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The Changing Relationship Between Investors and Investments

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The Changing Relationship Between Investors and Investments

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Take this opportunity to meet OurCrowd’s new president, Anthony DeChellis, who brings to the discussion his extensive experience in the private banking and institutional finance world. Anthony previously served as CEO of Private Banking Americas at Credit Suisse, headed Private Wealth Management at UBS, and held a range of leadership positions at Merrill Lynch, including Manager of the European Private Banking Business.

Take this opportunity to meet OurCrowd’s new president, Anthony DeChellis, who brings to the discussion his extensive experience in the private banking and institutional finance world. Anthony previously served as CEO of Private Banking Americas at Credit Suisse, headed Private Wealth Management at UBS, and held a range of leadership positions at Merrill Lynch, including Manager of the European Private Banking Business.

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The Changing Relationship Between Investors and Investments

  1. 1. The Changing Relationship between Investors and Investments March 2015
  2. 2. The changing investment ecosystem: The evolution of the advisor-investor relationship and the trends to watch 2
  3. 3. How we used to invest: Change is not new in our industry Brokerage, Commission-Trading, & Asymmetry of Information Enter Schwab The playing field is levelled in 2000: Regulation Fair Disclosure (Reg FD) Does Regulation Fair Disclosure affect analysts’ forecast performance? 3
  4. 4. 4 Booz & Co Global Wealth Management Outlook 2014/15
  5. 5. Global HNWI wealth is growing, as is their demand for digital in wealth relationship Source: Capgemini, RBC Wealth Management and Scorpio Partnership Global HNW Insights Survey 2014.5
  6. 6. 6 Big Banks are trying to react Citi to Launch Banking App for Apple Watch Business Wire March 10, 2015 Report: Digital and Mobile Solutions for Financial Advisors 2015 Fending off the robos: New technologies reinventing the client/advisor relationship Report: Mobile Apps for Wealth Management 2014 Wealth Managers Need Better Apps to Tap into Mobile High- Net-Worth Generation
  7. 7. Financials services industry is ripe for disruption According to the yearly Edelman Trust Barometer study… Finance is the least trusted of all industries 7
  8. 8. Regulatory Developments: New rules Create Opportunities to Meet Changing Investor Demand Expanding the audience with ”crowd building,” an evolving are of the law Pre Jobs Act 2012 • No general solicitation or general advertising of unregistered securities allowed • Exemption—certain private offerings only to accredited investors • Self-accreditation was sufficient • Jobs Act 2012—Title 2 • Congress’ attempt to stimulate jobs in the US economy by broadening investment in private companies • Mandate for the SEC to issue operative regulations • First set of rules including 506(c) Exemption Sept 2013 • Jobs Act 2012—Title 3: Crowdfunding • Creates new registration exemption to take advantage of Internet’s capacity for mass communication & social interaction • The new exemption will not become effective until the new SEC rules have been adopted • Jobs Act 2015 Title 4 • March 25, 2015: SEC adopted final rules to implement the expansion of Regulation A (Reg A+), which includes non- accredited investor provisions 8
  9. 9. Regulatory Developments: New rules Create Opportunities to Meet Changing Investor Demand Rule 506(c) provides General solicitation and general advertising allowed • All US residents now able to see & attend meetings with actively funding companies (whether accredited or not) • Web site to contain limited information on funding companies for US users only • Only accredited investors can actually purchase • Definition of accredited investor remains the same Self Accreditation no longer enough—need to implement verification procedure • New Rule requires each US investor to provide certification letter • Issued by registered broker- dealer, RIA, licensed attorney or CPA • Needs to be renewed periodically • Confirm it is still accurate at the time of each investment Relates to US residents only 9 Bad Actor Bad actor Provision • Issuers can only use Rule 506 offerings if no “bad actors” associated with them • SEC issued clear guidelines: get bad guys off the street  more investor protections
  10. 10. 10 HNWI want more than Transaction & Information via digital media with their Wealth Managers Source: Capgemini, RBC Wealth Mangement and Scorpio Partnership Global HNW Insights Survey 2014. The Most Important Interactions on Social Media: • Trending investment news shared by advisor • Educational articles and research advisor has shared • Instant access to research, whitepapers and pertinent videos 52% 57% 56% 46% 40% 43% 51% 53% 52% 25% 19% 20% 0% 20% 40% 60% In-Person /Phone Internet E-mail Mobile Social Media Video Inform 59% 58% 58% 46% 36% 41% 58% 49% 56% 26% 20% 24% 0% 20% 40% 60% 80% In-Person /Phone Internet E-mail Mobile Social Media Video Engage 54% 65% 54% 46% 34% 35% 49% 61% 45% 22% 12% 14% 0% 20% 40% 60% 80% In-Person /Phone Internet E-mail Mobile Social Media Video Transact Under 40 40+
  11. 11. FinTech is exploding: 248 companies with $3.4B 11
  12. 12. For the people, by the people: Moving from passive investing to participatory investing via crowdfunding 12
  13. 13. Crowdfunding: Competitive Landscape There has been a proliferation of platforms 13 Source: A Trillion Dollar Market By the People, For the People How Marketplace Lending Will Remake Banking As We Know It BY CHARLES MOLDOW GENERAL PARTNER, FOUNDATION CAPITA
