This document provides a summary of a benchmark study on equity crowdfunding investors in the U.S. The study collected surveys from 480 individuals to understand the demographics, concerns, and investment intentions of likely crowdfunding investors. Key findings include that 58% expressed strong interest in investing, with management team and business plan being top concerns. Investment intent increased over 4 times when third party reviews were available for companies. The target investor profile has an annual income over $75,000 and intends to make 1-2 investments per year of around $2,000 each.

1. CROWDFUNDIQ BENCHMARK STUDY
U.S. Equity Crowdfunding Investor Report
March, 2013
Copyright CrowdFundIQTM
2013. EarlyIQ, Inc. Benchmark Study © 2013, EarlyIQ, Inc. Slide 1

2. ABOUT THIS STUDY
This report provides a benchmark for understanding quantitative and qualitative aspects
around likely investors in the emerging US equity crowdfunding capital market. Conducted in
time sequence during calendar Q1 and Q4, 2012, the research findings help establish a core
for continued study of and visibility into the market as it becomes established in the US.
METHODOLOGY SURVEY POPULATION STUDY COMMISSION
A total of 480 completed Based on demographic This research was
online surveys were comparison to US Census commissioned by EarlyIQ,
collected across two data, the survey Inc., a San Diego based
survey time periods. The respondents displayed information and analytics
sole qualification for demographic characteristics company serving early
inclusion in the survey was consistent with the US stage capital markets and
a self-reported annual population. A slightly is presented in
household income of $25K larger proportion of female cooperation with the
or greater. Unless respondents was adjusted Crowfunding Professionals
otherwise noted, the to reflect the US Association, the industry’s
results provided carry a population. leading trade association
precision level of +/-4.5%. and Crowdfund Capital
Advisors , the leader in
crowdfunding market
creation services.
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3. EXECUTIVE SUMMARY
STUDY OBJECTIVE REPORT CONTENT PAGE
As the industry’s investor benchmark study, the
primary objective is to establish a core Demographics and Intent 4
understanding of the early stage investor and to Attitudes and Information Needs 8
provide a baseline for comparison as the market Investor Hot Buttons 12
evolves. Specific study goals include: Importance of Transparency 16
• Identify demographics of likely investors Additional Information 18
• Identify key concerns of likely investors
• Quantify investment intent and magnitude
• Quantify equity crowdfunding market potential
KEY LEARNING
There is a strong appetite for early stage investment with 58% of all respondents indicating high interest.
Likely investors demand transparency by the issuing company with Management Team the #1 concern.
Government review of issuing companies is not an investor requirement with 5% indicating need.
Investment intent rises dramatically, more than 4x, when 3rd party review and visibility is available.
Over time, the market may grow in size to match or exceed Angel and VC markets at $20-40B annually.
Target investor profile is $75K+ annual income, 41 years old, urban/suburban, with at least a 4 year degree.
Target investors will choose 2-3 investments per year, averaging ~$2K per investment.
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4. I NVESTOR D EMOGRAPHICS AND I NVESTMENT I NTENT
Respondent demographics were collected and compared
with investment intent. The information was then analyzed
to identify a likely investor profile.
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5. INVESTMENT INTENT – ALL RESPONDENTS
STRONG INTEREST IN INVESTING 1 is not interested and 10 is very interested
• 58% are likely to invest: 7-10 response 10
• 22% are unlikely to invest: 1-4 response 9
• 20% are unsure: 5-6 response
8
7
6
Investment Amount
5
4
Not sure 3
I would not invest 2
$100 to $250 1
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
$3,001+
$251 to $500
AVERAGE INVESTMENT IS ~$1,300
$1,001 to $3,000 • 57% indicated $1000 or less on average
$501 to $750
TYPICAL INVESTMENT FREQUENCY IS 1-2/YEAR
$751 to $1,000 • 61% indicated 1-2 investments annually
• 20% indicated 3+ investments annually
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6. DEMOGRAPHIC COMPARISON BY INVESTMENT INTENT
Likely investors tend to be slightly older, professionals, living in owned (sub)urban
homes, with a higher average income
DEMOGRAPHIC PERSPECTIVE Investment Intent >> <7 ≥7
Male 42% 54%
• Income, education, professional occupation and Age (median) 38 42
location differentiate likely investors from those
less likely or unlikely to invest. Educ: At Least 4 Year 56% 69%
Professionals** 8% 29%
• Ethnicity does not play a role in intent as the
ethnic background does not vary and is reflective Ethnicity - % Caucasian 70% 70%
of the US population* % > $75K annual HH income 18% 36%
• Likely investment is also gender neutral when Lottery last 12 months 46% 57%
considering the US population* and study margin Urban/suburban Area 48% 76%
of error.
