Equity-based Crowd Funding

Ari Massoudi

Description

A New Way to Raise Funds for Privately-held compagnies from Startups to SMEs

Sujets

• Startup
• Entrepreneur
• Innovation
• Venture capital
• management
• managers

Informations

• Publié par: myorka
• Publié le: 22 avril 2012
• Nombre de lectures: 102
• Licence : Tous droits réservés
• Langue: English

Extrait

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Equity-based Crowd Funding A New Way to Raise Funds for Privately-held compagnies from Startups to SMEs

Micro-Investing A New Way to Invest in Privately-held compagnies from Startups to SMEs

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

Types of Crowd Funding: Ways Entrepreneurs Can Face the Investment Crisis http://wisepreneur.com/entrepreneurship/types-of-crowd-funding-ways-entrepreneurs-can-face-the-investment-crisis

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To face against the current crisis, and more precisely to face against the investment crisis that affects Start-ups, Small and Medium-sized Enterprises, a new way to raise funds has emerged, supported by the power of Internet: Crowd Funding. Start-ups and Small and Medium- sized Enterprises seeking investors have to knock at the doors of Business Angels networks/clubs or at Venture Capital firms. But the process of selection used by Venture Capitalists, and even by Business Angels, is difficult, time-consuming, and only a few percents of companies are financed. Crowd funding allows entrepreneurs to by-pass Business Angels and Venture Capitalists, by directly asking people to invest in their companies.

This way of fundraising democratize the investment process for private companies allowing all persons, even people with low incomes, to invest. Of course, Business Angels and Venture Capitalists are also welcome to invest. Another major benefit to entrepreneurs and companies is that many different kinds of projects can have access to capital. Even projects at seed-stage can have a chance to be financed.

The crowd funding was first, and is still, used to finance non-profit humanitarian, charitable or philanthropic projects, but also artistic projects. For instance, a French singer who interested none of the “big four” record companies, has been supported by the crowd funding web site My Major Company (in France) which is also called Sell a Band (in USA), and now he is a celebrity (in France). How does crowd funding works? In theory, it is very simple. You have a project to finance, you present your project in a web site, and you promote your project to people and ask them to give you money! If people like your project, they will talk about it to their network, and then a viral funding process could start.

The kinds of funds that could be raised by crowd funding are:

1.Donations It preferentially concerns non-profit projects. But some companies on the Internet offering

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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a free service based on open-source software (freeware or shareware) can have significant revenues from donations by their customers (users). 2.Loans (long term debt) or Credit (short term debt) This kind of crowd funding is named Peer-to-Peer lending. Dr. Calvin Bacon has published two instructive articles about Peer-to-Peer lending,New Ventures: Is Peer to Peer Lending a Good Funding Solution?andWhich P2P Lender Should You Choose?. 3.Royalties The investor bets his money on your project, and in the case of success, the entrepreneur pays-back royalties to the investor (a percentage of the sale revenues). 4.Stock Sales This concerns private companies such as start-ups, small and medium-sized enterprises seeking equity investors to finance their development. The goal of the investor is to obtain a capital gain after the sale of his stocks, and to receive dividends when the start-up has profits.

Donations, Loans, and Royalties can be used for entrepreneurs at a very early-stage of their project, before having a tangible product (good or service) to sale, even before the legal creation of the company. Stock Sales is a novelty. Indeed, we can easily buy (or sale) stocks of public companies on the Internet, but now, we can do it with private companies also.

To secure the financial deal, and to limit the risk of failure of the project, entrepreneurs and investors could work with intermediate companies specialized to manage the crowd funding process.

These companies analyze the project to be financed, the business plan, the market targeted, the products, the competitors, the management team skills and experiences, the patents, and other relevant information about the project. Then they provide regular reports of the activity of the funded company, and they secure the payment by Internet.

If you are interested in crowd funding, you probably want to take a look at some of the Internet sites regarding crowd funding. At this link, you can see a non-exhaustive list of crowd funding Internet companies. An alternate list is provided here. Now, you have several novel ways to finance your project. Concerning private companies, if you are the CEO of a start-up, a small or medium-size enterprise, and if you need capital to finance an exciting project, why not asking your future customers and users to commit with you into your entrepreneurship adventure as partners? If your operational marketing is able to sell your products, it will also be able to sell your stocks. Selling stocks by crowd funding could be very powerful to turn your prospects into customers. If I buy your stocks because I have loved your project, I would like to buy for sure your future product, and I will convince my network to do like me! Why? If people buy your product, the prize of my stocks will increase! So simple!