  14. 14. 14 While passive investing in ETFs is growing, active investing via crowdfunding is exploding Source: H. Terry, D. Schwartz, T. Sun “The Future of Finance Part 3: The Socialization of Finance,” Goldman Sachs. March 13, 2015.i $1.5 $2.7 $5.1 $10.0 $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2011 2012 2013 2014 Crowdfunding has exploded to $10bn in 2014, nearly doubling every year Aggregate Amount of Funding Through Crowdfunding ($bn) The World Bank October estimates global crowdfunding to grow to $95B by 2025 ETFs have a 10 year CAGR of 27.1% 0 1000 2000 3000 4000 5000 6000 0 500 1000 1500 2000 2500 3000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sep-14 # ETFs/ ETPs Assets (US$bn) Global ETF and ETP Growth ETF/ETP Assets # ETFs/ETPs
  15. 15. Investors are finding new access points to asset classes In 2014, Lending Club surpassed $4 billion in total peer to peer loan underwritings (4x 2012’s numbers) 15
  16. 16. 16 Fund outflows increase as investors seek alpha elsewhere • Mutual fund underperformance in contrast to lengthy bull market has been a significant driver of fund outflows • Investors continue to miss out on returns by waiting for highly visible private companies to go public • To meet and exceed investors’ expectations, RIAs need to offer investment opportunities that reflect the “New Alpha” How Many Mutual Funds Routinely Rout the Market? Zero http://www.nytimes.com/2015/03/15/your-money/how-many-mutual-funds-routinely-rout-the-market-zero.html
  17. 17. 17 Selection & due diligence matters even more in illiquid products Source: Morningstar, Lipper Tass, Preqin. Note: Dispersion of fund performance, average calendar year 2002-2011. Past performance is not indicative of future results. Should the study have been conducted over a different time period, the results may have been different. There can be no assurance that an allocation to illiquid investments would yield higher real returns. Top Decile 2nd Quartile MEDIAN 3rd Quartile Bottom Decile 50 40 30 20 10 0 -10 -20 -30 Long-Only Fixed Income Long-Only Equities Hedge Funds Private Equity ReturnDifferentialVersusMedian(%) Manager Dispersion Increases as Illiquidity Grows
  18. 18. Asset Class Drivers • Capital Markets Environment • Pace of Innovation • Venture capital flows Manager Specific Drivers • Ability to identify emerging innovations • Access to attractive deals • Ability to create value through active involvement in portfolio company 18 Breaking Down Venture Capital Risk and Return
  19. 19. Wisdom of the crowd: How individual investors as a collective are driving the future of investment 19
  20. 20. 20 Of the $4T opportunity created by the socialization of finance, Crowdfunding represents $1.2T immediately addressable opportunity with $57bn opportunity in the VC/Angel space Crowdfunding: An increasingly large opportunity for investors Source: H. Terry, D. Schwartz, T. Sun “The Future of Finance Part 3: The Socialization of Finance,” Goldman Sachs. March 13, 2015.i $666 $140 $72 $68 $33 $24 $166 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 Bankcard Loans Home Equity Loans Consumer Finance Loans Retail Loans Venture Capital Angel Investors Other Loans Addressable Opportunity for Crowdfunding: $1.2T Trillion
  21. 21. Where is Wall Street? Investors are crowdsourcing more accurate financial estimates 21
  22. 22. • Crowdfunding is growing rapidly • Crowdfunding is truly global Investors are responding by participating in democratic investment platforms
  23. 23. 23 As crowdfunding grows, platforms become differentiated by levels of due diligence, investment management and investor constituency Equity Crowd Funding: OurCrowd, AngelList, CircleUp lead the pack Investment Management Diligence Unaccredited Investors Indicated Upstream Move Accredited Investors
  24. 24. Israel Case Study: “Move over, Silicon Valley…” As seen in the Economist last year – ranking the world’s 20 top startup ecosystems, Israel is #2 24
  25. 25. 25 Israel is one of the world’s top marketplaces for innovation In the last decade, these companies all bought at least one Israeli start-up.
  26. 26. The OurCrowd Model 26
  27. 27. 27 Creating a new class of investment: Crowdsourced Equity Capital Investing OurCrowd’s platform combines four models of Crowdsourcing Equity Crowd Funding at the core of OurCrowd’s model Creating content & communities of investors, experts & alumni Utilize voting/polling of experts as part of due diligence Harnessing the wisdom of crowds and expert groups Funding Voting Wisdom Creating
  28. 28. 28 Why OurCrowd Clients want unique opportunities, diversified across sector and stage,  delivered through a process they can trust,  which produces performance at a fair cost,  all wrapped in a world class networking/client experience Entrepreneurs want efficient and fair access to capital,  a process they can trust, enabled through a system  that raises their profile and leverages their marketing efforts,  while supporting their growth and development Democratizing Wealth Creation and Access to Capital
  29. 29. Foundation/Brand • Founded in “Start-up Nation,” Israel, home to one of the world’s most prolific start-up communities • Management Team brings broad experience and global perspective Strong Network to Generate Deal Flow • Access to a global network of investors, entrepreneurs and advisors brings access to diversity of opportunities • Synergistic co-investing with an extensive network of Top-tier funds (VCs) & institutional investors Partnership Model • Business Model partners OurCrowd with investors & entrepreneurs • Multi channel investor platform Crowd Engagement • Opportunity to build customized communities of investor groups • Innovative use of the crowd and power of expert groups (refinement under development) 29 Key Differentiators
  30. 30. 30 We do not invest alone—and increasingly our partners want to access crowd capital & insights OurCrowd: Partnering With Leading Institutions
  31. 31. 31 We’ve invested in 62 companies with ~30 follow on rounds OurCrowd’s portfolio

