Ultimate Investors Playbook to Crowdfunding

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TIPS FROM 33 OF THE WORLD'S MOST INFLUENTIAL CROWDFUNDING EXPERTS

The Ultimate Investor's

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http://www.ourcrowd.com

The potential returns available from investing in the next Apple or Google are huge, but so are the risks. If youre looking for ways to profit from the equity crowdfunding revolution, but wondering how to go about it, look no further.

Weve interviewed more than thirty of the worlds top crowdfunding experts including Barbara Corcoran, Tim Draper, Steve Dresner, Douglas Ellenoff, Ronald Kleverlaan, Charles Luzar, Tanya Prive, Richard Swart, and Senator Mark Warner to bring you this investor playbook. We highlight the asset allocation and diversification strategies that the pros use to mitigate the risks inherent in this exciting asset class and explore the whys and hows of due diligence. We also highlight what the pros look for when selecting crowdfunding intermediaries and show you how to tap into the wisdom of thecrowds to build your investment portfolio.

Weve taken the guesswork out of the equation so you can focus on increasing your chances of success.

So please enjoy these insider tips and tell us what you think.

THE ULTIMATE INVESTORS PLAYBOOK TO CROWDFUNDING

Jon MedvedSerial Entrepreneur

Investor and CEO,

OurCrowd

P l a yb o okHello!


Introduction

Your Play-by-Play Guide To Equity Crowdfunding

Do Well By Doing Good

Recognize That Startup Investing Is Risky

Keep Your Cool

Know What You Can Afford To Lose

Spread Your Investment Funds Across Asset Classes

Dont Put All Your Eggs In One Basket

Choose Crowdfunding Platforms Wisely

Do Your Due Diligence

Invest In People You Trust

Invest In What You Know

Make Sure The Numbers Add Up

Know Your Rights

Tap Into The Crowds Collective Wisdom

Meet Our Panel of Crowdfunding Experts

Closing Thoughts

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Contents


Video games are one of the hottest commodities in crowdfunding, with Chris Roberts Star Citizen earning the top spot as the largest crowd-funded project ever. To date, 399,776 backers have pledged US $39.4 million blowing past the initial $500,000 Kickstarter goal in a matter of weeks. Star Citizen is aiming to be the first AAA game developed with money from fans instead of a major publisher. Clearly, theyre well on their way.

This campaign is just one reason investors are hailing 2014 a watershed year for the crowdfunding industry.

Beginning this year, insiders expect crowdfunding generally, and equity crowdfunding for accredited investors in particular, to skyrocket. According to an OurCrowd analysis of the ten largest equity crowdfunding platforms (excluding those that invest in real estate), an estimated $700M of investments will be made in 2014 via equity crowdfunding platforms for accredited investors on platforms like AngelList and OurCrowd.

Global access to capital fundraising campaigns and greatly increased transparency open the doors for investors to potentially get in on the NEXT BIG THING, possibly anywhere. We are also seeing a steadily increasing number of entrepreneurs turn to equity crowdfunding as their preferred method of capital fundraising.


Introduction


Be prepared!

We interviewed 33 of the worlds foremost experts in equity crowdfunding industry insiders, politicians, journalists, platform vendors, angel investors, entrepreneurs and industry analysts to understand how they are approaching this revolution in innovation finance.

And weve assembled this playbook to help increase your odds of success. Each play in this ebook acts as a challenge and an opportunity for you, the investor, to adopt this powerful new wave of startup investing,and make it your own

Now, lets get started.



Startup investments can potentially yield extremely high ROI. While most startups wont achieve Facebook or Dropbox returns (62,000% and 39,000% ROI, respectively), a long-term investment of 5-8 years in the right startup could produce higher returns than any other asset. Tanya Prive

Participating in the growth of a local business, supporting an entrepreneur with a passion, those are cool things to do, in and of themselves. Be part of something new and innovativebecause you think people doing their own thing and pursuing their own dreams are authentic, because you are patriotic and support innovation [in your country]. Or for other non-financial reasons. William Carlton

In recent years, weve seen a decrease in traditional funding avenues for startups. Crowdfunding has the ability to fill these funding gaps and be a game changer, not only for startups and small businesses, but for investors as well. Crowdfunding portals are already building communities online that facilitate earlier matches among investors and startups, giving an expanded group of investors greater opportunity to provide a pivotal role in a startups viability. Senator Mark Warner

