1. Delineating Securities-Based Crowdfunding
Part 1 The Market: Global Data, Insight & Trends
Part 2 The Impact: For Businesses, Investors & Communities
Jonathan Sandlund
Jonathan Sandlund | @jsandlund | As of 11/2/2013
@jsandlund
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2. about me
thecrowdcafe.com
leading provider of research, data and analysis on the
global crowdinvesting industry
localinvestors.org
live, think, invest local
Jonathan Sandlund
j@thecrowdcafe.com
@jsandlund
!2
4. rewards vs. investment
Reward-Based
‣ Receive no financial return
‣ Rewards / Perks
‣ Legal today
Investment-Based
‣ Securities offered in return
for crowds’ investment
‣ Equity
‣ Debt
‣ Revenue share / Royalty
‣ Blended
‣ The JOBS Act
‣ Title II vs Title III
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16. The Legalities of Investment Crowdfunding
Title II & Title III of the JOBS Act
Jonathan Sandlund | @jsandlund
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17. The JOBS Act
Title II
Title III
‣ Lifts ban on general solicitation
and advertising on security
offerings to accredited
investors
‣ Businesses Raise up to $1mm
in 12-month period
‣ Amended Form D (Proposed
changes only—currently NOT in
effect)
‣ Rule-making includes SEC and
FINRA
‣ Legal today. Effectuated
September 24th, 2013
‣ Not legal today. Proposed
rules released. Commenting
period open through January
2014
Crowdfunding for
Accredited Investors
‣ Investors tiered limits on
investment amount
Crowdfunding for
Everyone
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21. Title II In Action
Global Deal Flow
“As a result of the new SEC regulations, effective today, all of
OurCrowd’s deals will be posted publicly for US investors
on OurCrowd’s website as well as on social networks, email, and
through online and offline advertising and public meetings.”
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22. Title II Impact
‣ Geographically indiscriminate
‣ Creates frictionless access to deal flow for
investors
‣ Creates frictionless access to investors for
businesses
‣ Will motivate accredited capital off the sidelines and
into the private markets
Jonathan Sandlund | @jsandlund
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24. Title III Impact (Retail Crowdfunding)
‣ Businesses
•
Conversion of Social to Financial Capital
•
New Era of Marketing
•
Re-writing the capital formation formula
‣ Investors
•
Financial Empowerment
•
Trust
•
Meaningful Investment
‣ Society
•
Equal Opportunity
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30. The U.S. Market
To think about…
‣ Investors Productization
‣ Investors Secondary markets
‣ Investors Portfolio management
‣ Investors Data
‣ Businesses Ecosystem: one-stop shop for fundraising
‣ Businesses Optimization of the Cap Table (pre-funding)
‣ Businesses Optimization of Execution (post-funding)
33. Macro-Data: Selected Sample
Equity
180 Deals
$132 Million
Equity
11 Deals
$954k
* Selected sample of platforms; as of 12/4/13
Debt
3,142 Deals
$294 Million
Equity
83 Deals
~$26 Million
Equity
32 Deals
$3.3 Million
Equity
23 Deals
~$25 Million
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34. $300+ Million in Crowdfunded Security
Transactions...
300+ Equity
Placements
2,900+
Loans
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35. Debt
2,702 Deals
$240 Million
‣
A+ to C Risk Bands
Applied
‣
Offer 1, 3, 5 year loans
‣
£5,000 - £1,000,000
‣
Secondary market
‣ Crowdfunded two
$80,000 small business
loans in under 29
minutes
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44. Equity
29 Deals
$2.7 Million
‣ Launched July 2012
‣ Sector Focus Internet
‣ Lowest Raise $15,200 Highest Raise $320,000
‣ Averages (medians, n=29)
‣ Raise $64,000
‣ Equity Offered 10%
‣ Post-Money Valuation $516,000
‣ Number of Investors 79
‣ Investment Size $1,013
Jonathan Sandlund | @jsandlund
Minimum Investment
$16
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45. Equity
23 Deals
$25 Million
‣ Launched Mid-2012
‣ Sector Focus Consumer Products/Retail
‣ Lowest Raise $440,000 Highest Raise $2.4 Million
‣ Averages (medians, n=19)
‣ Raise $784,500
‣ Number of Investors 15
‣ Investment Size $74,263
Jonathan Sandlund | @jsandlund
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46. Equity
23 Deals
$25 Million
‣ Domain Expertise Founding team has deep experience investing in
consumer product and retail industries
‣ Curated Deal-Flow To date, less than 2% of applications have been
approved
‣ Ecosystem Strategic partnerships with General Mills and Procter &
Gamble
!
