Crowdfunding Platforms: Substitutes or complements to traditional financial intermediaries?

Crowdfunding platforms
Substitutes or complements to traditional financial intermediaries?
© Jean-Michel Pailhon (jmpailhon@ciallogy.com)Labex Refi Conference
May 22nd, 2017

Questions - Agenda
2
Jean-Michel Pailhon
Crowdfunding platforms: substitutes or complements to traditional financial intermediaries?
• Do you think that investment-based crowdfunding platforms may become more sophisticated
intermediaries providing liquidity through a secondary market (example of Seedrs in the UK) or
even transforming/pooling risk by providing guarantee or diversification to investors?
• Institutional investors are more and more involved in crowdlending in the US, do you think
that investment-based crowdfunding will follow a similar path or will remain mainly Peer-to-
Peer?
• How can smart venture capitalists browse the subjects on reward or investment-based
crowdfunding platforms in order to create value for their LPs?
• QUESTION THAT YOU WOULD LIKE TO ANSWER

Question #1
3
• Do you think that investment-based crowdfunding platforms may become more
sophisticated intermediaries providing liquidity through a secondary market (example of
Seedrs in the UK) or even transforming/pooling risk by providing guarantee or diversification
to investors?
1. Success > in the US, SecondMarket : secondary market only
2. Failure > in France, Alternativa : primary and secondary market
3. Still TBD > in the UK, Seedrs : primary + secondary but selective
https://www.seedrs.com/secondary-market

Question #1
4
1. Success : in the US, SecondMarket : secondary market only
NASDAQ Acquires SecondMarket To Help
Startups Sell Shares ...
22 oct. 2015 - NASDAQ has agreed to
buy SecondMarket Solutions to combine
forces ... Sets Up Transfer Facilities For
Startups To Manage Secondary Sales ...

Question #1
5
2. Failure : in France, Alternativa : primary and secondary market
https://www.crowdfundinsider.com/2015/07/71505-french-
alternativa-equity-crowdfunding-with-a-secondary-market/

Question #1
6
3. Still TBD : in the UK, Seedrs : primary market + secondary market but selective and to be
launched this Summer : https://www.seedrs.com/secondary-market
“The implementation of a secondary market for private shares is actually
quite complex. This is why it doesn’t really exist in any meaningful way
yet. The market needs to work for buyers, sellers and entrepreneurs, and
it can be difficult to balance all the parties’ interests. We could have
rushed a simple notice board for investors a long time ago, but we know
that would be a terrible experience for everyone. So we decided to do it
properly.
We have spent a lot of time working through the issues surrounding a
secondary market, designing a model that we believe addresses the key
concerns that our customers may have, whilst also allowing the market to
operate in the most efficient way. It is important to note there will be many
iterations of this product once our beta version is launched, with new
features and capabilities introduced over time based on feedback and
data.”
– Thomas Davies, Seedrs CIO (link)
The market, which will form part of the Seedrs platform, will enable investors who have
shares held under the Seedrs nominee to buy and sell shares from and to each other.
Meanwhile, investors in Seedrs-funded companies will have the opportunity to increase
their stakes by buying shares from those sellers.
(…)
How it will work
Beginning on the first Tuesday of every month, the market will be open for one week.
During this time, investors will be able to buy and sell shares from each other.
The trades will take place “under the nominee”. This means that our nominee company
will continue to be the legal shareholder of the shares, but instead of holding them on
behalf of the seller, the nominee will now hold them on behalf of the buyer.
During the beta phase:
Shares will trade at “fair value”, which is the price that Seedrs marks them pursuant to
our Valuation Policy.
Only current investors in a given company will have the opportunity to buy shares in it.
Some companies will be ineligible for trading at certain times. This will generally be the
case where the company is in the process of a major corporate transaction, or when
other extraordinary circumstances are in place.
We will enhance the features on how the market will work over time which may include
expanding the timing (longer windows or continuous trading), pricing (negotiated or
bid/offered prices) and/or eligibility (new investors, when companies are ineligible) in
the future.
Source : link

Question #2
7
Peer?
Crowdlending - Highlights - United States
 Transaction Value in the "Crowdlending" segment
amounts to US$17,432m in 2017.
 Transaction Value is expected to show an annual growth
rate (CAGR 2017-2021) of 44.5 % resulting in the total
amount of US$76,102m in 2021.
 The average funding per campaign in the
"Crowdlending" segment amounts to US$41,330.43 in
2017.
 From a global comparison perspective it is shown that
the highest transaction value is reached in China
(US$149,800m in 2017).
Source: Statista

Question #2
8
Peer?
Source: Statista

Question #2
9
Peer?

