Crowfunding - Principles & Technics
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Transcript of Crowfunding - Principles & Technics
INTRODUCTION TO THE CROWDFUNDING EVENT 24/01/2013
Azèle Mathieu Rodolphe d’Udekem d’Acoz
Advisors Business & Finance @ BEA
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AGENDA OF TODAY
• Introduction
• Presentation of Crowdfunding platforms:
My Micro Invest Guillaume Desclée
Look & Fin Frédéric Levy Morelle
• Testimony of companies:
2Houses Gill Ruidant
Saint-Aulaye Jean-Louis Barré
• Discussion
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INTRODUCTION
• Definition
• Market composition
• Role regarding traditional financing solutions
• Important aspects from different perspectives:
the entrepreneur
the backers
the platform
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CROWDFUNDING
• Definition
• Market composition
• Role regarding traditional financing solutions
• Important aspects from different perspectives:
the entrepreneur
the backers
the platform
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STARTING FROM A BASIC PRINCIPLE…
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Source: wordpress.com
…TOWARDS A DEFINITION OF CROWDFUNDING…
“…describes the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.”
For entrepreneurs:
Crowdfunding = new financing source
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Source: Ordanini et al. (2011), Prive (2012)
Non-financial return for funders Financial return for funders
Donation-based Reward-based
Equity-based
Lending-based
Philanthropy or sponsorship
Non-monetary rewards
Dividend / Capital gain
Fixed periodic income
THERE EXIST DIFFERENT CROWDFUNDING MODELS:
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New financing sources for companies! Source: adapted from Massolution (2012)
CROWDFUNDING: REALLY NEW?
8 Source: Farrell (2012)
CROWDFUNDING
• Definition
• Market composition
• Role regarding traditional financing solutions
• Important aspects from different perspectives:
the entrepreneur
the backers
the platform
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HOW LARGE IS THE CROWDFUNDING “SECTOR”?
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Source: Massolution (2012), Brown (2012)
Worldwide:
- In 2011: CFPs: $1,5 B - US Business Angels: ~$22,5 B
- In April 2012: 452 active crowdfunding platforms
US (2011): • CAGR raised
funds: 90% • CAGR number of
CF firms: 30%
EU (2011): • CAGR raised
funds: 40% • CAGR number
of CF firms: 60%
EU COMPARED TO US
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Source: Massolution (2012)
A higher CAGR in terms of CFPs (60% >< 30%)…
Good indicator given that…
new entrants CFPs generates 25% of overall fund raising
A higher share of equity- and lending-based CFPs (31% >< 18%)
EQUITY- AND LENDING-BASED CF
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Source: Massolution (2012)
Around half the overall raised funds
Equity-based:
• Not the largest overall source of funds…
• But largest raised amount of funds/campaign ($85k><$5k or less for other)
• …and growing… primarily in EU
Millions of $
CROWDFUNDING
• Definition
• Market composition
• Role regarding traditional financing solutions
• Important aspects from different perspectives:
the entrepreneur
the backers
the platform
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CF: FINANCING « TOOLS » FILLING SOME GAPS…
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Source: adapted from Olivier Witmeur MBA BP 2012 & Women Business Angels Club
15%
25%
35%
50%
Seed Start-up Development Growth Consolidation
Company maturity
Risk level and
expected returnDebts (i.e. from banks)
Grants
FFF
Universityinvestment
funds
Bussiness
AngelsPublic
funds
Specific
funds
VC
Private
Trade
Sale
Stock
markets
Equity
Equity-based CF
Lending-based CF
COMPLEMENTARY ROLES TO TRADITIONAL FINANCING SOURCES
• Equity-based CF:
To consolidate equity and leverage access to other
financing sources such as bank loans
• Lending-based CF:
For entrepreneurs who want to avoid dilution but
project is (still) too risky for a traditional bank loan
Or entrepreneurs who lack guarantee to back loans
To complete a bank loan, ↓ the overall risk, ↑
probability of getting the funds
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• Definition
• Market composition
• Role regarding traditional financing solutions
• Important aspects from different perspectives:
the entrepreneur
the backers
the platform
CROWDFUNDING
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Important aspects from different perspectives
• Three main players with their own perspectives:
the entrepreneur (project)
the backers (crowd)
the platform
• Additionnal players potentially involved in the process :
Law firm(s) & Bank
Professional investors
The regulatory authority (= FSMA in Belgium), etc
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Different players, Different perspectives
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Important aspects: (1) Legal framework for the platform
Belgian regulation
Public investment offering
>= or < 100.000 €
(un)public information to (un)limited nbr of people
… and FSMA tends to avoid / postpone the design of a clear and proper framework for crowdfunding activities
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Important aspects: (2) Main contractual / legal connections
Connections not always
present and other ones may apply !
