CrowdfundIQ Benchmark Study - Equity Crowdfunding Investor Research Report


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Industry-first nationwide study shows strong appetite for investment and demand for transparency in the equity crowdfunding capital market.

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CrowdfundIQ Benchmark Study - Equity Crowdfunding Investor Research Report

  1. 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. 2. ABOUT THIS STUDYThis report provides a benchmark for understanding quantitative and qualitative aspectsaround likely investors in the emerging US equity crowdfunding capital market. Conducted intime sequence during calendar Q1 and Q4, 2012, the research findings help establish a corefor continued study of and visibility into the market as it becomes established in the US.METHODOLOGY SURVEY POPULATION STUDY COMMISSIONA total of 480 completed Based on demographic This research wasonline surveys were comparison to US Census commissioned by EarlyIQ,collected across two data, the survey Inc., a San Diego basedsurvey time periods. The respondents displayed information and analyticssole qualification for demographic characteristics company serving earlyinclusion in the survey was consistent with the US stage capital markets anda self-reported annual population. A slightly is presented inhousehold income of $25K larger proportion of female cooperation with theor greater. Unless respondents was adjusted Crowfunding Professionalsotherwise noted, the to reflect the US Association, the industry’sresults provided carry a population. leading trade associationprecision level of +/-4.5%. and Crowdfund Capital Advisors , the leader in crowdfunding market creation services. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 2
  3. 3. EXECUTIVE SUMMARYSTUDY OBJECTIVE REPORT CONTENT PAGEAs the industry’s investor benchmark study, theprimary objective is to establish a core Demographics and Intent 4understanding of the early stage investor and to Attitudes and Information Needs 8provide a baseline for comparison as the market Investor Hot Buttons 12evolves. 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 potentialKEY LEARNINGThere 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 3
  4. 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 4
  5. 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 3I 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 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 5
  6. 6. DEMOGRAPHIC COMPARISON BY INVESTMENT INTENT Likely investors tend to be slightly older, professionals, living in owned (sub)urban homes, with a higher average incomeDEMOGRAPHIC PERSPECTIVE Investment Intent >> <7 ≥7 Male 42% 54%• Income, education, professional occupation and Age (median) 38 42location differentiate likely investors from thoseless likely or unlikely to invest. Educ: At Least 4 Year 56% 69% Professionals** 8% 29%• Ethnicity does not play a role in intent as theethnic 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 6
  7. 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 ≥$75KTARGET 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 42gender, 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 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 7
  8. 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 8
  9. 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 with50% availability of 3rd party review of the companies.40% • Interest in government review decreases, and interest in 3rd party30% review increases as investment intent and income increase.20% All Respondents10% Likely to Invest ≥70% Definitely Probably Probably Definitely Unsure Income ≥$75K and Likely Not Not Yes Yes to Invest ≥7 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 9
  10. 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 IMPLICATIONS30.00% • Visibility into the management25.00% team is the #1 information need.20.00% • Financially oriented measures15.00% comprised the widest variety of responses.10.00% • Competition, market analysis,5.00% intellectual property and others are0.00% all included in the “other” category. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 10
  11. 11. INVESTMENT FRAUD AND CRIMINAL BACKGROUNDFRAUD CONCERN OF LIKELY INVESTORS Among likely investors, there is significant concern around fraudacross all income segments. Moreover, on average across all incomesegments, 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 PERSPECTIVE30% When asked whether they believe that % Very Concerned about Fraud (≥7)20% those who commit fraud have a criminal record, only 19% of all respondents10% 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 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 11
  12. 12. K EY HOT BUTTON COMMENTSRespondents 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 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 12
  13. 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 theyd be telling the truth about their companys financial & products performance.”• “Is this a Pyramid Scheme?”• “Background info on startup founders.” CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 13
  14. 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 theres a strong business plan what their experience is with running a company what kind of funding they have.”• “Id want to see the business plan. Id 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.” CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 14
  15. 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!” CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 15
  16. 16. THE IMPORTANCE OF T RANSPARENCY Respondents were asked a series of questions around two fictitiousinvestment 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 16
  17. 17. MANAGEMENT TRANSPARENCY INCREASES INVESTMENT INTENT 4XUPPER-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 whichthey had no prior knowledge of the management team. The concept of 3rd party review and company report cardwas introduced. And investment intent was again measured under 3 scenarios – no report available, reports areavailable for a highly similar company but not for the target company, and finally a report is available for the targetcompany. % 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 CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 17
  18. 18. ABOUT EARLY IQ, THE CFPA, AND CCA Early IQ, Inc is a hosted information The Crowdfunding Professional Crowdfund Capital Advisors (CCA) is anand 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 therevolutionizes 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 andprivate 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 industryservices 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. CrowdFundIQ Benchmark Study TM © 2013, EarlyIQ, Inc. Slide 18