Crowfunding - Principles & Technics
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This document provides an introduction and overview of crowdfunding. It defines crowdfunding, discusses the different crowdfunding models and size of the crowdfunding market. It also outlines the important perspectives of entrepreneurs, backers, and platforms. Key aspects covered include the role of crowdfunding compared to traditional financing, legal frameworks, cash flows and selection criteria. The document provides context to help understand crowdfunding opportunities and considerations.
Crowfunding - Principles & Technics
- 1. INTRODUCTION TO THE CROWDFUNDING EVENT 24/01/2013 Azèle Mathieu Rodolphe d’Udekem d’Acoz Advisors Business & Finance @ BEA 1
- 2. 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 2
- 3. INTRODUCTION • Definition • Market composition • Role regarding traditional financing solutions • Important aspects from different perspectives: the entrepreneur the backers the platform 3
- 4. CROWDFUNDING • Definition • Market composition • Role regarding traditional financing solutions • Important aspects from different perspectives: the entrepreneur the backers the platform 4
- 5. STARTING FROM A BASIC PRINCIPLE… Source: wordpress.com 5
- 6. …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 Source: Ordanini et al. (2011), Prive (2012) 6
- 7. THERE EXIST DIFFERENT CROWDFUNDING MODELS: Non-financial return for funders Financial return for funders Donation-based Reward-based Equity-based Lending-based Philanthropy or Non-monetary Dividend / Fixed periodic sponsorship rewards Capital gain income New financing sources for Source: adapted from Massolution (2012) companies! 7
- 8. CROWDFUNDING: REALLY NEW? Source: Farrell (2012) 8
- 9. CROWDFUNDING • Definition • Market composition • Role regarding traditional financing solutions • Important aspects from different perspectives: the entrepreneur the backers the platform 9
- 10. HOW LARGE IS THE CROWDFUNDING “SECTOR”? Worldwide: - In 2011: CFPs: $1,5 B - US Business Angels: ~$22,5 B - In April 2012: 452 active crowdfunding platforms EU (2011): • CAGR raised funds: 40% • CAGR number US (2011): of CF firms: • CAGR raised 60% funds: 90% • CAGR number of CF firms: 30% Source: Massolution (2012), Brown (2012) 10
- 11. EU COMPARED TO US 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%) Source: Massolution (2012) 11
- 12. EQUITY- AND LENDING-BASED CF Millions of $ 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 Source: Massolution (2012) 12
- 13. CROWDFUNDING • Definition • Market composition • Role regarding traditional financing solutions • Important aspects from different perspectives: the entrepreneur the backers the platform 13
- 14. CF: FINANCING « TOOLS » FILLING SOME GAPS… Risk level and expected return Debts (i.e. from banks) Stock 15% markets Trade Sale 25% Equity VC Grants Private Specific 35% funds Bussiness Angels Public 50% University funds investment funds Lending-based CF FFF Equity-based CF Seed Start-up Development Growth Consolidation Company maturity Source: adapted from Olivier Witmeur MBA BP 2012 & Women Business Angels Club 14
- 15. 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 15
- 16. CROWDFUNDING • Definition • Market composition • Role regarding traditional financing solutions • Important aspects from different perspectives: the entrepreneur the backers the platform 16
- 17. 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 17
- 18. Different players, Different perspectives 18
- 19. Important aspects: (1) Legal framework for the platform Belgian regulation Public investment offering >= or < 100.000 € (un)public information … and FSMA tends to to (un)limited nbr of avoid / postpone the people design of a clear and proper framework for crowdfunding activities 19
- 20. Important aspects: (2) Main contractual / legal connections Connections not always present and other ones may apply ! 20
- 21. Important aspects: (3) Cash flows, costs and revenues Potential recurrent revenue / cost Funds invested success by the crowd failure Potential Success fee other costs 21
- 22. 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 22
- 23. 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) 23
- 24. 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 24
- 25. 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 25
- 26. 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 26
- 28. 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. 28
- 29. Thank you for your attention ! Brussels Enterprise Agency E-mail: business@abe.irisnet.be Web : www.abe.irisnet.be www.1819.be www.monstarterkit.be www.ecosubsibru.be Tel 1819 info@1819.be 29