Category Archives: Fintech Opinions

December 11, 2017   Enterprise, Scaleup, Fintech Opinions, Fundraising, Investing, Trading   No comments

10 reasons the $1 million crowdfunding cap should be $20 million

VentureBeat | By: Sherwood Neiss | Dec 10, 2017

It’s been 18 months since the final rule of the JOBS Act went into effect, allowing equity crowdfunding. In those 18 months, everything proponents of the rule said would happen (and none of what the detractors said would happen) has become a reality. Over $82 million dollars of previously untapped capital from local investors has been committed to over 650 companies. No fraud has been perpetrated. And everyone (including investors, the Government, the Securities and Exchange Commission, and the media) has more insight into the private capital markets than has ever existed before, bringing a new level of transparency, accountability, and data analysis. This is the time to raise the maximum a company can raise from $1 million to $20 million.

Why? Entrepreneurs all across America are finally raising funds faster than they could through traditional channels. Investors now have a transparent and efficient way to support local businesses that they love and believe in by receiving information about these offerings online. Regulators have transparency into the private capital markets, an auditable trail of disclosures, and a digital footprint full of data. And our government has a jobs engine, a way to promote women- and minority-run businesses, an economic booster, and a tax engine. Not bad!

See: SEC Updates JOBS Act Amendments Including Reg CF Funding Cap

So if it’s working, why raise the cap to $20 million? Let me explain:

1. We can make it a bigger jobs engine. Data from companies that have been successful with an equity crowdfunding offering shows they hire on average 2.7 people within 90 days of a $300,000 raise. That’s about one job per every $100,000 raised. If we increase the cap to $20 million, that could equate to 200 new jobs for each issuer that raises $20 million. So raising the cap would make equity crowdfunding the Main Street jobs engine we expected it to be.

2. It will provide regulators with more transparency. Companies that raise money via equity crowdfunding file specific disclosures about their businesses, their operations, and their financial wellbeing. All of this is digitally recorded, and For the first time in 80 years, regulators can actually see where capital is flowing in the private capital markets, which can allow them to further protect investors. Increasing the limit to $20 million will attract larger firms that seek more capital down this public path. This means regulators AND investors will have real-time actionable visibility into a larger part of the private capital markets.

3. Startups can make a bigger impact. $1 million dollars is nice, but consider how much more a company can do with $20 million. Increasing the cap doesn’t mean every company would get $20 million (currently only about 50 percent of companies are successful with their campaigns and raise on average $300,000), but those that are worthy and can win over the support of the crowd can take on much greater goals.

4. Communities will get more engaged. Want to know how to engage local communities? Make them investors in the local businesses that are not just mom and pop shops but large employers and high-growth startups. They will have a vested stake in the performance of those companies, and by default these businesses will benefit from the marketing power of the community. Increasing the cap to $20 million gives local investors a greater stake in their local communities. Research shows that money invested locally circulates in the local economy rather than being sucked out.

5. We’ll see gender and minority benefits. Data my firm has been collecting proves that equity crowdfunding is democratizing access to capital among women- and minority-founded businesses. Increasing the cap to $20 million means more capital to this underserved group of founders.

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, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ 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.  For more information, please visit: ncfacanada.org

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October 3, 2017   Fintech Opinions, Fundraising, Investing, Trading, Voices   No comments

How Crowdfunding Has Influenced Start-Ups

HuffingtonPost | By Julee Morrison, Contributor | Oct. 2, 2017

You have a great idea that you would like to bring to the market. However, you have little to no capital in kick-starting product development. Furthermore, you don’t really have the business acumen and the research and development needed to make a solid business presentation to a group of investors.

So, how do you go about finding the seed funding you need to start turning your idea into a reality? Many entrepreneurs in recent years have turned to crowdfunding as a way to reach a large audience to fund product ideas and business models.

What Is Crowdfunding?

