• Another New Paradigm: Multiplex Venture Capital Fund – A Quick and Inexpensive Way to Get into Action | VC Experts
• Now Fully Kickstartered, Pebble Raises $15M in Venture Capital From CRV | All Things Digital
• For startups with university roots, an exit is priority number one | Pando Daily
• Why Invest in Community Banks? | Second Market

# Industry Chatter

• MicroVentures Reaches $16M in Equity Crowdfunding Investments | Market Wire
• U. of Virginia Teams Up With ‘Crowdfunding’ Site to Finance Research | Bottom Line
• Talking Crowdfunding with equity-based paltform Hyperfund (interview) | Crowdsourcing.org
• Funding Community Brings Local Business Lending Online | Lend Academy
• Fundrise—a real estate crowdfunding platform based in D.C.— has its eye on New York
• The future of crowdfunding in the craft beer industry | Craftfund

# Lift-Off

• With VentureHealth, InCube Ventures thinks crowdfunding can blend with traditional VCs

# Around the Globe

• S. Korea to Legalize Crowd Funding System | CRI English
• WiSeed Crowdfunds €1M Through Own Flatform | Crowdsourcing.org
• Is Equity Crowdfunding Coming To Mexico? | Forbes
• China’s SeedAsia Opens For Business, An Online Equity Crowdfunding Platform For Startups Across Asia | Tech Crunch
• Ex-DIFC chief launches Dubai crowdfunding firm | Arabian Business
• Sellanapp—a royalty-based crowdfunding platform for apps—is raising its follow-on round on Symbid’s platform

# A Personal Read

• This Is Water – David Foster Wallace Full Commencement Speech | An abridged version of this went viral this week. This is the full speech. One of the greatest—provoking, challenging, inspiring—commencement speeches I’ve heard.

The post TheCrowdCafe Weekly, Issue 9 appeared first on The Crowd Cafe.

• Reigniting Alumni Engagement with Crowdfunding
• Union Square Ventures is Cornering the Crowdfunding Market

# Selected Articles

• The SEC’s recent “no action” letters | Crowd Valley
• SEC’s White Said to Push for Lifting ban on hedge-Fund Ads | Bloomberg
• What Crowdfunding Can Glean from the Success of P2P Lending | Now Street Journal
• Attack of the Kickstarter Clones: Crowdfunding Reaches Its Tipping Point | Wired
• Can crowdfunding help venture capitalists identify the best start-ups? | Financial Times
• Whither General Solicitation  | Wac6 (Bill Carleton)
• Crowdfunding Gives Rise to Truly Public Domain Projects | CIO Today

# Lift-Off (Legend: Security | Vertical | Geography | Comments)

• Funding Community | Debt | Small Businesses | Helps SMBs raise up to $10,000. Live today
• Fundrise | Debt & Equity | Real Estate | U.S. | Opens its platform to developers
• HealthFundr | Equity | Health Startups | U.S. | Registered broker-dealer; open to accredited investors 
• SterlingFunder | Equity | Small Businesses | Live today for both accredited and non-accredited investors in Georgia
• Blackhawk | Debt | Real Estate | U.S. |
• Eureecca | Equity | Startups | Middle-East | First MENA platform to launch!
• Crowdbaron | Equity | Real Estate | Asia |

# The Funded

• After crowdfunding $10M for a dozen consumer product companies, CircleUp  raises its own $7.5M Series A | Pando Daily
• Crowdcube raises £1.5 million investment

The post TheCrowdCafe Weekly, Issue 8 – 5/12/13 appeared first on The Crowd Cafe.

• CircleUp has facilitated over $10 million in investments for 12 companies;
• Median raise of ~$800k;
• ~70% success rate for listed companies (keep in mind CircleUp’s curation rate of 2%);
• Average number of investors per deal is ~25 (ergo, average individual investment size is $32k).