Do Well By Doing Good3 Key Playpoints

THE ULTIMATE INVESTORS PLAYBOOK TO CROWDFUNDING 1


Research shows the odds are stacked against new businesses. Amanda Boyle

It's important for anyone considering investing in startups to remember that startups are inherently risky - a few take off, but most don't work out, and there's currently no standardized metrics to help inexperienced investors evaluate risk. Renaud LaPlanche

Even good business plans can fail. There is a lot of risk involved. Investors should understand that not all of the startups they invest in will be the next Google or Facebook. Senator Mark Warner

The general rule of thumb is that out of 10 start-ups, three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. It cannot be expected that miracles will happen in cases where startups are funded via crowdfunding. Korstiaan Zandvliet

Recognize That Startup Investing Is Risky 4 Key Playpoints



It's a hugely exciting thing we're doing here. Having said that, I don't think any pragmatic crowdfunding enthusiast would advocate startup investing in the absence of some other basic tenets of investing.

If your employer matches 401(k) contributions, are you taking full advantage? Do you have a sufficient amount of cash saved in case of an emergency? If the answer to these questions is no, you probably shouldn't be investing in startups just yet.

This is simply one part of the bigger investing picture, not the be-all and end-all of wealth creation. For those who have established and executed a solid investment strategy, injecting a well-balanced, diverse portfolio of startups via crowdfunding can and hopefully will give unaccredited investors the chance to experience some of these 10x and 20x returns they've been shut out of until now. Charles Luzar

Keep Your Cool1 Key Playpoint



Know what you can afford to lose, and dont invest more than that amount. Kendall Almerico

People who have never invested in startups need to proceed very cautiously, or they are going to lose tremendous amounts of money. Sramana Mitra

In general, investors in start ups should look at the money as gone, and if anything comes back, think of it as your birthday. Investors in crowd funded companies should also do everything they can to help their companies succeed, but when companies fail, shake hands and walk away. No need to fight for scraps that don't exist. Tim Draper

The odds that you are investing in the next Facebook are astronomically lower than your odds in Vegas - most of the firms with traction will be acquired rapidly yielding a good return, but don't invest in a startup unless you can afford to lose that money. Richard Swart

Know What You Can Afford To Lose4 Key Playpoints

Video games are one of the hottest commodities in crowdfunding, with Chris Roberts Star Citizen earning the top spot as the largest crowd-funded project ever. To date, 399,776 backers have pledged US $39.4 million blowing past the initial $500,000 Kickstarter goal in a matter of weeks. Star Citizen is aiming to be the first AAA game developed with money from fans instead of a major publisher. Clearly, theyre well on their way.

This campaign is just one reason investors are hailing 2014 a watershed year for the crowdfunding industry.

Beginning this year, insiders expect crowdfunding generally, and equity crowdfunding for accredited investors in particular, to skyrocket. According to an OurCrowd analysis of the ten largest equity crowdfunding platforms (excluding those that invest in real estate), an estimated $700M of investments will be made in 2014 via equity crowdfunding platforms for accredited investors via on platforms like AngelList and OurCrowd.

Global access to capital fundraising campaigns and greatly increased transparency open the doors for investors to potentially get in on the NEXT BIG THING, possibly anywhere. We are also seeing a steadily increasing number of entrepreneurs turn to equity crowdfunding as their preferred method of capital fundraising.

4 THE ULTIMATE INVESTORS PLAYBOOK TO CROWDFUNDING


The best way to minimized investment risk when investing in startups via crowdfunding is to understand that crowdfund investments are a new asset. As an asset they should be a part of a fully diversified portfolio. Because crowdfund investments are all high risk, they should represent a small percent of anyone's overall portfolio. Sherwood Neiss

Only invest about 5 to 10 percent of your total investment portfolio in startups. If you have total investments of $200,000, that would give you just $10,000 to $20,000 for startup investing. And build that portfolio over the course of time. Don't rush it. You'll get better at this with experience. Devin Thorpe

"Start with smaller affordable amounts of money and invest in sectors and businesses that you understand or are more familiar with. Focus on the Idea, its Market Opportunity and the People behind that business and their ability to deliver against their plans. Once you are more comfortable with the process and how crowdfunding works you can increase the amount that you invest. Luke Lang

Spread Your Investment Funds Across Asset Classes3 Key Playpoints



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Don't bet your entire wad on one sure thing. Spread it around. Devin Thorpe

Invest across a large number of businesses to ensure that your portfolio - as a whole - has the best prospects for producing significant returns. Fifty different businesses is not an over-the-top objective, and is perfectly achievable over time given the very low minimum investments that Seedrs and some other platforms operate. Jeff Lynn

