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The Changing Relationship Between Investors and Investments

Take this opportunity to meet OurCrowd’s new president, Anthony DeChellis, who brings to the discussion his extensive experience in the private banking and institutional finance world. Anthony previously served as CEO of Private Banking Americas at Credit Suisse, headed Private Wealth Management at UBS, and held a range of leadership positions at Merrill Lynch, including Manager of the European Private Banking Business.

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The Changing Relationship Between Investors and Investments

  1. 1. The Changing Relationship between Investors and Investments March 2015
  2. 2. The changing investment ecosystem: The evolution of the advisor-investor relationship and the trends to watch 2
  3. 3. How we used to invest: Change is not new in our industry Brokerage, Commission-Trading, & Asymmetry of Information Enter Schwab The playing field is levelled in 2000: Regulation Fair Disclosure (Reg FD) Does Regulation Fair Disclosure affect analysts’ forecast performance? 3
  4. 4. 4 Booz & Co Global Wealth Management Outlook 2014/15
  5. 5. Global HNWI wealth is growing, as is their demand for digital in wealth relationship Source: Capgemini, RBC Wealth Management and Scorpio Partnership Global HNW Insights Survey 2014.5
  6. 6. 6 Big Banks are trying to react Citi to Launch Banking App for Apple Watch Business Wire March 10, 2015 Report: Digital and Mobile Solutions for Financial Advisors 2015 Fending off the robos: New technologies reinventing the client/advisor relationship Report: Mobile Apps for Wealth Management 2014 Wealth Managers Need Better Apps to Tap into Mobile High- Net-Worth Generation
  7. 7. Financials services industry is ripe for disruption According to the yearly Edelman Trust Barometer study… Finance is the least trusted of all industries 7
  8. 8. Regulatory Developments: New rules Create Opportunities to Meet Changing Investor Demand Expanding the audience with ”crowd building,” an evolving are of the law Pre Jobs Act 2012 • No general solicitation or general advertising of unregistered securities allowed • Exemption—certain private offerings only to accredited investors • Self-accreditation was sufficient • Jobs Act 2012—Title 2 • Congress’ attempt to stimulate jobs in the US economy by broadening investment in private companies • Mandate for the SEC to issue operative regulations • First set of rules including 506(c) Exemption Sept 2013 • Jobs Act 2012—Title 3: Crowdfunding • Creates new registration exemption to take advantage of Internet’s capacity for mass communication & social interaction • The new exemption will not become effective until the new SEC rules have been adopted • Jobs Act 2015 Title 4 • March 25, 2015: SEC adopted final rules to implement the expansion of Regulation A (Reg A+), which includes non- accredited investor provisions 8
  9. 9. Regulatory Developments: New rules Create Opportunities to Meet Changing Investor Demand Rule 506(c) provides General solicitation and general advertising allowed • All US residents now able to see & attend meetings with actively funding companies (whether accredited or not) • Web site to contain limited information on funding companies for US users only • Only accredited investors can actually purchase • Definition of accredited investor remains the same Self Accreditation no longer enough—need to implement verification procedure • New Rule requires each US investor to provide certification letter • Issued by registered broker- dealer, RIA, licensed attorney or CPA • Needs to be renewed periodically • Confirm it is still accurate at the time of each investment Relates to US residents only 9 Bad Actor Bad actor Provision • Issuers can only use Rule 506 offerings if no “bad actors” associated with them • SEC issued clear guidelines: get bad guys off the street  more investor protections
  10. 10. 10 HNWI want more than Transaction & Information via digital media with their Wealth Managers Source: Capgemini, RBC Wealth Mangement and Scorpio Partnership Global HNW Insights Survey 2014. The Most Important Interactions on Social Media: • Trending investment news shared by advisor • Educational articles and research advisor has shared • Instant access to research, whitepapers and pertinent videos 52% 57% 56% 46% 40% 43% 51% 53% 52% 25% 19% 20% 0% 20% 40% 60% In-Person /Phone Internet E-mail Mobile Social Media Video Inform 59% 58% 58% 46% 36% 41% 58% 49% 56% 26% 20% 24% 0% 20% 40% 60% 80% In-Person /Phone Internet E-mail Mobile Social Media Video Engage 54% 65% 54% 46% 34% 35% 49% 61% 45% 22% 12% 14% 0% 20% 40% 60% 80% In-Person /Phone Internet E-mail Mobile Social Media Video Transact Under 40 40+
  11. 11. FinTech is exploding: 248 companies with $3.4B 11
  12. 12. For the people, by the people: Moving from passive investing to participatory investing via crowdfunding 12
  13. 13. Crowdfunding: Competitive Landscape There has been a proliferation of platforms 13 Source: A Trillion Dollar Market By the People, For the People How Marketplace Lending Will Remake Banking As We Know It BY CHARLES MOLDOW GENERAL PARTNER, FOUNDATION CAPITA
  14. 14. 14 While passive investing in ETFs is growing, active investing via crowdfunding is exploding Source: H. Terry, D. Schwartz, T. Sun “The Future of Finance Part 3: The Socialization of Finance,” Goldman Sachs. March 13, 2015.i $1.5 $2.7 $5.1 $10.0 $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2011 2012 2013 2014 Crowdfunding has exploded to $10bn in 2014, nearly doubling every year Aggregate Amount of Funding Through Crowdfunding ($bn) The World Bank October estimates global crowdfunding to grow to $95B by 2025 ETFs have a 10 year CAGR of 27.1% 0 1000 2000 3000 4000 5000 6000 0 500 1000 1500 2000 2500 3000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sep-14 # ETFs/ ETPs Assets (US$bn) Global ETF and ETP Growth ETF/ETP Assets # ETFs/ETPs
