Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Equity Crowdfunding, Alternative Funding
Canada’s first crowdfunded real estate deal closes
Property Biz Canada by Paul Brent | October 30, 2015
Crowdfunding to raise equity for real estate development is well underway in the U.S. Not so much in Canada until this week.
Nexus Crowd - TerracapNexusCrowd Inc. announced Wednesday it has closed the country’s first online investment offering for commercial real estate.
The Toronto-based business raised $500,000 from “10s” of accredited investors to be partial backers of a $100-million retail mall near the northeast corner of Dixie and Dundas in Mississauga, Ont.
Hitesh Rathod, co-founder and CEO of NexusCrowd, hit upon crowdfunding for real estate a few years ago while working on equity financing for an agriculture company through the private markets.
“I quickly realized how difficult it is to raise capital from the equity-raising side and as an investor to get access to really good deals,” he said.
See also: Get the 2015 Crowdfunding for Real Estate Industry Report
“I started looking into the crowdfunding space and thought it was a great evolution for alternative financing.”
Mitigating risk
Putting on his investor hat, Rathod, who has an investment banking background with Mackie Research Capital and Canaccord Genuity Inc. (CF-T), sought to create a funding platform that would not load up small investors with big risks.
“How can I mitigate a lot of the risks that are involved in private market investing and crowdfunding specifically?” he explained.
Related: Property Crowdfunding Comes to Canada With Toronto Mall Project
NexusCrowd’s solution was to partner with institutional investors “who really just do this for a living, where they are sourcing, structuring, monitoring and reporting on deals.”
In the U.S., crowdfunding has raised more than US$208 million over the last two years, according to a Reuters report this week.
The way it works
NexusCrowd has created a limited partnership into which the individual investors’ money was placed and that partnership invested directly in the development project.
“From the perspective of our partners or a company or a project that we are funding, there is only one investor so it really does streamline the process for our institutional partners. There is not a lot of work that goes into it for them.”
The appeal for investors? “They get access to deals they never got to see before.”
Related: The Draw of Real Estate Crowdfunding
The NexusCrowd founder was referring to the equity company’s low-low minimum investment of $10,000. That compares favourably to the $100,000 to $150,000 demanded from accredited investors in typical real estate equity investments, he said.
NexusCrowd, which obtained its exempt market dealer license from the Ontario Securities Commission in July, had examined “north of five” potential real estate investments before it decided to go ahead with the Mississauga investment.
“Each developer or private equity firm will show us all the transactions that they are going to make and we only pick the ones we believe will be most attractive to our investors before posting them,” said Aris Economopoulos, vice-president of operations with the crowdfunding company.
“In addition to that, we put both the developer and the individual investment opportunity through a due diligence process.
“This ensures that investors are getting a curated and vetted investment opportunity as opposed to just anybody being able to post an investment opportunity on the platform.”
Continue to the full article --> here
The National Crowdfunding Association of Canada is the leading and only nationally organized non-profit working with over 1300 social and investment stakeholders across the country, and the national voice of an industry that is fast becoming an integral part of the start-up financing ecosystem. Learn more About Us or visit ncfacanada.org.
11 Big Questions Heading Into Tomorrow’s SEC Crowdfunding Vote
Crowdfund Insider | | Oct 29, 2015
At long last (3 years, 6 months, 25 days since we will get Title III equity crowdfunding rules tomorrow signing of the JOBS Act to be exact), it looks like we will get Title III equity crowdfunding rules tomorrow, potentially opening up a new novel avenue for small businesses to raise capital.
When the original rules were proposed back in October of 2013 (Proposed Rules), there were several fundamental problems that threatened to make equity crowdfunding unworkable. Tomorrow we will find out how (if) these issues were addressed as well as what other surprises the SEC might have in store. Here are 11 key questions to keep in mind as we tune in to hear the historic vote tomorrow at 10:00 am:
1) Will there be a “testing the waters” provision to allow companies to test demand before going through an expensive legal and audit process?