What does this mean for CircleUp? It could deploy the capital to grow horizontally into other verticals, copying and pasting its existing model and targeting comparable deal sizes. Or, it could grow vertically, and up the value-stream in consumer products/retail. I’m leaning towards the latter. In my previous post—Crowdfunding’s Disruptive DNA: The Why, How and Who—I spoke to my belief that CircleUp’s trajectory, as well as others’, points to a $10 million transaction, in time. This trajectory will follow a pattern of low-end disruption. A pattern that’s been repeatedly observed across countless industries; and a pattern that another USV portfolio company, FundingCircle, is currently following, and executing in spades. It launched with a maximum raise of $250k; upped to $500k; and just recently announced it will facilitate small business loans up to $1 million.

CircleUp’s round was led by Union Square Ventures (USV), and included follow-on participation from Clayton Christensen’s fund, Rose Park Advisors. From PEHub:

“CircleUp is a classic disruptive innovation, elegantly simplifying the complex process of financing high growth small businesses and thereby expanding the addressable market by bringing capital to great non-tech companies that have historically struggled to get efficient access to it,” said Rose Park Advisors Managing Director Matt Christensen, who also led CircleUp’s Seed Round in 2012.

Great quote!  As for USV? The revered fund is going all-in on the digitization of our private funding markets, moving to corner the global crowdfunding market. Its investment in CircleUp represents its fifth investment in the space, each in respective category-leaders: CircleUp (equity crowdfunding for emerging growth companies); FundingCircle (debt crowdfunding for small businesses); Kickstarter (reward crowdfunding); Lending Club (U.S. Peer-to-Peer ); and Auxmoney (German Peer-to-Peer).

What else is left? For one, a platform gunning for the early-stage market. Lots of choices. In the U.S., an Angellist, WeFunder, FundersClub, StartupValley, Seedinvest et al. Or, internationally, a Seedrs, Crowdcube, OurCrowd, et al. They may be consciously avoiding early-stage plays, or simply waiting for the right platform at the right time. Unsure.

But my best guess? If they continue raising their exposure to the future state of private funding, I bet they go after a real-estate platform soon. As we’ve discussed before, the opportunity is ginormous.

Not that the industry needs it, but CircleUp’s raise is yet another point of validation. Let’s enjoy it :-).

We’re reclaiming our capital markets, redrawing them just as they should be: transparent, efficient and equally accessible. And what hasn’t been hit on as much by mainstream press—but I’m most excited about—meaningful!

Exciting changes, exciting times. Even though it’s in the smallest of ways, I’m thrilled to be a part of it with you all. Onward and upward.

One last thing… for reference, here’s a list of capital raises by crowdfunding platforms to-date. If you know of others let me know, and I’ll update in short order:

• CircleUp
  • Seed Round: $1,500,000 (Source)
  • Series A: $7,500,000 (Source)
  • Equity platform; San Francisco, CA
• CommunityLeader
  • Series A: $850,000 (Source)
  • Equity platform + ancillary products (white labeling being one); Minneapolis, MN
• CrowdCube
  • Seed Round: ~$500,000 (Source)
  • Equity platform; UK
• Crowdfunder
  • Seed Round: $400,000 (Source)
  • Equity platform; Los Angeles, CA
• EarlyShares
  • Series A: $1,150,000 (Source)
  • Equity platform; Miami, FL
• FundersClub
  • Pre-Seed: $529,000 (Source)
  • Seed Round: $6,000,000 (Source)
  • Equity platform; San Francisco, CA
• Invested.In
  • Seed Round: $880,000 (Source)
  • White labeling platform; Los Angeles, CA
• RealtyMogul
  • Seed Round: $500,000 (Source)
  • Real estate platform; Los Angeles, CA
• SellanApp
  • Seed Round: ~$193,000 (Source)
  • Revenue-share; Netherlands
  • Raised seed round on Symbid, crowdfunding platform based out of the Netherlands
• SoMoLend
  • Seed Round: $2.0M (Source)
  • Debt platform; Cincinnati, OH
• WeFunder
  • Seed Round: $550,000 (Source)
  • Equity platform; Cambridge, MA

The post Union Square Ventures is Cornering the Crowdfunding Market appeared first on The Crowd Cafe.