Crowdfunding is an alternative way for businesses, and especially start-ups, to source capital for a new venture from a number of people online, primarily through connecting investors and entrepreneurs on crowdfunding websites and social media.

This differs from traditional ways of collecting capital when entrepreneurs pitch a business plan to a limited number of wealthy businessmen or companies. Crowdfunding allows someone to pitch their business plan to a much larger pool of venture capitalists, instead of the traditional players.

See: A Guide to Building an Audience for Crowdfunding

How It Works

Crowdfunding websites such as Kickstarter and Indiegogo act as platforms for entrepreneurs to present their business ideas and products in front of a large audience of potential investors. These websites are then able to make a profit by taking a percentage of the funds raised for each idea.

An entrepreneur signs up to one of these websites to start a campaign, explain an idea or product, which is then spread mainly through social media platforms such as Facebook and Twitter to gain the attention of potential investors.

There is no limit to the types of products that can be presented on these crowdfunding platforms, with ideas ranging from an alternative to Apple’s smartwatch to a new potato salad recipe.

See: What 10,000 Kickstarter projects reveal about Canads entrepreneurs

Types Of Crowdfunding

There are three types of crowdfunding: donation or reward, debt, and equity. In donation or reward crowdfunding, people chose to invest in an idea or a person without an expectation to receive anything tangible in return.

What they might receive in reward crowdfunding are acknowledgements in a book, free gifts, tickets to a concert and so on. Crowdfunding websites such as Kickstart and Indigogo fall under this category.

In debt crowdfunding, also known as peer-to-peer lending, investors can recoup their money with interest as with traditional investments. The only difference is that traditional lenders such as banks are not involved. Platforms such as Prosper, Funding Circle, and Lending Club offer debt crowdfunding.

Another category of crowdfunding is equity crowdfunding in which investors receive equity in return. Equity can come in the form of shares or a stake in the company, project, or venture. Similar to other forms of equity, the value of the company fluctuates depending on how successful it is. Examples of portals offering such services are OfferBoard, CircleUp, and OurCrowd.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both investment and social crowdfunding, blockchain ICO, alternative finance, fintech, P2P and online investing stakeholders across the country.  NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a vibrant and innovative online financing industry in Canada.  Learn more About Us or visit ncfacanada.org.

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September 17, 2017   Equity Crowdfunding, Alternative Funding, Fintech International, Fintech Opinions   No comments

Equity crowdfunding a slow burn, advisers say

The Australian Financial Review | By Michael Bailey | Sept 17, 2017

The legalization of equity crowdfunding has met with enthusiasm from those hoping to raise money with it, but financial planners say it will be years before it is taken seriously by investors.

Leading advisers contacted by The Australian Financial Review said no clients had approached them in relation to the new crowdsourced equity funding legislation, which was introduced by Treasurer Scott Morrison on Thursday.

With Industry Minister Arthur Sinodinos set to open The Australian Financial Review Innovation Summit in Sydney on Tuesday, the government is hoping equity crowdfunding will help bring start-ups and innovation closer to the average Australian, and boost support for the "ideas boom" agenda blamed for nearly losing it the 2016 election.

See: Australia: Minister Kelly O'dwyer Details Equity Crowdfunding Laws

Once the legislation passes the Senate with opposition support as expected, all proprietary and unlisted public companies with an annual turnover or gross assets of up to $25 million will be able to advertise their business plans on licensed crowdfunding portals and raise up to $5 million a year to carry them out.

Investors can put as little as $50 and up to $10,000 a year each into an unlimited number of ideas.

However, a principal at Bravium Financial Planning, Scott Farmer, did not expect a rush.

"Equity crowdfunding is a new asset class, and diversification is usually a good thing for investors, but we saw things like exchange-traded funds and separately managed accounts take years to catch on in Australia versus the US or UK, and I think this will be no different," Mr. Farmer said.

See: Australian SMEs Are Turning To Alternative Sources Of Funding

"But there will be two sub-sectors of people in it from day one: the ones who love the companies being crowdfunded and want to be part of their innovation story, and the investors for whom excitement ranks ahead of actually making money."