One of the biggest concerns many issuers will have about using crowdfunding is that they will have to spend a lot of time and money on legal and accounting costs without knowing if there is investor demand. Thus a company would have to gamble on their crowdfunding offering. Regulation A allows companies to test investor demand before filing documents. We’ll see if the SEC is willing to apply the same rationale to crowdfunding offerings.
2) Will on-going disclosure and reporting with the SEC continue to be required?
Under the proposed rules, crowdfunded companies would have to continue to file ongoing annual reports with the SEC, much like a public company. To me, this is the most problematic piece of the proposed rules. The ongoing costs and disclosure requirements of essentially becoming a mini-public company make this a very difficult pill to swallow for most smaller companies. The SEC has discretion under the statute to reduce or eliminate (through exemptions) these ongoing requirements. Some have suggested several possible exemptions to these requirements, including exemptions for “main street” small businesses.
3) Will audited financials be required?
One of the biggest concerns with the proposed rules and the JOBS Act rules was the requirement for audited financials for offerings greater than $500k. An audit can cost upwards of $20,000 and take several weeks, a cost prohibitive requirement for offerings less than $1M. Moreover, the expense would be required before an issuer even knows whether there is any investor demand. (see #1 above) There has been overwhelming push back on this and the SEC has the authority to raise this limit to $750k or even $1M (effectively killing the requirement).
See:
- Crowdfunding: enabling global entrepreneurship, the future of Canada's innovation economy
- [Breaking] Alberta and Nunavut Securities Office Publish Proposed Start-up Exemption for Comment
4) Will initial disclosure requirements be streamlined?
The proposed rules present a very detailed list of disclosure items similar to a full-fledged Private Placement Memorandum, which must be filed with the SEC and made publicly available. The specific requirements went beyond what was actually required under the statute, so the SEC could theoretically pull back here. While still burdensome, there are now vendors who seek to streamline this process in a cost-effective manner, including iDisclose and CrowdCheck.
5) Will holding companies be allowed?
Many companies considering crowdfunding balk at the thought of having thousands of shareholders on their cap table. Under the prior rules, pooling crowdfunders into a holding company was not allowed. Since then, various parties have suggested the creation of a crowdfunding special purpose vehicle entity to help solve this problem. The SEC could create a new specific crowdfunding structure or clarify that holding companies can be allowed under certain circumstances.
6) Will equity or carried interest be allowed?
Previous rules prohibited funding portals from receiving equity (including warrants/carried interest) in issuers on the platform due to concerns about the platform having an incentive to favor some issuers over another. Given that most companies using equity crowdfunding would be cash strapped, this would eliminate a good potential avenue for platforms to get compensated without hurting the issuer’s cash position. The prohibition applied to both broker-dealers and funding portals, which could also discourage some broker-dealers from participating in these offerings. If the SEC loosens these requirements, we are likely to see some equity only fee structures from platforms.
Continue to the full article --> here
The National Crowdfunding Association of Canada is the leading and only nationally organized non-profit working with over 1300 social and investment stakeholders across the country, and the national voice of an industry that is fast becoming an integral part of the start-up financing ecosystem. Learn more About Us or visit ncfacanada.org.
Crowdfunding: enabling global entrepreneurship, the future of Canada’s innovation economy
NCFA Canada | Oct 28, 2015
Dear Prime Minister-Designate Trudeau,
On behalf of the National Crowdfunding Association of Canada (NCFA), I would like to extend our congratulations on your victory in last week’s federal election. We believe that your new government has provided Canada with the opportunity to effect real change in public policy, including as it involves crowdfunding.
Crowdfunding is about harnessing the power of the internet to unlock transparent and cost effective sources of capital for early-stage companies and projects from a wide range of stakeholders. Online financing is an innovative approach that brings together investors, entrepreneurs and borrowers in a way that simply didn’t exist ten years ago.
