Equity Crowdfunding Becoming More Mainstream with the Launch of Four Equity Crowdfunding Indices in Partnership with CNBC

After much anticipation, the exciting news is finally out. In partnership with CNBC, we are proud to announce the launch of four crowdfunding indices: International 50 Index, UK 50 Index, Technology Index, and the International Aggregate Index. The indices take transparency in the crowdfunding industry to a new level by aggregating information on the private fundraising sector into usable and easy-to-understand benchmarks. The indices track the pulse of the alternative finance market, providing a real-time indicator of market activity. The indices are live on CNBC here

Both the International 50 Index and the UK 50 Index are calculated using a basket of the top 50 companies currently fundraising, the former internationally while the latter restricted to the UK zone only. Meanwhile, the Technology Index is a daily average of the top 25 technology companies currently fundraising internationally. Last, the International Aggregate Index measures components of growth to provide a wider market view. In creating these indices, all data is sourced from DealIndex’s data-driven platform, which aggregates real-time offerings across 150+ sectors and 40+ countries.

“These indices represent an important step forward in educating the general public about the vast potential of crowdfunding,” reports Neha Manaktala, CEO and Co-founder of DealIndex. “Similar to our dashboard, through the creation of these indices we hope to inject more transparency to the market and empower investors with more data and tools to facilitate their investment process when it comes to analysing opportunities in the private market.” With more than 2,000 deals tracked on the DealIndex dashboard across leading crowdfunding portals globally, investors interested in private company investment opportunities can now streamline their sourcing and due diligence process by simply logging onto the DealIndex Deal Exchange and utilise the built in advanced analytics and tools to track, compare, and monitor startups raising capital online in real-time.

The alternative finance market has enormous potential. Just five years ago, this was a relatively small market of early adopters crowdfunding online to the tune of a reported $880 million in 2010. Fast forward to today and we saw $16 billion in alternative finance in 2014, with 2015 estimated to grow to over $34 billion. What’s more, the crowdfunding industry is doubling or more, every year, and is spread across several types of funding models including rewards, donation, equity, debt/lending, and revenue sharing.

With the JOBS Act enacted in 2013, equity crowdfunding has sprung forth as the newest category of crowdfunding and is further accelerating the growth and disruption. As recorded by Massolution, reported growth rates of the equity crowdfunding industry averaged 410% between 2012-2014. It is thus the perfect time to launch the crowdfunding indices, according to Neha. Transparency on investor fundraising activity would be a great value-add in a sector that suffers from a dearth of data. “As alternative finance becomes increasingly more mainstream, the importance of these indices will grow”

 

Partner Insights: List71

We recently had the pleasure to speak to Jori Kartikko, CEO of List71. Unlike other equity crowdfunding platforms, List 71, based in Singapore, adopts a revenue sharing approach to crowdfunding.

What was your motivation behind starting a revenue sharing investment platform? Can you explain to us the basic mechanics behind this new model? 

The financing gap in Europe alone was 250 billion in 2014 (Duedil). The power of crowdfunding is potentially substantial but is private company investing in equity and lending always the best way? No.

Investing in private companies is risky, difficult to value and assess – even for professionals who work in the field day-to-day. Equity yields high risk for potentially high reward, and loans possess much lower risk for low rewards. Reaching common ground in valuation tends to be difficult, in almost all cases the entrepreneurs are much more optimistic about the valuation than the investors, therefore entrepreneurs are not keen on equity dilution. And finally, the average “exit” occurs in 8-10 years with little to no liquidity.

Is there a financial instrument where investors can take on moderate risk in order to achieve moderate rewards?  Yes. Revenue-based financing (RBF) a.k.a “royalties.” RBF is not a new concept; however, it’s only accessible to a few investors. List71 is the first to introduce RBF in the crowdinvesting spectrum.

How does RBF actually work? In exchange to an investment, investors receive a percentage of the company’s revenue until the investor has received the investment multiplied by the money multiplier back in full. Investors have access to a company’s monthly revenue, statistics, pitch, team and the offering.

