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Introduction to CrowdFunding
September 2014
Training Session
Ari Massoudi, PhD
Bio-Pharma Business Consultant
http://www.s...
CrowdFunding
Raising Money Online
by Soliciting Small Amounts from Many (the Crowd)
instead of a Wealthy Few … in theory!
...
2013 $5.1 billion
91% Growth vs 2012! … Big Potential in Europe and Asia
and the US market is still waiting the Full Green...
• Some facts about the Venture Capital industry/economy:
- USA continues to be the largest venture capital industry in the...
Futurology
CrowdFunding
VC
VC
Bank
Angel Investors Network
The Future of Finance (Goldman Sachs’report, March 2015)
https:...
Futurology
Smart Angel Investor, VC or Banker!
Types of CrowdFunding
Donation vs Reward
Funders Receiver of Funds
Thanks, gifts, goodies, coupons on future product …
• N...
Donation vs Reward
Pre-Sales (Co-Production)
COOLEST COOLER by the inventor & designer Ryan Grepper
https://www.kickstarte...
People seeking to raise funds ask often if crowdfunding could be suitable for big project
having important needs. My answe...
Funders Receiver of Funds
• Under the Financial Regulation Authority of the country where the company owner of the CF
plat...
Funders Receiver of Funds
Types of CrowdFunding
Capital vs Securities (Equity-based Crowdfunding or Micro-Investing)
Commo...
Equity-based CrowdFunding - Investment model A
Startup/SME Holding Company
(Investment vehicle)
5-30%
Stocks
Stocks
• The ...
Equity-based CrowdFunding - Investment model B
• The investee Startups could have too many investors => to avoid to deal w...
Equity-based CrowdFunding - Investment model B’
• This dual model (Donation + Equity) allows people with less ressources t...
European Equity Crowdfunding Portals
(May 14, 2014)
Portal
Home
Country
Total
Raised on
Platform
Number
of
Offerings
Mean
...
U.S. Accredited Investor
Equity Crowdfunding Portals
(May 14, 2014)
Portal
Total
Raised on
Platform
Number
of
Offerings
Me...
CrowdFunding could be very suitable for healthcare (medical technology, pharmaceutics and
biotechnology) projects and star...
Peer-toPeer Lending/Borrowing
$$$$
x% of Capital + y% Interest / month
Types of CrowdFunding
Funders Receiver of Funds
• U...
THANK YOU FOR YOUR ATTENTION! 
Ari Massoudi, PhD
Bio-Pharma Business Consultant
http://www.strategy-of-innovation.com/
ht...
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Introduction to Crowdfunding

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This is the slides (with some updates) I used in a 3-4h training session about CrowdFunding.
Audience: VC Team, Angel Investors, Bankers, Business Consultants, Entrepreneurs

Published in: Business
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Introduction to Crowdfunding

  1. 1. Introduction to CrowdFunding September 2014 Training Session Ari Massoudi, PhD Bio-Pharma Business Consultant http://www.strategy-of-innovation.com/ https://www.linkedin.com/in/arimassoudi
  2. 2. CrowdFunding Raising Money Online by Soliciting Small Amounts from Many (the Crowd) instead of a Wealthy Few … in theory! CrowdFunding Democratizes both Philantropy and Angel Investing
  3. 3. 2013 $5.1 billion 91% Growth vs 2012! … Big Potential in Europe and Asia and the US market is still waiting the Full Green Light of Authorities! More than 900 CrowdFunding platforms worldwide! Source http://www.statista.com/chart/1034/funds-raised-through-crowdfunding-in-2012/ http://www.forbes.com/sites/hsbc/2014/08/05/crowdfundings-untapped-potential-in-emerging-markets/ http://www.ey.com/GL/en/Newsroom/News-releases/News-EY-european-alternative-finance-market-could-top-7-billion-euros 2014: $3.5 billion 2015: $7 billion expected
  4. 4. • Some facts about the Venture Capital industry/economy: - USA continues to be the largest venture capital industry in the world. US VC invested €15 billion vs European VC only €3.7 billion (in 2010)! - Early-stage VC investments in the US were on average €2.2 million per company, against an average €400,000 per company in the EU! - A Venture Capital fund in the European Union contains approximately €60 million, a US counterpart has a fund size of €130 million! - Every week in USA, a dozen of biotech/medical device companies raise $1M to $80M from Venture Capital firms! Europe lags far far behind! • “If Americans diverted 1% of their long-term savings to crowdfunding, that sum would be 10X the total VC investment in the US”. Amy Cortese, award-winning business & finance journalist and editor • French burn 46.2 billion euros each year in games of chance and lottery, with an average of 2000 euro per gamer! • Total French saving in life insurance = 4075 billion euros, mainly invested in Sovereign bonds of the French State! The real economy needs fundings, unfortunately, institutional investors are limited => People have got a lot of money … and they are fully willing to finance the real economy!
