Fundraising as the main entrepreneurs problem

Fundraising as the
Main Entrepreneur’s Problem
Vasily Ryzhonkov
December, 2012
www.CrowdSynergy.com

@ Copyright 2012 CrowdSynergy (www.crowdsynergy.com) 1

Questions to answer

1. What is the main bottleneck in startups funding?
2. How much venture and angel capital do we have
available in the world? What is the demand for it?
3. Do all early-stage entrepreneurs have sufficient
access to capital?
4. Could we change situation with financing not 1% of
entrepreneurs, but more? If yes, how?

www.crowdsynergy.com 2

Agenda

Entrepreneurship Statistics

Main Entrepreneurs’ Problems

Capital Availability in the World

Fundraising through Crowdfunding

CrowdSynergy solution


Background

CrowdSynergy is
Virtual Business Incubator and Innovation Ecosystem Platform
Founded in 2012
More than 10 years were devoted for analysis, research and
development of the concept
“Platform for World Innovation Ecosystem”
Our main solutions are:
Virtual Business Incubator
Solutions for Innovation Ecosystems Management
Corporate Innovation and Business Incubation Programs
Solutions for Expert Communities and Mentors
Crowdsourcing and Crowdfunding Solutions
Investments Management

Number of Entrepreneurs in the
World (2010 -> 2011)

250 million early-stage entrepreneurs* in 59 economies in
2010

388 million entrepreneurs were actively engaged in starting
and running new businesses in 54 countries in 2011**
*Less than 3,5 years of activity; recovered after recession of 2008-2009
**According to GEM, out of 54 economies in the age between 18 and 64

Entrepreneurship Main Problems of Capital Availability in Fundraising through
Statistics Entrepreneurs the World Crowd funding


World (2010 -> 2011)

388 million entrepreneurs in 2011 included:
163 mln women early-stage entrepreneurs
165 mln young early-stage entrepreneurs between the ages of 18
and 35
69 mln early-stage entrepreneurs that offer innovative products
and services that are new to customers and have few other
competitors
23,5% increase in TOTAL EARLY-STAGE ENTREPRENEURIAL
ACTIVITY in 2011


World (2011 -> 2012 -> 2013)

Total entrepreneurs
Early-stage entrepreneurs = 11,5%
(avg unweighted)*
2011 388 million 44,6 million
15% t0 25% increase in total and TEA
2012 446 to 485 million* 51,3 to 55,8 million*
15% t0 25% increase in total and TEA

2013 513 to 606 million ** 59 to 69,7 million**
*Strongly pessimistic estimation of CrowdSynergy based on OECD, GEM, WEF data from 2011 – in reality figure is 3-5
times more. This estimation was made considering possible downturns and risks.
**Optimistic estimation of CrowdSynergy based on decision tree analysis and data from previous years (growth,
increase rate, economic growth ad cycles)


Main Problems of Early-stage*
Entrepreneurs

Access to capital**
Access to networks of mentors, experts, investors,
entrepreneurs, etc…
Lack of knowledge / business skills / technical skills
Team building / selection / organization
Business model and strategy
etc…
*Early-stage–the state of a project after the concept and idea formulation through the seed
(formation) stage but before middle stage (generating revenues).
**According to Market research by CrowdSynergy and secondary data from BCG, GEM, OPORA, SG 2012


Is access to capital one of the most
important problems?

Let’s consider only one problem (perceived by early-
stage entrepreneurs in efficiency-driven economies as
the main one):
Access to capital or Fundraising as the main
problem of early-stage entrepreneurs

…we need to understand in detail what, why, how and
who of the problem ->



Why (Venture) Capital is important? –
WHAT of the “Access to Capital” problem

Venture capital has enabled the United States to support its entrepreneurial talent and appetite
by turning ideas and basic science into products and services that are the envy of the world.
Venture capital funds build companies from the simplest form–perhaps just the entrepreneur
and an idea expressed as a business plan – to freestanding, mature organizations
Venture Capital Association, the industry’s main lobbyist, claims a study it sponsored shows
that venture-backed companies from 1970–2005 accounted for 10 million jobs and $2.1 trillion
in revenues by 2005, as well as representing 17 percent of U.S. gross domestic product (GDP)*.
Top-tier VC funds dominate in the West as VC consolidation continues Global “dry powder” is
US$117.7 billion (capital committed to VC firms but not invested yet) and remains at a level
similar to the past few years, as VCs invest at a pace that is reflected by their fund-raising
volume**.
*Kauffman Foundation, June 10, 2009
**Globalizing venture capital Global venture capital insights and trends report 2011, Ernst & Young


Capital Sources

Capital sources vary depending on the venture’s stage of
development, economic and financial situation in the
environment, availability and maturity of government
policies and institutions in a given economy.
We will list main of them with the focus on early-stage
entrepreneurs.