Imagine. Empowering each and every one of Ohio State University’s 63,000+ students—regardless degree, age, or background—to start, and fund, a business. Visiting its University’s crowdfunding ecosystem, ignite.osu.edu, students would find a centralized source of information, mentorship, and even a clear path to funding their ideas and ambitions. The platform wouldn’t guarantee success, of course—but it would guarantee, and deliver, opportunity.

Empowering students to ignite their entrepreneurial ambitions, anytime, anywhere, was the topic of the first part of this University series (Why Universities Need to Get Smart on Crowdfunding). But students aren’t the only stakeholders who would benefit from an integrated crowdfunding platform; it would also deliver significant value to Alumni, providing them the opportunity to meaningfully engage with the innovation taking place at their University.

Let’s loosely define innovation in this context as (i) student, faculty and alumni startups and (ii) research and development.

Ask your fellow Alumni, “What innovation is taking place at our University? You know, student entrepreneurs, startups created, or exciting research and development in commercialization?”  and you’re likely to be met with blank faces. (Stanford et al. strictly being the exception.) I asked my own classmates; not a single one had a clue. Not only did they not know, they had no idea where they would go to find out. Call the business school maybe?

An Informational Problem

This is a serious problem. The overwhelming majority of alumni at most Universities are entirely unaware of the innovation taking place at their alma mater. Why is this?

Quite simply: no one is broadcasting the information to them, and it’s difficult, darn near impossible, to find.  Let’s run through a quick example: you’re an Alumni wanting to support entrepreneurial students at your school. Whether a tech startup, or an artist interested in selling his/her work online, you’re not motivated by getting rich. You’d simply like to give back.

Now try this thought experiment: “What steps would I take to achieve this, to discover and connect with these entrepreneurial students?”

Lots of steps, right? Call the business school; talk to three people until you find the right person; get transferred to the head of the entrepreneurship program, who invites you to a pitch day—in 8 weeks; and after all of this, you’ve still only gained access to maybe 3% of students on campus. You most certainly missed the art student.

The relevant and actionable information you need is highly fragmented, siloed across myriad individuals, departments, and programs. It doesn’t work. And this is why Alumni engagement is de minimis; you can’t expect them to engage with something they can’t easily find in the first place.

The Solution

But there is a solution! This informational problem can be attacked and defeated by a smartly designed platform. First: centralize all relevant and actionable information on a single platform (e.g. ignite.osu.edu). This includes (i) online resources; (ii) offline events (online-to-offline is key); (iii) student, alumni and faculty startups; and (iv) R&D projects, particularly those preparing for commercialization. Second: make it ubiquitous, and seamlessly accessible. . The network architecture would look something like this:

The I stands for information. And notice how its flow is bidirectional, representing how each user can both consume and produce it. For example, a student consumes educational resources which then leads leads to producing a new startup, that is then consumed by an Alumni anxious to mentor.

Today’s path to discovering your University’s innovation is befuddling, often to a point of self-defeat. This platform, a single destination, available 24/7, illuminates the path. Discovering, and getting involved, becomes as easy as sending a message on LinkedIn.

Mentor an aspiring student? Fund a student, or professor’s, startup? Invest in a R&D project preparing for commercialization? (d) Simply stay informed and engaged with all the cool things happening? Check, check, check, and check. Easy and seamless :-)

The Impact

The technology isn’t sophisticated, a re-segmented social network really, so building the platform wouldn’t be difficult. The key assumption: will it be used? If Alumni can easily discover the information, will they act on it?

I’m biased, of course, but my belief is absolutely. For one, I know I would. Moreover, my belief is supported by a near axiomatic observation: alumni intrinsically want to support their University. It’s part of one’s identity, and many leap at the opportunity to express it.  (You can go to any gym, sweaty memorabilia galore, to see this first-hand.)