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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To conclude, do not forget that you will fix the percentage of the equity that you will open to the market, and you will also fix the price of each stock share. This is a very important advantage compared to fundraising with Business Angels or Venture Capitalists who will harshly negotiate the percentage of the equity and the prize of stock before entering into your business. By crowd funding, you are the master!

How to Invest Using a Crowd Funding Website http://wisepreneur.com/funding-innovation/how-to-invest-using-a-crowd-funding-website

Many investors don’t fully understand how crowd funding works. Therefore I would like to show in detail one of these crowd funding internet companies,WiSeedlocated in France. I choose WiSeed because it is a platform fully dedicated to the point placing equity investment by selling stock. I only find two crowd funding companies dedicated to selling stock, both based in France and created recently (the second is FinanceUtile.comcreated at 2009). Furthermore, WiSeed selects only innovating start-ups at early- stage. WiSeed was created in October 2008 by Thierry Merquiol, Chemist and Biochemist Engineer, expert of innovation and start-ups. He worked 12 years as Sales Director for Air Liquide, a major company supplying industrial gases. Then, from 2002 to 2008, he was the CEO of a business incubator (at the Midi-Pyrénées in France) dedicated to support entrepreneurship, innovation and technology-based start-ups.

The process of projects selection by WiSeed is quite fast, in 15 days entrepreneurs have an answer.

· Step one: Executve Summary sent to WiSeed => if yes, then · Step two: Entrepreneur fills in a “Selection form” => if yes, then · Step three: WiSeed considers the Business Plan => if yes, then ·  Step four: Entrepreneur makes an Elevator Pitch and Slideshow by videoconference => final decision

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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WiSeed only targets start-ups based in France, and their web site does not have an English translation. But the ergonomics of the platform is very good, and with some explanations you will easily understand how it works.

At the home page, if you click on the Tab “Choisissez” (means “Choose”), you reach the catalog of start-ups supported by WiSeed. You do not need to have a user account to view the catalog, but to choose a start-up and to invest in, a user account is required.

Home Page:

At the catalog page, start-ups are showed. Currently, only 4 start-ups are supported by WiSeed. Since its creation, WiSeed has funded 12 companies, total 4.45 million Euros (= 5.738.942 USD).

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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On the WiSeed web site, if you want to know more about a specific start-up, click on its tab to go to its page. Here I will select the start-up « Tonnellerie Renaissance » seeking 100 000 Euros, and we see that 31% of this amount has already been raised.

Catalog page:

At each start-up page, you see 6 Tabs, in which all information concerning the business plan including the financial forecasts are presented (Tab “Données financiers”). If you need more information, you can use the last Tab “Commentaires” (means commentaries) to ask questions to the WiSeed.

Click « Tonnellerie Renaissance » to reach the start-up page.

Start-up Page:

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

Click « Données financières » to see the Financial forecasts

Financial Forecast Page:

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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If you are convinced by the growth potential of the start-up and you decide to invest, you click on the button “Investir” (means Invest), and then you reach a page to choose the amount of money which you would like to invest.

In the following example, I choose to invest 2,000 Euros, and the calculator indicates that it corresponds to 20 shares of stocks. WiSeed will charge 1% of the total as fee and during 5 years (100 Euros per year during 5 years in the present example).

The minimum amount of stocks that you can buy is 100 Euros (=128,95 USD) corresponding to 1 share.

You can pay with your credit card, by a bank transfer or sending a check.

Investment Page:

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi

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An important point, WiSeed creates a holding company for each start-up. These holding companies are dedicated to investing in the equity of the start-up. The advantage of this model is that the CEO has only “1” investment management company, WiSeed. WiSeed also manages the report of the activity from start-ups to all the investors.

In conclusion, instead of buying things that you don’t need at eBay or elsewhere, you can buy stocks of promising private companies, innovating start-ups, by Internet using your credit card. And maybe one day, you will be the co-owner of a Google, an Apple … or other successes.

Note to readers: I am not related to WiSeed in any matter, I am not an employee, I am not a customer, I am not a supplier, I am not a shareholder of WiSeed, neither of the start-ups supported by WiSeed. Therefore, I have chosen to present this company due to the novelty and the paucity of this kind of company, and of course, the interest for entrepreneurs.

Ari Massoudi / Consultant Strategy of Innovation /www.strategy-of-innovation.com/www.linkedin.com/in/arimassoudi