Category Archives: Fundraising and Investing

Key determinants of crowdfunding volume

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Cambridge Network | Jun 27, 2017

A country’s control of corruption and quality of regulation are significant factors in the volume of crowd financing being carried out, but the type of legal system (civil or common law) has little effect, according to a new study at Cambridge Judge Business School based on more than 1,300 crowdsourcing platforms in 157 countries.

The study, based on a database compiled at the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge, also found that the volume of crowd financing appears related to the level of trust individuals have for strangers, because such funding relies almost entirely on anonymous donors who have no social or other formal interactions with the recipients.

In addition, the study found that higher charges by banks boost crowdfunding volumes, while crowdsourcing volume declines when it is easier to set up a business – suggesting that crowd financing volumes are tied directly to high costs or other obstacles in pursuing traditional channels.

The study by Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge, is being presented by Professor Rau later this week at the annual conference of the Centre for Alternative Finance, where he is Research Director. The conference is being attended by leading experts on alternative finance from banking, business, government and academia.

Last Call:  Help define the future of Alternative Finance in Canada.  Share your voice by Jun 30

The study – entitled “Law, trust, and the development of crowd financing” – is based on 1,362 crowdsourcing platforms in 2015; it follows detailed studies by CCAF on alternative finance trends and volumes in various regions around the world.

The study covers four distinct types of crowd finance business models – debt platforms for debt lending, equity platforms that allow firms to raise financing from investors, reward-based platforms where funders promise backing in exchange for non-monetary rewards, and donation platforms.

“This is the first paper that analyses the global determinants of crowd financing,” says Professor Rau. “Interestingly, the study finds that trust is the only factor that consistently seems to explain the volume on platforms that don’t have a financial motive, meaning reward-based and donation platforms.”

Globally, 98 per cent of crowd finance platforms are debt or equity platforms, and debt-based platforms are dominant with 96 per cent of global crowd financing originating on those platforms. In emerging economies, however, the predominance of debt and equity platforms is less pronounced, at 78 per cent.

The volume raised through crowd financed platforms increased globally from around $500 million in 2011 to nearly $150 billion in 2015, a growth rate of over 200 per cent per annum, fuelled by advances in technology (thus the term “fintech”). The three largest crowd financing markets in 2015 were China ($103 billion), the US ($36 billion) and UK ($5 billion).

“The overall level of crowd financing volume is strongly positively related to the level of development of the market,” the study says. “However, controlling for the level of market development, there are three factors that significantly affect the volume of crowd financing within the country.”

The three factors are: aspects of the legal system such as corruption control and regulation quality; a demand factor driven by the cost of using traditional financial institutions; and a supply factor linked to user demographics including the level of access investors have to the formal financial institutions.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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Assessing the Potential for Crowdfunding and other forms of Alternative Finance to Support Research and Innovation

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European Commission | May 4, 2017

This report (dated January 2017) provides an assessment of whether alternative finance has the potential to help Europe address the problem of access to finance for innovative companies and bridge the gap in terms of access to risk capital, and if EU action is needed to support development of the sector.

To this aim, the study produced the following results:

1) an estimation of the size of the alternative market for research and innovation, together with a typology of sectors and of alternative finance funding models suitable for research vs. innovation;

2) an analysis of the European alternative finance landscape for research and innovation;

3) an analysis of the challenges limiting development of the alternative finance, and alternative finance for research and innovation in particular;

4) an assessment of policy options addressing those challenges;

5) a final recommendation of priority action at EU and national level to exploit the opportunities of alternative finance for research and innovation.

See:  Companies, Investors, Online Financing Platforms:  Complete the 2017 Altfi Survey in Canada and Help Define the Future of Alternative Finance Crowdfunding in Canada

Access Page to Download the report --> here

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

 

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ICOs: New Model of Blockchain Capitalism

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The Cointelegraph | By Wassim Bendella | June 19, 2017

ICOs are the hot new thing in the Blockchain community. The idea behind an initial coin offering is that a company promises to build a Blockchain-based product or service.

