which are currently gaining ground in the entertainment industry in particular and are thus also becoming relevant in the field of computer games or esports, are an equally hot topic and a familiar object due to high-priced examples. However, the business models around NFT are just developing and numerous legal issues are still unresolved as a result. However, the topic is highly exciting and offers very lucrative opportunities to secure sales on the one hand and at the same time enable high customer or fan loyalty.

An NFT is actually just a cryptographic token, but there is only one original of it, and it cannot be replicated or otherwise shared, so it is not interchangeable. The ID and metadata of an NFT cannot be easily reproduced. This is the big difference to a Fungible Token like Bitcoin, where each Bitcoin always has the same value, but it is only attributed or accessible to one other holder.

An NFT can act as a placeholder for an object in the real world, but it can also stand for a digital original. For example, a video sequence of NBA player LeBron James was sold by the NBA and numerous other providers of digital graphics, videos or unique badges have already “jumped on the bandwagon”.

A unique feature of an NFT in the digital realm is the ability to easily transfer it from one owner to another through the underlying blockchain technology. For example, when a user acquires an “in-game” item or other digital asset, it is typically difficult to allocate, trade, transfer, or otherwise sell the item; an NFT solves this problem via a secure platform, such as a “trust wallet.” The holder’s asset can be exchanged or sold on various marketplaces, but of course also on a system that is only for the original issuing company.

With the success of NFTs in other entertainment and sports sectors, and with the concept of digital objects already entrenched in the gaming world, these digital assets are ideally suited for growth and expansion of startups in the media and IT sectors, but there are already numerous ideas for other startups worldwide to implement.

As with utility tokens, it is the specific design of NFT that matters in assessing what legal quality it has. While a utility token is often compared to vouchers, as the token is assigned a value that the buyer can use according to the terms of the sale or at the company being redeemed, an NFT is often compared more to a work of art. It should be noted, however, that the prevailing opinion both denies the quality of an NFT as a thing and denies a property right within the meaning of Section 903 of the German Civil Code. For a similar reason, you don’t legally “own” Bitcoins and – legally speaking – you don’t have any rights to Bitcoins. Crypto tokens and other blockchain appearances are, according to the prevailing legal opinion, other rights in the sense of the German Civil Code and thus comparable probably to things like copyrights or trademark rights. A protection of tokens similar to the property of the BGB is discussed via an analogous application of § 903 BGB, but mostly denied.

It should be noted, however, that one probably does not hold a copyright even on a token. Only the work of art embodied in the NFT can be protected by copyright. However, this leads to the fact that in the case of an NFT, a distinction must be made between the transfer of ownership-like rights of disposal in the NFT and any existing copyright rights of use and exploitation in the work. Indeed, by selling an NFT, the buyer does not in principle obtain the copyright exploitation rights to the work embodied by the NFT. These rights must be agreed separately, which can be a challenge in properly drafting contracts or T&Cs that include the sale of NFT. Similar to other sales of digital content, the buyer may otherwise face unpleasant consequences.

Security token

Lastly, let’s take a quick look at a true investment vehicle, the Security Token, which is mandatorily linked to a security. So instead of granting an investor, fan, or other partner a tangible benefit, such as access to an ecosystem or streaming content, a security token usually represents a stake (or at least a speculative and monetary benefit) in the company issuing the token. Investors who buy such tokens hope to profit and make money directly from the investment and in return take a financial risk.

However, since this is regularly exposed to a higher effort in the set-up, a higher need for examination of regulatory issues and thus higher costs, it is rather not too easy to implement for smaller startups. However, there are platforms that use intermediaries for the distribution of such or similar investment opportunities and then enable the offering to investors anyway, in a limited scope and up to a low single-digit million amount.


The age of digital financing options has definitely dawned. There are different forms for every conceivable financing strategy or business model. Tokenization makes it possible and facilitates access to investment opportunities, settlement, and combines these opportunities with smart customer engagement strategies. However, as is so often the case, the legislator is lagging behind, which is why the legal problem areas are extensive, especially with regard to regulatory and tax issues. However, the issuance and/or use of tokens or crypto participation rights of any kind fits perfectly with the “digital native” target group that young media startups often serve as customers.

I offer a brief initial consultation on the basic questions, which can be expanded to a one-hour initial consultation if you are interested.

A more detailed article with a focus on esport organizations and more detailed scientific explanations can be found in the September issue of SpoPrax (pp. 252-257). You can find out more about SpoPrax here: As soon as available, I will provide a link here to purchase the longer article individually.

Marian Härtel

Marian Härtel

Marian Härtel is a lawyer and entrepreneur specializing in copyright law, competition law and IT/IP law, with a focus on games, esports, media and blockchain.


03322 5078053