In 2014, global crowdfunding funding volumes grew to $16.2 billion across all crowdfunding models (eg., equity, debt/loans, reward/product and donation) according to a leading industry report (with 2015 predictions approaching $35 billion). The World Bank forecasts that the crowdfunding industry will represent a $96 billion industry annually by 2025, and the World Economic Forum has included crowdfunding as one of the 6 major disrupters of the future of financial services.
In Canada, we can quote one of Canada’s first and largest crowdfunding marketplaces, “35% of the listed companies are from the technology sector and more than 20% of the ventures listed are owned and/or operated by female entrepreneurs. Alternative financing is helping bridge the gender gap and directly accelerating the growth of early stage ventures. With over $20 million raised in 2014 and an expected $100 million to be raised by the end of this year, clearly crowdfunding is helping entrepreneurs acquire the necessary funds to jump start their business, while also boosting the Canadian economy which in turn will generate countless jobs."
Back in March 2013, NCFA recommended a set of principles to guide the implementation of emerging equity crowdfunding regulations including developing a robust, transparent and inclusive set of rules to maximize opportunity for all involved without missteps.
To nurture development and help these complex alternative finance and hyper markets grow proportionately to the opportunity at hand amidst increasing pressures from global competition, we offer the following principles to help guide policy makers in the near term to avoid any lost opportunities.
1. Canada needs to commit to not falling behind other leading countries
The absence of a national securities regulator in Canada makes it difficult to comply with a ‘patchwork’ of regulations across 10 provinces and 3 territories.
If friction points are too great and impassable, the ability for new entrants to emerge becomes impractical. So, we would encourage your government to move quickly with the Canadian Cooperative Markets Regulatory Authority and work to bring the remaining provinces onside as participants.
Regulations that were designed in the 19th century and implemented in the 20th century need to be updated to reflect conditions in the 21st century. Let’s ensure Canada has an internationally competitive regime that is developed for current times and revisit outdated restrictions, such as qualifying CCPC (Canadian Controlled Private Corporations) must have less than 50 investors.
Not falling behind also means increasing the amount of support for and access to early stage capital such as the amounts that crowdfunded ventures can raise from investors and the amounts that investors can put into crowdfunded projects and companies. In the UK, the British government garnered a tremendously positive public sentiment and greatly helped spur the growth of small business by investing £40 million in debt-based crowdfunding and implementing mandatory referral programs in the ecosystem.
Canada aspires to diversify our economy from dependence on natural resources and to create world class new economy businesses. Our early stage funding ecosystem is sorely lacking in capital.
2. There needs to be a level playing field for all who provide early-stage capital
A level playing field means that the newly-emergent P2P business marketplace and consumer lenders are not disadvantaged relative to traditional lenders and that the tax system is structured as to provide equivalent levels of support to all who participate in the innovation economy.
We note for instance that investors in British Columbia have employed the Venture Capital Tax Credit with great success and your party has committed to restoring a retail investor tax credit mechanism that had been jettisoned by your predecessor. Early stage tax incentive programs will help de-risk qualifying investments while also improving market confidence.
In the same vein, it is likely appropriate to carefully re-balance the entire tax treatments for those involved in nurturing innovation. Ultimately, this means revisiting Canada’s treatment of capital gains, stock options and the SR&ED program.
3. Canada needs a robust crowdfunding education and literacy program and industry metrics and benchmarks
As an educator yourself, you are keenly aware of the value of continuous learning. In our opinion, to maximize the opportunity for democratizing finance, many more people in this country will need to be educated about the opportunities that crowdfunding offers for early stage-capital raising, such as the ability to tap into global markets and resources that will help small businesses achieve international scale and commercialization of their venture.
Building on our expertise, the government of Canada should partner with the NCFA to deliver these programs from sea to sea. Invest in a national crowdfunding literacy program based on data-driven research and best practices so that all involved, from investors to issuers, can confidently use these new and exciting financing tools.
