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Delineating Investment Crowdfunding
Global Data, Insight & Trends

Jonathan Sandlund
Jonathan Sandlund | @jsandlund | As o...
about me
thecrowdcafe.com
leading provider of research, data and analysis on the
global crowdinvesting industry
localinves...
Intro to Investment Crowdfunding
The Mechanism

Jonathan Sandlund | @jsandlund

3
Thank you!

Leading law firm serving the
crowdfunding industry

4
reward vs. investment
Reward-Based
‣ Receive no financial return
‣ Rewards / Perks
‣ Legal today

Investment-Based
‣ Securi...
the mechanism

Rewards-Based
CUSTOMERS
FAMILY

AFFINITIES
FRIENDS

$

$

X

= Funded

$
$

$

6
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

$

$

X

= Funded

$
$

$

7
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

X

$

$
$

$

= Funded

$

8
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

$

X

$
$

$

= Funded

$

9
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

X

$

$
$

$

$

= Funded

10
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

$

$

X

$
$

= Funded
$

11
the mechanism

INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS

X

$

$

$
$

$

=

Not
Funded

12
rewards vs. equity
Median Fundraise
~$5,000

~$160,000

~$775,000
13
The Legalities of Investment Crowdfunding
Title II & Title III of the JOBS Act

Jonathan Sandlund | @jsandlund

14
The JOBS Act
Title II

Title III

‣ Lifts ban on general solicitation
and advertising on security
offerings to accredited
...
Title II In Action

Demo Days

16
Title II In Action

Startups

“You can pick your own winners, and invest as little as $1000—
or invest $5000 in a fund wit...
Title II In Action

Real Estate

18
Title II In Action

Global

“As a result of the new SEC regulations, effective today, all of
OurCrowd’s deals will be post...
Title II Impact
‣ Brings dramatic efficiencies to private capital
markets
‣ Geographically indiscriminate
‣ Creates friction...
The U.S. Market

Jonathan Sandlund | @jsandlund

21
Platforms market segmentation
Investment Crowdfunding Platforms

Startups

SMBs

Niche/Affinity

22
Platforms market segmentation
Startups
1. Angellist48
2. Gust20
3. Seedups28
4. MicroVentures21
5. Seedinvest13
6. Funders...
Platforms market structures

The Curation Spectrum
Very High
Curation

High

Moderate

5%

25%

50%

No
Curation

100%

ac...
Platforms business models

20% Carry

10% Success + 10% Carry

$19 - $69 / month

* selected samples
The U.S. Market
A few things to think about...
‣ Investors Productization
‣ Investors Secondary liquidity
‣ Investors Port...
Case Studies
What’s the data say?

Jonathan Sandlund | @jsandlund

27
28
Macro-Data: Selected Sample

Equity
180 Deals
$132 Million

Debt
2,952 Deals
$256 Million

Equity
73 Deals
~$22 Million

E...
$300+ Million in Crowdfunded Security
Transactions...
300+ Equity
Placements
2,900+
Loans

30
Crowdfunding Models
Diversity, Innovation

Jonathan Sandlund | @jsandlund

31
Debt
2,702 Deals
$240 Million
‣

A+ to C Risk Bands
Applied

‣

Offer 1, 3, 5 year loans

‣

£5,000 - £1,000,000

‣

Secon...
Discovery

33
Splash Bathroom Accessories Co.
Profile

34
Credit Score History

35
Key Financials

36
Questions & Answers

37
Monthly Loan Originations Since Inception!
$14,000,000!
$12,000,000!
$10,000,000!
$8,000,000!
$6,000,000!
$4,000,000!
$2,0...
Equity
73 Deals
~$22 Million
‣ Launched 2010
‣ Sector Focus General (concentration: internet, food & drink)
‣ Lowest Raise...
Deals per Month. Since Inception

n = 65

40
Equity
29 Deals
$2.7 Million
‣ Launched July 2012
‣ Sector Focus Internet
‣ Lowest Raise $15,200 Highest Raise $320,000
‣ ...
Equity
20 Deals
$21 Million
‣ Launched Mid-2012
‣ Sector Focus Consumer Products/Retail
‣ Lowest Raise $440,000 Highest Ra...
Equity
31 Deals
$7.2 Million
‣ Launched Mid-2012
‣ Sector Focus Technology Startups
‣ Investors 6,700+ accredited investor...
Summary
‣ Data
•

Zero Fraud — to date

•

Young Market, Traditional S-Curve

‣ Crowdfunding Platforms
•

Tremendously Div...
Market Adoption: S-Curve

Penetration

Time
45
The Disruption — Not If, But When

Jonathan Sandlund | @jsandlund

46
Investment Crowdfunding
Two mega-trends colliding

Technical
Disruption
Entrance of the internet into
the private capital ...
Internet Disruption
Before

Technical

After

Music

Travel

Retailing
48
Nearly all service industries re-imagined by
the internet...