Jonathan Sandlund | @jsandlund
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47. Equity
31 Deals
$7.2 Million
‣ Launched Mid-2012
‣ Sector Focus Technology Startups
‣ Investors 6,700+ accredited investors; now invite-only
‣ Averages (median, n = 23)
‣ Raise $236,000
‣ Number of Investors 32
‣ Investment Size $6,839
Jonathan Sandlund | @jsandlund
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48. Summary of the Global Markets
‣ Data
•
Zero Fraud — to date
•
Young Market; Traditional S-Curve; Yet to see step-function
growth
‣ Crowdfunding Platforms
•
Tremendously Diverse
•
Debt, Equity, Royalty-Based, Blended
•
Serving Startups, Small Businesses, Emerging Growth Co’s, Projects,
Individuals
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49. !
Part 2. The Impact
For Businesses, Investors &
Communities
Jonathan Sandlund | @jsandlund | As of 9/16/2013
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50. For Businesses
‣ New Source of Capital
•
Indiscriminate Geographically, Socioeconomically
•
Optimization of the Cap Table
‣ Uprooting the Risk Equation
•
Pre-Validate ideas and concepts
‣ New Era of Marketing
•
Conversion of Social to Financial Capital
•
Meaningful customer acquisition and engagement
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51. For Businesses
Startups
‣ Breaking geographic barriers
‣ Fail faster; fail cheaper
Small Businesses
‣ Conversion of social to financial capital
‣ New era of marketing
Emerging Growth Co’s
‣ Not “sexy” enough for VC, not big enough for PE?
‣ Creates access to growth capital
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52. For Investors
‣ Efficient Access to New Asset Classes
•
Historically difficult to access; across all industries
•
Attractive financial upside
‣ Spanning the Risk Spectrum
•
Equity, debt, revenue-share
•
High-risk, low-risk
‣ Meaningful…
•
Aligning our values with our investments
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53. For Investors
‣ Reclaiming control over our local capital markets
‣ Empowering citizens to imagine—and invest in—the
communities they want to see
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55. Case Study
Cardinal Spirits
‣ Raised $850,000
‣ Investors 24
‣ Average Investment ~$35,000
‣ Min Investment $2,500 Max
Investment $100,000
‣ 97% of capital from local investors
‣ Crowdfunding + Bank Financing
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56. Case Study
1351 H Street NE
‣ Raised $325,000
‣ Investors 175
‣ Average Investment ~$1,800
‣ Min Investment $100
‣ 100% of capital from local investors
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58. Where to begin…?
Awareness &
Education
✓
What is security
crowdfunding?
✓
Who are the platforms?
✓
Building strategic
relationships
✓
Education. Education.
Education.
Work with, not
against, existing
capital infrastructure
✓
CDFIs
✓
SBDCs
✓
Community Banks
✓
Venture funds
✓
Angel groups
✓
Universities
59. The Disruption — Not If, But When
Jonathan Sandlund | @jsandlund
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60. Investment Crowdfunding
Two mega-trends colliding
Technical
Disruption
Entrance of the internet
into private capital formation
process.
Crowd
funding
Cultural
Disruption
A desire to connect more
meaningfully with the
things we buy, the things
we do, and the things we
invest in.
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62. Nearly all service industries re-imagined by
the internet...
Source: Quora
Technical
But not fundraising... yet
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63. A fundamentally more efficient
capital formation process
Technical
A Big UK Bank
Source: http://www-core.nesta.org.uk/library/images/NestaBanks.jpg
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65. Technical Disruption
Summed up...
✓
✓
The first major change
in security law in 70+
years;
Invites the internet into
the capital formation
process.
Technical
What it means...
✓
Processes moved online
✓
Efficiencies realized
✓
Incumbents with
traditional cost structures
obseleted
✓
New markets served
66. Cultural
But it’s not just structural change
driving the disruption.
It’s also cultural.
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67. A cultural shift
Cultural
‣ Web 1.0 The Information Web
‣ Web 2.0 The Connected Web
‣ Web 3.0 The Meaningful Web
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68. Chicago Booth: 13% of Americans trust the stock
market
Cultural
Chicago Booth Financial Trust Index
Distrust is pervasive
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69. Cultural
Today
little alternative to public markets
Tomorrow
individuals empowered to invest in the the companies,
people and causes they believe in
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