EARLY TRENDS IN EQUITYCROWDFUNDING

PRESENTED BY

THE F INAL RULES IMPLEMENTING THEEQUITY CROWDFUNDING PROVIS IONSOF THE JOBS ACT WENT INTO EFFECT

IN MAY 2016.

We examined a number of the firstcrowdfunding offerings to see what early

trends, if any, exist.

DATA SOURCE

U.S. Securities and Exchange CommissionEDGAR online filing systemFirst 100 crowdfunding campaigns filedSpanning from May through September2016

INDUSTRY TYPE

MANY INDUSTRIES ARE USINGCROWFUNDING

Mobile App/InternetServices is largest segment

Professional Services,Beer/Spirits and Hospitalityalso had strong showings

Almost all industries,(including non-profit andenergy sectors) wererepresented

Regardless of industry, approx. 60% ofthe offerors had been in business for1 year or less. A staggering 85% ofofferors had been in business for 5years or less. A significant majority ofbusinesses were in the startup andpre-revenue stage with 70% havingannual assets of $100,000 or less.These trends are consistent with whatone would expect and the purpose ofthe JOBS Act in creating an avenue forstartups and newer businesses whoare not ready or able to accesstraditional capital markets.

MORE TRENDS

TYPE OF SECURITY

EQUITY

Over 50% of crowdfunding campaigns offered equity

Common stock (or LLC membership units) was thepredominant type of security offered

The strong preference (about two-thirds) was tooffer non-voting equity

In preferred stock offerings, a liquidation preferencewas the most frequent right and preference offered

DEBT

Approximately one-half of the debt offerings wererevenue-sharing notes that offered purchasers areturn of between 1.5X to 2X on their investment

Term notes and convertible notes comprised theremaining half of debt instruments offered

Most common annual rate of interest: 5-6%

Term of note: Widely varied (12 mos. - 12 yrs)

SIMPLE AGREEMENT FOR EQUITY

Simple Agreements for Equity (SAFEs) were the mostcommon type of convertible security, allowingholders to convert their SAFE into preferred stock atthe next financing of the offeror (or into commonstock if additional financing was not secured)

Discounts on next round pricing commonly rangedfrom 20-25%

Valuation caps ranged between $1.5-$4 million

TARGET AMOUNT

APPROXIMATELYONE-HALF OF THECROWDFUNDING

CAMPAIGNSSURVEYED WERE

AIMING TO RAISE AMINIMUM TARGET

AMOUNT OF$50,000 AND 80%HAD A MINIMUMTARGET AMOUNTOF $100,000 OR

LESS

Up to $1 Million can be raised

POSSIBLE EXPLANATIONS FORLOW TARGET AMOUNTS

Attempting to stay below the thresholds that wouldhave required more detailed ongoing financialreports to investors

With all-or-nothing stakes, setting the bar lowenough to ensure a successful result

Using crowdfunding campaign to supplementtraditional seed round already underway

FEES & DOCUMENTATION

RANGE OF FEES

19 crowdfunding portalscurrently registered withSEC

Transaction fees rangedfrom 3-10% of the totalamount raised through acampaign

3% (1)

5% (5)

6­7% (3)

8% (2)

10% (3)

(x) is the no. of portals in that fee range

THE CROWDFUNDING PORTALWITH THE LOWEST FEE

(WEFUNDER @ 3%)HOSTED

NEARLY 40% OF ALLCROWDFUNDING CAMPAIGNS

The quality of investor disclosuredocumentation varied greatly. Mostbusinesses used the SEC's Q&Aformat for disclosures over the moretraditional private placementmemorandum.

DOCUMENTATION

SUCCESS RATE

THE EARLY RESULTS

For equity crowdfunding campaigns that opened inMay 2016 and closed within 90 days, only 28% wereable to reach their crowdfunding goal but manyexceeded their minimum target for funding

The success rate for rewards-based crowdfunding(Kickstarter, GoFundMe, etc.) is approx. 33%

Early indications are that rewards-based vs equitycrowdfunding success rates may be comparable

A FEW SUCCESSFULCAMPAIGNS

Issuer Business TypeMinimum

TargetAmountRaised

Exemplars Internet/Mobile App $50,000 $54,620Youngry Internet/Mobile App $50,000 $69,920MobileSpike Commercial Product $50,000 $92,000EveryFit Medical Device $50,000 $100,000N1CE USA Beer / Spirits $50,000 $101,386Sam Lee LaundryCollective HTXNative Hostel AustinCleveland WhiskeyBeta Bionics

Entertainment $50,000 $476,851Co-Working Space $150,000 $230,500Hospitality $275,000 $396,500Beer / Spirits $100,000 $731,164Medical Device $50,000 $1,000,000

THANK YOU!