Editor's Notes

  • After 30 years of working in large wall street institutions I decided I wanted to do something more entrepreneurial and that was part of reshaping how investors access financial services
  • When I started in the business you could make a living off of just providing some information and access
    Change is not new to our industry.
    We survived but did have to adjust even so market share was taken by new market entrants
    Information edge, trading edge—identifying opportunity earlier—way before going public. Regulation leveled the playing field further by taking away some of the information advantage—Europe only made insider trading illegal in the last 20 years!

    It’s a natural progression and we’ve adapted—pushed or by leading we’ve adapted.

    So where are things going now?
  • With greater access to timely information while seeking alpha
    Clients are becoming increasingly self-directed
    And the competitive landscape is growing with digital entrants
  • The good news is wealth is growing but we need to pay attention to the needs of our clients and their children
    Increasingly clients are looking to new channels—and desire for digital interaction goes across all ages and wealth bans around the world
  • With FS being the least trusted of all industries globally, there is opportunity to meet to changing needs of clients—but what might enable that change?

    What about the timing of new entrants that are more transparent and engage clients
  • How is change possible: the regulatory developments are supporting the changing needs of investors

    Jay: Note that the first version of JOBS Title III did not succeed. There is much talk now about the congress drafting an entirely new Title III framework. Stay tuned for details. May not be economically feasible.

    RegA+ under title 4 just came out. Some positive elements and hurdles within it. More to come on this in the coming weeks.
  • We need to support client’s needs to be informed, engaged and transact digiually
  • Given all of this, it’s not surprising that fintech is exploding
    How people consume financial services is changing and per the WSJ—don’t know top competitor in 10 years
  • Passive Investing Trends
    Investors moving to ETFs indices (the ultimate passive investment)
    A staggering 86% of active large-cap fund managers failed to beat their benchmarks in the last year, according to an S&P Dow Jones Indices scorecard http://money.cnn.com/2015/03/12/investing/investing-active-versus-passive-funds/


    Active Investing
    The market with more volatility is the kind of environment that has traditionally been the best for active managers to shine.
    Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.
  • This is no longer a theory. Hockey Sticks actually happen
  • People are open to new ideas (NYT)
    Let’s talk a little about the timing of this trend and the emerging pattern of people being willing to invest their own money directly