There was no way most financial planners would have time to research single equity crowdfunding deals on behalf of clients, said Will Hamilton of Hamilton Wealth.

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, alternative finance, fintech, P2P and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ 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 ncfacanada.org.

 

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September 8, 2017   Fintech International, Fintech Opinions   No comments

A Look At Crowdfunding And The New Legal Framework In Belgium

Mondaq | By Leo Peeters (Peeters Advocaten-Avocats)  | September 4, 2017

Belgium's Act of 18 December 2016 ("The Act") regulating the recognition and definition of crowdfunding created a legal framework in Belgium for what is referred to as crowdfunding and alternative types of business funding.

The importance of crowdfunding

Crowdfunding can be regarded as a collective effort on the part of several investors who combine their investments in order to fund a different individual or organisation requiring funds for specific projects. It is an alternative form of funding which frequently uses an internet platform as a tool.

There are various forms: equity crowdfunding, credit funding or donation funding. The Act defines a crowdfunding platform as any natural or legal person who provides or offers alternative funding services in the territory of Belgium, and which is not a regulated enterprise.

And an "alternative funding service" refers to the sale, via a website or via any other electronic device, of investment instruments issued by issuing operators, start-up funds or funding vehicles in the context of a (none) public offering. And no investment service may be provided in relation to these investment instruments, except:

  • The provision of investment advice
  • The receiving and passing-on of orders.

See: LendIt Europe 2017 (Oct 9-10): Don't Miss Europe's Largest International Lending Fintech Event

The need for a permit from Belgium's Financial Services and Markets Authority

Since 1 February 2017, equity crowdfunding platforms have been obliged to first obtain a permit from the FSMA (Financial Services and Markets Authority). To do this, they must submit a dossier. A number of conditions must be met to obtain the permit:

  • The activity must be conducted by a commercial company with its central management located in Belgium
  • The directors may only be natural persons
  • The directors must hold the required professional qualities, professional integrity and appropriate expertise; They may not have incurred convictions in the sense of Article 20 of the Act of 25 April 2014 governing the status and supervision of credit institutions
  • The actual management must be entrusted to at least two persons
  • A crowdfunding platform must set up an appropriate organisation which is suited to the nature, scale and complexity of its activities, in order to ensure continuity
  • They must also take out a civil liability insurance policy with a minimum cover, which corresponds to specific conditions laid down by the law.

The FSMA must be notified of any changes to the management or conditions. If a platform ceases to satisfy the conditions of the permit, it must be terminated.

Crowdfunding platforms may not receive or keep monies in cash or on an account. The same applies to financial products which belong to their clients.

Nor may they hold debts in respect of their clients, or have proxy or power of attorney for a client’s account.
On its website, the FSMA has a list of the alternative-funding platforms, which may be accessed by the public.

See: Europe's alternative finance market hits $9.1 billion in first quarter

Equity crowdfunding in different EU Member States or by companies in different EU Member States

The FSMA’s approval must also be obtained for extending activities to another country. The FSMA may oppose such project if it deems that it will be detrimental to the platform.

Persons located in the other EU Member States can also conduct crowdfunding, provided they satisfy the following conditions:

  • Are authorised to provide similar services in their Member State
  • Receive a permit from the FSMA beforehand
  • Meet all of the requirements concerning composition, status and operations, as outlined above.

Foreign crowdfunding platforms are included under a special heading in the FSMA’s list.

Persons located outside the EEA who wish to perform crowdfunding activities must satisfy the following conditions:

  • In their state of origin, be subject to a status that permits them to provide similar services
  • Branches which obtain a permit from the FSMA must be registered under a special heading of the FSMA list
  • The central management for the Belgian activities must be located in Belgium
  • If crowdfunding activities are performed by a branch of a crowdfunding platform that is located abroad, only the managers of the Belgian branch must meet the requirements for managers under Belgian legislation.

