The search for stable sources of return is becoming more challenging for investors again. Low real interest rates, a volatile stock market environment, and increasing uncertainty in the real estate and start-up markets mean that traditional portfolios are only able to fulfill their protective function to a limited extent. At the same time, there are growing warnings of a possible market downturn, whether based on sound analysis or fortune telling remains a matter of opinion. The fact is that more and more investors are looking for forms of investment that are less influenced by sentiment and cycles and offer genuine alternative investments.
Two models in particular are coming into focus. Crowd investing is both collective access to capital for young companies and real estate projects. At the same time, litigation financing, in which investors participate in the outcome of legal proceedings, is also becoming increasingly interesting. Both promise attractive return opportunities, but differ fundamentally in terms of structure, risk, and dependence on market movements.
Litigation financing vs. crowd investing – everything at a glance
- What really distinguishes crowdfunding and crowd investing, including legal and economic fundamentals
- Why many projects promise high returns but at the same time carry considerable default risks
- How litigation financing works and why it is largely independent of market cycles
- Returns, risk, liquidity, and regulation of both forms of investment
- For which types of investors crowd investing is suitable and when litigation financing is the superior alternative
1. Litigation financing vs. crowd investing – overview and significance for investors
Which alternative models offer realistic return opportunities and are also structurally sound? The focus is on crowd investing as an established form of digital investment and litigation financing, which gives investors access to a return model that is largely independent of the market. In order to be able to compare both approaches in a well-founded manner, it is worth taking a clear look at their fundamentals.
What is crowdfunding?
Crowdfunding refers to the collective financing of projects, products, or initiatives by a large number of individual supporters. Depending on the model, the money flows in as a donation, as symbolic consideration (e.g., product pre-order), or as pure support for a creative project.
Traditional crowdfunding does not provide for a financial return. Its appeal lies primarily in the rapid mobilization of capital, community dynamics, and low barriers to entry for supporters.
What is crowd investing? (Simply explained)
In crowd investing, on the other hand, investors provide capital in order to participate financially in companies, start-ups, or real estate projects. In contrast to crowdfunding, the focus here is on financial returns, often in the form of interest, profit sharing, or value-based repayments. Platforms act as intermediaries between projects and investors, checking documents and organizing the transaction.
Crowd investing is considered a modern form of private market access, but it carries substantial risks. Young companies with uncertain business models, real estate projects with construction or financing risks, and an overall higher default rate than established asset classes. This is precisely why the term is increasingly being questioned critically, especially in view of rising insolvencies among start-ups and project developers.
Why are crowdfunding and crowd investing often confused?
Both models are based on “swarm logic,” whereby many people invest in a project together. This is precisely why they are often used synonymously in everyday language, even though they function in fundamentally different ways:
- Crowdfunding: Support without a claim to returns
- Crowd investing: Investment with financial participation and risk
This distinction is central to a realistic assessment of crowd investing, especially in comparison to completely alternative forms of investment such as litigation financing.
What is litigation financing?
In litigation financing, investors support legal proceedings that are expected to result in financial compensation. The basic logic is that if the case is successfully concluded, investors participate in the amount awarded; if the case fails, they do not bear the cost risk themselves.
The appeal of this model lies in its independence from macroeconomic fluctuations. While crowd investing is strongly influenced by interest rates, consumer sentiment, and market dynamics, litigation financing is based on the enforcement of legal claims. This is an area that is largely stable and anchored in the real economy.
Litigation financing explained briefly
- Investors finance selected legal cases
- Returns are only generated if the case is successful
- No total loss due to legal costs
- Independent of stock market and real estate cycles
- Professional legal case review reduces risks
“Platforms such as AEQUIFIN bundle reviewed cases, reduce information asymmetries, and, for the first time, give private investors access to a form of investment that was previously reserved for institutional investors.”