Company Funding Stages
(traditional breakdown) –
HOW of the “Access to Capital” problem
This is where venture
creation stops and the Capital to expand
venture is launched product to national Bridge IPO
markets 2nd stage or Sale

1st stage (Round
Completing product Capital to maintain until
development and in (Round C,D)
pending liquidity event
business 1yr or less Start-up A,B)
Initial capital is gone and now need
In the most capital for full-scale production, sales
difficult
Seed or initial phase of expansion
period there
is the least Capital for product
access to development, market research This is where venture
capital for Concept and building management needs to be before
entrepreneurs infrastructure raising capital



Capital Funding Stages (explained) –
HOW of the “Access to Capital” problem

Seed or start-up stage ($0-1M)
•Complete the team, formalize the plan, complete initial arrangements.
•Financial capital from angels, fools, friends and family.

Development stage (series A) ($2-5M)
•Product development and prototype, ready for launch. Financial capital from venture capital funds.

Growth stage (series B or C, and other as required) ($5-20M)
•Launch and growth phase. Customer acceptance proven. Financial capital from venture capital firms.

Competitive or maturity stage (IPO) ($5 – 30M+)
•Mature firm in a competitive context. Financial capital from offerings in the public equity markets.



Who is funding Entrepreneurial
Start-up Companies? –
WHO of the “Access to Capital” problem

Financing continuum (as it was before Crowdfunding)
The following diagram shows the typical financing for start-up companies IPOs
Private
Banks and Placements $5M & up
Venture Govt
Capital Programs $500K & up
Seed
Angels Capital $2-50M $5K & up
Family, $500K-3M
Fools & $100K-2M
Owner’s
Money Friends
$10-100K $20-250K
Source: “Successful Angel Investing”, Indiana Venture Center, 2008


Capital Sources –
WHO of the “Access to capital” problem

Source: CrowdSynergy Analysis, 2012


Capital Sources –
3 Main Pillars for Early-stage Entrepreneurs

Sum of $31,27B reaches entrepreneurs (10% of available) Small
Bottleneck but Expanding
at Extreme Speed
Anti Funnel
$8,77B $22,5B $39M*
out of out of out of
Venture Angel Private
$196,B $108,23B $8000+B
Capital 10% growth Capital 12,1% growth
Capital
114-300% exponential
Decades of 20+ years of growth
existing existing 2 years of existing
Main sources of capital nowadays (Dec, 2012) Future source of capital
*Crowdfunding capital via equity-based model (statistics from 2012)


Venture Capital Statistics Worldwide,
2011
Venture Capital raised in 2011- $18.7B
Venture Capital available in 2011 (“dry power”) - $196.9B
Venture Capital invested in 2011:
$48,7B; 3209 deals (Dow Jones VentureSource);
$5M – median size of investment Venture
Capital

Venture Capital available for early-stage entrepreneurs: $4,87-8,77B*
VC growth 2010/2011 – 7-10%
Angel
Number of Venture Capital: Capital

No. of VC Professionals - 6,125 (in USA), 8700+ (in the World)**
No. of VC Funds in Existence - 1,274 (in USA), 1800+ (in the World)**
Sources: PricewaterhouseCoopers/National Venture Capital Association, MoneyTree™ Report based on data from Thomson Private
Capital
Reuters; Dow Jones VentureOne; * - according to different sources only 10-18% of the total amount of venture capital
investment (unchanged from the level in 2010) were seed and first-round financings ; ** - CrowdSynegy Estimation, 2012



Venture Capital Investments,
2005-2011
Proportion of Aggregate Value of Venture Capital
Global Annual VC Investment (Ernst&Young, 2011) Deals by Region: 2010 - 2012 YTD (10th May 2012)

Venture
Capital

Angel
Capital

Private
Capital



Venture Capital –
Private Equity is a Cyclical Business

US buyout deal value (Bain, 2011)

Venture
Capital

Angel
Capital

Private
Capital



Characteristics of Venture Capital
Funds & Firms - 1

Professional, institutional managers of risk capital.
Typically require five to eight years to be launched.
Venture

Investment made is an equity investment in a company Capital

whose stock is essentially illiquid and worthless until
company maturity. Angel
Capital

Investment “rounds” typically occur every year or two.
Source: NVCA Yearbook, 2012 including statistics from the PricewaterhouseCoopers/National Private
Venture Capital Association, MoneyTree™ Report based on data from Thomson Reuters Capital



Funds & Firms - 2

Venture capital is more than money:
venture capital partners become actively engaged with a
company, typically taking a board seat; Venture

with a startup, daily interaction with the management Capital

team is common.
This limits the number of startups in which any one fund can Angel
Capital
invest.
Few entrepreneurs approaching venture capital firms for
money are aware that they essentially are asking for 1/6 of a Private
Capital
person!