While individual startup investments are very risky, well-rounded portfolios of angel investments have generated 20%+ returns over the last decade. An investors goal should not be to pick the next Instagram but to build a well-rounded portfolio of companies based in different regions and in different sectors. Ryan Feit

Diversify across industries, regions, company, financing structures and size/stage, allocating less funds to the earliest stage, unproven business models and more to some of the later stage businesses in the space. Dara Albright

Dont Put All Your Eggs In One Basket4 Key Playpoints



Choose Crowdfunding Intermediaries Wisely4 Key Playpoints

Investors need to do their homework as all portals will not be created equally. Investors should ask themselves: What are the platforms company filtering mechanisms? Are deals highly-vetted or is it simply an open platform where you are on your own? What is the background of the management team? Do they have prior experience investing or deep sector expertise? Does the platform have access to solid deal flow? Do they get access to deals led by professional venture capital firms and angel groups? Ryan Feit

Until the market matures I would look for a portal with superb selection and sourcing mechanisms such as CircleUp (sector specificity in consumer goods), OurCrowd (amazing site that allows you to invest primarily in Israeli tech startups with a VC firm-like [model]),or Healthios Exchange (best example of verticalized platform with ties to Venture, Private Equity and Investment Banking). Richard Swart

Keep an eye on different platforms to always know what are best practices and what is best for you. Drop platforms that you do not feel comfortable with or that are not transparent. Oliver Gadja

The equity portals needs to show the investor what information they collect, how it is collected and reviewed. The equity portal also needs to show the investor what happens after they invest, how the company will report to them, and how will they be able to get access to their information related to the investment and company. The investor can then begin to review the investment listing with more confidence. Oscar Jofre, Jr.



It doesnt matter what kind of investment were talking about, investors have to do their own due diligence before making a financial commitment to a company.Theres no substitute for this. Senator Mark Warner

I think there will be a very direct correlation between success and education among individual investors. The more time an individual investor spends studying and understanding the world of startups and crowdfunding, the better he or she will do. There will be people that don't perform this due diligence before participating, and they're going to feel sideswiped by the generally illiquid and risky nature of startup investing. Don't be that person. You wouldn't hop into a plane and take off without reading the manual first. Don't invest in startups without spending some time familiarizing yourself. Charles Luzar

Ask for corporate tax returns as all companies must provide at least this much.An experienced accountant can tell you if anything looks out of line. Companies asking for less than $500,000 dont have to provide audited financial statements, but you can often get them by requesting them anyway. Some disclosure-friendly officers may even provide their personal tax returns. Ask. Barbara Corcoran

If you have never invested in a startup, it is better that you join a syndicate led by an experienced investor with some track record who knows how to do due diligence, set terms, and manage the relationship with entrepreneurs. Sramana Mitra

Do Your Due Diligence4 Key Playpoints



Start by investing the way angel investors have been doing it for years. Invest in people you know or who know people you know and trust. Focus on people within your geographic community or social sphere so that you'll know where to find the entrepreneurs easily and won't be left wondering what has happened. Douglas Ellenoff

Invest in founders who have domain expertise in the business they are raising capitalfor and founders who have shown an ability to create value in prior ventures. Steve Dresner

Whenever possible, invest in startups managed by people with a proven track record. In an ideal scenario, you or someone in your network should have personal insight into the founding team's past performance and ability to execute on their ideas. Chris Camillo

Meet the founders! Investing in startups is investing in people. A startup will change its business model (and sometimes their core-product) several times. Only good entrepreneurs and investors that are flexible can handle this. Furthermore: enjoy the ride with all its ups and downs. Ronald Kleverlaan

Invest In People You Trust4 Key Playpoints



Invest In What You Know5 Key Playpoints

Invest in a business you know something about and believe in and trust your gut! I've made money on every investment I made listening to my gut, and I've lost anytime I ignored it. Barbara Corcoran

Use your experience and life skills when investing. If you are in the healthcare field, you might look at companies that are developing medical devices. If you are in the hospitality industry, you may have just the skills to judge whether a new food product will appeal to consumers. Sara Hanks

Know the market from the micro to macro level market, regulatory, and product risks. Each sector goes through phases from early to a mature, saturated phase. Avoid sectors in an over supply situation. Antonio Arias

If you invest in what you know, it's easier to determine whether the team has integrity, whether the business model makes sense, and how your investment will result not just in financial return for you but social return for your community. Jenny Kassan