Source: Quora

Technical

But not fundraising... yet
49
A fundamentally more efficient
capital formation process

Technical

A Big UK Bank

Source: http://www-core.nesta.org.uk/lib...
A fundamentally more efficient
capital formation process

Technical

51
Technical Disruption
Summed up...
✓

✓

The first major change
in security law in 70+
years;
Allows the internet to
enter t...
Cultural

But it’s not just structural change
driving the disruption.

It’s also cultural.

53
Chicago Booth: 13% of Americans trust the stock
market

Cultural

Chicago Booth Financial Trust Index

Distrust is pervasi...
Cultural

Today
little alternative to public markets

Tomorrow
individuals empowered to invest in the the companies,
cause...
The Impact

Jonathan Sandlund | @jsandlund | As of 9/16/2013

56
For Businesses
Startups
‣ Breaking geographic barriers; equal opportunity
‣ Fail faster; fail cheaper
Small Businesses
‣ C...
For Communities
the big picture...

one last question...
59
Thank You!
Jonathan Sandlund
@jsandlund

Jonathan Sandlund j@thecrowdcafe.com
60
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  1. 1. Delineating Investment Crowdfunding Global Data, Insight & Trends Jonathan Sandlund Jonathan Sandlund | @jsandlund | As of 9/16/2013 @jsandlund 1
  2. 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
  3. 3. Intro to Investment Crowdfunding The Mechanism Jonathan Sandlund | @jsandlund 3
  4. 4. Thank you! Leading law firm serving the crowdfunding industry 4
  5. 5. reward 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 5
  6. 6. the mechanism Rewards-Based CUSTOMERS FAMILY AFFINITIES FRIENDS $ $ X = Funded $ $ $ 6
  7. 7. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS $ $ X = Funded $ $ $ 7
  8. 8. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS X $ $ $ $ = Funded $ 8
  9. 9. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS $ X $ $ $ = Funded $ 9
  10. 10. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS X $ $ $ $ $ = Funded 10
  11. 11. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS $ $ X $ $ = Funded $ 11
  12. 12. the mechanism INVESTORS CUSTOMERS AFFINITIES FAMILY FRIENDS X $ $ $ $ $ = Not Funded 12
  13. 13. rewards vs. equity Median Fundraise ~$5,000 ~$160,000 ~$775,000 13
  14. 14. The Legalities of Investment Crowdfunding Title II & Title III of the JOBS Act Jonathan Sandlund | @jsandlund 14
  15. 15. 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—NOT in effect) ‣ Rule-making includes SEC and FINRA ‣ Investors tiered limits on investment amount ‣ September 24th, 2013 Crowdfunding for Accredited Investors Crowdfunding for Everyone 15
  16. 16. Title II In Action Demo Days 16
  17. 17. Title II In Action Startups “You can pick your own winners, and invest as little as $1000— or invest $5000 in a fund with all 25.” 17
  18. 18. Title II In Action Real Estate 18
  19. 19. Title II In Action Global “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.” 19
  20. 20. Title II Impact ‣ Brings dramatic efficiencies to private capital markets ‣ Geographically indiscriminate ‣ Creates frictionless access to deal flow for investors ‣ Creates frictionless access to investors for businesses Jonathan Sandlund | @jsandlund 20
  21. 21. The U.S. Market Jonathan Sandlund | @jsandlund 21
  22. 22. Platforms market segmentation Investment Crowdfunding Platforms Startups SMBs Niche/Affinity 22
  23. 23. Platforms market segmentation Startups 1. Angellist48 2. Gust20 3. Seedups28 4. MicroVentures21 5. Seedinvest13 6. FundersClub10 7. RockThePost7 8. WeFunder12 9. Fundroom 10. FundersClub * Accredited Platforms SMBs 1. SoMoLend13 2. Bolstr5 3. Fundable7 4. Localstake14 5. Dealstruck10 6. LendingClub6 7. P2BInvestor11 8. Raiseworks9 9. Relayfund1 10. Prosper2 Niche 1. HealthFundr29 2. VentureHealth16 3. Poliwogg13 4. HealthiosXchange15 5. ExplorationFunder11 6. Agfunder17 7. Fquare8 8. RealtyShares12 9. RealtyMogul9 10.RealCrowd9 11.Groundbreaker12 12.Crowdmason15 13.Collaperty8 14.CircleUp10 15.ReturnOnChange13 16.WeSparkt6 17.Slated7 18.Pave5 19.Upstart7 20.Alumnifunder11 Generalist 1. EarlyShares10 2. EquityNet10 3. ExemptCapitalNetwork2 4. FlashFunders2 5. Ibankersdirect13 6. ConfidentCrowd4 7. 99funding6 8. IRAvest7 9. Crowdfunder8 10.FundAmerica93 11.Axial Markets 23
  24. 24. Platforms market structures The Curation Spectrum Very High Curation High Moderate 5% 25% 50% No Curation 100% acceptance rate <5% 100%
