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.

The importance of infrastructure in the emerging alternative finance ecosystem

“As with any emerging market, infrastructure plays a vital role in the smooth running of the ecosystem. As the core players grow in size and their needs become more complex, so too does the need for a support system.”

As crowdfunding continues to take the world by storm, there has been a growing recognition for the need of a strong infrastructure system to help propel this growth forward. This support system must be made up of providers that offer complimentary services that allow the core players to focus on their primary business functions. For the market to scale effectively it is important that there is a strong infrastructure already in place.

The majority of alternative finance issuers are still raising small amounts of capital, meaning both they and the platforms who facilitate the financing are often resource bound when it comes to support providers services. But, as the market grows and starts to move upstream, there have been a number of new support providers coming to market, diversifying the existing infrastructure. What type of support providers are available in the alternative finance ecosystem? Read on to discover more.

Diligence, Execution and Portfolio and Risk Management

Support providers have recognised the trend towards data that is emerging and as such, there are now a number of players providing data engines, business intelligence, and sentiment analysis amongst other things. One such company is PeerIQ, a financial information services company focusing on the P2P lending market that recently raised a $6Mn seed round. It provides institutions with a credit risk analytics platform, allowing them to manage risk effectively and thus invest at scale.

As the number of issuers grows, so too does the need for business valuation tools. Platforms can now enable companies to quickly and cost effectively reach a valuation by answering simple

questions online and compliment the online equity crowdfunding and M&A platforms. It is often hard to place valuations on SME’s at the early stages where there is a lack of revenue but both Bizequity, which recently raised £6Mn, and Equidam are tackling this problem using proprietary algorithms. They also enable businesses to track their progress over time.

Another platform disrupting the private investment market is eShares, which was founded in 2012 to solve the problems relating to the speed with which private company share certificates are distributed. It has grown out to compliment the existing platforms and service the increasing number of private company investors that alternative finance is enabling to enter the market. Along with electronic share certificates, it has created electronic share registries for private companies, investors and employees, replacing the traditional paper registry.

M&A platforms such as Rainmaker and Midaxo provide tools that help clients, who range from PE professionals through to corporations, run the highly complex M&A process. Midaxo’s cloud based software simplifies and speeds up the entire M&A lifecycle from deal sourcing to post deal integration while Rainmaker provides a similar deal flow management system, meaning that investors can not only source deals on online platforms but they can also manage the entire process online too.

Back Office 

Given that the alternative finance market is becoming increasingly complex, with players at differing stages of the value chain, in various asset classes and across multiple jurisdictions, the role of back office providers is arguably even more important than in many other industries. In the last few years, players have entered the market to address the growing needs of both the platforms and the issuers by making is easier for individuals and institutions to navigate the alternative finance market.

Crowd Valley is one such company and as an infrastructure technology provider focuses on providing platforms and back office services to alternative finance customers. It operates across six continents, acting for clients whose business models range from real assets, to renewable

energy, to equity crowdfunding. Its platform is allowing these clients to place less emphasis on technology by making the operating process easier, enabling them to focus on their primary function of sourcing issuers and investors.

Advisory 

Grow Advisors is an alternative finance consultant, offering advice centred on establishing new crowdfunding and P2P marketplaces. Operating all the way across the funding spectrum, it helps clients ranging from large funds to economic development agencies. For example, a recent LP client was looking to invest billions of dollars into companies and projects and Grow Advisors was able to utilise a cost effective platform model that allowed them to co-invest alongside others partners.

Note: This excerpt has been extracted from our Democratising Finance, Alternative Finance Demystified Report. If you would like to read more about this evolving alternative finance ecosystem, feel free to download a copy of our report here.