And just look at college sports…

Rabid, maniacal, insane, just a few adjectives one can use to describe a college sports fan. Evidence of just how engaged Alumni can be. What is foundational difference between college sports and college “innovation”? The availability of information. It’s easy for me to engage with sports because it’s broadcasted everywhere. Local TV, ESPN, radio shows, you name it, the informational problem is solved. The same can’t be said for innovation.

I’m not implying we’ll ever reach a comparable level of engagement around startups or R&D—or on second thought, as technology eats the world, and wearable computers goes Vogue, maybe we will ;-)—but we don’t need to. We only need to chip away the informational problem, bit by bit, broadening awareness each time, to realize enormous impact. Here’s how.

The ultimate goal is getting more Alumni involved with innovation. But before they get involved they have to be engaged. And before they’re engaged, they have to be informed. This is the problem hierarchy—informed, engaged, involved— with information being they very foundation.

Let’s use Ohio University this time as an example. It has 200,000+ living Alumni. Today, how many are aware of OU innovation? Hypothetically, let’s say .05%, 1000 alumni, are actively aware. By the end the funnel, maybe 125 are actively involved.

If you make information frictionlessly accesible, I don’t think it’s unrealistic to aim for growing this awareness to 5% in three years. The impact of doing so? As you can see, ceteris paribus, all else equal, this would dramatically increase the number of Alumni who become actively involved. From 125 to 1,250.  Here’s the visualization:

Involving 10x more Alumni —not to mention the many, many more engaged for the first time— would create tremendous value for the ecosystem. Students could more easily find mentors, or employers; faculty working on research could meaningfully collaborate with Alumni in the private sector; so on and so forth.

But that’s not all.

Solving the informational problem creates profound value in and of itself. As seen above. But there’s more. In fact, the informational value of the platform is only the tip of the iceberg.

Once the network is built, with users onboarded and participating—which, to be sure, will require time, significant effort, and a deep commitment from leaders within the University— users will not just interact with the information, i.e. discovering and attending a relevant event. They will also interact with each other. Alumni connecting with Alumni, Students discovering and connecting with Faculty research, and so on.

Herein lies the exponential power of our University crowdfunding network. The interactional value it creates—the sum of spontaneous and serendipitous interactions between stakeholders—would not only exceed direct efforts by the University, it would become its own self-evolving system. An employee wouldn’t have to manually connect alumni X to student Y; it would happen organically through the network, often in a way that would be entirely unpredictable. (Parenthetically: discovery leading to meaningful interaction… this is technology, and the power of the internet, at its best!)

Here’s a look at the platform architecture again, this time with the interactional value layered on. It’s imperfect, as interaction would not happen symmetrically as conveyed, but you get the idea. And it was the easiest diagram to make ;-).

I reiterate that making this work would not be overnight project. But I can assure you—having built my first online community in high school—it can most certainly be done. And the results—as a community reaches critical mass, takes control, and becomes its own center of value creation —are magical.

Conclusion: Alumni Engagement Needs Re-Imagined

The new age of Alumni aren’t going to be motivated by blank initiatives, or quarterly donation request. They want to support things they care about. And identify with. Such as compelling and enthralling research, or students who they believe in and want to support. A crowdfunding platform can provide these engagement opportunities. Seamlessly.

Spending millions on engaging students and alumni around athletics, Universities can, and should, do the exact same for innovation. Just imagine capturing a modicum of the rabid, maniacal, and insane culture that exists around athletics, and bringing it to pioneering individuals and initiatives. Let’s not just imagine. Let’s build it. As I’ve presented above, it can most certainly be done.

Provide us the opportunity to support our University’s entrepreneurs and research—and you bet we will.

The post How Crowdfunding can Reignite Alumni Engagement appeared first on The Crowd Cafe.