To raise the funds necessary to the execution of its roadmap, the company issues digital tokens and sells them to contributors, usually all at once.

Contributors can then use these tokens to run the service when it is up and running, hold them or sell them for profit.

More and more Blockchain startups are organizing token sales as a way to raise money upfront in ICOs, a nod to the traditional securities’ IPOs. When last year, these companies raised $260 mln according to the research firm Smith + Crown, they have already raised over $560 mln since the beginning of 2017.

ICOs are considered an alternative to crowdfunding and are transforming the way startups capitalize themselves. It's basically a way for Blockchain startups to raise money outside the accredited system.

While tokens operate in the same way equity stakes do, they cannot be considered the same. Indeed, for securities to be sold, they need to be registered with the Securities and Exchange Commission. That is absolutely not the case for tokens, which are more like licenses people use to access a particular application on the Blockchain.

Breaking records

In 2013, Mastercoin organized a token sale to raise funds and was one of the first projects to use this new type of capitalization. Despite warnings that Mastercoin might just be an elaborate scam, investors braved the risk and contributed what was the equivalent of $500,000 at the time.

Ethereum followed the trend in 2014 and managed to raise $18 mln, although the project lost millions after the Bitcoin price crash that year. From there, ICOs started breaking records little by little, until a decentralized venture capital firm entered history by raising $150 mln in 2016. This firm is the infamous The DAO, which was hacked shortly after and lost $50 mln.

See: How The Blockchain Alliance Helps Law Enforcement With Bitcoin Crime And Developments Like The DAO

Since these ICOs are not regulated by the SEC, nothing can be done by authorities after such events. Startups that issue tokens become self-regulating entities that are independent of third parties, but contributors cannot be guaranteed that the roadmap promised by the founders will be respected. This dubious legal status makes ICOs a particularly risky investment.

No rules

The SEC is currently examining this capitalization method but until something is decided, contributors cannot enjoy any protection on their investment.

Aaron Ting, VP of the Malaysian Investors’ Association, believes:

“It is an investment option for those who have a high risk, high reward appetite.”

“Even though the white paper claims that by purchasing ICO tokens, investors own part of the start-ups’ assets and liabilities and have a claim on its profit, there is nothing much you can do if the project does not materialise and the people behind it take your money and run. There are no rules and regulations to govern the space,” explains Matthew Tan, founder, and CEO of Etherscan.

See: Ethereum's Double-Edged Sword: Will a Rising Price Hurt Users?

Risk appetite

By examining the developments of previously ICO-funded startups, one can argue that not many can be categorized as complete projects today. There is no doubt more time is needed to grow into a successful global company, but big wins in this field could bring more confidence to investors.

Adding to the difficulty of the exercise, it is not easy to distinguish between the genuine projects and the scams. For this reason, industry experts insist that contributors do their due diligence before investing and get deeply familiar with the project founders, its realizability and its potential for mass usage.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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OSC Publishes Report on Exempt Market Activity

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Ontario Securities Commission | June 15, 2017

TORONTO - The Ontario Securities Commission (OSC) today published OSC Staff Notice 45-715 2017 Ontario Exempt Market Report, which provides a snapshot of the current state of Ontario’s exempt market and a preliminary assessment of recent regulatory reforms.

The report summarizes capital raising activity by corporate (non-investment fund) issuers in Ontario’s exempt market during 2015 and 2016. Additionally, the report examines capital formation by small Canadian issuers in Ontario’s exempt market, and the impact of recently introduced prospectus exemptions.

“Providing this data reflects our commitment to transparency and allows us to gauge the effectiveness of recently introduced capital raising tools,” said Paul Redman, Chief Economist at the OSC. “This data also supports the OSC’s ongoing compliance and oversight efforts in the exempt market.”