How is revenue sharing different from the other type of crowdfunding models like equity, debt, etc? What are the pros and cons?

For Companies:

• No equity dilution for Shareholders.
• No loss of control for Entrepreneurs.
• No collateral or warranties.
• No valuations.
• Fast hassle-free financing for growth.
• Easy and simple “Exit” possibility.
• Marketing and global presence.

For Investors:

• More liquidity as payments are paid back monthly.
• Shorter ‘Exit’ as the investment and interest is paid back within 5 years.
• Lower Risk level as the revenue-share model ensures consistent monthly payments.  

What type of issuers are you attracting the most to your portal? Are you noticing any trends?

Since launching the platform in October 2015 we’ve taken on a few hundred angel investors and a few small funds. We have recently been shown significant interest from the institutional side from funds and family offices. For 2016, we envisage funding evenly from private and institutional investors.

What type of investors are attracted to the revenue sharing model of crowdfunding? 

Investors looking for private equity like return multiples in a fixed income like steady monthly cash flows. Shorter ‘Exit’ as the investment and interest is paid back within 5 years.

What headwinds and challenges do you foresee for the revenue sharing business model and crowdfunding sector in the near future? 

So far the feedback for the RBF has been extremely positive from both investors and companies looking for funding. The FinTech industry in the last year or so especially in the non-bank lending arena has shown tremendous amount of innovation. We would like to see more RBF platforms introduced and perhaps a new financial mechanism which can influence and further improve our RBF platform.

Partner Insights : KoreConX

The crowdfunding ecosystem requires infrastructure to be fully integrated and seamless, providing the benefits of compliance and transparency with respect to regulatory requirements. Below are more details about each of the participants, who need to work together on a global scale.

Securities Commissions are mandated by their respective governments to enforce and administer securities laws and govern the securities industries in their jurisdictions. The primary goal is to protect investors and ensure a straight forward, compliant marketplace.

Accredited investors are those investors deemed by the securities commissions to be high net worth individuals. Typically in any country around the world 3-5% of the population would be considered an accredited investor. What is surprising to many in the global marketplace is that only a very small percentage of even accredited investors get the opportunity to see and invest in private placement financings. John Kaiser a researcher in private markets in North America conducted a research report that focused on investors in private placements in Canada. Mr. Kaiser points out in his report that in the past 10 years in Canada, the private placements available to the accredited investors only 1% of those qualified were given an opportunity to invest.

Non-Accredited investors are the “rest-of-us”, the rest of the country’s population that do not meet the requirements to be registered as an accredited investor and have been demanding access to early stage investment opportunities.

Regulated Crowdfunding portals bring issuers and investors together. It sounds simple but in order to operate a regulated crowdfunding portal in most countries in the world you need to be a registered broker/dealer. The reason for this is to insure that issuers are being vetted properly to protect the marketplace and investors. But the entire global marketplace owes the emergence of regulated crowdfunding to “ASSOB” the worlds first regulated crowdfunding portal operating 12 years with zero fraud and has helped companies in Australia raise over $150Mn.

Issuers exchange shares or debt instruments, which are considered securities under current regulations, for investors’ money.

3rd Party Providers are very important in the ecosystem, think of them as the chassis in a car. They are essential as your first internal crowd to get you started. The participants in the background providing technology and services to the entire ecosystem to facilitate the process of Pre-During-Post regulated crowdfunding transaction. These participants can include pre-crowd service providers, video production companies, investor networks, social media and marketing professionals, and many others.

The nature of these markets and the way business is done can change rapidly and governments are responsible for laying a proper foundation on which businesses and people can grow and conduct their business. The advancements in technology and social media allow us to bring a message to billions of people across the globe in seconds. The way we communicate, collaborate, and invest has changed forever. For anyone, anywhere in the world, involved in regulated crowdfunding, these are very exciting times.