• Crowdfunding’s Disruptive DNA: The Why, How and Who | TheCrowdCafe
  Crowdfunding is disruptive. But not just for the reasons we’ve heard ad nauseum. There’s more to it.
• Talking Real Estate Crowdfunding with RealtyMogul | TheCrowdCafe
  Real estate represents a highly attractive asset class that, to-date, has been enormously difficult to directly access. Until now. Platforms like RealtyMogul are opening this market up in a big way. What do you think—in three years, will you own private real estate in your portfolio? Leave a comment, we’d love to hear your thoughts or questions!
• Readying For An IPO, Peer-To-Peer Lending Marketplace Lending Club Raises $125M From Google And Others At $1.6B Valuation | TechCrunch
  Headline sums it up. Google invests in the future. And with this move, its investing in the future of private funding. Internet-driven.
• Lending Club Working on a Small Business Lending Operation | Lend Academy
  A fantastic overview of the Google/LC transaction from Peter Renton, as well as LC’s plans to move into peer-to-business lending (debt-based crowdfunding). Big implications here for the industry.
• PRETAIL | Trend Watching
  A fantastic, and very visual, overview of this burgeoning—very much cultural ;-)— trend.
• Has Kickstarter Lost Its Way? | Mashable
  Personally, I disagree with the negativity towards Braff’s campaign. Pledgers are receiving real and unique value: participation.
• ‘Crowdfunding’ trend poised to make mark on U.S investing landscape | The Washington Post
  Another inspiring article that surfaces how crowdfunding will allow communities to collectively reclaim and rebuild the cities they live in, just as they want them to be. From one investor in Fundrise’s inaugaural transaction: “Last weekend, my mother and brother were in town and we were having dinner on H Street,” Lubens said. “It was just so cool to point out the building and say: ‘I own that.’ ”
• Crowdfunding Capitalism: Likely to Keep Growing in 2013 | Dowser
  A good overview of a variety of crowdfunding platforms and models
• Crowdfunding 2.0: Where Will It Go? | Morningstar
  Always good to consider, if even in disagreence, strong outside opinions. Keeps one grounded.

Lift-Off

• Pilot project to provide online platform for student fundraising | ASU News

The Funded

• Traditional Investment Money Goes Crowdfunding: Taaleritehdas Invests Into Finnish Crowdfuning Company – Invesdor | Arctic Startup
• Veeqo raised a follow-on round on equity-based platform Seedrs, more than doubling its valuation. | @jsandlund Twitter

Industry Chatter

• Crowdfund it Today Partners with CommunityLeader in Delivering Crowdfunding Solutions | PR Web

A Personal Read, Or Two

• Go the Same Way, or Go the Wrong Way | NYTimes
  A super interesting look at how the “wisdom of the crowds” is changing how we think, interact and discover. “For the pop sociologists of the period after World War II, “crowd” was a scare word, an impersonal entity that would extinguish your personality, spew contempt at your uniqueness, disable the operation of your individual instincts and judgment.”
• Avoiding Burn Out | Andrew Dumont
  For founders, especially solo-founders, this a must-read.

The post TheCrowdCafe Weekly, Issue 7 – 5/4/13 appeared first on The Crowd Cafe.

I had the pleasure of sitting down with Jilliene Helman, the CEO of RealtyMogul. RealtyMogul is an accredited crowdfunding platform for real estate, and we discussed how crowdfunding is going to re-imagine this asset class in a big and beautiful way. I highly encourage watching the interview in its entirety as Jilliene provides great insight into her company’s structure and ambitions. (Apologies for my softened voice, I’ve been fighting a nagging cold. 3 Naked juices/day isn’t even cutting it!)

For additional context here’s a brief overview.

Founded in 2012, RealtyMogul officially opened its doors to accredited investors in March this year, and has since closed on three transactions. The company’s platform facilitates two types of investments (to-date, all three have been debt):

1. Loan Purchase for Residential Fix and Flip [Debt] The loan is tied to a residential property that is being rehabilitated and the property is intended to be sold directly after rehabilitation. The loan is secured and investors earn monthly interest on their money with a balloon payment at the end. The average hold for a loan like this is 6-9 months.
2. Equity Purchase for Commercial Buy and Hold [Equity] Investors pool their money to purchase a piece of a specific commercial property. That property is acquired and managed by a professional investment company with a track record of success. Investors are entitled to a share of the cash-flow from rents and a share of the proceeds when the property is eventually sold. The average hold for an investment like this is 3-5 years.