Funds & Firms - 3

Yet active engagement (which is business incubation) is
critical to the success of the fledgling company*.
Venture

Any successful company that broke through the gravity Capital

evolved from the original business plan concept with
the careful input and help of an experienced Angel
Capital

hand/mentor**.
*Many one- and two-person companies have received funding but no one-or two-person
company has ever gone public! Private
Capital
**Source: NVCA Yearbook, 2012 including statistics from the PricewaterhouseCoopers/National
Venture Capital Association, MoneyTree™ Report based on data from Thomson Reuters


What venture capital firm looks for?

Management team (perfect track record?)
Concept and Business Model (superb scalability? Limited timeframe? Truly
innovative?)
Marketplace (world and international markets?)
Fit to the fund’s objectives (minimum 3-5x ROI?) Venture
Capital
Value-added potential for the firm
Capital needed to build a successful business
etc…
Angel
A busy venture capital professional’s most precious asset is time. Capital

If your concept doesn’t fit tough due diligence criteria it’s not
likely to get even a close look.
Private
Source: NVCA Yearbook, 2012; CrowdSynergy’s venture industry analysis and estimation Capital



Angel Capital Statistics Worldwide,
2011
Angel Capital invested:
$22,5B; 66,230 venture received angel funding*
$340K – median size of investment
42% - invested in seed/start-up stage
55% - invested in post-seed/start-up stage Venture
Capital

Angel Capital potentially available: $108,23B**
Angel Capital available for early-stage entrepreneurs: $21,8B
Angel
Angel Capital growth – 12,1%* Capital

Number of Business Angels: 318,480 (in the World)

Private
*Center for Venture Research, The Angel Investor Market in 2011, 2012 Capital

** 318K x $340K = $108,23B – theoretically available Angel Capital


Characteristics of Angel Capital
Investment
Characteristics
• Seek smaller deals
• Invest in high-tech firms • Leveraging effect
• Invest in all industry sectors Added Bonuses • Give loan guarantees
• Prefer start-up and early-stage • No high fees
Advantages
Venture
Capital
Angels’ Business Angels
Characteristics

Disadvantages
• Value adding
• Geographically dispersed Little follow-on Angel
money Capital
• More permissive investors Want a say in
Could turn out firm
No national to be “devils”
reputation to
Private
leverage Capital

Source: Pros and Cons of Business Angel Investments, 2000


What are Additional Screening Factors to
Get Capital from Angels and VCs?

Bureaucracy
Time to get funds from Angels and VCs
Gates:
by a country’s or region’s cultural fit,
Venture
tolerance for failure, Capital

services infrastructure that supports developing companies,
Intellectual property protection,
efficiency of capital markets and innovation ecosystem, Angel
Capital

the willingness of big business to purchase from small companies
world’s and region’s economic and political uncertainty
Private



Only 1% of entrepreneurs gets funding –
WHY of “Access to capital” problem

Only 1 ends up
being funded
Venture
Only 10 usually or so Capital

get a serious look
Angel

100 business plans come to a Capital

venture capital firm for funding
Private



Demand for Capital from
Entrepreneurs Worldwide

20 million projects have not received funding in 2011*
Annual global capital demand for early-stage innovation
projects is $2565-2790B in 2012**
Annual global capital demand for early-stage innovation
projects is $2950-3485B in 2013***
World capital demand for early-stage projects by 2030 will be
more!!!
Source: *CrowdSynergy’s venture industry analysis and estimation; ** 51,3 to 55,8 million x $50K (avg
size of preseed/seed capital) in 2012; *** 59 to 69,7 million x $50K (avg size of preseed/seed
capital) in 2012


Supply of Capital from Angels and
VCs Worldwide (just to remind…)

Sum of $31,27B reaches entrepreneurs (10% of available capital
by Angels and VCs)

World’s possibilities don’t fit World’s capital demand

Is there any solution or improvement that can be done?



