Crowfunding - Principles & Technics

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The Brussels Enterprise Agency hosted a practical seminar dedicated to the crowdfunding

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Crowfunding - Principles & Technics

  1. 1. INTRODUCTIONTO THE CROWDFUNDING EVENT24/01/2013 Azèle Mathieu Rodolphe d’Udekem d’Acoz Advisors Business & Finance @ BEA 1
  2. 2. AGENDA OF TODAY• Introduction• Presentation of Crowdfunding platforms:  My Micro Invest Guillaume Desclée  Look & Fin Frédéric Levy Morelle• Testimony of companies:  2Houses Gill Ruidant  Saint-Aulaye Jean-Louis Barré• Discussion 2
  3. 3. INTRODUCTION• Definition• Market composition• Role regarding traditional financing solutions• Important aspects from different perspectives:  the entrepreneur  the backers  the platform 3
  4. 4. CROWDFUNDING• Definition• Market composition• Role regarding traditional financing solutions• Important aspects from different perspectives:  the entrepreneur  the backers  the platform 4
  5. 5. STARTING FROM A BASIC PRINCIPLE…Source: wordpress.com 5
  6. 6. …TOWARDS A DEFINITION OF CROWDFUNDING…“…describes the collective effort of individuals whonetwork and pool their money, usually via the Internet,to support efforts initiated by other people ororganizations.”For entrepreneurs: Crowdfunding = new financing sourceSource: Ordanini et al. (2011), Prive (2012) 6
  7. 7. THERE EXIST DIFFERENT CROWDFUNDING MODELS: Non-financial return for funders Financial return for funders Donation-based Reward-based Equity-based Lending-based Philanthropy or Non-monetary Dividend / Fixed periodic sponsorship rewards Capital gain income New financing sources forSource: adapted from Massolution (2012) companies! 7
  8. 8. CROWDFUNDING: REALLY NEW?Source: Farrell (2012) 8
  9. 9. CROWDFUNDING• Definition• Market composition• Role regarding traditional financing solutions• Important aspects from different perspectives:  the entrepreneur  the backers  the platform 9
  10. 10. HOW LARGE IS THE CROWDFUNDING “SECTOR”? Worldwide: - In 2011: CFPs: $1,5 B - US Business Angels: ~$22,5 B - In April 2012: 452 active crowdfunding platforms EU (2011): • CAGR raised funds: 40% • CAGR numberUS (2011): of CF firms:• CAGR raised 60% funds: 90%• CAGR number of CF firms: 30%Source: Massolution (2012), Brown (2012) 10
  11. 11. EU COMPARED TO US  A higher CAGR in terms of CFPs (60% >< 30%)… Good indicator given that…  new entrants CFPs generates 25% of overall fund raising  A higher share of equity- and lending-based CFPs (31% >< 18%)Source: Massolution (2012) 11
  12. 12. EQUITY- AND LENDING-BASED CFMillions of $  Around half the overall raised funds  Equity-based: • Not the largest overall source of funds… • But largest raised amount of funds/campaign ($85k><$5k or less for other) • …and growing… primarily in EUSource: Massolution (2012) 12
  13. 13. CROWDFUNDING• Definition• Market composition• Role regarding traditional financing solutions• Important aspects from different perspectives:  the entrepreneur  the backers  the platform 13
  14. 14. CF: FINANCING « TOOLS » FILLING SOME GAPS… Risk level andexpected return Debts (i.e. from banks) Stock 15% markets Trade Sale 25% Equity VC Grants Private Specific 35% funds Bussiness Angels Public 50% University funds investment funds Lending-based CF FFF Equity-based CF Seed Start-up Development Growth Consolidation Company maturitySource: adapted from Olivier Witmeur MBA BP 2012 & Women Business Angels Club 14
  15. 15. COMPLEMENTARY ROLES TO TRADITIONAL FINANCING SOURCES • Equity-based CF:  To consolidate equity and leverage access to other financing sources such as bank loans • Lending-based CF:  For entrepreneurs who want to avoid dilution but project is (still) too risky for a traditional bank loan  Or entrepreneurs who lack guarantee to back loans  To complete a bank loan, ↓ the overall risk, ↑ probability of getting the funds 15
  16. 16. CROWDFUNDING• Definition• Market composition• Role regarding traditional financing solutions• Important aspects from different perspectives:  the entrepreneur  the backers  the platform 16
  17. 17. Important aspects from different perspectives• Three main players with their own perspectives:  the entrepreneur (project)  the backers (crowd)  the platform• Additionnal players potentially involved in the process :  Law firm(s) & Bank  Professional investors  The regulatory authority (= FSMA in Belgium), etc 17