It’s notable that RealtyMogul offers both debt and equity investments. These are two financial products with very different risk/reward profiles, and if the Company achieves a highly liquid marketplace, it will be capable of serving investors of all risk appetites, at scale. It’s not a reach to imagine RM investors designing blended debt & equity portfolios, across tens, if not hundreds, of investments to reflect individual risk tolerance. And the unique cash flow attributes of debt vs. equity also opens the door to all sorts of creative investing strategies. (Notably, without leaving RM’s platform.)

In context of crowdfunding, the real estate vertical is incredibly attractive. The market is ginormous, $150bn if sized by real estate private equity funds; has highly attractive cash flow properties; serves a spectrum of risk appetites (debt to equity); and has historically been ridiculously exclusive.

Opening this asset class up—bringing efficient and direct access to investors of all geographies—is a juicy opportunity, and there is no shortage of platforms competing for it. I’ve appended a list of other real estate crowdfunding platforms below.  To be sure, they’re not all apples to apples, some taking varying approaches to varying markets. (Fundrise, for example, is specifically focused on local.)

Fierce competition awaits platforms competing to become the de-facto gateway of direct real estate investment. Trends will likely track similar to the peer-to-peer industry (and mostly all online marketplace industries) where a few key players emerge to dominate the broad market (i.e. LendingClub, Prosper); others capitalize on verticalized opportunities (i.e. SoFi); and marketplaces are largely transactional (auto-bidding, participation from institutional capital).

Jilliene and her team are off to an exciting start. RealtyMogul is targeting a curation rate of 2%, and with hundreds of applications in the pipeline, the Company is busy vetting opportunities for investors to directly participate in. Real estate investing today is an “old boys’ club.” But no longer, if RealtyMogul et al. have their way.

So what do you think? Will private real estate be in your portfolio in three years :-)? We’d love to hear your thoughts on real estate crowdfunding, or any questions for Jilliene, in the comments!

Highlights

• RealtyMogul: Founded in 2012, launched in March 2013, a real estate crowdfunding platform for accredited investors
• Facilitates both debt (lower risk, lower reward, avg. duration 6-12 months ) and equity (higher risk, higher reward, avg. duration 3-5 yrs) transactions
• Has closed 3 debt transactions to-date; plans to do its first equity deal in coming months
• The company closed a $500k seed round in March; angels included David Rose, CEO of Gust, and Gordon Stephenson, Zillow board member
• Currently open to properties in California and Washington
• Targeting a curation rate of 2%
• “Hundreds” of deals in the pipeline; “thousands” of users on the platform;
• Users can invest as little as $5k; many of the early investors have a tech background
• A partnership with Gust allows its users to natively access and invest in RealtyMogul deals (a la SecondMarket + Circleup/Angellist)
• Offline-to-Online: RealtyMogul is partnering with local investor groups to reach, educate and onboard new users

Real Estate Crowdfunding Platforms

• Collaperty
• CrowdMason
• CrowdStreet
• Fundrise
• Fquare
• Ifunding
• PatchofLand
• ProdigyNetwork
• RealCrowd
• RealtyCrowd
• RealtyShares
• SmallStreetUSA

The post Talking Real Estate Crowdfunding with RealtyMogul appeared first on The Crowd Cafe.

Crowdfunding is the product of not one, but two, strands of disruptive DNA. The first we’ll call technical disruption, the Christensenian strand of disruption I suspect many are quite familiar with. The second is much different. An amorphous force much harder to define and predict, but just as real, and potentially, much more powerful. This second strand of disruptive DNA is cultural disruption. The consequence of a fundamental shift in how consumers measure worth; placing increasing weight on the meaning of an item or experience, and not just its utilitarian value. A new Consumer is evolving. And she wants more meaning in the things she buys, the things she does, and soon, the things she invests in.