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Important aspects: (3) Cash flows, costs and revenues
Funds invested by the crowd
failure
success
Success fee Potential other costs
Potential recurrent revenue / cost
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Important aspects: (4) What the platform provides
• Upfront management of projects:
Collection, screening, selection
Advice on valuation (optional)
Services related to communication (optional)
• Visibility for the projects to be funded
• Closing management of projects:
Supervision of the fund clearing with the bank
Supervision of the legal clearing between the funded company and the funding individuals (crowd)
• Point of attention: platform’s responsibility
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Important aspects: (5) Selection’s criteria of platforms
• Selection’s criteria of platforms (following their positioning)
Degree of professionalism, maturity and credibility of the project and the information material provided
Return on Investment to be expected
Innovative character (not meaning technological)
Sector
“Sexiness” of the presentation to the crowd
Chance of success of the fund raising (thus not only based on pure classic criteria as for professional investors)
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Important aspects: (6) Requirements for a good projects
• Provide to the platform management different types of information on the project: the project itself, the value proposition, the differentiation, the team, the business model, the financial forecast, etc
• As usual credibility (of the project and the team) is key
• But in the case of crowdfunding, presentation is paramount and a “sexy” video presentation is often a must
• There should be “something” that speaks to the collective or individual mind, imagination or dreams of the crowd
• Finally, all platforms have specific characteristics of their own, as do their respective crowds, which the entrepreneurs should also consider in the equation
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Important aspects: (7) What the crowd expects and provides
• What the crowd expects :
The project to be clearly presented
To be (quickly) convinced
To be seduced with a project that speaks to its mind
To get a specific level of ROI (return of investment)
• What the crowd provides :
A proof of concept of the project
A first base of clients
Funding
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Last important aspects:
• Technical characteristics of the transaction : crowd model (4), amount, tenor, costs-revenue-reward structure, etc
• The fund raising usually follows an ”all or nothing logic” : be strategic
• Valuation of the company: maximisation vs fair level
• Dilution: % of shareholder equity to match the raised fund
• Management of relation with investors after the transaction
NB: All those “parameters” and aspects (and other ones) should be considered while discovering the value proposition of each individual platform
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Source: Crowdfunding Educators
REFERENCES
• Brown, T.K. (2012). 2011 Angel Market Trends. Podium Ventures.
• Farrell, J. (2012). The JOBS Act: what startups and small businesses need to
know. Forbes.
• Massolution - Crowdsourcing.org (2012). Crowdfunding industry report -
Market Trends, Composition and Crowdfunding Platforms.
• Ordanini, A., Miceli, L., Pizzetti, M. and A. Parasuraman (2011). Crowd-
funding: Transforming customers into investors through innovative service
platforms. Journal of Service Management 22 (4): 443.
• Prive, T. (2012). What is Crowdfunding and how does it benefit the
economy. Forbes.
• Steinberg, S. and R. DeMaria (2012). The Crowdfunding Bible: How to raise
money for any startup, video game, or project. Read.me.
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Thank you for your attention !
Brussels Enterprise Agency
E-mail: [email protected]
Web : www.abe.irisnet.be
www.1819.be
www.monstarterkit.be
www.ecosubsibru.be
Tel 1819
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