equity crowdfunding and venture capital

Download Equity Crowdfunding And Venture Capital

Post on 14-Apr-2018




0 download

Embed Size (px)


  • 7/30/2019 Equity Crowdfunding And Venture Capital



    M ke S h

    EqUity CrowdfUNdiNgaNd VENtUrE Capital April 2013 Edition

  • 7/30/2019 Equity Crowdfunding And Venture Capital


  • 7/30/2019 Equity Crowdfunding And Venture Capital




    Dear Valued Reader,

    Its a word that hasnt even made it into most dictionaries.


    Though crowdfunding is relatively new, it is already drawing the attention of deal-makers, venturecapitalists, and regulators. All of this makes Equity Crowdfunding and Venture Capital a worthysubject for this edition of the Venue Market Spotlight .

    The idea of crowdfunding, individuals joining together to raise capital to support the efforts of speci cindividuals or organizations online, has gained tremendous momentum over the past couple of years.During 2012, capital raised from crowdfunding increased 81% versus the previous year, reachingUS$2.7 billion. Predictions are that it will reach over US$5 billion in 2013. A little over a quarter of allcrowdfunding initiatives are based as social causes, with game or gadget idea funds following in second.

    Although crowdfunding has become a popular way to raise capital through individual donations,equity crowdfunding has emerged as a way for investors to buy small amounts of equity.

    This has drawn the attention of US policy makers and led them to address equity crowdfunding in lastyears JOBS Act. Regulators interest in equity crowdfunding has spread internationally, as illustrated bythe Italian government submitting requests for public comments on equity crowdfunding just last month.

    As technology continues to introduce new capabilities more quickly than dictionaries can absorb them,RR Donnelley is keeping pace as we continue to aggressively invest into new technologies year after year.

    The introduction of equity crowdfunding may provide exciting new possibilities for entrepreneurs andinvestors alike and we hope that you enjoy the perspectives our respondents shared.


    t m Juhase

    President, Financial Services GroupRR Donnelley

  • 7/30/2019 Equity Crowdfunding And Venture Capital



    M ke Sp l gh : Equ y C un ng n Ven u e C p l


    in ecen ye s c un ng h s g n n p pul y s y sec p l ne p uc s se v ces. in v u ls m ke n ns c mp ny h se v s n hey supp bu n ece ve s ke n hec mp ny n e u n. as s n s n , nly cc e e nves s c nprovide the nancing in return for equity in the startup. However, all thisl ks l kely ch nge. the Jumps ou Bus ness S ups (JoBS) ac ,s gne n US l n ap l 2012, p ves he y sm ll c mp n es

    e equ y n he bus ness n n- cc e e nves s n exch nge nancing (i.e., equity crowdfunding).

    For this months Spotlight , Mergermarket interviewed lawyers and venture capitalistsbased in the US to gain insight into their opinions on the potential impact of equitycrowdfunding on capital markets. Respondents expect that the JOBS Act (whichcelebrated its one year anniversary this month) will not see the section pertainingto equity crowdfunding implemented for another year (H1 2014).

    To gauge sentiment on the viability of the proposed funding method, respondentswere questioned about the bene ts and challenges for both issuers and non-accreditedinvestors. Comments on potential fraud and the dif culty of managing stakeholderexpectations and demands re ected great concern, but the potential bene ts for theeconomy (e.g. job creation) were duly noted by several respondents.

    This newsletter examines key sectors for investment and also discusses the relationshipbetween venture capital and crowdfunding. While the impact of equity crowdfunding isstill to be assessed, the buzz surrounding this new form of fundraising has entrepreneursand investors alike keen to explore the possibilities.

    we e en hus s cbu e n h l ngp e n un l heSEC ssues cleules b u equ yc un ng.

  • 7/30/2019 Equity Crowdfunding And Venture Capital




    wh ch he n bes desc bes u v e equ c d und n ?

    Opinions over the merits of equity crowdfunding are divided.The plurality of respondents (40%) expect to see a netgain from the new method of fundraising, but one-third ofrespondents are not in favor of the approach. The remaining27% of respondents plan to reserve judgment until formalrules are established by the SEC.

    A lawyer advocates the approach: Equity crowdfunding isa very good idea and will aid entrepreneurs with strong ideasin accessing capital when angels are often hard to come byand banks are loath to lend. Equity crowdfunding will makecapital available for startups and will pave the way for them.

    Venture capital respondents are less optimistic and point tothe experience needed for carefully, and skillfully managing duediligence and risk. Anecdotally, one investor explains: Fundingstartups and making them a success to get returns is not assimple as it looks. We ourselves have faced multiple dif cultiesdespite our efforts and strict investment conditions.

    I think its a good idea, and as per the JOBS Act will increaseentrepreneurship and employment

    I think the bene ts of equity crowdfunding are still up in the airand will be determined once Congress establishes clear guidelines

    I do not agree with the approach and believe it should be leftto accredited investors




    when d u expec equ c d und n be edu n e sc e?