Compounded, these two agents of disruption will dramatically reshape our private capital markets. Businesses and investors will be empowered by an evolved marketplace that is more open, direct, and efficient. A marketplace that provides both financial and social opportunity, fostering investor motivations across every color and hue. Incumbents will be wise to keep their eye on both of these agents, particularly the latter, as its moves are quiet, but deeply implicative.

This is a dense topic so I’m going to break it into two parts. Exploring the technical disruption in Part I, and the cultural disruption in Part II.

Technical Disruption

Crowdfunding platforms are following a pattern of technical disruption that has been repeatedly observed in countless industries. Uprooting and re-imagining each. This pattern was codified by Clayton Christensen, whose theory explains how new market entrants continually manage to displace much larger and better resourced incumbents. His playbook for low-end disruption, in short:

1. Disruptors enter the bottom of the market, targeting customers whom often can’t be profitably served by incumbents;
2. Disruptors must acquire significant efficiencies (often using technology) to fill a need for these “low-value” customers;
3. Disruptors then move up the value-chain in search for greater profit/margin, directly challenging incumbents. Efficiencies in hand.   

Or, viewed through the lens of crowdfunding:

1. Platforms currently facilitating small deals and turnover is low: less than $1m, ~1-2 deals/month; this model is not profitable for traditional intermediaries; 
2. Platforms are coupling innovation with technology (the internet) to realize significant efficiencies in the capital formation process, allowing them to serve these “low-value” customers;
3. Some platforms will move up the value-chain. Transaction sizes and volume will increase; over time incumbents will increasingly find themselves competing on deal flow against much leaner, and much more efficient, internet platforms. Three years, five years—it’s not if, but when.

Of course, crowdfunding is a giant blue ocean, with different platforms going after different markets, and in different ways. The “Who will be disrupted?” depends entirely on which face of investment crowdfunding you look at— startups, emerging growth companies, small businesses? (And businesses are just one side of the market, investors being the other.) Each one of these archetypes is today serviced by a status quo; and each of these status quos is on a collision course with crowdfunding.”I want specifics!” I know, me too :-). Let’s look at two examples.

Finders: On a Path to Extinction

“Finders” introduce companies to potential investors in exchange for a fee. It usually goes  like this: “You need capital; I have a network of accredited investors; I can introduce you for a fee.” It’s not uncommon for lawyers, accountants and investment bankers to assume this role on the side. But there’s also a very large and distributed network of full-time finders, who often go by consultants, placement agents, or business brokers. They’re prevalent in transactions less than $5 million (particularly $1m) as these deals are often too small for investment banks.

Finders who are not registered broker-dealers are only permitted to do one thing: charge a flat fee for introducing a company to investors. For example: For $10k I’ll introduce you my network of 100 individuals; but it must start and stop there, I cannot participate in the transaction in any capacity. Transactional fee’s—e.g. 8% of the raise + warrants upon success— are explicitly illegal for unregistered Finders.

Of course, it happens all the time. There’s a massive market of unregistered Finders who live by success fees. (Fixed fees are nonsensical.) If you’ve tried to raise less than $5mm you’ve almost certainly run Finders who’ve proposed success fee arrangements.

I don’t want to vilify Finders. (Sparing the predatory ones; they’re scum.) That’s not the point. In fact, Finders can actually solve a very real problem today. They can help entrepreneurs without an existing network of wealthy individuals find growth capital. Many entrepreneurs fit this profile, and they are deplorably discriminated against by our existing private markets. If a company is using a Finder, it’s unlikely they have an alternative. Why? Because they cannot advertise. No rich friends, no wealthy benefactors; paying someone to introduce them to an outside network is the only option they have.