Partner Insights: HealthiosXchange

Today we would like to introduce you to Healthcare’s Investment Marketplace: HealthiosXchange. Another one of our unique partners, Healthiosxchange is an equity crowdfunding platform focused solely on the healthcare vertical. Their overriding mission is to “To Unify the Promise of Medicine with the Fortunes of Those Who Invest in It.” 

With ambitions to revolutionise the process of healthcare investing, the HealthiosXchange strives to transform the global healthcare capital markets by:

1. Providing the opportunity to invest directly in more than 5,000 emerging growth healthcare companies around the world;
2. Deploying H/X Scoring, a proprietary deal selection tool comprising more than 2,000,000 mathematical algorithms to help investors make better decisions, to stay connected and to measure performance;
3. Offering every opportunity on a Fee Free, Carry Free basis to all investors.

During the last 12 months, HealthiosXchange have successfully funded 40 companies, raising more than US$350 million. We were fortunate enough to interview them earlier this year to gain a better understanding about their platform and their observations in the crowdfunding and healthcare space. Extracted below is our Q&A session taken directly from our Democratising Finance, Alternative Finance Demystified Report.

What are issuers looking for from crowdfunding providers?  What are the key value propositions?

Issuers seek providers leveraging “offline” (one-on-one meetings) and state-of-the-art “online” technologies assisting with identifying, connecting, closing and managing investors post-close. Technology is critical for engagement (i.e. “matching” investors with companies via market sector/geographic proximity) and streamlining the investment process (evaluation and diligence of premium deal flow, accredited investor verification, eSignature, payment processing) making it easier to raise capital from alternative sources including accredited investors. However, given healthcare is still largely institutionally driven/funded, it is important for issuers to evaluate whether providers have access/connections to traditional forms of capital (venture capitalists) to meet overall capital needs (average pharma company raises over >$50Mn prior to approval).

Could you provide perspective on the healthcare investment market and the role HealthiosXchange is playing?

Healthcare is one of the more challenging market sectors to raise capital online (vis-à-vis real estate or early-stage technology) given the industry’s capital intensity, inability to provide “yield,” and multitudes of risks including clinical, regulatory and commercial. Leading healthcare providers including HealthiosXchange assist companies from Seed to “Exit” raise capital directly from investors on a “no carry” basis. To date, 3,000+ emerging growth company executives, investment professionals, strategic buyers, and accredited investors have joined HealthiosXchange. Over 600 companies actively participate including centralising their investor relations activities, connecting with HealthiosXchange members (friend, follow message, share), and raising capital via 506 (b) and 506 (c) – general solicitation.

What are the characteristics of the investors you are, or expect to, work most closely with? 

Many HealthiosXchange investors are former pharmaceutical, biotech, healthcare services, and medical device executives. We encourage issuers to connect with these investors and their respective networks (i.e. former work colleagues) via “Messaging” “Friending,” persuading them to “Follow” company pages and receive catalyst updates. Similar to angel networks/groups, companies build “virtual” networks of followers/investors who can work together to perform company due diligence. For investors without the background or ability to do this, many companies provide attractive investment minimums so investors can diversify their private equity allocation across a number of companies.

What has been the feedback from the angel and VC market on your platform? 

The feedback has been mostly positive. Institutional capital sources are intrigued by FinTECH (Financial Technology) innovation and are participating including building relationships with alternative sources of capital (family offices, accredited investors), and sourcing premium deal flow. 600 investment professionals (venture capitalist) are currently members of HealthiosXchange.

What are the current liquidity characteristics of the equity crowdfunding market?

Most attempts at forming secondary markets (i.e. SecondMarket) have been challenging given the overall market is fairly small (estimated to be $35BLN in 2015) compared to the >$1Tn in Reg D industry. Over time we expect to see more established secondary markets and integration with primary markets (Initial Public Offerings, IPO’s) whereby companies can readily access liquidity pathways as evidenced by HealthiosXchange’s recent partnership with Clearbridge Accelerator and SGX launching Capbridge.