This document discusses investment crowdfunding and delineates it from reward-based crowdfunding. It explains the mechanism of investment crowdfunding, how investors provide funds to businesses in exchange for securities like equity or debt instruments. It also outlines the legal framework provided by the JOBS Act, including Title II which allows general solicitation for accredited investors and Title III which will allow crowdfunding for non-accredited investors. Finally, it discusses the potential impact of investment crowdfunding in democratizing access to capital for businesses and empowering individual investors.

1. Delineating Investment Crowdfunding
Global Data, Insight & Trends
Jonathan Sandlund
Jonathan Sandlund | @jsandlund | As of 9/16/2013
@jsandlund
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2. about me
thecrowdcafe.com
leading provider of research, data and analysis on the
global crowdinvesting industry
localinvestors.org
live, think, invest local
Jonathan Sandlund
j@thecrowdcafe.com
@jsandlund
2

3. Intro to Investment Crowdfunding
The Mechanism
Jonathan Sandlund | @jsandlund
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4. Thank you!
Leading law firm serving the
crowdfunding industry
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5. reward vs. investment
Reward-Based
‣ Receive no financial return
‣ Rewards / Perks
‣ Legal today
Investment-Based
‣ Securities offered in return
for crowds’ investment
‣ Equity
‣ Debt
‣ Revenue share / Royalty
‣ Blended
‣ The JOBS Act
‣ Title II vs Title III
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6. the mechanism
Rewards-Based
CUSTOMERS
FAMILY
AFFINITIES
FRIENDS
$
$
X
= Funded
$
$
$
6

7. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
$
$
X
= Funded
$
$
$
7

8. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
X
$
$
$
$
= Funded
$
8

9. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
$
X
$
$
$
= Funded
$
9

10. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
X
$
$
$
$
$
= Funded
10

11. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
$
$
X
$
$
= Funded
$
11

12. the mechanism
INVESTORS
CUSTOMERS AFFINITIES
FAMILY
FRIENDS
X
$
$
$
$
$
=
Not
Funded
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13. rewards vs. equity
Median Fundraise
~$5,000
~$160,000
~$775,000
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14. The Legalities of Investment Crowdfunding
Title II & Title III of the JOBS Act
Jonathan Sandlund | @jsandlund
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15. The JOBS Act
Title II
Title III
‣ Lifts ban on general solicitation
and advertising on security
offerings to accredited
investors
‣ Businesses Raise up to $1mm
in 12-month period
‣ Amended Form D (Proposed
changes only—NOT in effect)
‣ Rule-making includes SEC and
FINRA
‣ Investors tiered limits on
investment amount
‣ September 24th, 2013
Crowdfunding for
Accredited Investors
Crowdfunding for
Everyone
15

16. Title II In Action
Demo Days
16

17. Title II In Action
Startups
“You can pick your own winners, and invest as little as $1000—
or invest $5000 in a fund with all 25.”
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18. Title II In Action
Real Estate
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19. Title II In Action
Global
“As a result of the new SEC regulations, effective today, all of
OurCrowd’s deals will be posted publicly for US investors
on OurCrowd’s website as well as on social networks, email, and
through online and offline advertising and public meetings.”
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20. Title II Impact
‣ Brings dramatic efficiencies to private capital
markets
‣ Geographically indiscriminate
‣ Creates frictionless access to deal flow for
investors
‣ Creates frictionless access to investors for
businesses
Jonathan Sandlund | @jsandlund
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21. The U.S. Market
Jonathan Sandlund | @jsandlund
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22. Platforms market segmentation
Investment Crowdfunding Platforms
Startups
SMBs
Niche/Affinity
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23. Platforms market segmentation
Startups
1. Angellist48
2. Gust20
3. Seedups28
4. MicroVentures21
5. Seedinvest13
6. FundersClub10
7. RockThePost7
8. WeFunder12
9. Fundroom
10. FundersClub
* Accredited Platforms
SMBs
1. SoMoLend13
2. Bolstr5
3. Fundable7
4. Localstake14
5. Dealstruck10
6. LendingClub6
7. P2BInvestor11
8. Raiseworks9
9. Relayfund1
10. Prosper2
Niche
1. HealthFundr29
2. VentureHealth16
3. Poliwogg13
4. HealthiosXchange15
5. ExplorationFunder11
6. Agfunder17
7. Fquare8
8. RealtyShares12
9. RealtyMogul9
10.RealCrowd9
11.Groundbreaker12
12.Crowdmason15
13.Collaperty8
14.CircleUp10
15.ReturnOnChange13
16.WeSparkt6
17.Slated7
18.Pave5
19.Upstart7
20.Alumnifunder11
Generalist
1. EarlyShares10
2. EquityNet10
3. ExemptCapitalNetwork2
4. FlashFunders2
5. Ibankersdirect13
6. ConfidentCrowd4
7. 99funding6
8. IRAvest7
9. Crowdfunder8
10.FundAmerica93
11.Axial Markets
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24. Platforms market structures
The Curation Spectrum
Very High
Curation
High
Moderate
5%
25%
50%
No
Curation
100%
acceptance rate
<5%
100%

25. Platforms business models
20% Carry
10% Success + 10% Carry
$19 - $69 / month
* selected samples

26. The U.S. Market
A few things to think about...
‣ Investors Productization
‣ Investors Secondary liquidity
‣ Investors Portfolio management
‣ Businesses Ecosystem: one-stop shop for fundraising
‣ Businesses Optimization of the Cap Table (pre-funding)
‣ Businesses Optimization of Execution (post-funding)