4. There needs to be a Royal Commission on the Innovation Economy
Ultimately, it is time for a wholesale review of how Canada can better stimulate the innovation economy and improve the rate of commercialization of new discoveries in high-tech, scientific, medical and environmental fields.
Our recommendation is that you speedily name a Royal Commission on the Innovative Economy. This Royal Commission, modeled after the former Macdonald commission of three decades ago, would be composed of eminent persons with the mandate to consult Canadians who would report back to you within twelve months with a set of recommendations for energizing the new economy.
This new Royal Commission could be directed to finding the best ways of unblocking the bottlenecks that are now choking our collective ability to best deploy the ideas, energies and entrepreneurs now emerging from our institutes of higher learning.
We welcome the opportunity to collaborate. The time to act is now.
Yours sincerely,
NCFA Canada
Note to readers: This post is written on behalf of the NCFA Canada, its members, and affiliates. Special thanks to the following participating members for their valuable contributions in our collective effort to develop Canada into a world class alternative finance crowdfunding centre: Andrew Graham (Borrowell), Cato Pastoll (Lending Loop), Craig Asano (NCFA), Daryl Hatton (FundRazr), Diana Yazidjian (DFY Consulting), Gil Michel Garcia (Financement Participatif en Capital Québec), Jaimy Warner (Raindance), Marcus New (InvestX), Matthew McGrath (The OCMX), Peter-Paul Van Hoeken (FrontFundr), Richard Remillard (Remillard Consulting Group), Rubsun Ho (Crowdmatrix inc.), Sandi Gilbert (SeedUps Canada), Sean Ballard (ATB Financial), Sunny Shao (NCFA) and Tim McKillican (Open Avenue)
The National Crowdfunding Association of Canada is the leading and only nationally organized non-profit working with over 1300 social and investment stakeholders across the country, and the national voice of an industry that is fast becoming an integral part of the start-up financing ecosystem. Learn more About Us or visit ncfacanada.org.
NexusCrowd Closes Online Investment Offering for Canadian Real Estate Project
Crowdfund Insider | Samantha Hurst | Oct 27, 2015
On Tuesday, NexusCrowd Inc. announced that it has closed Canada’s first online investment offering for commercial real estate. The issue was quickly sold out with significant investor demand across the country and internationally. The project provided accredited investors with the opportunity to participate in the development of a $100 million retail mall in the Greater Toronto Area (GTA).
See:
-
Property Crowdfunding Comes to Canada With Toronto Mall Project
-
Get the 2015 Crowdfunding for Real Estate Industry Report… and Pre-order the 2015 Crowdfunding Industry Report
NexusCrowd is considered the first investment platform in Canada to provide accredited investors with exclusive access to co-invest alongside institutional investors in deals that have reached at least 50% of their funding target. It also provides private equity institutions with a “frictionless” way to access additional capital.
Hitesh Rathod, co-founder and CEO of NexusCrowd, commented:
“We are pleased with the strong investor interest in this initial project. This deal demonstrates the efficiency of our platform, and we look forward to providing investors with exclusive access to many more high-quality investment opportunities, that were previously inaccessible to them.”
NexusCrowd’s first investment opportunity enabled investors to participate in the development of a $100 million retail mall located on a 5.7 acre site in Mississauga, Ontario. The institutional partner, Terracap Investments Inc., has over 30 years of commercial real estate development experience across North America and expects to finish construction of the project by the end of 2017. The 238,000 square foot two-storey mall will be anchored by a tier 1 bank and a large supermarket.
Continue to the full article --> 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 1100+ 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 About Us or visit ncfacanada.org.
Final Rules for Title III, Retail Crowdfunding, to be Announced by SEC this Friday
Crowdfund Insider by JD Alois | October 27, 2015
The Securities and Exchange Commission (SEC) will reveal the final rules regarding Title III of the JOBS Act this Friday, October 3oth. The long-awaited regulations will mark the completion of the bi-partisan bill that was signed into law over three years ago.