  5. 5. Futurology CrowdFunding VC VC Bank Angel Investors Network The Future of Finance (Goldman Sachs’report, March 2015) https://fr.scribd.com/doc/259426863/The-Future-of-Finance-The-Socialization-of-Finance-Goldman-Sachs#download
  6. 6. Futurology Smart Angel Investor, VC or Banker!
  7. 7. Types of CrowdFunding Donation vs Reward Funders Receiver of Funds Thanks, gifts, goodies, coupons on future product … • No Specific Regulation => Under regular Commercial & Business Law in many countries • Used by indiviuals, NPOs and by privately-held companies • Useful for companies having an innovative BtoC project (consumer goods or services) • Could be used by companies in BtoB if the project can interest/inspire the Crowd (health, environment/ecology/energy, minorities ….) Pre-Sales (Co-Production) Future Product before market introduction or at exclusive price ! Corporate Tax ! 1/4 $$$ $$$ Ex.: https://www.kickstarter.com
  8. 8. Donation vs Reward Pre-Sales (Co-Production) COOLEST COOLER by the inventor & designer Ryan Grepper https://www.kickstarter.com/projects/ryangrepper/coolest-cooler-21st-century-cooler-thats-actually 62,642 Funders $13,285,226 raised in 90 days! Initial Goal: $50,000 https://www.youtube.com/watch?v=l4irb2K1p8E The Tisch MS Center (US NPO Research Institute) CrowdFunding campaign to finance Phase-I Clinical Trials for a Stem-Cell Therapy / Multiple Sclerosis Initial goal: $300,000 Raised: $317,540 with 960 funders https://www.indiegogo.com/projects/tisch-ms-center-s-fda-approved-phase-i-stem-cell-trial-for- multiple-sclerosis Project Violet Crowdfunding campaign to drive early drug discovery at Fred Hutchinson Cancer Research Center $5 million raised http://www.wired.com/2014/06/scorpion-venom/ https://www.projectviolet.org/ (http://research.fhcrc.org/olson/en.html ) Donation vs Reward Crowdfunding is perfect for healthcare (medical device, pharmaceutics and red biotechnology) projects and startup companies, because they can touch the heart of the Crowd! Examples
  9. 9. People seeking to raise funds ask often if crowdfunding could be suitable for big project having important needs. My answer is to say ... "It depends on your ability, the ability of your project to be loved by the Crowd! And the success of CrowdFunding is all about Communication.” 1 - Inspirational-Emotional Video = 50% of the success of a CrowdFunding campaign, and the rest is still based on Communication => 2- interaction with the Crowd, 3- Press Relations (good articles in high audience journals), 4- Online promotion of your campaign in social networks and 5- Online advertising) Current World Record more than $84 million! raised by a Game Studio for the Video Game project “Star Citizen”! List of highest funded crowdfunding projects http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects Big Money Raised by Crowd Funding http://www.strategy-of-innovation.com/article-crowd-funding-for-big-projects-99014566.html
  10. 10. Funders Receiver of Funds • Under the Financial Regulation Authority of the country where the company owner of the CF platform is headquartered. Ex. AMF for France, SEC for USA, Financial Conduct Authority for UK. The company owner of the CF platform has to be registered at its local Financial Regulation Authority. In France, the CF-company has to obtain the « Financial Adviser » cetificate from AMF • Used by privately-held companies in needs of seed fundings (early-stage and later-stage startups) or even for funding the growth. • Useful for companies having an innovative projects in the BtoB where rewarding funders with the future product is not possible (ex. Healthcare projects, or BtoB High-tech) • Even if every kind of securities can be offered, the rule is to keep the CF simple with common stocks. Types of CrowdFunding Capital vs Securities (Equity-based Crowdfunding or Micro-Investing) Common stocks (or other kind of securities: Warrants, Convertible Bonds, …) Capital Gain … maybe, and Dividends … only in theory Income Tax Break at Exit Income Tax Break at Entry 2/4 $$$
  11. 11. Funders Receiver of Funds Types of CrowdFunding Capital vs Securities (Equity-based Crowdfunding or Micro-Investing) Common stocks (or other kind of securities: Warrants, Convertible Bonds, …) Capital Gain … maybe, and Dividends … only in theory Income Tax Break at Exit Income Tax Break at Entry Taxe Breaks in UK for Angel Investing • 30%-50% income tax relief on up to £1,000,000 of investment per tax year • Exemption from capital gains tax on disposal of EIS shares after the end of the three year relevant period http://www.ukbusinessangelsassociation.org.uk/investors/tax-benefits Tax Breaks in France for Angel Investing • 18% on income tax relief or 50% on wealth tax on up to 50 000 € of investments per tax year • Exemption from capital gain … we are still waiting the definitive regulation from the French Gov! 2/4 $$$$
