November 18th, 2014 by: Grow VC Group

Nesta, an UK-based innovation charity with the mission to help people and organisations bring great ideas to life, has recently published an in depth study on the British alternative finance sector. The results are very interesting, highlighting the outstanding growth of this innovative sector.

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Additionally to these figures, the report investigated other forms of alternative finance, including donation crowdfunding (£2 millions), rewards crowdfunding (£26 millions), community shares (£34 millions), pension-led funding (£25 millions), debt-based securities (£ 4,4 millions) and invoice trading (£270 millions). Except for pension-led funding which remains at the same market value as last year, all the other forms of alternative finance increased their volumes. This positive trend is in line with the outcome of this year’s Global Crowdfunding Market Reports published by Crowd Valley. The British situation is, however,  very interesting in terms of numbers, as the country reacted overall positively to crowdfunding and online investments. We hope to see soon more of these statistics and an equally exciting outlook on other countries too.

Read the whole article on Crowd Valley Blog.

November 14th, 2014 by: Grow VC Group

This is a guest post from Nate Nead, Crowdfundraiser.

It is this man’s opinion that crowdfunding has yet to become overcrowded or over-hyped. The breadth and depth of the industry will eventually prove more broad and and deep than even the market promoters may have imagined. That’s not to say industry growing pains are not on the horizon. Before crowdfunding reaches its full potential, there will be the occasional casualty, but stopping the tide of this fundamental financing shift is likely to prove difficult.

Complete acceptance and industry maturation will likely include the combining–by acquisition or creative engineering–of existing financing models together with newer crowdfunding tools, expanding business finance in ways we never imagined. Nowhere will this creative capitalism hit harder than in the bridge between private, crowdfunded businesses and the public markets.  Due to its very nature crowdfunding is likely to create more public security liquidity than ever before. Large, existing shareholder networks, investor demand for more rapid liquidity, investment diversification and the ease and speed of Alternative Public Offerings are likely to push more private and successfully crowdfunded businesses into the public markets.

Total Equity Shareholders

Since the major securities acts of 1933 and 1934, the total number of shareholders any private company could have totalled 500. Once a business reaches this all-important threshold, the company is rightfully forced to begin reporting to the SEC. Once completely implemented, Title III (non-accredited equity/debt investing) of the JOBS Act will bump the private-to-public shareholder threshold up to 2,000.

The new rules are likely to create some challenges. Managers and founders are likely to find managing the expectations and desires of 2,000 private, potentially non-sophisticated investors a bit like herding cats. In essence, the private company will receive all the headache, management and reporting of a public company without some of the benefits (like business valuation accretion, treasury stock swaps and capital raising capabilities). Hence, the gap from private to public status is more justifiably bridged when crowdfunded businesses experience some of the headaches of a public company without the helpful benefits.

An Existing Market

One of the biggest hurdles for any public offering is gaining widespread market support for the securities. Already successful equity crowdfunded businesses are likely to bring a larger, existing shareholder base than many other stocks on the microcap exchanges. This is helpful in establishing a market for the company’s shares with the assistance of an experienced market maker.

Rewards-based crowdfunding portals are already seeing cult-like following and adoption for some of the products launched on their portals. Couple such enthusiasm with the potential of gaining equity shares in outlier companies like OculusVR and it’s likely going public will be a natural next step in the process.

An Exit Strategy for Investors

In addition to the change in the number of shareholders for public company status, the Title III of the crowdfunding bill also allows for shares sold to non-accredited to be sold in a secondary market. This means that investors will be permitted to sell their existing shares in a private company to anyone they wish, whether accredited or non-accredited, within certain parameters.

For most companies there are really only two reasons for ever going public: raising money and offering an investor exit strategy. Nowhere will this likely be more adamantly true than in the world of non-accredited investors. Non-accredited crowdfund investors are more likely to be impatient if a product or service doesn’t meet expectations on a short time-frame. Such a short-sighted focus on company performance at the expense of more rapidly-demanded investor liquidity is likely to further drive demand for public offerings. Going public not only guarantees some liquidity for investors, but it can also be a source of additional capital.

Alternative Offerings & Corporate Compliance

Some of the unique challenges of crowdfunding are likely to spur a greater number of public offerings, but not in the traditional IPO sense. Many successfully crowdfunded startups are more likely to opt for the faster-to-market and less expensive option for public offerings, including an Alternative Public Offering.