  25. 25. Platforms business models 20% Carry 10% Success + 10% Carry $19 - $69 / month * selected samples
  26. 26. The U.S. Market A few things to think about... ‣ Investors Productization ‣ Investors Secondary liquidity ‣ Investors Portfolio management ‣ Businesses Ecosystem: one-stop shop for fundraising ‣ Businesses Optimization of the Cap Table (pre-funding) ‣ Businesses Optimization of Execution (post-funding)
  27. 27. Case Studies What’s the data say? Jonathan Sandlund | @jsandlund 27
  28. 28. 28
  29. 29. Macro-Data: Selected Sample Equity 180 Deals $132 Million Debt 2,952 Deals $256 Million Equity 73 Deals ~$22 Million Equity 11 Deals $954k Equity 29 Deals $2.6 Million Equity 20 Deals ~$21 Million * Selected sample of platforms; as of 10/14/13 29
  30. 30. $300+ Million in Crowdfunded Security Transactions... 300+ Equity Placements 2,900+ Loans 30
  31. 31. Crowdfunding Models Diversity, Innovation Jonathan Sandlund | @jsandlund 31
  32. 32. 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 32
  33. 33. Discovery 33
  34. 34. Splash Bathroom Accessories Co. Profile 34
  35. 35. Credit Score History 35
  36. 36. Key Financials 36
  37. 37. Questions & Answers 37
  38. 38. Monthly Loan Originations Since Inception! $14,000,000! $12,000,000! $10,000,000! $8,000,000! $6,000,000! $4,000,000! $2,000,000! $0! August 2010 June 2013 38
  39. 39. Equity 73 Deals ~$22 Million ‣ Launched 2010 ‣ Sector Focus General (concentration: internet, food & drink) ‣ Lowest Raise $19,000 Highest Raise $2.3 million ‣ Averages (medians; n= 65) ‣ Raise $160,000 ‣ Equity Offered 16% ‣ Post-Money Valuation $960,000 ‣ Number of Investors 59 ‣ Investment Size $2,963 (low: $331; high: $80k) Jonathan Sandlund | @jsandlund 39
  40. 40. Deals per Month. Since Inception n = 65 40
  41. 41. 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 41
  42. 42. Equity 20 Deals $21 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 42
  43. 43. 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 43
  44. 44. Summary ‣ Data • Zero Fraud — to date • Young Market, Traditional S-Curve ‣ Crowdfunding Platforms • Tremendously Diverse • Debt, Equity, Royalty-Based, Blended • Startups, Small Businesses, Emerging Growth Co’s, Projects, Individuals 44
  45. 45. Market Adoption: S-Curve Penetration Time 45
  46. 46. The Disruption — Not If, But When Jonathan Sandlund | @jsandlund 46
  47. 47. Investment Crowdfunding Two mega-trends colliding Technical Disruption Entrance of the internet into the 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. 47
  48. 48. Internet Disruption Before Technical After Music Travel Retailing 48
  49. 49. Nearly all service industries re-imagined by the internet... Source: Quora Technical But not fundraising... yet 49
  50. 50. A fundamentally more efficient capital formation process Technical A Big UK Bank Source: http://www-core.nesta.org.uk/library/images/NestaBanks.jpg 50
  51. 51. A fundamentally more efficient capital formation process Technical 51
  52. 52. Technical Disruption Summed up... ✓ ✓ The first major change in security law in 70+ years; Allows the internet to enter the capital formation process. Technical What it means... ✓ Processes moved online ✓ Efficiencies realized ✓ Incumbents with traditional cost structures obseleted ✓ New markets served
  53. 53. Cultural But it’s not just structural change driving the disruption. It’s also cultural. 53
  54. 54. Chicago Booth: 13% of Americans trust the stock market Cultural Chicago Booth Financial Trust Index Distrust is pervasive 54
  55. 55. Cultural Today little alternative to public markets Tomorrow individuals empowered to invest in the the companies, causes and people they believe in 55
  56. 56. The Impact Jonathan Sandlund | @jsandlund | As of 9/16/2013 56
  57. 57. For Businesses Startups ‣ Breaking geographic barriers; equal opportunity ‣ Fail faster; fail cheaper Small Businesses ‣ Conversion of social to financial capital ‣ A new era of marketing Emerging Growth Co’s ‣ Not “sexy” enough for VC, not big enough for PE? ‣ Creates access to growth capital 57
  58. 58. For Communities
  59. 59. the big picture... one last question... 59
  60. 60. Thank You! Jonathan Sandlund @jsandlund Jonathan Sandlund j@thecrowdcafe.com 60
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