Berlin An investor in the Hamburg cloud start-up Protonet has won a victory in the Dresden Regional Court that could have far-reaching consequences. The operator of the crowd-funding platform Seedmatch, OneCrowd Loans, has to pay him 5,000 euros in damages. The reason: The investment contract concluded via the platform was invalid.
The Seedmatch operator told the Handelsblatt: “OneCrowd Loans GmbH will appeal the judgment because we give ourselves a good chance of being successful here.” not comment on the ongoing legal dispute.
There’s a lot at stake for OneCrowd Loans. The amount of damages in this individual case is not spectacular. However, the decision could be significant far beyond the specific case: Because a clause found to be ineffective could also be in the contracts of tens of thousands of other investors who, according to the company, have used the platform.
“I was able to see more than 20 seed match contracts, all of which contained this clause,” says lawyer Lutz Tiedemann, who represents the Protonet investor.
If the decision stood, it would be a fiasco: Seedmatch is one of the best-known crowd-funding portals for start-ups in Germany. Founders can collect relatively small amounts of money from a large number of people there and thus finance their vision. The entry fee is 250 euros.
According to the platform operator itself, 73.5 million euros have been collected from 80,500 users in a total of almost 200 financing rounds. Prominent examples are the air taxi company Volocopter, the food brand Veganz and the data center start-up Cloud & Heat.
The case of Protonet
The case before the court concerned an investment in the server start-up Protonet. The company had a widely publicized crowdfunding success nine years ago when it raised €3 million from more than 18,000 micro-investors.
It wanted to use the money to develop particularly secure data servers for small businesses and private households. In 2017, however, Protonet had to file for bankruptcy. The investor, who then sued with the help of the lawyer Tiedemann, suffered a total loss.
Tiedemann initially sued Protonet itself on behalf of his client. In essence, he challenged a subordination clause in the investment contracts because they were not understandable for private investors. The Hanseatic Higher Regional Court in Hamburg agreed with him in the second instance.
According to his own statements, he has seen numerous crowd investment contracts on the platform that are invalid after a recent court decision.
But not only that. Protonet announced the dispute to Seedmatch in 2020 in the ongoing proceedings. That’s what lawyers call it when a third party who has not previously been involved in the process is informed of the outcome. For Tiedemann, a clear indication that at least Protonet saw some responsibility for Seedmatch.
The void clause
In the proceedings before the Dresden Regional Court, the lawyer took action on behalf of his client against the platform operator. The verdict is similar to that from Hamburg: “Since the defendant offered its investment to private investors, it had to design its general terms and conditions in such a way that customers with no legal or commercial training can understand them without any special explanation,” says the reasoning.
The details are complex. Put simply, a contractual clause meant that the crowd investors coming through Seedmatch are significantly worse off than all other investors in a startup and run a significantly higher risk of losing money.
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“The Dresden Regional Court and the Hanseatic Higher Regional Court were of the opinion that agreed qualified subordination clauses could lead to the investor suffering serious disadvantages,” says lawyer Lutz Tiedemann.
In a start-up crisis, the demands of the crowd investors take second place to the demands of other creditors. Put simply, this means that bankruptcy is not required in the first place for a total loss to occur. According to Tiedemann, crowd investors can also lose their right to repayment if there is only a severe economic crisis.
The possible consequences
However, if the clause is invalid, the entire contract becomes void. “If there is no effective subordination clause, it is a deposit business for which companies need a banking license,” says Tiedemann.
After the most recent decisions, he is convinced that in the absence of a banking license, investors have claims for damages in such a case – “against platform operators, managing directors and start-up entrepreneurs”.
The judgments in the Protonet case could also have far-reaching consequences for the companies and managing directors who have raised investor funds via Seedmatch. The company’s own advertising messages suggest that many contracts concluded via Seedmatch could be affected. Seedmatch explicitly advertised that it offered “mature and standardized contracts”. Seedmatch did not want to comment on this either.
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