Own Home 42% 65%
*US Census 2010.
**Professional designations including MD, Esq, etc.
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7. DEMOGRAPHIC COMPARISON OF LIKELY INVESTORS (≥7)
More than 2/3rds of upper-middle income and above individuals are likely to invest
in early stage companies.
Annual Income >> <$75K ≥$75K
TARGET INVESTOR PROFILE % with intent ≥ 7 48% 69%
Male 56% 51%
• Upper middle-income and above, middle-aged,
college educated individuals, regardless of Age (Median) 42 42
gender, living in (sub)urban areas are the core Married 40% 38%
investors.
Educ: At Least 4 Year 68% 71%
• Both average investment amount and Ethnicity - % Caucasian 64% 72%
investment frequency are notably higher for Lottery last 12 months 68% 58%
wealthier likely investors.
(Sub)Urban Area 38% 72%
Average Investment $1,150 $1,980
Investments per Year 2.5 3.0
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8. INVESTOR ATTITUDES AND INFORMATION NEEDS
Respondents were asked a series of questions regarding
their views about early stage investing – what’s important
to them and what they believe.
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9. GOVERNMENT REVIEW NOT REQUIRED
Respondents were asked whether they would be RESPONSE IMPLICATIONS
willing to invest without government review of the
• A small minority, ~5% of likely
companies but with 3rd party review investors, would require
government review of the
companies.
60%
• 68-75% would invest with
50% availability of 3rd party review of the
companies.
40%
• Interest in government review
decreases, and interest in 3rd party
30%
review increases as investment
intent and income increase.
20%
All Respondents
10%
Likely to Invest ≥7
0%
Definitely Probably Probably Definitely Unsure Income ≥$75K and Likely
Not Not Yes Yes to Invest ≥7
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10. MANAGEMENT TEAM VISIBILITY #1
Respondents were asked open-ended questions about
what information is most important when making an
early stage investment.
35.00%
RESPONSE IMPLICATIONS
30.00%
• Visibility into the management
25.00% team is the #1 information need.
20.00% • Financially oriented measures
15.00%
comprised the widest variety of
responses.
10.00%
• Competition, market analysis,
5.00%
intellectual property and others are
0.00% all included in the “other” category.
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11. INVESTMENT FRAUD AND CRIMINAL BACKGROUND
FRAUD CONCERN OF LIKELY INVESTORS
Among likely investors, there is significant concern around fraud
across all income segments. Moreover, on average across all income
segments, only 15% are not concerned.
Not sure, 19% Yes, 19%
100%
90%
80%
70%
No, 62%
60%
50%
40%
% Very Interested in Investing (≥7) CRIMINAL BACKGROUND PERSPECTIVE
30% When asked whether they believe that
% Very Concerned about Fraud (≥7)
20% those who commit fraud have a criminal
record, only 19% of all respondents
10%
believed yes. An implication of this is that
0% the crowd believes some other measure is
$25K - $51K - $76K - $101K - $151 - $200K+ required to provide visibility into fraudulent
$50K $75K $100K $150K $200K intent/activity.
Annual Income Segment
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12. K EY HOT BUTTON COMMENTS
Respondents were asked for their open-ended comments about
any concerns regarding early stage investing.
The top 3 areas are Management/Fraud, Business Plan, and
Investment Return
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13. MANAGEMENT AND FRAUD COMMENTS
The most frequently expressed concerns revolved around the management team,
their background, and whether they can be trusted.
• “Credibility and reliability of company…is it a scam?”
• “I want to know the integrity of the people involved.”
• “I would want to know about the people in particular , their reputation and whether or not
they have been reported to any agency with respect to fraud.”
• “ (Need to know) moral integrity of company officers; how likely they'd be telling the truth
about their company's financial & product's performance.”
• “Is this a Pyramid Scheme?”
• “Background info on startup founders.”