See:  Help define the Canadian Alternative Finance Crowdfunding - Fintech Industry (Share your voice)

Key Findings:

  • Approximately 57% of Canadian issuers that participated in Ontario’s exempt market were small issuers, which
    we defined as issuers raising less than $1 million annually. Notwithstanding the large number of small issuers,
    they only accounted for less than 1% of annual gross proceeds raised by Canadian issuers.
  • In 2016, there was a notable increase in both the number of small Canadian issuers (30%) and the gross proceeds
    raised by these issuers (40%). The increased activity was concentrated among small Canadian issuers in three
    main industries: natural resources; consumer goods and services; and real estate and mortgage finance.
  • Collectively, the new prospectus exemptions have gained traction among a sizeable proportion (25%) of
    Canadian issuers in the short period that they have been introduced. In 2016, approximately 400 issuers relied on
    the new prospectus exemptions to raise approximately $133 million, with close to half of these issuers raising
    capital in Ontario for the first time since 2014.
  • Among issuers relying on the new prospectus exemptions, natural resource issuers represented the largest
    industry group by number of issuers (37%), whereas real estate and mortgage finance issuers accounted for most
    of the capital raised (70%).
  • Accredited investors, mainly institutional investors, contributed over 90% of the total capital invested in the
    Ontario exempt market. However, most of the capital was invested in large issuers, primarily foreign-based and
    consisting of financial entities such as banks, private equity funds and asset-backed structured finance vehicles.
  • Within the context of the broader Canadian capital market, Ontario’s exempt market accounted for less than
    one-fifth of the total gross proceeds raised by Canadian issuers domestically and less than one-tenth of gross
    proceeds raised globally.

The report revealed increased activity in Ontario’s exempt market, especially among Canadian issuers and among small businesses. In 2016, approximately $27 billion was raised by about 1,600 Canadian issuers from Ontario investors. Approximately 57 per cent of these Canadian issuers that participated in Ontario’s exempt market were small issuers, raising less than $1 million annually. However, despite the large number of small issuers, this group only accounted for less than 1 per cent of annual gross proceeds raised by Canadian issuers.

See:  OSC Highlights Potential Securities Law Requirements for Businesses Using Distributed Ledger Technologies

The report also found that the new prospectus exemptions have gained traction among a sizeable proportion (25 per cent) of Canadian issuers participating in the exempt market. In 2016, approximately 400 issuers relied on the new prospectus exemptions to raise approximately $133 million, with close to half of these issuers raising capital in Ontario for the first time since 2014.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in the capital markets. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca

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Your voice matters!  Help define the future of Alternative Finance Crowdfunding in Canada. 

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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Canadians need to come together to take our startup community forward

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The Globe and Mail | by Sir Richard Branson | June 15, 2017

From my first steps as an entrepreneur, I have felt the only mission worth pursuing in business is to make people’s lives better. I have followed the general rule that frustration can be an enormous driver of change if you are good at spotting the opportunities sitting at the centre of a problem. Whether it is the travel industry, health care, the entertainment or leisure sector, this strategy has always worked for me.

Entrepreneurs are better placed than anyone when it comes to spotting these problems and turning them into opportunities. As Canada celebrates its 150th birthday, it is time to fully realize the country’s potential to become a global powerhouse of free enterprise and innovation.

Unsurprisingly most of you agree with this. The newly formed Canadian Entrepreneurship Initiative (CEI) has just produced a report entitled Entrepreneurship: Canada’s Golden Opportunity which reckons more than 70 per cent of Canadians think your country is a good place for a startup business. However, the number that needs fixing is the fact only 40 per cent of people are interested in becoming an entrepreneur. Of those, half of them doubt they could ever succeed.

See: 2017 Annual Alternative Finance Crowdfunding in Canada Survey

Fear of failure and access to funding are two of the biggest issues putting people off taking the bold step to go it alone. For those even considering making that first move, these reasons probably feel like two giant immovable redwoods.