  12. 12. Equity-based CrowdFunding - Investment model A Startup/SME Holding Company (Investment vehicle) 5-30% Stocks Stocks • The investee Startups has only 1 investor-shareholder, the Holding • With this model, we can have many investors, therefore, we can fix the price per share quite low => Anyone can invest … in theory (in some countries, only Accredited investors are allowed to invest in startups/SMEs). • The Holding is founded and managed by the Company owner of the CrowdFunding platform => 1 Holding for each Statup on portfolio! => Legal Fee ↗ • The business and financial reporting from the investee to the investors is under the duty of the CF-Company. Business & Financial Reporting $$$ $$$
  13. 13. Equity-based CrowdFunding - Investment model B • The investee Startups could have too many investors => to avoid to deal with too many people, the price per share is usually quite high (over $500 each share!) => This discourgares people with less ressource to invest! • This model is used by CF-platform addressing only to accredited investors or wealthy investors in general. • The business and financial reporting from the investee to the investors is under the duty of the investee startup. Startup/SME Stocks5-30% Direct Investment Business & Financial Reporting $$$$
  14. 14. Equity-based CrowdFunding - Investment model B’ • This dual model (Donation + Equity) allows people with less ressources to support a Startup without investing • Very interesting model for Healthcare Startups! Startup/SME Stocks5-30% Direct Investment Business & Financial Reporting $$$ Rewards Donations $$$$
  15. 15. European Equity Crowdfunding Portals (May 14, 2014) Portal Home Country Total Raised on Platform Number of Offerings Mean Offering Size Anaxago France $6,500,000 19 $342,105 CrowdCube United Kingdom $36,806,451 116 $317,297 Companisto Germany $6,990,295 30 $233,010 Invesdor Finland $2,262,000 11 $205,636 OurCrowd Israel $45,000,000 37 $1,216,216 Seedmatch Germany $16,858,725 60 $280,979 Seedrs United Kingdom $14,920,000 96 $155,417 SyndicateRoom United Kingdom $10,720,000 11 $974,545 Symbid Netherlands $5,699,331 36 $158,315 WiSeed France $10,137,231 46 $281,590
  16. 16. U.S. Accredited Investor Equity Crowdfunding Portals (May 14, 2014) Portal Total Raised on Platform Number of Offerings Mean Offering Size CircleUp $ 30,000,000 30 $342,105 Equity Net $231,748,700 18,896 $12,264 Crowdfunder $111,700,000 9,778 $11,423 Fundable $114,000,000 651 $175,115 Microventures $39,600,000 56 $707,143 Realty Mogul $18,000,000 67 $268,657 Fundrise $10,000,000 19 $526,315 Rock the Post $30,698,452 62 ? In USA, Equity-based Crowdfunding (and Angel investing in general) is only allowed to Accredited-Investors. An AI is a wealthy individual able “to prove” that he/she is enough rich before investing! … but this absurd regulation could change due to the growing success of Crowdfunding all around the world. “… you can go to Las Vegas and lose $10,000 at the table in an hour but you don’t have to be an accredited gambler …” Steve Case, Co-founder of AOL, now Venture Capitalist at Revolution
  17. 17. CrowdFunding could be very suitable for healthcare (medical technology, pharmaceutics and biotechnology) projects and startup companies because they can touch the heart of the Crowd! 4 examples of French biotech early-satge startups having raised funds by Equity-based Crowdfunding with the support of WiSeed (https://www.wiseed.com): - Urodelia, Biotech startup / drugs against cancer http://www.urodelia.com/ €800,000 raised - Antabio, Biotech startup / drugs to treat antibiotic-resistant bacterial infections http://www.antabio.com/en €300,000 raised - Ambiotis, Bio-Pharma Contract Research Organization (CRO) http://www.ambiotis.com €100,000 raised WiSeed Total: $10,137,231 raised since 2008 46 Statups funded Mean $281,590 per Startup Equity-based CrowdFunding for Early-stage Healthcare Startups The French company IntuiLab (http://www.intuilab.com/) holds the French record of funds raised by Equity-Crowdfunding, with the support of WiSeed: €1,2 million = US $1,6 million Another record of funds raised with the support of the UK website CrowdCube (http://www.crowdcube.com/): £1 million = US $1,587 million http://goo.gl/cIc2R Another example of Equity-based Crowdfunding with the support of Happy Capital (https://happy- capital.com/): - Biosantech, Biotech startups / Vaccine against HIV-AIDS http://www.biosantech.org/ €803,000 raised
  18. 18. Peer-toPeer Lending/Borrowing $$$$ x% of Capital + y% Interest / month Types of CrowdFunding Funders Receiver of Funds • Under the Banking Regulation • Used by individuals and by privately-held companies to borrow money directly from people • Useful for companies having an operating revenue model (cash-flow) able to reimburse 3/4 4/4 Funders bet on your project, then, when the product is launched and generates revenues, you pay royalty (x% of sales proportionally to their initial investment) to your funders. Interesting model but difficult to implement. Used mainly by Crowdfunding platform dedicated to produce singers and music projects, or to support local small-businesses. Revenue Sharing (Royalty) Ex.: https://www.lendingclub.com/ Ex.: https://bolstr.com/
  19. 19. THANK YOU FOR YOUR ATTENTION!  Ari Massoudi, PhD Bio-Pharma Business Consultant http://www.strategy-of-innovation.com/ https://www.linkedin.com/in/arimassoudi email: a-massoudi@hotmail.fr 19

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