Some of the most successful crowdfunding projects started because experienced investors didnt understand that there was latent demand for a new product category. Gamers, rather than VCs, funded Oculus Rift because they knew that they wanted to experience virtual reality, even though investors were not interested because of a lack of proven demand. Technology enthusiasts backed Pebble Watch because they wanted wearable computers, an area that conventional wisdom, without much recent evidence, suggested was a dead-end. Ethan Mollick



Dig into the startups financial statements, scrutinize their financial projections, and evaluate the metrics they use to measure traction. If the numbers dont tell a compelling and realistic story, then you should find another company to invest in. Tim Sullivan

Understand the basic economics that determine success or failure, such as: What is the size of the total addressable market the company aims to penetrate? What percentage of that market do they expect to capture? What is the cost of customer acquisition vs. the lifetime value of a customer? Founders should have consistent and reasonable answers to these basic questions. Steve Dresner

Make sure that the plan for the use of proceeds is detailed, salaries aren't too high, there aren't related party relationships/ conflicts of interest and that the amount being raised will last a sufficient amount of time so that the company isn't perpetually fundraising. Douglas Elenhoff

Beware of verticals with arbitrary benchmarks for success. Ask yourself if you truly understand them, and how they translate into revenue. Rory Eakin

It is always hard to evaluate startups, but one good indicator is their performance history. When you start to follow a startup, you can see what they can achieve in the early phase with small amounts of money or without money, and, if they get a small investment, how well they can utilize it. You should never only take a kind of snapshot from a startup, but really track their performance and history. Jouko Ahvenainen

Make Sure The Numbers Add Up5 Key Playpoints



Know Your Rights1 Key Playpoint


Know the rights that come with your securities:

Sara Hanks

Do you get to vote?

On everything, or only on important matters?

What will your rights be if the company does another round of capital-raising?

Can the next investors force you to sell your securities?

If you need to sell your securities, how will you do that?

Who is keeping the record of your ownership of your securities?


Real crowdfunding can demonstrate whether there is a market and whether customers are prepared to pay for the product or service." Amanda Boyle

Pay attention to what other investors are doing. Some of these companies will be raising money via crowdfunding while also raising money via other exemptions. Say Company A is raising money to release a new mobile game. This company may have a crowdfunding round and be raising money on AngelList at the same time, and maybe Mr. Prolific Investor just brought his syndicate into the AngelList round. A smart investor will see that and realize that this investor a seasoned, successful angel investor believes in this company. The crowd can and will work together to pick the winners. Watch for trends and movement, even outside of that particular round. Charles Luzar

The question investors often ask themselves is whether an idea or a startup is worth investing in. If you see that many other are investing in the same startup, there's value in knowing that crowds wisdom says that a startup is worth investing in. Lior Zoref

Tap Into The Crowds Collective Wisdom (Part I)6 Key Playpoints



Tap Into The Crowds Collective Wisdom (Part II)Playpoints

Co-invest with experts in the industry. Antonio Arias

Learn how to take on board the additional data that crowdfunding platforms provide. As well as simply tracking how many investors have already committed, you can also check the background of those investors, to see whether they would have expertise in the startups area, and perhaps you can get in touch with the investors directly to share your thoughts and opinions. Markus Lampinen

See how close those deals are to reaching their goals and if the majority of their supporters are first degree connections (look for crowdfunding platforms that show you the degree of connectivity between the issuers and the investors). Those that are close to hitting their goal from people that are close to the issuer may be a good strategy for picking an investment because there is an engaged community of backers who trust the entrepreneur. Sherwood Neiss


https://twitter.com/@jahven

https://twitter.com/@NowStreet

https://twitter.com/@KendallAlmerico

https://twitter.com/@alamidas

https://twitter.com/@nowaffle

https://twitter.com/@ChrisCamillo

https://twitter.com/@wac6

https://twitter.com/@barbaracorcoran

https://twitter.com/@TimDraper

https://twitter.com/@dealflow


Thank You To The Crowdfunding Experts Who Contributed To This eBook

Jouko AhvenainenChairman and Co-FounderCrowdValley@jahven

Dara AlbrightChief Communications Officer, CrowdcentricFounder, NowStreet@NowStreet

Kendall AlmericoCEOFundHub.biz, ClickStartMe.com@KendallAlmerico

Antonio AriasCEO and Co-FounderHealthy Crowdfunder Corp@alamidas

Amanda BoyleCEO and FounderBloom VC@nowaffle

Chris CamilloAuthorLaughing At WallStreet | How I Beat the Pros at Investing@ChrisCamillo

William CarltonLawyerMcNaul Ebel Nawrot & Helgren PLLC@wac6

Barbara CorcoranTV Personality, ABC Shark TankCEO, Barbara Corcoran Inc.@barbaracorcoran