My experience is one can carve a path through that forest and create responsible lending solutions for those looking to start out on their own. We can find more ways to fund and guide entrepreneurs to nurture the future of the Canadian startup scene and help to grow these businesses into international companies of the future.

“As Canada celebrates its 150th birthday, it’s time to realize the country’s potential to become a global powerhouse of free enterprise and innovation,” said Initiative supporter Sir Richard Branson.

For example, in the United Kingdom, our own not-for-profit Virgin StartUp, has found ways to lift the initial burden entrepreneurs face. Virgin StartUp has provided funding to over 1,800 entrepreneurs with £21-million ($35.7-million) in support. It has also provided thousands of hours of mentoring and business advice to entrepreneurs to help guide them through their infancy years. This is part of a British Government-backed startup loan scheme (Start Up Loans Company) which has provided over £300-million to micro-businesses across Great Britain since its launch in 2012.

I’m excited about the launch of the Canadian Entrepreneurship Initiative founded by Ruma Bose. I am especially thrilled we can play a major role in its first program to amplify Canadian entrepreneurs if you have a business seeking support I encourage you to visit entrepreneurshipcanada.ca for the details.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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How Asia Is Adapting To The Alternative Finance Revolution

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In more ways than one, alternative finance has made borrowing simple, swift and suitable. Over the last few years, alternative finance providers have grown in number and garnered significant acknowledgement and traction from stakeholders such as regulators, venture capitalists, banks, enterprises and investors. They provide financing outside the parameters of traditional lenders, most commonly banks. Breaking it down even further, alternative finance includes domains such as crowdfunding, peer-to-peer financing, and invoice financing.

The rise of alternative lending

The sudden rise of alternative finance can be attributed to two reasons. First, the inability of traditional financial institutions to cater to certain segments of the market which need access to secure financial services. And second, because fintech firms have recognized these gaps, successfully experimented and developed solutions to fix these gaps with minimal red tape. Based on data from The World Bank, more than 200 million micro, small and medium-sized enterprises (MSMEs) in emerging economies lack adequate financing, due to lack of collateral, credit history and business informality.  Until recently, alternative finance platforms have witnessed staggering success and even reached a stage of maturity in the Western markets, particularly in the U.K and U.S.

See:  Research: Americas Alternative Finance Grows to $35.2 Billion in 2016

In recent times even the East has also joined the ranks and given the alternative finance industry a major boost. Countries such as China, Singapore, Hong Kong, and most recently Indonesia, Malaysia, the Philippines, and India have displayed a tremendously positive response to several platforms providing alternative forms of finance to enterprises and individuals. Rightly so, as Asia is home to a population of 4.4 billion and 5 key financial centers of the world. Aside from a considerably large consumer base and a relatively stable political system, most of the Asian economies emerged from the 2008/09 financial crisis in better shape than its western counterparts. The tightening of credit across several banks across the region has played a pivotal role in the growth of alternative finance in these markets.

As alternative financial products gather momentum, China’s state-controlled banks are losing share of the nation’s 44.8 trillion yuan in household deposits. The same can be said for many major Asian banks.

A special mention must be made of the Asian regulators which are actively encouraging and supporting the growth of alternative finance in their respective countries. Singapore’s regulator has set aside $225 million to develop and support fintech projects locally. It has also eased the rules for financiers to increase the level of unsecured lending. The Monetary Authority of Singapore has even housed an innovation lab called Looking Glass within its building. Hong Kong Monetary Authority has created a system which brings banks, financial technology platforms and the regulator itself to collectively brainstorm and experiment on developing innovative solutions.

See:  Share Your VOICE and Help Define the Future of Alternative Finance in Canada (until Jun 30, 2017)

In the same manner, China has become the largest P2P market regionally thanks to its government which encouraged the growth online finance to cater to the underserved market instead of solely relying on local banks. Japan has taken a step further to collaborate at an international level by partnering with the Financial Conduct Authority to encourage a cooperation between financial technology platforms in Japan and in the U.K to be able to operate in both countries.