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 1600+ 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 ncfacanada.org.

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July 5, 2017   Fintech Opinions, NCFA Blog, Voices   No comments

A U.S. Perspective: Can Canadian Alternative Finance Contend?

NCFA Canada | John Neal | July 6, 2016

As an intern from the States I have had the pleasure of living in Toronto for the last month while working for NCFA Canada under a study abroad experience. While adapting to Canadian culture is simple, you learn to navigate the subtle differences such as use of metric system, reading temperatures in Celsius, the typical American adjustment.

Canada vs the U.S.

When I think of U.S. Canada relating to each other I think similar lifestyle, similar culture and perhaps similar economic activity just proportionate to each other’s respective size. Yet, while learning about the Crowdfunding industry in Canada compared to the UK and the US there seems to be major disconnect.

For example, the U.S. outweighs Canada in Crowdfunding numbers by $36,000,000,000 to 190,000,000 in 2016. Let’s put this into perspective Canada’s numbers are 0. 00000527% of the United States. That’s 5 one millionth of the U.S.’s numbers (Download:  2016 Alternative Finance in Canada report).

Source: NCFA 2016 Alternative Finance Industry Report

Alternative Finance Crowdfunding and FinTech are common global trends spreading like wildfire internationally but at a much slower pace here in Canada (from what I can see). I’m aware of the innovation in Canada and the willingness to be a catalyst for change. However, in the States there are two cities that champion FinTech, San Francisco (Silicon Valley) and New York. These two global hubs amass for a large portion of the technological innovation within the U.S. To grow Canada’s Alternative Finance sector, there must be some form of change soon of how these portals are regulated.

See:  Competition Bureau suggests Canadian FinTech sector’s slow growth due to regulation, consumer complacency

In 2015 S.E.C. in the United States adopted rules to permit crowdfunding on a larger scale. Proactive measures have taken place States side, the question remains can Canada essentially foster the innovation that is present South of the border and nurture Alternative Finance to become a viable source of financing for Canadian companies and likewise an opportunity for domestic and global investor?  The power of alternative finance, evolving digital platforms and online digital trends is becoming an authentic form of raising capital.

“New forms of finance have been empowered by consumer driven online marketplaces (i.e. Crowdfunding) which has led to the creation of countless new opportunities in the financial sector.” – Cato Pastoll, Co-Founder & CEO of Lending Loop.

U.S. ability to adapt to change

United States crowdfunding has shown promise according to the dollar $ numbers raised, however there are continued measures to fix bugs and strengthen regulatory actions. For instance, the “H.R. 4855 Bill “Fix Crowdfunding Act” passed by the house in the States on July 6th, 2016. We can see that in the U.S. there are continued efforts to alter regulations in favor for efficient crowdfunding. Another significant modification that separates U.S. and Canada is the use of advertising for crowdfunding. In Canada, there are restrictions for crowdfunding advertising and solicitation (Read more here!) while  in the United Sates advertising is allowed for crowdfunding for issuers. Limiting crowdfunding offer distribution channels can be seen as hindering education, and impeding the growth of the Canadian industry.

Funding options for a new generation

I have noticed University students in the States are quickly evolving and many of my colleagues are currently using or thinking about relying on Alternative Finance portals to provide them with adequate capital to take student innovation to launch new businesses to market. Innovation is what drives millennial students at American Universities. Fortunately, the concept of crowdfunding in the States is welcomed, and my fellow peers are benefiting from its rewards while investors are simultaneously gaining access to great new investment opportunities.  I can envision Canada eventually adopting some regulatory changes to encourage market development to ensure Canadian companies have equal access to new financing models. This would be exceptional for business of all kinds, due to simpler Alternative Finance access. Canada deserves to be among the top leaders in Alternative Finance-Crowdfunding and I am confident over time they will.