Presently Title II accredited crowdfunding and Title IV Reg A+ , are the two crowdfunding exemptions issuers may utilize today. Title III retail crowdfunding may usher in a new generation of small firms in financed in part by many small, unaccredited investors.
The meeting at the SEC is open to the public. It is scheduled to take pace at 10:00 AM in the Auditorium Room (L-002). The proceedings are expected to be live-streamed on the SEC web site.
The SEC outlined the meeting:
- The Commission will consider whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act.
- The Commission will consider whether to propose amendments to Securities Act Rule 147 and Rule 504.
The proposed rules have been viewed as problematic by many engaged in the investment crowdfunding industry. On Friday, we will discover if the SEC has addressed the most pressing concerns.
See also: ASC and Nunavut Securities Office Publish Proposed Start-up Business Exemption for Comment (Deadline: December 18, 2015)
View the full article --> 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 1100+ 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 About Us or visit ncfacanada.org.
2,000 Global Crowdfunding Sites to Choose from by 2016: Top 5 Growth Indicators
The Huffington Post by David Drake | October 23, 2015
Crowdfunding is growing at a tremendous rate and shaping the innovation of every S.P.P.I.C.E. (service, product, project, investment, cause or experience), causing a shift in the role of financial institutions around the globe and influencing government policies and market trends.
In the UK alone, the Nesta Report disclosed that the alternative finance market which includes Crowdfunding was expected to grow by £1.74 billion (US$1.99 billion). This was based on the 150 percent growth experienced by the market from 2012 to 2013, and 161 percent from 2013 to 2014.
The Nesta Report also highlighted that the UK alternative finance that includes crowdfunding is estimated to have provided working capital in 2014 for 7,189 small and medium enterprises, equivalent to 2.4 percent of bank lending to businesses.
In the United States, real estate crowdfunding emerged as one successful niche in the crowdfunding landscape. The 2015 Times Realty News Real Estate Crowdfunding Report cited that there are more than 140 real estate crowdfunding platforms in the US, with funds raised online placed at US$1 billion in 2014, and is expected to climb to US$2.57 billion at the end of this year.
In 2016, the number of crowdfunding platforms is likely to hit the 2000 mark due to the following reasons:
1. Growth Rate of Crowdfunding Platforms since 2012
There were more than 700 crowdfunding platforms in the world in 2012. Of this number, 191 crowdfunding platforms were established in the United States that year. The Soho Loft News, which is an Alternative Finance news and info site, have tracked over 600 of the more than 1250 online crowdfunding platforms today globally and adding to the list daily.
The number of crowdfunding platforms in other parts of the world is also growing exponentially. In Europe, the number of crowdfunding platforms has also gone up.
View: 2015 Canadian Crowdfunding Directory
In the real estate financing industry, the 2014 TRN Real Estate Crowdfunding Report highlighted more than 60 real estate crowdfunding platforms that year worldwide, which was worth US$1 billion by year end. This number has now increased to over 230 platforms in 2015, and currently being tracked by Times Realty News.
If this trend continues, there will be over 2000 crowdfunding platforms across the globe by early 2016.
2. Easing of Regulatory Environment
More investors are now able to make private investments across the globe as the regulatory environment becomes favorable.
In the United States for instance, changes in legislation has opened up the space to non-accredited investors and allowed issuing companies to state publicly the plans they have for raising funds. The approval of Title IV of Regulation A+ under the Jumpstart Our Business Startups (JOBS) Act is likely to spur development of more crowdfunding platforms. Under Regulation A+, accredited and non-accredited investors can participate in public offerings, a move that expanded the investor pool from which entrepreneurs can raise capital. This regulation also raised the maximum crowdfunding ceiling to 50 million dollars and removed the requirement for state compliance.