    Despite the lack of consensus over the concept itself, the vastmajority (80%) expect to see equity crowdfunding rolled out inthe future. Very few, however, are expecting this will happenin 2013.

    waitiNg for SEC rUlES,but Hopeful for H1 2014

    A year after President Obama signed the JOBS Act into law,there are still no formalized rules; with the SEC missingseveral deadlines for proposing regulations, most recentlyin January. But the industry infrastructure is already growingand many online platforms are ready and waiting for theregulations to take shape so they can offer this new service.




    H2 2013

    H1 2014

    H2 2014

    2015 andbeyond

  • 7/30/2019 Equity Crowdfunding And Venture Capital



    M ke Sp h : Equ C un n n Ven u e C p

    SUrVEy (CoNtiNUEd)

    wh sec s e m s pe equ c un nnves men ?

    A slight majority of respondents (53%) expect the consumersector to offer the most attractive equity crowdfundinginvestment opportunities for the masses. One venture capitalistexplains the tangibility of the sector: People understandconsumer products because they shop for them directly andunderstand their viability. Consumer products companies canachieve positive cash ow relatively fast giving the possibilityof quick returns.

    CoNSUMEr SECtor MoSt rElataBlE

    to CrowdfUNdiNg iNVEStorS

    Another investor adds: Entrepreneurs in the TMT sector arewidely using online funding platforms to facilitate access tonance for small businesses and to fund speci c creativeprojects and equity crowdfunding is among the top priority.

    P e r c e n

    t a g e o

    f r e s p o n

    d e n

    t s








    P h a r m a c e u

    t i c a

    l s ,

    m e d

    i c a


    a n

    d b i o t e c h n o

    l o g y

    B u s i n e s s

    S e r v i c e s

    T r a n s p o r t a

    t i o n

    E n e r g y

    R e a

    l e s

    t a t e

    T e c h n o

    l o g y ,

    m e d

    i a a n


    t e l e c o m m u n

    i c a

    t i o n s

    C o n s u m e r








    wh u expec be he b es ch en e/hu e equ c un n ?

    There are always risks when investing, and respondents expectparties on both sides to have concerns they must considerbefore engaging in the equity crowdfunding marketplace.From the investors point of view, there is the possibility thatthe funding will be misused and fraudulent issuers may usethe platform to raise capital for illegitimate companies.

    From the entrepreneurs corner, while the access to capitalmay be attractive in the short term, the time-consumingnature of managing multiple investors post-issuance isunknown. Equity crowdfunding may attract new investors,with varying expectations of the shareholder role.

    One- fth of respondents point to the limitations of capitalraised (capped at US$1m per year) as the biggest challenge.As one lawyer explains: Equity crowdfunding is only suitablefor very small scale startups and will not be of use for thosewhich have multidimensional expansion plans.





    Fraud by issuers

    Management of

    multiple investorspost-issuance

    Limitations onamount of capitalraised per year

    Compliance withthe securitieslaws (onceestablished)property/ publishing rights

  • 7/30/2019 Equity Crowdfunding And Venture Capital


  • 7/30/2019 Equity Crowdfunding And Venture Capital


  • 7/30/2019 Equity Crowdfunding And Venture Capital


  • 7/30/2019 Equity Crowdfunding And Venture Capital


    aBoUt rr doNNEllEy

    ab u Venue

    Venue is a secure online workspace with a powerful feature-set and an intuitivedesign that allow you to easily organize, manage, share and track all of your sensitive information. Venue data rooms provide complete control, ensuringthat you can manage who has access to your data room, which documentsthey see, and how they can interact with those documents.

    Venue data rooms are backed by RR Donnelley, a $10.6 billion corporationwith more than 500 locations and 57,000 employees worldwide.RR Donnelleys total revenues are larger than all other virtual data roomproviders combined. We bring extensive experience to providing integratedcommunications services.

    For more information regarding Venue , RR Donnelley, or this report,please contact us directly.

    Daniel Perez | Marketing Manager, Venue Data RoomRR Donnelley | Financial Services Group | fnancial.rrd.com255 Greenwich St. | New York, NY 10007 | Phone: 888.773.8379Fax: 212.341.7475 |[email protected]

    rr doNNEllEy at a glaNCE

    M e h n$10.6 b n 2011 net sales

    57,000 Employees500+ Global locations

    Ne 125 Manufacturinglocations

    750+ Issued andpending patents

    Ne $1.2b n

    Capitalinvestments overthe past fve years

    rr d nne e s b p v e f n e e c mmun c ns.the c mp n w ks c b ve w h m e h n 60,000 cus me sw w e eve p cus m c mmun c ns s u ns h he p

    ve p- ne w h, e uce c s s, enh nce roi n ensu e c mp nce.d w n n n e f p p e n c mme c v b e nc nven n echn es ep e c ss f u c n nen s, he c mp nemp s su e f e n in e ne b se c p b es n he es u ces p v e p eme , p n n , s cs n bus ness p cess u s u c n

    se v ces c en s n v u eve p v e n pub c sec .


    M ke Sp h : Equ C w fun n n Ven u e C p

  • 7/30/2019 Equity Crowdfunding And Venture Capital



  • 7/30/2019 Equity Crowdfunding And Venture Capital


    k l h df d d l