While the United States and Canada remain strong economic partners, when it comes to crowdfunding there currently remains a massive void for the Canadians. Ultimately, can Canada adopt enough change for alternative finance – crowdfunding to allow it to contend in 2017?  Get our your crystal ball and let me know what you think the results will be??  email:  john@ncfacanada.org

# # #

John Neal, a NCFA Canada Marketing Intern from Michigan State University. John focuses on business/marketing development for NCFA Canada. Increasing awareness for Canadian Crowdfunding Industry by way of online and offline outreach.

 

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 ncfacanada.org.

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June 20, 2017   Entrepreneurs, Start-ups, Small Businesses, FinTech and Alternative Finance, Fintech Opinions, Fundraising, Investing, Trading   No comments

ICOs: New Model of Blockchain Capitalism

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.

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 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 ncfacanada.org.

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June 5, 2017   FinTech and Alternative Finance, Fintech Opinions, Fundraising, Investing, Trading, Legal Issues, Regulation, Consultation   No comments

COMMENTARY: SEC rightly concerned about ‘so-called SAFE’ securities in crowdfunding

Reuters | Joe Green | June 1, 2017

Traders work on the floor of the New York Stock Exchange (NYSE) February 24, 2016.

NEW YORK (Thomson Reuters Regulatory Intelligence) - The U.S. Securities and Exchange Commission, released an investor bulletin earlier this month (here) cautioning retail investors about the risks of purchasing a particular type of security known as a Simple Agreement for Future Equity, or SAFE, in investment crowdfunding offerings. The commission acted following concerns raised by two of its commissioners and its Office of Investor Advocacy. It was right to do so.

INVESTMENT CROWDFUNDING

Regulation Crowdfunding — the SEC's rules allowing startups and small businesses to raise just over $1 million of capital from non-accredited, retail investors through online crowdfunding portals — became effective a year ago this month. These long-awaited regulations implemented the crowdfunding provisions of Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012. Unlike popular crowdfunding platforms like Kickstarter, through which participants can make donations to for-profit businesses in exchange for rewards, investors participating in offerings under Regulation Crowdfunding receive securities (such as equity or debt) in exchange for their investments in fledgling companies.

See: SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accredited

The SEC's Division of Economic and Risk Analysis (DERA) has published a white paper analyzing all offerings launched under Regulation Crowdfunding from its May 16, 2016, effective date through the end of that year. To give a sense of the types of companies that have tried to raise capital using investment crowdfunding, according to DERA, the median issuer under Regulation Crowdfunding was incorporated within the last two years and had only three employees, no revenues and around $5,000 in cash and $10,000 in debt on its balance sheet. About 60 percent of crowdfunding issuers showed no revenues and 91 percent had yet to earn a profit.

When the SEC analysts looked at the types of securities that Regulation Crowdfunding issuers chose to offer to prospective investors, they found that common and preferred equity were most frequently offered, accounting for more than a third of the offerings. However, the next most commonly offered security, accounting for just over a quarter of the offerings, was the SAFE.

THE SIMPLE AGREEMENT FOR FUTURE EQUITY

As I described at length in a 2014 Hastings Law Journal article on contractual innovation in venture capital (here) that I co-authored with John Coyle, an associate professor at the University of North Carolina at Chapel Hill, the SAFE is a relatively new startup financing instrument developed and popularized by the influential Silicon Valley startup accelerator Y Combinator. The SAFE was designed to facilitate investments by wealthy, sophisticated angel investors in early-stage technology startups that were expected to raise institutional venture capital (VC) in the near future.

A type of deferred equity contract, SAFEs entitle investors to receive a company's equity securities upon certain triggering events, such as a subsequent VC investment. Unlike their close cousins, convertible notes, SAFEs do not accrue interest while outstanding and have no maturity date. The percentage of the company's equity a SAFE investor may eventually receive upon a subsequent financing is a function of the amount invested and the valuation of the company that is negotiated by the later VC investor. Conversion of the SAFE into equity depends upon that future VC financing actually coming to fruition.

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 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 ncfacanada.org.

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