2. How reliable is crowd investing? An overview of opportunities and risks
In recent years, crowd investing has established itself as an accessible form of digital investment. The basic idea is appealing. Even with small amounts, investors can invest in start-ups or real estate projects that were previously reserved for professional investors. Platforms such as Companisto, Seedmatch, and Exporo have already been used to finance numerous young companies, food start-ups, energy projects, and smaller real estate developments.
Crowd investing platforms convey reliability, check documents, and promise transparent processes. However, behind the simple user interface lies a form of investment that is significantly more complex and risky than many investors initially assume.
What opportunities does crowd investing offer?
- Low entry threshold: Investments often possible from as little as €100 or €250.
- Access to private markets: Investments in start-ups and real estate projects without high capital requirements.
- Attractive return promises: Platforms often advertise returns of 6–12% p.a.
- Diversification: Many investors use crowd investing to supplement traditional portfolios.
Which risks are often underestimated?
- High failure rates: Start-ups fail at an above-average rate; project developers struggle with construction costs, interest rates, and liquidity bottlenecks.
- Total loss risk: Unlike with funds or bonds, the capital invested is completely lost in the event of insolvency.
- Platform risk: If problems arise with the provider, investors are also affected.
- Reality gap: The advertised returns rarely reflect the actual payout to investors.
- Low liquidity: Exits before maturity are hardly possible.
- Regulatory inconsistency: Quality and auditing standards vary greatly between platforms.
What happens if a crowd investing project fails?
If a project fails, investors are generally not entitled to a refund. The capital invested is entirely tied to the economic success of the project, and a total loss is therefore not an exception but rather a structural risk of this type of investment.
In the case of start-ups, insolvency leads directly to the loss of the capital invested; in the case of real estate projects, construction interruptions, rising costs, or financing gaps can have the same effect. It is also crucial that due diligence is largely the responsibility of the investor. Platforms prepare information, but investors must assess the risks themselves.
Typical reasons for failure in crowd investing
- Bad decisions or lack of management experience
- Unexpected market changes or slumps in demand
- Cost increases in real estate or construction projects
- Problems with follow-up financing
- Delays in sales or product launches
- Overly optimistic planning and unclear business models
- External shocks such as interest rate hikes, supply bottlenecks, or regulatory changes
How reputable is crowd investing really?
- The most reputable platforms are those that
- provide transparent project documentation,
- evaluate projects conservatively,
- communicate realistic return assumptions, and use strict review processes.
However, the industry is heterogeneous. This means that many offers are under pressure to generate returns, which leads to optimistic valuations and insufficient risk disclosure. This is precisely why crowd investing is accessible, but by no means risk-free and only suitable to a limited extent for security-oriented investors.
3. Return vs. risk – litigation financing compared to crowd investing
Crowd investing and litigation financing are among the most exciting alternative forms of investment in recent years. Both promise access to markets that were previously virtually inaccessible to private investors. However, the sources of return for both models differ fundamentally, as do their risks.
What are the return prospects in crowd investing?
The promised returns in crowd investing are often between 6 and 12% per year, and in some cases even higher. In practice, however, many projects do not achieve these figures. Various start-ups struggle with competition and liquidity, while real estate projects face rising construction costs and delays. The returns distributed are therefore often lower than those forecast.
Furthermore, the higher the expected return, the higher the actual risk of default. Investors bear the full economic risk of the project, including the possibility of total loss.
How high is the potential return on litigation financing?
In litigation financing, returns are not generated by market performance or business success, but by the legal enforcement of claims. Successfully financed cases can achieve returns of up to 100%, and in some cases even higher.
The key difference here is that returns do not depend on the economy, demand, interest rates, or real estate prices, but on the strength of the case in question. Platforms such as AEQUIFIN review the proceedings in advance from a legal and economic perspective. This creates a filter through due diligence that systematically reduces many risks from the outset.