Like its sister the IPO, Alternative Public Offerings (or APOs) include a financing event and a public offering of shares, but the process, timing and cost is much different. For instance, an APO is often executed as a reverse merger with an existing or manufactured public shell corporation. This reverse merger event is often performed in conjunction with a Private Investment in Public Equity (or PIPE). The PIPE is typically used to raise the financing for a specific “go public” deal while the reverse merger takes a private company and combines the PIPE’s capital with a real operating entity–in this case a crowdfunded business. The timing of both the financing and the process are much different than an IPO. APOs are also much quicker (one to five months) than IPOs and the cost is significantly less (completed for as little as $35,000). In addition, Sarbanes-Oxley (SOX) compliance and SEC reporting from securities attorneys and PCAOB accountants can be performed for as little as $5,000 a quarter.

Crowdfunding represents one of the most profound shifts in the world of finance in a lifetime. The niches and opportunities that will eventually be created as the result of these changes will be life-changing for many. A big part of the opportunity involves solving the problems inherent to crowdfund investing. Luckily, only some of the holes in the equity crowdfunding investment model can be solved with public offerings. Many other issues still remain. I’m confident, however, that creative entrepreneurs will fill the gaps and eventually take crowdfunding from its current burgeoning existence to full-scale market maturity.

Nate Nead is the Managing Director of Crowdfundraiser.com, a company focused on providing liquidity for private and successfully-crowdfunded businesses. As a portal-agnostic consultant for businesses seeking to raise capital through crowdfunding, Nate works directly with some of the most well-recognized crowdfunding platforms in the industry. He resides in Seattle, Washington. 

market-floor

November 13th, 2014 by: Grow VC Group

According to latest Census data, the number of U.S. exporters has climbed from 275,000 in 2009 to 302,000 in 2013. These companies, as we have commented earlier, are over and again found to outperform non-exporters across metrics, including productivity revenue growth, and stability: they, in short, make a strong investment proposition. 

Ohio State / GE Capital’s National Center for the Middle Market has offered further evidence of the fact that exporters and outperformers are one and the same. In a 2011 study on U.S. middle market companies ( firms with $10m-1 billion in revenue), the Center showed that the best performing companies are also ones that are most actively pursuing international opportunities (figure 1). These findings are echoed in rigorous studies around the world.

In a Q2 of 2014 survey, the Center found that over 76 percent of middle market exporting companies reported past year revenue increases, compared to 64 percent of non-exporters. Today the Center issued a new study on the state of American middle market exporters, in partnership with the Brookings Institution. The study points out that the latest data show there are almost 200,000 middle market companies.

TradeUp is working to helps all U.S. middle market companies to realize the many growth gains from exports. We see the middle market exporters as the future key engine of American exports: these businesses have proven capacity for competing and exporting a range of goods and services desired in overseas markets. Now they need capital and smart road maps.

Read the whole article on TradeUp Blog.

Figure - Which have been the greatest drivers for your company to plan activity in foreign markets?

Figure – Which have been the greatest drivers for your company to plan activity in foreign markets?

November 10th, 2014 by: Grow VC Group

In the last months, a few of the major banks in Europe started moving the first steps into the peer to peer lending space. Most of them are entering the market in a soft way, partnering with established portals, while only the Royal Bank of Scotland announced it would have piloted a P2P platform by the end of this year.

The impressive growth of peer-to-peer lending has caught the attention of the traditional banking system, which started to wonder whether the new phenomenon was a friend or a foe, a threat or an opportunity? P2P lending could be a potential disruptor to traditional banking models, operating in a more cost-effective way, with less overhead and providing loans at better interest rates for both the borrowers and the lenders than what banks have been doing in the last five years.

As a consequence these new players may “eat” part of the market which traditionally has always been a monopoly of banks. In this sense it would be a threat. However, it could also be the case that these P2P players operate in a part of the market which is not covered by banks, because too risky or too innovative. In this other sense, P2P lending may turn into an opportunity.

Read the whole article on Crowd Valley Blog.

Bank branch

November 8th, 2014 by: Grow VC Group

Singapore Exchange, one of Asia’s leading stock markets, has begun considering the feasibility of an equity crowdfunding platform for early-stage companies, and has formed a team focused on small and medium-sized enterprises.

Singapore

The purpose which pushed Singapore Exchange to create a team to investigate the possibility of setting up a crowdfunding portal is to find a way to improve access to finance for SMEs. In fact, public listing may not be feasible or cost-effective for businesses that do not have a minimum scale.Therefore an alternative portal where SMEs can raise finance from accredited investors could be a potential way to bridge the gap to public markets.

It is interesting to see that a stock exchange is looking into crowdfunding as a way to expand its activity. Crowd Valley, which has been active in this new sector at global level since already more than two years, has observed during this time an increasing interest from traditional finance actors.

Read the whole article on Crowd Valley Blog.

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