Crowdfunding is…

Small Money, Large Crowd
JOBS act in USA as manifesto for private investors in 2012
No gatekeepers, anyone can invest (up to the limit - $1M in
USA)
Connects professional investors from outside network
Scales friends & family network
Greater transparency and trans nationality



Why Crowdfunding?

Faster go-to-market periods (the less time – the better for a project*)
Same access to information
Efficient and effective framework/tools/platforms via direct participation
New customer audiences
Access to new asset classes

Source: http://www.kickstarter.com/blog/shortening-the-maximum-project-length; www.crowdsourcing.org



Crowdfunding Models

Equity-based (15% of total CFPs*)
Donation-based (28% of total CFPs)
Lending-based (14% of total CFPs)
Reward-based (43% of total CFPs)

Source: www.crowdsourcing.org Report, 2012
* - in number of CFPs


Crowdfunding Models



CrowdFunding Market and Trends:
Crowdfunding Revenue Growth

Venture
Capital

Angel
Capital

Private
Capital

Source: Massolution, 2012


CrowdFunding Market and Trends:
Growth in Number of CFPs by Category

Venture
Capital

Angel
Capital

Private
Capital

Source: www.croudsourcing.com, Report 2012


CrowdFunding Market and Trends



Householding Savings Ratio in the
World, 1982 - 2012

Venture
Capital

Angel
Capital

Private
Capital



CrowdFunding for Entrepreneurs
Statistics 2012

536 Platforms
15% have equity-based model
114% growth
$2,81B Industry Revenue,
14% - equity-based model ($39M)
300% growth
$8000-57,400B – potential from
householding savings


Is it enough just to have
crowdfunding?

Simple answer is No, because:
We need to provide the system which will allow
entrepreneurs to:
Find Excellent Team
Develop Concept and Business Model with superb scalability,
within limited timeframe; truly innovative
Reach world and international markets
Add Value for Customers



CrowdSynergy as a
Virtual Business Incubator

We act in a virtual Internet space , not in physical one
We give opportunities and business support for everyone, regardless of his/her skills,
knowledge level, geographic location and status
We add values to existing business incubation and innovation ecosystem overcoming its
shortages, not competing with it.
Our purpose is to integrate all players of innovation ecosystem in one place (universities,
industry, R&D centers, funds, Vcs and Angels, business associations)
We use crowdsourcing and crowdfunding as main instruments
We provide support for average person, not only brilliant one.
We support all pre-seed and seed early-stage entrepreneurs who were rejected
(99% of entrepreneurs) by VCs/Physical BIs/Angels/etc.

We lay the foundations of the Value Creation Society



CrowdSynergy as a
Platform for Innovation Ecosystems
For entrepreneurs:
Get financing and access to funds
Get personal mentor/advisory board for your project
Get expertise and business support for your project (business model, strategy, marketing, PR, legal and
accounting services, mergers and acquisitions, etc)
Meet and hire team members, services for team building
Develop project inside the system using CrowdSynergy and partners’ SaaS services
Education services and courses
For investors:
Reduce risks of investments through professional instruments for managing startups portfolio
Find a project/team within your area of interests and expertise
Find partners for cofunding; Invest in project and manage your personal portfolio
Buy and sell shares/equity
For experts:
Find and join interesting project/team
Get options/shares in the project according to your contribution


CrowdSynergy Services and Solutions



Life Cycle of Typical Startup (with and
without CrowdSynergy services)




While other players try to screen and reduce their risks we build a
system where early-stage entrepreneurs could try their ideas,
develop concepts, reach first investors, mentors and experts in 3-5
steps and increase their chances for success without any risk for
them:
Register in the platform www.crowdsynergy.com
Fill in info about you, your idea/project
Promote and develop your project through services for free
Get expertise and market validation of your ideas/projects from crowd.
Successfully? Then … next step
Try to reach your first crowd investor/angel/VC investor through our
platform or our partners.


About CrowdSynergy

Entrepreneurship Main Problems of Venture Capital in the Fundraising through
Statistics Entrepreneurs World Crowd funding


CrowdSynergy

Vasily Ryzhonkov
R&D Director
vasily.ryzhonkov@crowdsynergy.com
http://worldbusinessincubation.wordpress.com/
+7 916 652 95 02 (Russia)
+46 76 7158679 (Sweden)

CrowdSynergy
www.crowdsynergy.com


Fundraising as the main entrepreneurs problem

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (15)

Similar to Fundraising as the main entrepreneurs problem

Similar to Fundraising as the main entrepreneurs problem (20)

Fundraising as the main entrepreneurs problem