Date post: | 15-Apr-2017 |
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Business |
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EARLY TRENDS IN EQUITYCROWDFUNDING
PRESENTED BY
THE F INAL RULES IMPLEMENTING THEEQUITY CROWDFUNDING PROVIS IONSOF THE JOBS ACT WENT INTO EFFECT
IN MAY 2016.
We examined a number of the firstcrowdfunding offerings to see what early
trends, if any, exist.
DATA SOURCE
U.S. Securities and Exchange CommissionEDGAR online filing systemFirst 100 crowdfunding campaigns filedSpanning from May through September2016
INDUSTRY TYPE
MANY INDUSTRIES ARE USINGCROWFUNDING
Mobile App/InternetServices is largest segment
Professional Services,Beer/Spirits and Hospitalityalso had strong showings
Almost all industries,(including non-profit andenergy sectors) wererepresented
Regardless of industry, approx. 60% ofthe offerors had been in business for1 year or less. A staggering 85% ofofferors had been in business for 5years or less. A significant majority ofbusinesses were in the startup andpre-revenue stage with 70% havingannual assets of $100,000 or less.These trends are consistent with whatone would expect and the purpose ofthe JOBS Act in creating an avenue forstartups and newer businesses whoare not ready or able to accesstraditional capital markets.
MORE TRENDS
TYPE OF SECURITY
EQUITY
Over 50% of crowdfunding campaigns offered equity
Common stock (or LLC membership units) was thepredominant type of security offered
The strong preference (about two-thirds) was tooffer non-voting equity
In preferred stock offerings, a liquidation preferencewas the most frequent right and preference offered
DEBT
Approximately one-half of the debt offerings wererevenue-sharing notes that offered purchasers areturn of between 1.5X to 2X on their investment
Term notes and convertible notes comprised theremaining half of debt instruments offered
Most common annual rate of interest: 5-6%
Term of note: Widely varied (12 mos. - 12 yrs)
SIMPLE AGREEMENT FOR EQUITY
Simple Agreements for Equity (SAFEs) were the mostcommon type of convertible security, allowingholders to convert their SAFE into preferred stock atthe next financing of the offeror (or into commonstock if additional financing was not secured)
Discounts on next round pricing commonly rangedfrom 20-25%
Valuation caps ranged between $1.5-$4 million
TARGET AMOUNT
APPROXIMATELYONE-HALF OF THECROWDFUNDING
CAMPAIGNSSURVEYED WERE
AIMING TO RAISE AMINIMUM TARGET
AMOUNT OF$50,000 AND 80%HAD A MINIMUMTARGET AMOUNTOF $100,000 OR
LESS
Up to $1 Million can be raised
POSSIBLE EXPLANATIONS FORLOW TARGET AMOUNTS
Attempting to stay below the thresholds that wouldhave required more detailed ongoing financialreports to investors
With all-or-nothing stakes, setting the bar lowenough to ensure a successful result
Using crowdfunding campaign to supplementtraditional seed round already underway
FEES & DOCUMENTATION
RANGE OF FEES
19 crowdfunding portalscurrently registered withSEC
Transaction fees rangedfrom 3-10% of the totalamount raised through acampaign
3% (1)
5% (5)
67% (3)
8% (2)
10% (3)
(x) is the no. of portals in that fee range
THE CROWDFUNDING PORTALWITH THE LOWEST FEE
(WEFUNDER @ 3%)HOSTED
NEARLY 40% OF ALLCROWDFUNDING CAMPAIGNS
The quality of investor disclosuredocumentation varied greatly. Mostbusinesses used the SEC's Q&Aformat for disclosures over the moretraditional private placementmemorandum.
DOCUMENTATION
SUCCESS RATE
THE EARLY RESULTS
For equity crowdfunding campaigns that opened inMay 2016 and closed within 90 days, only 28% wereable to reach their crowdfunding goal but manyexceeded their minimum target for funding
The success rate for rewards-based crowdfunding(Kickstarter, GoFundMe, etc.) is approx. 33%
Early indications are that rewards-based vs equitycrowdfunding success rates may be comparable
A FEW SUCCESSFULCAMPAIGNS
Issuer Business TypeMinimum
TargetAmountRaised
Exemplars Internet/Mobile App $50,000 $54,620Youngry Internet/Mobile App $50,000 $69,920MobileSpike Commercial Product $50,000 $92,000EveryFit Medical Device $50,000 $100,000N1CE USA Beer / Spirits $50,000 $101,386Sam Lee LaundryCollective HTXNative Hostel AustinCleveland WhiskeyBeta Bionics
Entertainment $50,000 $476,851Co-Working Space $150,000 $230,500Hospitality $275,000 $396,500Beer / Spirits $100,000 $731,164Medical Device $50,000 $1,000,000
THANK YOU!