Question #3
10
 It's not only for startups — equity crowdfunding presents significant opportunities to
businesses of all sizes. It offers firms diversity of funding sources, potentially easier access to
funding, brand and marketing benefits, as well as the potential to retain greater control over
their business.
 Growth in equity crowdfunding is largely being driven by increased awareness, and the
benefits it provides both businesses and investors mean it's now starting to threaten VCs and
angel investors.
 As a result, VCs are increasingly investing via crowdfunding platforms in a number of ways.
They aim to benefit from the equity crowdfunding industry and protect their share of the
larger equity funding market.

Question #3
11
 VC’s reactions:

Question #4
12
• QUESTION THAT YOU WOULD LIKE TO ANSWER: when will equity crowdfunding platforms and
stock exchanges will eventually meet?

Contact details
Jean-Michel Pailhon
Paris (France) – London (United-Kingdom)
 E-mail : jmpailhon@Ciallogy.com
 Skype / WhatsApp : @jmpailhon
 LinkedIn : https://linkedin.com/in/jmpailhon
 Twitter : @FinTechFR
13© Jean-Michel Pailhon (jmpailhon@ciallogy.com)Labex Refi Conference

Jean-Michel Pailhon - Background information
14
Mr Pailhon’s scope of intervention and research focuses on the innovation brought to financial services by
new technologies, innovative business models and enhanced capacity in data management.
His consulting work focused on all aspects of innovation (strategy, organization framework), pricing and
business models optimization in digital financial services, but also covered some strategic topics around
multi-sided marketplace and platform businesses, as well as Software as a Service (“SaaS”) businesses.
He is also actively involved in policy debates around the impact of the financial technology on the financial
services industry. His consulting makes use of “big data,” including the use of data in financing or
investment decisions, and brings together economic theory and statistical tools from machine learning
and econometrics.
He is also active in the new area of virtual or digital currency, serving on the Board of Directors of a
financial technology startup active in digital currency payment, and working with entrepreneurs on
research on Bitcoin, Blockchain and Ethereum.
He serves as an advisor to the board of directors of France Fintech, the French association of fintech
startups. He’s a former senior manager of NYSE and Euronext working on several strategic missions
between 2001 and 2016 (strategy, M&A and IPO mainly).

Bibliography
In English:
 What Really Lies Behind the Blockchain (Beyond the Hype)? Part 1 (May 2016)
 "The Fintech Book" (Susanne Chishti, April 2016)
 "FinTech: Digital Innovation in the Financial Industry" (January 2016)
 "La (French) FinTech Connection" (May 2015)
 "Fintech strategic review" by Jean-Michel Pailhon (SlideShare, August 2014)
In French:
 MOOC La Révolution FinTech - Module 1 : Les origines et impacts des Fintechs (Nov. 2016)
 "Qu'est ce qu'une fintech ?" (MOOC la Révolution FinTech, Nov. 2016)
 "Vers une réduction des coûts grâce à la FinTech" (MOOC la Révolution FinTech, Nov. 2016)
 "T.R.A.C.E.S.", la Proposition de Valeur Globale de la FinTech (Octobre 2016)
 Les Fintechs, vecteur de la transformation des directions financières - Intro (Mai 2016)
 "La Banque, Reflet d'un Monde en Train de Naître" (Octobre 2015, Athling)
 "FinTech : concurrents ou partenaires" (OCTO Technology, Mars 2015)
 "Les FinTech cannibalisent la banque" (Octo Technology, Octobre 2014)
 Ongoing monitoring of the FinTech industry trends at @FinTechFR on Twitter
© Jean-Michel Pailhon (jmpailhon@ciallogy.com) 15Labex Refi Conference

Strategic Advisory in Financial and Technology
www.ciallogy.com
™
“Information is data
endowed with relevance
and purpose, converting
data into info thus requires
knowledge.“

Crowdfunding Platforms: Substitutes or complements to traditional financial intermediaries?

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Crowdfunding Platforms: Substitutes or complements to traditional financial intermediaries?