See also: Equity crowdfunding market no longer the preserve of start-ups
Italy was the first country to enact Law 221/2012, the law on equity crowdfunding in 2012 that allows innovative startup companies to raise funds online. CONSOB, Italy's equivalent to the US SEC, released regulation no. 18592 on June 2013. This consists of rules in implementing the law which covers the creation of platforms, requirements for their registration, rules of conduct and offerings and more. However, the equity crowdfunding market is not moving that much because of intrinsic limitations within the business environment and existing regulations. Not to be left behind in the crowdfunding space, Italy in its Law Decree no. 3, allowed Undertakings for Collective Investment (UCI) and venture capital (VC) companies to raise capital online for any specific project, provided they invest in startups and in SMEs engaged in innovation.
Austria, on the other hand, has recently passed its crowdfunding law. In this new law, only a simplified prospectus is mandatory for issue volume between EUR 1.5 million and EUR 5 million (no longer EUR 250,000). The complete prospectus will now be required only for issue volume of EUR 5 million or more. An individual can invest up to EUR 5,000 per project, but this can be doubled if his or her net monthly earnings reach EUR 2,500. Investors can withdraw within two weeks, just like in its Consumer Protection Law. Issuers can only raise EUR 5 million in capital over the next 7 years, less the amounts already paid back to investors. The company is required to issue a capital market prospectus if this is exceeded.
View: Alternative Finance Update: Key Crowdfunding Trends
3. Changes in Investor Behavior
In the Democratising Finance report, behavior changes among investors is an important factor fueling the growth of the alternative finance industry, a concept that brings crowdfunding and peer-to-peer (P2P) lending together. Based on this report, there are changes in the demographics of people who use P2P lending and crowdfunding, with boomers being 10 times less likely to make use of P2P lending than millennials. The millennials opt for mobile and online solutions that offer limitless and faster user interactions. This new breed of investors finds the growing interaction and openness that crowdfunding platforms offer in investment processes more appealing. This will drive the need for crowdfunding platforms to tap the huge population of millennials.
4. Technological Innovations
Technological innovations are occurring rapidly in alternative finance. When it started, crowdfunding was operating as rewards-based and donation-based fundraising options. Today, crowdfunding has evolved and expanded operations as debt and equity funding options. Additional tools such as data providers and analytics are evolving to complement the crowdfunding sector. There is a growing trend of integrating social media in crowdfunding platforms where investors and issuers get incentives for marketing their funding campaigns online. This results in a network of investors and issuers enhancing the ability of crowdfunding platforms to attract customers, sometimes turning their customers into investors or crowdfunders.
See: Get the Leading Global Industry 2015 Crowdfunding Report (member discount)
Many of these innovations were spurred by the online automation and streamlining of the underwriting and financing of the real estate industry. This was reflected on the increase of real estate crowdfunding platforms that is being tracked by Times Realty News: From a hundred real estate crowdfunding platforms in January 2015 it rose to more than 230 platforms globally by summer 2015.
All these innovations in technology will drive the growth of crowdfunding platforms in 2016. The automation in the space indicates that an additional 700 will join this list by next year.
Continue to the full article --> 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 1100+ 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 About Us or visit ncfacanada.org.
U.S. is very late to securities crowdfunding. Can we catch up to the rest of the world?
Venture Beat | Sherwood Neiss, Crowdfund Capital Advisors | Oct 20, 2015
Three and a half years ago I was sitting in the Rose Garden at the White House as President Obama signed the JOBS Act into law. He called the work we did on modernizing the securities laws (which we thought would go into effect that year based on Congress’ 270-day mandate) “game changing.” For the first time in 80 years, startups and small business were supposed to be allowed to raise debt or equity capital from their friends, families, and communities (regardless of their net worth) online through the use of Securities and Exchange Commission registered platforms.