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14. BUSINESS PLAN COMMENTS
Beyond business and market operations, wrapped up in business plan evaluation
are questions also revolving around the management team.
• “Is the product unique? what is the market for it? what is the personal & financial history of
the inventors? what is the business plan?”
• “Whether there's a strong business plan what their experience is with running a company
what kind of funding they have.”
• “I'd want to see the business plan. I'd want to learn as much as possible about the principals.”
• “I would like to see a business plan and know what exactly they are going to use the money
for (equipment salary etc).”
And recognizing that these startups will also operate in a broader funding market,
one respondent looked to the future.
• “Venture must at least be at the point of having a sound business plan and development
strategy. Potential for venture capital and/or other investment sources in the future would
also factor heavily in my decision to invest.”
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15. RETURN ON INVESTMENT COMMENTS
Statistically tied with Business Plan was ROI - “what’s in it for me”?
• “Potential ROI validation of where/how $ was being spent updates on company progress.”
• “What is the expected profit I stand to make over the next five years? “
• “Business plan calculated initial costs and expected ROI.”
• “ Short and Long term ROI”
• “What is the payback to me.”
Again, recognizing that these early stage companies will operate in a broader
funding market, one respondent looks to the future.
• “ROI and how long until ROI reached. Are the shares diluted with more people investing!”
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16. THE IMPORTANCE OF T RANSPARENCY
Respondents were asked a series of questions around two fictitious
investment opportunities. Both investments were described as being
equivalent in all aspects with one exception:
A third party management report card is available for one company,
but not the other.
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17. MANAGEMENT TRANSPARENCY INCREASES INVESTMENT INTENT 4X
UPPER-MIDDLE INCOME LIKELY INVESTORS – ANNUAL INCOME $75K+ AND INTENT ≥ 7 (1-10 SCALE)
Respondents were asked a series of questions to gauge investment interest in an early stage company with which
they had no prior knowledge of the management team. The concept of 3rd party review and company report card
was introduced. And investment intent was again measured under 3 scenarios – no report available, reports are
available for a highly similar company but not for the target company, and finally a report is available for the target
company.
% Likely to Invest
COMPANY IMPLICATION 70%
• Current conventional 60%
68%
industry information shows
that 25-30% of a target raise 50%
is accomplished through 1st
40%
degree contacts of the
company. 30%
•Companies must then attract 29%
the remaining 70-75% to 20%
22%
meet funding goals. 10% 16%
•Transparency greatly
increases investor interest. 0%
No Prior Knowledge of NPK & No 3rd Party NPK, No 3rd Party, BUT NPK but With 3rd Party
Management Team Review Similar Company Has Review/Report Available
(NPK) 3rd Party Review
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18. ABOUT EARLY IQ, THE CFPA, AND CCA
Early IQ, Inc is a hosted information The Crowdfunding Professional Crowdfund Capital Advisors (CCA) is an
and analytics company serving early Association (CfPA) is a nonprofit trade advisory, implementation and
stage capital markets including the organization that was established shortly education firm founded by Jason Best
crowdfunding capital market. Our after the signing of the Jumpstart Our and Sherwood Neiss (founders of
core technology – Diligence 3.0 – Business Startup Act (“JOBS Act”) on Startup Exemption), the leaders of the
revolutionizes transparency for early April 5, 2012. The CfPA is dedicated to investment-based Crowdfunding
stage decision support. representing the Crowdfunding industry movement.
and supporting the Securities and
As the #1 source for investors and Exchange Commission (SEC) and CCA provides comprehensive advisory
industry-standard trustmark for Financial Industry Regulatory Authority solutions for both the public and private
ratings, research, and analysis on (FINRA) during the rule making period sector - working with foreign and
private start-up ventures we facilitate while providing the industry with domestic governments, SEC, FINRA,
efficient markets by providing education, a professional network and Crowdfunding platforms and industry
services helpful and often required by the tools necessary to cultivate and leaders, CCA helps clients succeed in
law for Crowdfunding Portals and balance a healthy ecosystem that will this new era of financing, in a way that
other professional investment accelerate capital formation and ensure few can match.
markets. investor protection whenever possible.
http://crowdfundcapitaladvisors.com/
https://www.earlyiq.com/ http://cfpa.org/ info@theccagroup.com
info@earlyiq.com info@cfpa.org
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