FUTURE OF CROWDFUNDING IN ASIA

18 JULY, 2014

Jeffrey C Chi, Ph.D., CFAVice Chairman (Asia Investments) Vickers Venture PartnersChairman, Singapore Venture Capital & Private Equity Association

• Successfully raised money for 2 campaigns in 2013 for new businesses

• Tested market for 3rd business, decided to pull project

CROWDFUNDING – TESTING THE MARKET

• Launched in 2012 via a Kickstarter campaign Raised $300,000

• Pre-sold 2500 watches via kickstarter, since sold 130,000 units

• Launched 2nd brand in March 2014.

CROWDFUNDING – SEED FUNDING

CROWDFUNDING – PRE-SALES

TOP CROWDFUNDED BUSINESES

June 22, 2014

Star Citizen has surpassed $47m in amount raised

• Raised $2.4m via Kickstarter (Sep 2012)

• Raised the needed $250k within 4 hours

• Raised a total of $91million in crowdfunding / venture money

• Sold to Facebook for $2 billion (March 2014)

WHAT IS CROWDFUNDING?

Using small amounts of money from a lot of people to fund something

Source: PWC

Crowdfunding – an alternative source of capital

BENEFITS OF CROWDFUNDING

• Securing funding needed

• Demonstrates the viability of a business idea or venture (Proof of concept)

• More intimate audience engagement creates a deeper sense of participation with potential customers (pre-marketing)

• Crowdsourced ideas for improvements / new features

Crowdfunding – the new angel investor?

IN 2012, OVER 530 CROWDFUNDING PLATFORMS & US$3B RAISED

Source: www.crowdsource.org

SOCIAL MEDIA A KEY DRIVER OF CROWDFUNDING

• Rate of dissemination• Ability to reach out to a lot more people more quickly than ever before.

• Richness of communication• Provides the ability demonstrate a product before it is actually produced

Fundamentally changing the way consumers make purchase and investment decisions

NUMBER OF VENTURE CAPITAL DEALS BY REGION

TYPES OF CROWDFUNDING

Source: www.streetwise.co

• Lending based crowd funding proliferated through the launch of P2P lending sites (e.g. Prosper in 2006)

• Equity based crowd funding held back by regulatory constraints• E.g. General solicitation

REAL ESTATE BASED CROWDFUNDING• Direct real estate investments is lumpy

• High level of control and transparency but large capital amounts required• Transaction costs may be high

• REITs (Real Estate Investment Trust) or Real Estate Funds• More accessible and lower risks as investments are spread across multiple

properties• Lack of control over what properties are bought and sold and management costs

can be high

• Crowdfunding• Can take advantage of low entry levels and ease of investment process• Yet maintain high level of control on which assets to put into portfolio as opposed

to relying on a REIT manager• “Best of both worlds”

PAVING THE WAY FOR EQUITY BASED CROWDFUNDING

• April 2012, President Obama and Congress passed the Jumpstart our Business Startups (JOBS) Act

• IMPACT:

Source: Fundable

JOBS ACT - THE CONTROVERSY• FOR

• Facilitates capital formation by emerging growth companies thereby stimulating economic growth and job creation

• AGAINST• Removing important investor protections in the federal security laws and thereby enabling

fraud• Creates a problem for startups. Later stage venture capital investors may be deterred to

participate in companies that have accumulated a “crowd” of smal shareholders

Source: Fundable

“Naivete is the issue, not fraud. Most angel investors do not make”“No matter how much information you give investors, they will sometimes still make poor decisions”“There are a lot of sophisticated investors who are not accredited investors and this law is good for giving those people the opportunity to participate”

REGULATORY ENVIRONMENT IN ASIA• Momentum of crowdfunding too strong to be ignored.

• Should be embraced, not ignored

• Several countries including Singapore & Malaysia have stated intention to promote crowdfunding to kickstart businesses (already recognize the benefits that crowdfunding brings)

• Currently no clear regulations across Asia This provides no clarity for operators and restricted in the way they do business

• Regulators cannot afford to “wait and see”, urgently requires rules to be established.

Players in the industry need to pro-actively drive the agenda.SVCA willing to participate

DR. JEFFREY CHI, CFA季淳钧博士 , CFAJEFF.CHI@VICKERSVENTURE.COM

Source: Zero2IPO H1 2013 report July 2013

AFTER 2012, IPO ACTIVITY HAD COLLAPSED

• Offshore IPOs stalled after a flurry of activities reducing the confidence of investors in Chinese tech stocks• Jack Ma severing the VIE Structure in relation to

Alipay• Corporate governance issues in Chinese companies

• Onshore IPOs stalled again due to reform of IPOs. No onshore IPOs from Nov 2012.

A BRIEF HISTORY• 2008 Indiegogo launched

(enables people to donate funds easily by removing middlemen)

• 2008 peerbackers launched (gives contributions in exchange for rewards or perks)

• 2009 Kickstarter launched (funding platform for creative projects in return for rewards)

• 2011 President Obama unveils the Startup America Initiative

• 2012 Fundable (first equity crowdfunding platform to launch in conjunction with the JOBS Act

• 2012 President Obama signs JOBS Act into law.

• 1884, Joseph Pulitzer through his newspaper New York World raised over US$100,000 from 125,000 people in 6 months to build the pedestal for the Statue of Liberty

• 1997, fans of the British rock group Marillion raised US$60,000 to underwrite their US tour

• 2003 ArtistShare – first documented crowdfunding site for music

• 2005 Kiva – provides individuals the chance to provide small loans to entrepreneurs in poor areas around the world

• 2006 Propser – First peer-to-peer lending marketplace in the US

• 2006 – The term crowdfunding is coined by Michael Sullivan (Founder of FundaVlog)