Little did we know the world would take the framework we developed and leapfrog the U.S. while politics in Washington stalled the opportunity at home. This finally seems to be on the cusp of changing. Last week, FINRA released its rules on how crowdfunding platforms will have to comply with registration and compliance when securities-based crowdfunding goes into effect. If these rules are the precursor for crowdfunding portals to start transacting business, and if we can take at face value SEC chair Mary Jo White’s earlier comments that the final rules for Title III will be completed before the end of the year, then the United States might finally be joining the rest of the world in the age of modern finance.
But will we be able to catch up?
See:
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Alternative Finance Update: Key Crowdfunding Trends
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The University of Cambridge & University of Chicago Launch 2015 Americas Alternative Finance Benchmarking Survey
Since 2012, the four types of crowdfunding — donation, rewards, debt (peer-to-peer and peer-to-business), and equity — have been reclassified as Alternative Finance. The United Kingdom led the way by crafting policy that was data intensive and prescriptively light. Rather than regulating the industry out of business due to fear, the U.K.’s Financial Services Authority (FSA) decided to understand how these online platforms are digitally storing data on companies that never existed in the private capital markets before, providing transparency and immediate access to company data, performance, and disclosures so investors can make informed decisions, and efficiently facilitating the flow of capital at very cost-effective rates. In response, both the debt and equity markets for crowdfunding skyrocketed, companies and individuals that didn’t qualify for traditional bank financing were receiving access to capital, fraud turned out to be nonexistent, and default rates are averaging lower than those experienced by banks. To substantiate this, an Alternative Finance Market report by the University of Cambridge and Ernst & Young found that in 2014 €2.34 billion ($ 3.61 billion) worth in crowdfunding was transacted in the U.K., making up nearly 75 percent of the total value of the online alternative finance market in Europe.
At the same time, Asia saw the explosion of peer-to-peer lending in China, with one platform originating over $16 billion in loans last month alone! And now Latin America is seeing the rapid adoption of fintech companies leveraging state-of-the-art technologies that are algorithm based and customer friendly to help make credit decisions where credit scores didn’t exist before. These fintech companies are driven by artificial intelligence that moves identity away from things that we know, like payment history and personal identification numbers, to things that we have, like a social network, face, voice, and fingerprints. They use algorithms based on psychometrics, mobile usage, geolocation, and social networks to create feeds of millions of collective inputs that are analyzed and generate scores that are much better at assessing credit risk than a human could ever be. Based on the billions of dollars flowing at low default rates, it is easy to see how the digital recording of billions of data points can create better credit risk profiles than we have today and can better determine who should get funded and with how much.
Breaking News: ASC and Nunavut Securities Office Publish Proposed Start-up Business Exemption
In China, one of the P2P lenders raised $93 billion in deposits in less than a year. All banks globally didn’t accomplish that last year. And the default risk of P2P lenders is half that of banks. P2P lending platform Zopa, for example, has a default rate of .005 percent. Why? Because it has better data.
The most innovative banks are now figuring out where they can partner with these fintech companies based on how they have been successful at unbundling services, filling a void, and meeting demand. Traditional banks provide a wide range of services, from lending to cash management to payroll and merchant services. These technology players don’t aim to take on all those services, just fill the voids that have been created.
When the Securities and Exchange Commission finally decides to stop playing politics and start helping small businesses by okaying securities-based crowdfunding, this is what the U.S. can expect:
- Transparency: Companies that tend to be successfully funded have spent a significant amount of time prepping for the raise, preparing their financials for review, and creating necessary disclosures for investors to vet.
- Access to capital: Companies have access to short-term financing that the banks have been unwilling or unable to finance.
- Sophistication: Companies tend to follow a path of management discipline, internal governance, and external communication.
- Deal flow: Companies that are transparent, leverage this capital smartly, and execute on their plans are seen as quality deal flow for follow-on investments, VCs, and even traditional banks.
- Diversification: Investors have access to a broader and more diverse set of investment opportunities within a regulated and transparent environment at attractive yields.
Continue to the full article --> 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 1100+ 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 About Us or visit ncfacanada.org.