27. Case Studies
What’s the data say?
Jonathan Sandlund | @jsandlund
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28. 28

29. Macro-Data: Selected Sample
Equity
180 Deals
$132 Million
Debt
2,952 Deals
$256 Million
Equity
73 Deals
~$22 Million
Equity
11 Deals
$954k
Equity
29 Deals
$2.6 Million
Equity
20 Deals
~$21 Million
* Selected sample of platforms; as of 10/14/13
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30. $300+ Million in Crowdfunded Security
Transactions...
300+ Equity
Placements
2,900+
Loans
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31. Crowdfunding Models
Diversity, Innovation
Jonathan Sandlund | @jsandlund
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32. Debt
2,702 Deals
$240 Million
‣
A+ to C Risk Bands
Applied
‣
Offer 1, 3, 5 year loans
‣
£5,000 - £1,000,000
‣
Secondary market
‣ Crowdfunded two
$80,000 small business
loans in under 29
minutes
32

33. Discovery
33

34. Splash Bathroom Accessories Co.
Profile
34

35. Credit Score History
35

36. Key Financials
36

37. Questions & Answers
37

38. Monthly Loan Originations Since Inception!
$14,000,000!
$12,000,000!
$10,000,000!
$8,000,000!
$6,000,000!
$4,000,000!
$2,000,000!
$0!
August 2010
June 2013
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39. Equity
73 Deals
~$22 Million
‣ Launched 2010
‣ Sector Focus General (concentration: internet, food & drink)
‣ Lowest Raise $19,000 Highest Raise $2.3 million
‣ Averages (medians; n= 65)
‣ Raise $160,000
‣ Equity Offered 16%
‣ Post-Money Valuation $960,000
‣ Number of Investors 59
‣ Investment Size $2,963 (low: $331; high: $80k)
Jonathan Sandlund | @jsandlund
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40. Deals per Month. Since Inception
n = 65
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41. Equity
29 Deals
$2.7 Million
‣ Launched July 2012
‣ Sector Focus Internet
‣ Lowest Raise $15,200 Highest Raise $320,000
‣ Averages (medians, n=29)
‣ Raise $64,000
‣ Equity Offered 10%
‣ Post-Money Valuation $516,000
‣ Number of Investors 79
‣ Investment Size $1,013
Jonathan Sandlund | @jsandlund
Minimum Investment
$16
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42. Equity
20 Deals
$21 Million
‣ Launched Mid-2012
‣ Sector Focus Consumer Products/Retail
‣ Lowest Raise $440,000 Highest Raise $2.4 Million
‣ Averages (medians, n=19)
‣ Raise $784,500
‣ Number of Investors 15
‣ Investment Size $74,263
Jonathan Sandlund | @jsandlund
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43. Equity
31 Deals
$7.2 Million
‣ Launched Mid-2012
‣ Sector Focus Technology Startups
‣ Investors 6,700+ accredited investors; now invite-only
‣ Averages (median, n = 23)
‣ Raise $236,000
‣ Number of Investors 32
‣ Investment Size $6,839
Jonathan Sandlund | @jsandlund
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44. Summary
‣ Data
•
Zero Fraud — to date
•
Young Market, Traditional S-Curve
‣ Crowdfunding Platforms
•
Tremendously Diverse
•
Debt, Equity, Royalty-Based, Blended
•
Startups, Small Businesses, Emerging Growth Co’s, Projects, Individuals
44

45. Market Adoption: S-Curve
Penetration
Time
45

46. The Disruption — Not If, But When
Jonathan Sandlund | @jsandlund
46

47. Investment Crowdfunding
Two mega-trends colliding
Technical
Disruption
Entrance of the internet into
the private capital formation
process.
Crowd
funding
Cultural
Disruption
A desire to connect more
meaningfully with the things
we buy, the things we do, and
the things we invest in.
47

48. Internet Disruption
Before
Technical
After
Music
Travel
Retailing
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49. Nearly all service industries re-imagined by
the internet...
Source: Quora
Technical
But not fundraising... yet
49

50. A fundamentally more efficient
capital formation process
Technical
A Big UK Bank
Source: http://www-core.nesta.org.uk/library/images/NestaBanks.jpg
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51. A fundamentally more efficient
capital formation process
Technical
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52. Technical Disruption
Summed up...
✓
✓
The first major change
in security law in 70+
years;
Allows the internet to
enter the capital
formation process.
Technical
What it means...
✓
Processes moved online
✓
Efficiencies realized
✓
Incumbents with
traditional cost structures
obseleted
✓
New markets served

53. Cultural
But it’s not just structural change
driving the disruption.
It’s also cultural.
53

54. Chicago Booth: 13% of Americans trust the stock
market
Cultural
Chicago Booth Financial Trust Index
Distrust is pervasive
54

55. Cultural
Today
little alternative to public markets
Tomorrow
individuals empowered to invest in the the companies,
causes and people they believe in
55

56. The Impact
Jonathan Sandlund | @jsandlund | As of 9/16/2013
56

57. For Businesses
Startups
‣ Breaking geographic barriers; equal opportunity
‣ Fail faster; fail cheaper
Small Businesses
‣ Conversion of social to financial capital
‣ A new era of marketing
Emerging Growth Co’s
‣ Not “sexy” enough for VC, not big enough for PE?
‣ Creates access to growth capital
57

58. For Communities

59. the big picture...
one last question...
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60. Thank You!
Jonathan Sandlund
@jsandlund
Jonathan Sandlund j@thecrowdcafe.com
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