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: business@abe.irisnet.be

Web : www.abe.irisnet.be

www.1819.be

www.monstarterkit.be

www.ecosubsibru.be

Tel 1819

info@1819.be

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