  15. 15. Investors are finding new access points to asset classes In 2014, Lending Club surpassed $4 billion in total peer to peer loan underwritings (4x 2012’s numbers) 15
  16. 16. 16 Fund outflows increase as investors seek alpha elsewhere • Mutual fund underperformance in contrast to lengthy bull market has been a significant driver of fund outflows • Investors continue to miss out on returns by waiting for highly visible private companies to go public • To meet and exceed investors’ expectations, RIAs need to offer investment opportunities that reflect the “New Alpha” How Many Mutual Funds Routinely Rout the Market? Zero http://www.nytimes.com/2015/03/15/your-money/how-many-mutual-funds-routinely-rout-the-market-zero.html
  17. 17. 17 Selection & due diligence matters even more in illiquid products Source: Morningstar, Lipper Tass, Preqin. Note: Dispersion of fund performance, average calendar year 2002-2011. Past performance is not indicative of future results. Should the study have been conducted over a different time period, the results may have been different. There can be no assurance that an allocation to illiquid investments would yield higher real returns. Top Decile 2nd Quartile MEDIAN 3rd Quartile Bottom Decile 50 40 30 20 10 0 -10 -20 -30 Long-Only Fixed Income Long-Only Equities Hedge Funds Private Equity ReturnDifferentialVersusMedian(%) Manager Dispersion Increases as Illiquidity Grows
  18. 18. Asset Class Drivers • Capital Markets Environment • Pace of Innovation • Venture capital flows Manager Specific Drivers • Ability to identify emerging innovations • Access to attractive deals • Ability to create value through active involvement in portfolio company 18 Breaking Down Venture Capital Risk and Return
  19. 19. Wisdom of the crowd: How individual investors as a collective are driving the future of investment 19
  20. 20. 20 Of the $4T opportunity created by the socialization of finance, Crowdfunding represents $1.2T immediately addressable opportunity with $57bn opportunity in the VC/Angel space Crowdfunding: An increasingly large opportunity for investors Source: H. Terry, D. Schwartz, T. Sun “The Future of Finance Part 3: The Socialization of Finance,” Goldman Sachs. March 13, 2015.i $666 $140 $72 $68 $33 $24 $166 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 Bankcard Loans Home Equity Loans Consumer Finance Loans Retail Loans Venture Capital Angel Investors Other Loans Addressable Opportunity for Crowdfunding: $1.2T Trillion
  21. 21. Where is Wall Street? Investors are crowdsourcing more accurate financial estimates 21
  22. 22. • Crowdfunding is growing rapidly • Crowdfunding is truly global Investors are responding by participating in democratic investment platforms
  23. 23. 23 As crowdfunding grows, platforms become differentiated by levels of due diligence, investment management and investor constituency Equity Crowd Funding: OurCrowd, AngelList, CircleUp lead the pack Investment Management Diligence Unaccredited Investors Indicated Upstream Move Accredited Investors
  24. 24. Israel Case Study: “Move over, Silicon Valley…” As seen in the Economist last year – ranking the world’s 20 top startup ecosystems, Israel is #2 24
  25. 25. 25 Israel is one of the world’s top marketplaces for innovation In the last decade, these companies all bought at least one Israeli start-up.
  26. 26. The OurCrowd Model 26
  27. 27. 27 Creating a new class of investment: Crowdsourced Equity Capital Investing OurCrowd’s platform combines four models of Crowdsourcing Equity Crowd Funding at the core of OurCrowd’s model Creating content & communities of investors, experts & alumni Utilize voting/polling of experts as part of due diligence Harnessing the wisdom of crowds and expert groups Funding Voting Wisdom Creating
  28. 28. 28 Why OurCrowd Clients want unique opportunities, diversified across sector and stage,  delivered through a process they can trust,  which produces performance at a fair cost,  all wrapped in a world class networking/client experience Entrepreneurs want efficient and fair access to capital,  a process they can trust, enabled through a system  that raises their profile and leverages their marketing efforts,  while supporting their growth and development Democratizing Wealth Creation and Access to Capital
  29. 29. Foundation/Brand • Founded in “Start-up Nation,” Israel, home to one of the world’s most prolific start-up communities • Management Team brings broad experience and global perspective Strong Network to Generate Deal Flow • Access to a global network of investors, entrepreneurs and advisors brings access to diversity of opportunities • Synergistic co-investing with an extensive network of Top-tier funds (VCs) & institutional investors Partnership Model • Business Model partners OurCrowd with investors & entrepreneurs • Multi channel investor platform Crowd Engagement • Opportunity to build customized communities of investor groups • Innovative use of the crowd and power of expert groups (refinement under development) 29 Key Differentiators
  30. 30. 30 We do not invest alone—and increasingly our partners want to access crowd capital & insights OurCrowd: Partnering With Leading Institutions
  31. 31. 31 We’ve invested in 62 companies with ~30 follow on rounds OurCrowd’s portfolio