Equity based crowd funding articles

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Two articles about equity-based crowd funding also called micro-investing, for startups and SMEs

Two articles about equity-based crowd funding also called micro-investing, for startups and SMEs

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  • 1. 1 Equity-based Crowd Funding A New Way to Raise Funds for Privately-held compagnies from Startups to SMEs Micro-Investing A New Way to Invest in Privately-held compagnies from Startups to SMEsAri Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 2. 2Types of Crowd Funding: Ways Entrepreneurs Can Face the InvestmentCrisishttp://wisepreneur.com/entrepreneurship/types-of-crowd-funding-ways-entrepreneurs-can-face-the-investment-crisis To face against the current crisis, and more precisely to face against the investment crisis that affects Start-ups, Small and Medium-sized Enterprises, a new way to raise funds hasemerged, supported by the power of Internet: Crowd Funding. Start-ups and Small and Medium-sized Enterprises seeking investors have to knock at the doors of Business Angels networks/clubsor at Venture Capital firms. But the process of selection used by Venture Capitalists, and even byBusiness Angels, is difficult, time-consuming, and only a few percents of companies are financed.Crowd funding allows entrepreneurs to by-pass Business Angels and Venture Capitalists, bydirectly asking people to invest in their companies.This way of fundraising democratize the investment process for private companies allowing allpersons, even people with low incomes, to invest. Of course, Business Angels and VentureCapitalists are also welcome to invest. Another major benefit to entrepreneurs and companies isthat many different kinds of projects can have access to capital. Even projects at seed-stage canhave a chance to be financed.The crowd funding was first, and is still, used to finance non-profit humanitarian, charitable orphilanthropic projects, but also artistic projects. For instance, a French singer who interested noneof the “big four” record companies, has been supported by the crowd funding web site My MajorCompany (in France) which is also called Sell a Band (in USA), and now he is a celebrity (inFrance).How does crowd funding works? In theory, it is very simple. You have a project to finance, youpresent your project in a web site, and you promote your project to people and ask them to giveyou money! If people like your project, they will talk about it to their network, and then a viralfunding process could start.The kinds of funds that could be raised by crowd funding are: 1. Donations It preferentially concerns non-profit projects. But some companies on the Internet offeringAri Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 3. 3 a free service based on open-source software (freeware or shareware) can have significant revenues from donations by their customers (users). 2. Loans (long term debt) or Credit (short term debt) This kind of crowd funding is named Peer-to-Peer lending. Dr. Calvin Bacon has published two instructive articles about Peer-to-Peer lending, New Ventures: Is Peer to Peer Lending a Good Funding Solution? and Which P2P Lender Should You Choose?. 3. Royalties The investor bets his money on your project, and in the case of success, the entrepreneur pays-back royalties to the investor (a percentage of the sale revenues). 4. Stock Sales This concerns private companies such as start-ups, small and medium-sized enterprises seeking equity investors to finance their development. The goal of the investor is to obtain a capital gain after the sale of his stocks, and to receive dividends when the start-up has profits.Donations, Loans, and Royalties can be used for entrepreneurs at a very early-stage of theirproject, before having a tangible product (good or service) to sale, even before the legal creation ofthe company. Stock Sales is a novelty. Indeed, we can easily buy (or sale) stocks of publiccompanies on the Internet, but now, we can do it with private companies also.To secure the financial deal, and to limit the risk of failure of the project, entrepreneurs andinvestors could work with intermediate companies specialized to manage the crowd fundingprocess.These companies analyze the project to be financed, the business plan, the market targeted, theproducts, the competitors, the management team skills and experiences, the patents, and otherrelevant information about the project. Then they provide regular reports of the activity of thefunded company, and they secure the payment by Internet.If you are interested in crowd funding, you probably want to take a look at some of the Internetsites regarding crowd funding. At this link, you can see a non-exhaustive list of crowd fundingInternet companies. An alternate list is provided here.Now, you have several novel ways to finance your project. Concerning private companies, if youare the CEO of a start-up, a small or medium-size enterprise, and if you need capital to finance anexciting project, why not asking your future customers and users to commit with you into yourentrepreneurship adventure as partners? If your operational marketing is able to sell your products,it will also be able to sell your stocks. Selling stocks by crowd funding could be very powerful toturn your prospects into customers. If I buy your stocks because I have loved your project, I wouldlike to buy for sure your future product, and I will convince my network to do like me! Why? Ifpeople buy your product, the prize of my stocks will increase! So simple!Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 4. 4To conclude, do not forget that you will fix the percentage of the equity that you will open to themarket, and you will also fix the price of each stock share. This is a very important advantagecompared to fundraising with Business Angels or Venture Capitalists who will harshly negotiatethe percentage of the equity and the prize of stock before entering into your business. By crowdfunding, you are the master!How to Invest Using a Crowd Funding Websitehttp://wisepreneur.com/funding-innovation/how-to-invest-using-a-crowd-funding-website Many investors don’t fully understand how crowdfunding works. Therefore I would like to show in detail one of these crowd funding internetcompanies, WiSeed located in France. I choose WiSeed because it is a platform fully dedicated tothe point placing equity investment by selling stock. I only find two crowd funding companiesdedicated to selling stock, both based in France and created recently (the second isFinanceUtile.com created at 2009). Furthermore, WiSeed selects only innovating start-ups at early-stage.WiSeed was created in October 2008 by Thierry Merquiol, Chemist and Biochemist Engineer,expert of innovation and start-ups. He worked 12 years as Sales Director for Air Liquide, a majorcompany supplying industrial gases. Then, from 2002 to 2008, he was the CEO of a businessincubator (at the Midi-Pyrénées in France) dedicated to support entrepreneurship, innovation andtechnology-based start-ups.The process of projects selection by WiSeed is quite fast, in 15 days entrepreneurs have an answer. • Step one: Executve Summary sent to WiSeed => if yes, then • Step two: Entrepreneur fills in a “Selection form” => if yes, then • Step three: WiSeed considers the Business Plan => if yes, then • Step four: Entrepreneur makes an Elevator Pitch and Slideshow by videoconference => final decisionAri Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 5. 5WiSeed only targets start-ups based in France, and their web site does not have an Englishtranslation. But the ergonomics of the platform is very good, and with some explanations you willeasily understand how it works.At the home page, if you click on the Tab “Choisissez” (means “Choose”), you reach the catalogof start-ups supported by WiSeed. You do not need to have a user account to view the catalog, butto choose a start-up and to invest in, a user account is required.Home Page:At the catalog page, start-ups are showed. Currently, only 4 start-ups are supported by WiSeed.Since its creation, WiSeed has funded 12 companies, total 4.45 million Euros (= 5.738.942 USD).Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 6. 6On the WiSeed web site, if you want to know more about a specific start-up, click on its tab to goto its page. Here I will select the start-up « Tonnellerie Renaissance » seeking 100 000 Euros, andwe see that 31% of this amount has already been raised.Catalog page:At each start-up page, you see 6 Tabs, in which all information concerning the business planincluding the financial forecasts are presented (Tab “Données financiers”). If you need moreinformation, you can use the last Tab “Commentaires” (means commentaries) to ask questions tothe WiSeed.Click « Tonnellerie Renaissance » to reach the start-up page.Start-up Page:Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 7. 7Click « Données financières » to see the Financial forecastsFinancial Forecast Page:Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 8. 8If you are convinced by the growth potential of the start-up and you decide to invest, you click onthe button “Investir” (means Invest), and then you reach a page to choose the amount of moneywhich you would like to invest.In the following example, I choose to invest 2,000 Euros, and the calculator indicates that itcorresponds to 20 shares of stocks. WiSeed will charge 1% of the total as fee and during 5 years(100 Euros per year during 5 years in the present example).The minimum amount of stocks that you can buy is 100 Euros (=128,95 USD) corresponding to 1share.You can pay with your credit card, by a bank transfer or sending a check.Investment Page:Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi
  • 9. 9An important point, WiSeed creates a holding company for each start-up. These holdingcompanies are dedicated to investing in the equity of the start-up. The advantage of this model isthat the CEO has only “1” investment management company, WiSeed. WiSeed also manages thereport of the activity from start-ups to all the investors.In conclusion, instead of buying things that you don’t need at eBay or elsewhere, you can buystocks of promising private companies, innovating start-ups, by Internet using your credit card.And maybe one day, you will be the co-owner of a Google, an Apple … or other successes.Note to readers: I am not related to WiSeed in any matter, I am not an employee, I am not acustomer, I am not a supplier, I am not a shareholder of WiSeed, neither of the start-ups supportedby WiSeed. Therefore, I have chosen to present this company due to the novelty and the paucity ofthis kind of company, and of course, the interest for entrepreneurs.Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi