Loan and Equity-Based Crowdfunding
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CEP Discussion Paper No 1498 September 2017 Equity
ISSN 2042-2695 CEP Discussion Paper No 1498 September 2017 Equity Crowdfunding and Early Stage Entrepreneurial Finance: Damaging or Disruptive? Saul Estrin Daniel Gozman Susanna Khavul Abstract Equity crowdfunding (ECF) offers founders of new ventures an online social media marketplace where they can access a large number of investors who, in exchange for an ownership stake, provide finance for business opportunities that they find attractive. In this paper, we first quantify the evolution of the ECF market in the UK, the world leader, as well as the benign regulatory environment. ECF already represents more than 15% of British early stage entrepreneurial finance. We then use qualitative methods to explore three research questions. First, do these large financial flows via ECF platforms supplement or merely divert more traditional forms of funding for entrepreneurs? Second, do investors understand and appropriately evaluate the risks that they are bearing by investing in this new asset class? Finally, does ECF finance bring with it the spillovers, e.g. advice and guidance critical to entrepreneurial success, associated with other sources of funding such as Venture Capital? Our study is based on extensive interviews with investors, entrepreneurs (including some who chose not to use ECF in favour of traditional funding sources) and regulators. We conclude that ECF provides real additionality to the sources of entrepreneurial finance while not bringing major new risks for investors. This suggests other jurisdictions might consider implementing the British “principles based” regulatory framework. Keywords: equity crowdfunding, early stage entrepreneurial finance, financial regulation, investor choices JEL: G3; G21; L26; M21 This paper was produced as part of the Centre’s Growth Programme. -
The Role of Crowdfunding in Reducing the Equity Gap in Poland
RUCH PRAWNICZY, EKONOMICZNY I SOCJOLOGICZNY Rok LXXXI – zeszyt 3 – 2019 MICHAŁ ŁUKOWSKI, PIOTR ZYGMANOWSKI THE ROLE OF CROWDFUNDING IN REDUCING THE EQUITY GAP IN POLAND I. INTRODUCTION Technology changes the way financial intermediaries act. It is notice- able especially in Western European countries, both in the banking sector (for example Revolut or N26) and the capital market sector, where the use of equity crowdfunding platforms (for example Seeders and Crowdcube) by early stage companies for capital raising is becoming increasingly popular. These platforms are connecting entrepreneurs (issuers) and investors, acting as intermediaries in the conclusion of transactions on financial instruments. The importance of equity crowdfunding can be demonstrated by the value of transactions carried out with the use of such platforms, which in 2017 reached GBP333 million in the UK, and EUR211 million in the countries of continen- tal Europe. The growing importance of equity crowdfunding has made it the subject of many studies, such as those carried out by Agrwal, Catalini and Goldfarb,1 or Ashlers, Cumming, Guenther and Schweizer.2 This technological revolution has also reached the Polish capital market with the recent regu- lation from 21 April 2018, which allows public offerings up to EUR1 million to be carried out without a prospectus or memorandum. This enables public offerings organized by equity crowdfunding platforms. Taking the above into consideration, we decided to analyse the development of equity crowdfunding in Poland due to its growing popularity and the changes to Polish law. The main purpose of the article is to characterize equity crowdfunding in Poland and place it among other sources of equity capital. -
Israel's Ourcrowd Takes Lead in Equity Crowdfunding
Embargo until 6AM PST May 22, 2013 Israel’s OurCrowd takes lead in equity crowdfunding Has raised more funds than any other platform worldwide Latest round for Jeff Pulver's Zula breaks $12M in funding for companies Jerusalem, Israel May 22, 2013: Israel's hybrid VCcrowdfunding platform OurCrowd announced today that it closed financing for Jeff Pulver's latest startup, Zula, pushing its total raised for early stage companies above $12 million. This $12 million is in addition to the $5.5 million in funding OurCrowd raised for its own platform in February this year. Zula is OurCrowd's 18th completed funding round. OurCrowd CEO Jon Medved says "Passing this funding milestone makes OurCrowd this year’s fastestgrowing vehicle for angels and accredited investors to find and back early stage companies online. From our roots in Israel we have actually taken the global lead in funds raised." Zula cofounder Jeff Pulver said, "I am excited about the value that OurCrowd brings to early stage investors who invest in startup companies. Not only did we raise our seed round online in less than a week, but we had people from all over the world invest in Zula thanks to this platform." Zula provides an innovative cloudbased mobile collaboration platform for teams. It is lead by Jacob NerDavid, who cofounded DeltaThree, and Pulver, who is a wellknown early investor in Twitter and FourSquare. "While initially focusing on the Israeli early stage ecosystem, OurCrowd has now brought together investors and companies from around the world," explained Medved. -