New kid on the financial block

As the alternative finance industry continues to grow and expand, it has seized a significant portion of market share from traditional lenders by attracting their investors and borrowers onto its agile and innovative platforms suitable for a wide range of users. For example, such platforms provide investors the opportunity to find and zero down into investments which suit their specific risk appetite with greater control over their investments than a portfolio manager. At this point one may wonder - how would banks react to such forces of fintech? Would it be hostile, or regressive? After all, investing and lending are the basic fundamental reasons behind a banks existence!

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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$150 Million: Tim Draper-Backed Bancor Completes Largest-Ever ICO

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Coindesk | by Stan Higgins, Alex Sunnarborg & Pete Rizzo | Jun 12, 2017

An initial coin offering (ICO) for a blockchain project called Bancor has set a new industry record, raising approximately $153m in ether, the native currency on the ethereum blockchain, as part of a crowdsale that concluded today.

Data shows a smart contract connected to the sale had collected more than 390,000 ether by the time it ended at 18:00 UTC, an amount worth $152.3m at current prices. As such, the figure is higher than even the funding raised by The DAO, the notorious failed fundraising project that made headlines last year when it lost the millions of the $152m in investor funds it raised in a similar sale.

Overall, 79,323,978 Bancor network tokens (BNTs) were created as part of the ICO, with the top token holders now possessing 83.96% of the tokens, or 66,601,702 BNT. Fifty percent of the total tokens, or 39,661,989 BNT, were sold to the public, while the remaining 50% were allocated for future use.

The ICO attracted 10,885 buyers, according to available data, with more than 15,000 transactions sent to the address for purchases during the sale. One buyer went so far as to purchase 6.9m BNT, or roughly $27m, in the sale.

See:  Don't miss the Annual Summer Kickoff Rooftop Networking session June 22 @The Spoke Club

Launched in 2017, Bancor, overseen by the Bprotocol Foundation, has been pitched as a platform designed to make it easier for users to launch their own blockchain tokens.

Of the remaining funds, a blog post by the company states token capital will be directed toward partnerships, community grants, public bounties and project advisors.

Issues with the sale

As with past sales of this kind, the ICO was accompanied by reports that the ethereum network faced significant transaction loads, resulting in delays for buyers.

However, the project itself was adversely affected by long wait times on ethereum.

According to the Bancor website, an initial funding target was set at 250,000 ether, though this figure was not hard-coded into the smart contract deployed. As a result, a transaction sent on the ethereum blockchain in an effort to change the contract and limit the crowdsale in length did not work as desired.

Due to network disruption and delays holding up this transaction, the company said the crowdsale ended up continuing longer than initially desired. Overall, it lasted an two additional hours as a result of the delay.

Posts on social media further suggest that at least some users saw transaction issues during the sale. One thread on Reddit drew complaints about transactions being dropped as long as 35 minutes after they were sent to the ICO address.

Some participants who spoke to CoinDesk also said that they had experienced delays in transacting, including one who had issues moving their ethers off an exchange for the purposes of participating in the ICO.

One exchange operator went so far as to argue that the ICO had increased transaction congestion, colorfully remarking that larger ether buyers were disrupting the sale.

Notable investors

Another factor contributing to the frenzy is that, as sale was getting underway, Bancor revealed it had attracted new and notable investors.

Among those announced to be contributing funds was investor Tim Draper of VC fund Draper Fisher Jurvetson. Though new to the ICO space – he previously backed the Tezos project ahead of its yet-to-be-held offering – Draper has invested in a number of bitcoin startups in the past few years.

In 2014, Draper made headlines when it emerged that he had bought 30,000 bitcoins during US government auction, later picking up an additional 2,000 BTC during a second sale. As part of the funding, Draper will also be joining the project as an advisor.

The Bancor sale was also backed by Blockchain Capital, an investment firm that focuses on startups in the space.

According to a blog post published today, Blockchain Capital is making its investment via its BCAP token, which it launched earlier this year.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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