    It’s just harder, not impossible, to generate alpha in the public market
    Does everyone running in to alternatives, particularly PE or VC solve the problem? Not easily, there is a problem to solve for
    Generating alpha is tough and getting tougher
    Efficient market theory
    Talent, enabled by powerful tools
    Insider trading
    Unfair trade practices
    High speed trading could get information faster so you have to act on it
    You have to get ideas earlier on, be great long term trend spotting, manage risk better
  • But not so easy

    Dispersion of 10 year returns

    A lot of people are breathing a sign of relief—expertise still matters yes but let’s talk about performance drivers in the future

    Dispersion should narrow over time as PE markets become more efficient
  • Problmes that need to be solved for before the crowd can invest and achieve great results
    What affects the vintage year for VC funds
    There are risks, but will it be riskier

    I had two questions: investors and entrepreneurs

    People are increasingly going to look for alternative asset classes but we all know it’s a risky game that also requires the ability to lock up money for long periods
  • Estimize

    …Crowds are just investing wildly(?), they are learning how to work together to make better decisions
  • People are increasingly taking matters into their own hands, and it’s happening globally
    The US & Europe lead but it’s happening everywhere

    Foreign exchanges of non public equity under development
  • Offerings are still developing and it’s important to understand the difference
    Not all platforms have the same strategy
  • But it’s no secret
    Some buying as many as a dozen companies
  • 4 key themes in crowd sourcing—we combine all four

    Will have unmatched intellectual capital
  • The big idea that attracted me and many others
  • Danna: Our “crowd” frees us from being limited to the capabilities and expertise of our team. Our model is unique in leveraging the power of our crowd to maximize its potential to better serve our investors and entrepreneurs. This enables us to provide unprecedented diversity of opportunities, as will be reflected in the variety of channels, as well as unprecedented support to our companies post investment.
    (I haven’t yet figured out how to fully articulate this thought, but to me, the above is a key concept of our model with as yet untapped potential. If we format this, it could quite possibly be the foundation for how to leverage the crowd to enable anything, just like we designed a platform to fund great ideas. Enabling great initiatives/innovation, etc. Like I said – haven’t yet figured out how to fully articulate this…)
    Also - It sounds a bit kitschy but I can’t escape using “connectors” when describing the value add of our network. It is quite possible the biggest and most active part right now.

    Evelyn: We need to define our differentiators vis-à-vis our real competitors better. We are not competing with other crowdfunding platforms on deals – we are competing with other funds.

    Zach: Slide 8) I think as a reader that there are TOO many differentiators on this slide. With so many differentiators, you are essentially saying we are VERY different from what is out there. Maybe, you're just a different animal and you've lost the context and value of surrounding yourself in an existing field. Some of these things are understandable as stand-alone bullets. I'd like to see this more visually. Also, other companies you had in the previous slide do some of these things.

    Shai: 1) Differentiation (Slide 8): The items on this list are, IMHO, either:
    - generic and easy to claim
    - not sustainable when we start really scaling and addressing a more variant audience
    - not sustainable when its starts getting competitive for real
    - we don’t really have them
    Our main differentiator today is our brand (and Jon’s personal brand) and the whole Israel/start-up nation thing which are impactful to a certain audience and scale but not necessarily for our next step. You could also say our early entry and current size are adv but those could easily go stale.  I think we need a deep discussion and process to distill what we want OurCrowd to be for our customers - why should they choose us….
    2) …which leads me to: There is very little discussion on the key strategic question IMO which is “as a potential customer, why should I put my money into ourcrowd?”. And going backwards from there “what do we need to do to address our potential customer’s pains/needs“ and going backwards from there "what are current/future customer pain/needs enthuse markets”….
    3) …which leads me to: I’m assuming that the quality of “product” we can supply (i.e deal flow and indirectly returns we provide) to customers is an important consideration in a customer choosing us. Very little discussion in the prez on how do we continue to secure “top deal flow” and what are the threats and opportunities there.
    Elan--Page 8 (titled key differentiators) – Does not mention that our model is based on carefully curated and diligenced deals that go through our professional investment team. You do have that in other places, but if this is the key differentiator slide, I think it should be there. This a key difference for us vs. many other platforms

    Gadi: Slide 8 is very good.

    Elan: Page 8 (titled key differentiators) – Does not mention that our model is based on carefully curated and diligenced deals that go through our professional investment team.   You do have that in other places, but if this is the key differentiator slide, I think it should be there.  This a key difference for us vs. many other platforms

  • Give a wider range of investors opportunity to invest at the same terms
  • What kind of opportunities? The first IPO funded through our crowd 3X in 1 year
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