Equity Crowdfunding: a Market for Lemons? Darian M
College of William & Mary Law School William & Mary Law School Scholarship Repository Faculty Publications Faculty and Deans 2015 Equity Crowdfunding: A Market for Lemons? Darian M. Ibrahim William & Mary Law School, [email protected] Repository Citation Ibrahim, Darian M., "Equity Crowdfunding: A Market for Lemons?" (2015). Faculty Publications. 1792. https://scholarship.law.wm.edu/facpubs/1792 Copyright c 2015 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository. https://scholarship.law.wm.edu/facpubs IBRAHIM_4fmt 1/3/2016 1:00 PM Article Equity Crowdfunding: A Market for Lemons? Darian M. Ibrahim† INTRODUCTION Everything is online now—the way we connect with others, the way we shop, even some forms of education. We keep up with friends on Facebook we cannot see in person, buy light bulbs from Amazon rather than making a trip to the hardware store,1 and obtain an MBA at night on our computers from the comfort of our own home after the kids have gone to bed.2 One area that has initially resisted the move to cyberspace, howev- er—eschewing the virtual world for the real one—is entrepre- neurial finance. Venture capitalists (VCs) and angel investors have long valued close networks and personal relationships when select- ing which entrepreneurs to fund, and they closely monitor their investments in person after they fund.3 These practices lead to intense locality in funding—i.e., investors funding entrepre- † Professor of Law, William & Mary Law School. My thanks to Brian Broughman, Joan Heminway, Don Langevoort, Alan Meese, Nate Oman, Ja- son Parsont, Gordon Smith, participants in a faculty workshop at Washington & Lee for helpful feedback on this Article. -
Ten Things You Need to Know Before Engaging in Accredited Crowdfunding
BOSTON CONNECTICUT NEW JERSEY NEW YORK WASHINGTON, DC www.daypitney.com Ten Things You Need to Know Before Engaging in Accredited Crowdfunding By Eliza Sporn Fromberg and Norbert Mehl It has been over a year since the Securities and Exchange Commission (SEC) permitted securities issuers to market their capital raises using general solicitation and general advertising while still qualifying for an exemption from public registration. During this time, hundreds of online crowdfunding platforms have launched – seemingly overnight – offering investment opportunities in private companies. For a company seeking to raise capital, these “accredited crowdfunding”1 platforms offer the tantalizing possibility of raising funds with the click of a button. As this new industry grows and develops, it’s conceivable certain accredited crowdfunding platforms may become as ubiquitous as traditional broker-dealers. But in this nascent industry, how should a company seeking to raise capital for a new or existing venture go about selecting the most suitable crowdfunding solution? The following are 10 things you should know before engaging in accredited crowdfunding. 1. Who is eligible to raise funds through accredited crowdfunding? In the United States, securities offerings made pursuant to Rule 506 of Regulation D under the Securities Act of 1933 are not deemed “public” offerings under the securities laws and are therefore exempt from public registration with the SEC. With one exception, any company can make this type of “private” offering of its securities – and raise an unlimited amount of money from accredited investors – using general solicitation and general advertising, either on its own or using an intermediary such as an accredited crowdfunding platform. -
TIPS for STARTUPS – UNDERSTANDING the STAGES of EQUITY FINANCING Posted on July 11, 2016
TIPS FOR STARTUPS – UNDERSTANDING THE STAGES OF EQUITY FINANCING Posted on July 11, 2016 Categories: Insights, Publications In the earliest stages of a new venture, founders will often seek to bootstrap (i.e., self-finance) operations in order to build value through their own sweat equity. Once bootstrapping is no longer enough to sustain their pre-revenue startup, or the need for financing to grow the business outstrips modest initial revenues or friends and family contributions, it becomes essential for these founders to begin looking for external sources of financing. If conventional bank loans and lines of credit are not desirable or sufficient, then they may consider seeking private investment. For founders unfamiliar with fundraising, it can be very daunting when terms like "angel investing", "venture capital", "series B financing", and "seed round" are being thrown around. Understanding the terminology surrounding the financing process is essential for startup leaders hoping to secure financing, or for individuals in the business world hoping to understand the startup landscape. What is equity financing? Who participates? When many people hear terms like "venture capital", they think of television programs like Dragons' Den, in which business founders pitch their ideas to a group of wealthy and successful business personalities. Much like in Dragons' Den, the process of early-stage financing involves investors providing funds to startup companies that have potential for long-term growth. Early-stage equity financing is a great option for startups that are not in a position to seek funding through public capital markets, and wish to avoid being loaded with debt. -
Alternative Investments 2020: the Future of Capital for Entrepreneurs and Smes Contents Executive Summary
Alternative Investments 2020 The Future of Capital for Entrepreneurs and SMEs February 2016 World Economic Forum 2015 – All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. B Alternative Investments 2020: The Future of Capital for Entrepreneurs and SMEs Contents Executive summary 1 Executive summary Over the past decade, the external environment for alternative investments has seen 2 1. Introduction enormous changes. The areas affected the most are start-up capital and venture 3 1.1. Background funding for entrepreneurs, crowdfunding and marketplace lending for small businesses, 3 1.2. Scope and private debt for mid-market enterprises. 6 2. The shake-up of traditional start-up capital 6 2.1. Overview In all three cases, a set of interlocking factors is driving the emergence of new 8 2.2. What you need to know capital sources: 11 2.3. What to look out for 11 2.4. Take-away Regulation: where regulation constrains a capital flow for which there 1. is demand, a new source of capital will emerge to fulfil that demand; 12 3. The rise of crowdfunding 12 3.1. Overview 14 3.2. What you need to know Changes in demand for capital: where capital destinations develop 16 3.3. What to look out for 2. demand for new forms of funding, investors will innovate to meet it; 17 3.4. Take-away Technology: where technology enables new types of origination, 18 4. Mid-market capital 18 4.1. -
Signaling in Equity Crowdfunding
Signaling in Equity Crowdfunding Gerrit K.C. Ahlers,* Douglas Cumming,† Christina Günther,‡ Denis Schweizer§ ABSTRACT This paper presents an empirical examination of which start-up signals will small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms’ financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design. JEL Classification: G21, G24, L26 Keywords: Entrepreneurial Finance, (Equity) Crowdfunding, Micro Lending, Internet, Signaling * A.T. Kearney GmbH, Charlottenstraße 57, 10117 Berlin, Germany, e-mail: [email protected]. † Professor and Ontario Research Chair, York University - Schulich School of Business, 4700 Keele Street, Toronto, Ontario M3J 1P3, Canada, Web: http://ssrn.com/author=75390, Phone: +1-416-736-2100 ext 77942, Fax: +1-416-736-5687, e-mail: [email protected]. ‡ Max Planck Institute of Economics, Kahlaische Str. 10, 07745 Jena, Germany & WHU – Otto Beisheim School of Management, Assistant Professor of Industrial and Innovation Economics, Burgplatz 2, 56179 Vallendar, Germany, Phone: +49 3641 686 825, Fax: +49 3641 686 868, e-mail: [email protected]. § WHU – Otto Beisheim School of Management, Assistant Professor of Alternative Investments, Burgplatz 2, 56179 Vallendar, Germany, Phone: +49 261 - 6509 724, Fax: +49 261 - 6509 729, e-mail: [email protected]. -
PROVIDING RESOURCES for SMALL BUSINESSES SBDC at UW
PROVIDING RESOURCES FOR SMALL BUSINESSES Guide to Business Investment and Financing A Financial Resource Compilation for Wisconsin Businesses SBDC at UW-Stevens Point Address: 032 Old Main Building 2100 Main St., Stevens Point, WI 54481 Phone: 715-346-4609 Web: www.uwsp.edu/SBDC Email: [email protected] The SBDC at UW-Stevens Point, part of a network of 12 SBDC locations throughout Wisconsin Assisting Startup and Existing Businesses One of 12 in Wisconsin, the Small Business Development Center (SBDC) at UW-Stevens Point offers no cost, confidential advising and resources as well as fee based workshops/conferences to both startup and existing businesses throughout nine counties - Adams, Langlade, Lincoln, Marathon, Oneida, Portage, Vilas, Waupaca and Wood. We can help you: Start | Manage | Finance | Grow | Market This Business Investment and Financing Guide is published and distributed on the basis that the publisher is not responsible for the results of any actions taken by users of information contained in this guide nor for any error in or omission from this guide. The publisher expressly disclaim all and any liability and responsibility to any person, whether a reader of this guide or not, in respect of claims, losses or damage or any other matter, either direct or consequential arising out of or in relation to the use and reliance, whether wholly or partially, upon any information contained or products referred to in this guide. SBDC UW-Stevens Point, Guide to Business Investment and Financing Version 1.1: revised December 28, 2017 This list was compiled from various sources including those listed below. -
Crowdfunding Visegrad. a Study