Tim DraperFounder and Managing DirectorDraper Fisher Jurvetson@TimDraper

Steven DresnerFounder and CEODeal Flow Analytics@dealflow


Cristina

Cristina

https://twitter.com/@douglasellenoff

https://twitter.com/@ryanfeit

https://twitter.com/@olivergajda

https://twitter.com/@SaraCrowdCheck

https://twitter.com/@OscarJofre

https://twitter.com/@jennykassan

https://twitter.com/@kleverlaan

https://twitter.com/@njsavestheday

https://twitter.com/@lukelang


https://twitter.com/@CircleUp

Rory EakinFounderCircleUp@CircleUp

Douglas EllenoffPartner and OwnerEllenoff Grossman & Schole LLP@douglasellenoff

Ryan FeitCEO and Co-FounderSeedInvest@ryanfeit

Oliver GajdaCo-Founder and ChairmanEuropean Crowdfunding Network@olivergajda

Sara HanksCEO and FounderCrowd Check@SaraCrowdCheck

Oscar A. Jofre, Jr.Founder, President and CEOBoardSuite@OscarJofre

Jennifer KassanCEOCutting Edge Capital@jennykassan

Ronald KleverlaanVice Chairman, European Crowdfunding NetworkExpert Advisor on Crowdfunding, European Commission@kleverlaan

Markus LampinenCo-Founder and CEOCrowd Valley@njsavestheday

Luke LangCo-FounderCrowdcube@lukelang



https://twitter.com/@LendingClub

https://twitter.com/@charlesluzar

https://twitter.com/@jeffseedrs


https://twitter.com/@sramana

https://twitter.com/@emollick

https://twitter.com/@tanyaprive1

https://twitter.com/@microventures

https://twitter.com/@richardswart

https://twitter.com/@Devindthorpe

https://twitter.com/@woodien

Renaud LaPlancheCo-Founder and CEOLending Club@LendingClub

Charles LuzarDirectorCrowdfund Insider@charlesluzar

Jeff LynnCEO and Co-FounderSeedrs@jeffseedrs


Sherwood NeissPartnerCrowdfund Capital Advisors@woodien

Tanya PriveFounder and COORockThePost@tanyaprive1

Tim SullivanCEOMicroventures@microventures

Sramana MitraFounder1M1M@sramana

Ethan MollickAssistant ProfessorThe Wharton School@emollick

Richard SwartPartner and Research DirectorCrowdfund Capital Advisors@richardswart

Devin ThorpeAuthor, Self EmployedDevin D. Thorpe@Devindthorpe


https://twitter.com/@MarkWarner

https://twitter.com/@zandvliet

https://twitter.com/@liorz


Mark WarnerSenator for the Commonwealth of VirginiaU.S. Congress@MarkWarner

Korstiaan ZandvlietCo-Founder and Managing DirectorSymbid@zandvliet

Lior ZorefCrowd Wisdom Researcher, Author and Public SpeakerMind Sharing@liorz





https://www.facebook.com/Ourcrowdfund

https://twitter.com/ourcrowd

http://www.linkedin.com/company/ourcrowd-llc

Equity crowdfunding is an exciting, largely untapped opportunity for investors worldwide to explore.

At OurCrowd, we are deeply committed to identifying and delivering exceptional opportunities for accredited investors to invest in leading startups alongside experienced investors. By listening to and following these crowdfunding experts, our knowledge of the rapidly changing landscape continues to grow and inform our unique crowdfunding model.

We hope that by following the tips in this playbook, you will be prepared to capitalize on the opportunities while mitigating the risks of startup investing.

What are you waiting for?

www.ourcrowd.com

www.facebook.com/Ourcrowdfund

www.twitter.com/ourcrowd

www.linkedin.com/company/ourcrowd-llc/


Closing Thoughts

http://www.ourcrowd.comwww.evolvesin.com

Evolve! is a marketing and influencer engagement agency that blends influential people and the media with social campaigns to create high awareness and leads for our customers.

We utilize Raynforest, the first online influencer marketplace, great content,and proven growth methodologies to deliver strategic programs that give clients winning and measurable results.

OurCrowd is an equity-based crowdfunding platform, built exclusively for a select group of accredited investors to provide venture capital funding for Israeli (and later global) venture capital start-ups.

Membership in the community is vetted and offered only to people who meet the stringent accreditation criteria. Accredited investors who are accepted into the community can make minimum investments of $10,000 per deal.


This playbook was produced by:

Ultimate Investors Playbook to Crowdfunding

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