Risk in direct comparison
Crowd investing
- Full economic risk
- Strong dependence on market cycles
- High default rates for start-ups
- Total loss in the event of insolvency or project termination
Litigation financing
- Risk based exclusively on the legal prospects of success
- Independent of the stock market, interest rates, and the real estate market
- Professional case review before approval for financing
- No additional platform or management risk during the course of the project
While crowd investing is often influenced by external factors such as team quality, location, construction costs, consumer climate, and interest rates, litigation financing depends primarily on the legal substance of a case.
Why can litigation financing be more stable than crowd investing?
- Litigation financing offers a largely uncorrelated source of returns, as the success of a case is not dependent on capital market cycles.
- The underlying legal claims are based on the real economy and develop independently of whether stock markets rise or fall.
- Investors benefit from a high level of transparency because decisions are based on clearly defined legal criteria rather than optimistic project presentations.
- The risk is limited even before the investment is made, because cases are only approved if there is a sufficient economic and legal prospect of success.
For investors looking for a predictable alternative to crowd investing, litigation financing as an alternative investment can therefore be a clearly structured and stable component of their portfolio.
4. Liquidity, term, and regulation—where crowd investing reaches its limits
At first glance, crowd investing appears modern and accessible. However, when it comes to flexibility, reliability, and regulatory certainty, it becomes apparent that many projects are less stable than the platform interfaces suggest.
Hardly any liquidity and investors sit out the term Anyone who invests in crowd investing projects ties up their capital for several years. It is practically impossible to exit in the meantime:
- There are hardly any functioning secondary markets.
- Contracts rarely provide for rights of return.
- Project delays further extend the term.
In practice, this simply means that once you invest, you remain invested, no matter what happens along the way. In real estate projects, delays, cost increases, or financing problems can cause terms to be extended by months or years. Start-ups postpone product launches, financing rounds fall through, and investors are unfortunately bound by this.
Litigation financing is tied up, but much more predictable
Capital is also tied up in litigation financing, but on the basis of clear legal procedures. Court deadlines, procedural steps, and time frames are defined by law. Delays are possible, but the entire process is structurally much more stable than the corporate or construction projects just mentioned.
The result?
Litigation financing remains illiquid, but is much easier to calculate.
Regulation – two worlds, one conclusion
When it comes to crowd investing, regulation is often a patchwork quilt. Platforms work with different auditing standards, some very reputable, others heavily marketing-driven. As a result, investors must be able to assess for themselves how reliable forecasts and documents really are.
- Litigation financing, on the other hand, is based from the outset on a legally established claim.
- Whether a case has a chance of success is examined in advance by legal experts.
- Courts, arbitration boards, or settlement negotiations determine the outcome.
- The evaluation criteria are objective and not sales-oriented.
What makes the difference?
While crowd investing remains fundamentally risky from a business perspective, litigation financing is based on clearly defined legal structures.
5. Why is litigation financing the more sensible alternative for many investors?
Litigation financing offers investors an advantage that crowd investing cannot structurally provide. As can be seen, it is largely independent of market cycles, trends, or economic fluctuations. Returns are generated from the enforcement of legal claims, not from the performance of a company or real estate projects.
- Clear independence from markets
The success of a case does not depend on interest rates, construction costs, or consumer behavior, but on the legal substance. This ensures a stable, uncorrelated source of returns.
- Objective basis for decision-making
Investments are not made in visions, but in legally enforceable claims. Cases are reviewed according to comprehensible criteria—not pitch decks or forecasts.
- Risks are professionally filtered in advance
Only cases with realistic chances of success are approved for investors. This reduces risks before capital is tied up.
- Socially meaningful impact
Investors support real legal enforcement, not speculative business development.
- Easy access thanks to digital platforms
Models such as AEQUIFIN open up an asset class that was long only accessible to institutional investors.
6. Crowd investing vs. litigation financing: comparison and overview
A direct comparison shows how differently the two forms of investment work and where their respective strengths and weaknesses lie.
7 . Comparison table – crowd investing vs. litigation financing at a glance