  18. 18. Different players, Different perspectives 18
  19. 19. Important aspects:(1) Legal framework for the platform Belgian regulation Public investment offering  >= or < 100.000 €  (un)public information … and FSMA tends to to (un)limited nbr of avoid / postpone the people design of a clear and proper framework for crowdfunding activities 19
  20. 20. Important aspects:(2) Main contractual / legal connections Connections not always present and other ones may apply ! 20
  21. 21. Important aspects:(3) Cash flows, costs and revenues Potential recurrent revenue / cost Funds invested success by the crowd failure Potential Success fee other costs 21
  22. 22. Important aspects:(4) What the platform provides • Upfront management of projects:  Collection, screening, selection  Advice on valuation (optional)  Services related to communication (optional) • Visibility for the projects to be funded • Closing management of projects:  Supervision of the fund clearing with the bank  Supervision of the legal clearing between the funded company and the funding individuals (crowd) • Point of attention: platform’s responsibility 22
  23. 23. Important aspects:(5) Selection’s criteria of platforms • Selection’s criteria of platforms (following their positioning)  Degree of professionalism, maturity and credibility of the project and the information material provided  Return on Investment to be expected  Innovative character (not meaning technological)  Sector  “Sexiness” of the presentation to the crowd  Chance of success of the fund raising (thus not only based on pure classic criteria as for professional investors) 23
  24. 24. Important aspects:(6) Requirements for a good projects • Provide to the platform management different types of information on the project: the project itself, the value proposition, the differentiation, the team, the business model, the financial forecast, etc • As usual credibility (of the project and the team) is key • But in the case of crowdfunding, presentation is paramount and a “sexy” video presentation is often a must • There should be “something” that speaks to the collective or individual mind, imagination or dreams of the crowd • Finally, all platforms have specific characteristics of their own, as do their respective crowds, which the entrepreneurs should also consider in the equation 24
  25. 25. Important aspects:(7) What the crowd expects and provides • What the crowd expects :  The project to be clearly presented  To be (quickly) convinced  To be seduced with a project that speaks to its mind  To get a specific level of ROI (return of investment) • What the crowd provides :  A proof of concept of the project  A first base of clients  Funding 25
  26. 26. Last important aspects:• Technical characteristics of the transaction : crowd model (4), amount, tenor, costs-revenue-reward structure, etc• The fund raising usually follows an ”all or nothing logic” : be strategic• Valuation of the company: maximisation vs fair level• Dilution: % of shareholder equity to match the raised fund• Management of relation with investors after the transactionNB: All those “parameters” and aspects (and other ones)should be considered while discovering the value propositionof each individual platform 26
  27. 27. Source: Crowdfunding Educators 27
  28. 28. REFERENCES• Brown, T.K. (2012). 2011 Angel Market Trends. Podium Ventures.• Farrell, J. (2012). The JOBS Act: what startups and small businesses need to know. Forbes.• Massolution - Crowdsourcing.org (2012). Crowdfunding industry report - Market Trends, Composition and Crowdfunding Platforms.• Ordanini, A., Miceli, L., Pizzetti, M. and A. Parasuraman (2011). Crowd- funding: Transforming customers into investors through innovative service platforms. Journal of Service Management 22 (4): 443.• Prive, T. (2012). What is Crowdfunding and how does it benefit the economy. Forbes.• Steinberg, S. and R. DeMaria (2012). The Crowdfunding Bible: How to raise money for any startup, video game, or project. Read.me. 28
  29. 29. Thank you for your attention ! Brussels Enterprise Agency E-mail: business@abe.irisnet.be Web : www.abe.irisnet.be www.1819.be www.monstarterkit.be www.ecosubsibru.be Tel 1819 info@1819.be 29
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