Crowdfunding Visegrad. A Study Participating organizations Aspen Institute Prague Creative Industry Forum Res Publica Foundation The Budapest Observatory Editors Maria Staszkiewicz Milan Zubíček Authors Czech Republic – Maria Staszkiewicz, Milan Zubíček Hungary – Péter Inkei Poland – Olga Urbańska Slovakia – Zora Jaurová, Slavomíra Salajová The project was co-funded by the International Visegrad Fund. November, 2014 Crowdfunding Visegrad Authors 2 Contents 1 Executive summary 4 2 Introduction 6 Crowdfunding activity in the Visegrad countries: 8 3 platforms, traffi c and trends The Czech Republic 8 Hungary 12 Poland 15 Slovakia 21 4 Crowdfunding in the EU legislation 26 Potential for an international 27 5 crowdfunding platform 6 Crowdfunding manual 28 Crowdfunding Visegrad Contents 3 1 Executive summary With the aim to explore community funding in the Visegrad Group (‘V4’) and to further promote it, four organiza- tions from the region decided to join forces and off er a comprehensive study, Crowdfunding Visegrad, along with a manual for crowd-funders. As the project coordinator, the Aspen Institute Prague invited the Slovak Creative In- dustry Forum, the Polish Res Publica Foundation and the Budapest Observatory from Hungary to analyze the use, development, current trends, and legal environment of crowdfunding in the Visegrad Group. As crowdfunding is a convenient tool to support grass-root engagement, civic participation and start-up ideas in the fi elds of culture, creativity, society and IT, we believed it would be benefi cial to undertake a regional approach to exploring potential Visegrad cooperation. The International Visegrad Fund supported the project with a standard grant, which enabled the project’s realization. Under the project, four closed-door meetings were organized in Bratislava, Budapest, Prague, and Warsaw. -
Crunchbase Diversity Spotlight 2020: Funding to Black and Latinx Founders Introduction
Crunchbase Diversity Spotlight 2020: Funding to Black & Latinx Founders Crunchbase Diversity Spotlight 2020: Funding to Black and Latinx founders Introduction Historically, funding for Black and Latinx founders has paled in comparison to nonminority groups. But how much of a gap is there, and what opportunities lie ahead to level the playing field? To gain insight into the state of funding for Black and Latinx founders, we analyzed race and ethnicity data obtained through our Diversity Spotlight initiative. This report utilized data provided by our Diversity Spotlight partners, venture partners, our community network, and news sources. To date, there has been no single source for measuring progress on funding to underrepresented racial and ethnic groups. We believe that initiatives like Diversity Spotlight, our new centralized dataset of companies with founders, executives, funding and exits, created in collaboration with the community and partners, is the best place to track progress over time. This is only the beginning for Diversity Spotlight and, like all data, it is not perfect. To continue strengthening this dataset, we welcome startups and VC firms to add their companies/investments to Crunchbase and utilize Diversity Spotlight tags. Our intention with this data (and subsequently this report) is to focus initially on the U.S. funding landscape for underrepresented founders— namely Black/African American- and Hispanic/Latinx-founded companies— in the hope that connections will be made, companies will be discovered, and, ultimately, that checks will be written. Through reviewing startup leadership profiles for Black and Latinx founders, it is worth noting that these communities are not homogenous, hailing from different class backgrounds and from distinct nations around the globe. -
How to Prep Your Tech Startup for Series a Funding
WHITE PAPER How to Prep Your Tech Startup for Series A Funding The phrase “It takes money to make money” is never truer than when you’re trying to rapidly grow a tech startup. While your seed round likely fueled the product development and early customer acquisition, the Series A round is what will propel your company’s first real growth. It’s a vital funding milestone, with the money raised dedicated to building your staff, scaling your product, and entering new markets. However, with the evolution of the funding landscape, investor expectations of Series A-eligible companies have changed. By understanding the basics of today’s Series A, you can tee up your company for success—and then get to the business of growing. The new Series A There’s been talk in the startup community about the increasing size of Seed rounds—and subsequently what differentiates a Seed funding and a startup’s Series A round. A recent study1 shows that the size of A rounds has increased dramatically, averaging $15.7 million in 2018 compared to $5.1 million in 2010. Eighty-two percent of companies that raised an A round were generating revenue (compared to fifty-six percent in 2016). The startups were also more mature, with most raising A rounds more than three years after founders began the company. For founders, these shifts are significant to acknowledge. It means you need to pay attention to the performance metrics—especially revenue. This is something your next round of investors will expect. Very few startups are now able to raise a Series A round before they have revenue, and many Series A investors now expect that you’ve already achieved product-market fit and have steady sales growth.