And this is the point. The current ban on general solicitation and advertising is precisely what spawned, and fuels, the cottage industry of Finders. The entire industry’s business model is contingent upon companies being unable to find capital. An enormous market inefficiency. Make discovering capital efficient and equally accessible to all—by lifting the ban on general solicitation—and poof, their raison d’etre vanishes.

Full-time, part-time, acting legally, illegally—it doesn’t matter. All Finders share the same path. It will take time to be sure as the industry matures—but as crowdfunding platforms collectively create ubiquitous access to capital—the Finder’s industry will be irrevocably subverted, and the practice of charging a company for the opportunity to raise capital—extinct.

Only a Matter of Time: Boutique Investment Banks

Boutique investment banks don’t care about $1 million deals. But they’ll bat an eye at $5 million; and perk right up at $10 million.

What’s to stop a crowdfunding platform from facilitating transactions of this size as the market matures? Nothing. Platforms serving emerging-growth companies, e.g. CircleUp, will not only be capable of doing these deals, they’ll be capable of doing them at a significantly lower cost compared to incumbent firms. Leveraging technology they’ll centralize communication, streamline critical processes, deprecate redundant ones, and dramatically reduce overhead; and little need for expensive suits, ritzy offices, or multiple analysts’ nightly carry-out.

Structuring the deal, negotiation, managing attorneys, preparing offering documents, and so on—technology alone can’t replace all of these processes—but it can surely optimize them. As for investor relations, which can be very high-tough, the proliferation of online video technology coupled with distributed offline events will bring enormous efficiencies to the traditional “road-show” process. I suspect online-to-offline will play a critical role in larger crowdfunded deals. (Relevant reference: CircleUp recently hosted its second offline event for investors.)

What about the pre-existing relationships, the proprietary distribution to investors? Proprietary no more! Access to capital is being commoditized and marginalized, increasingly opened to all. This beautiful and irreversible trend is going to demolish the egregious fee structures that today stand between companies and investors; and obsolete the practice of charing companies significant fees for access to investors.

This is great for companies; life-threatening for middle-market intermediaries. A $10 million crowdfunded deal is only a matter of time.

Not All Roles Will Disappear—But They Will All Change

There is, and will always be, a huge need for value-added intermediaries. But their roles are going to change, and their value-add repeatedly put to the test. On the low-end, Finders will disappear. Replaced by individual advisors who help educate and shephard companies through the crowdfunding process.

Moving up the value chain, companies raising large amounts of capital will always need sophisticated support. Boutique firms will be there to help—capital planning, crafting offering documents, navigating security structures and so on— but they will to adapt to a new open and technology-driven marketplace.

And what’s most important is this: all intermediaries will be held accountable to a marketplace built on transparency and symmetric information. Their services will be reviewed and benchmarked, repeatedly stress tested for value. This is great for companies. Great for investors. And great for intermediaries that truly do add value.

We’re still in the Genesis of the disruptive change—but it has begun. It’s no longer if, but when.

The post Crowdfunding’s Disruptive DNA: The Why, How and Who appeared first on The Crowd Cafe.

• We launched a refresh to our global investment crowdfunding database this week. We’re proud to have it sponsored by CrowdBouncer. It now includes 140+ investment platforms worldwide. Check it out!

# Selected Articles

• Peer-to-Business Lending: Evidence from Funding Circle | Nesta
  Probably the richest and most actionable crowdfunding report I’ve read to-date. A must-read chalked full of great data and insight culled from FundingCircle’s proprietary data (UK, debt-based platform for SMBs). It paints a hugely implicative picture for not only FundingCircle, but the entire global crowdfunding industry. I’ll send anyone who regrets reading this report a bouquet of fresh, seasonal strawberries. Seriously, it’s that good! “A third of business borrowers said it was very likely or likely they wouldn’t have received external finance without using the platform.” Now that’s powerful!
• SEC’s White Said to Push for Lifting Ban on Hedge-Fund Ads | Bloomberg
  Great overview of Title II discussions taking place on the Hill.
• House Panel Examines SEC Failure to Meet JOBS Act Rulemaking Deadline | Jim Hamilton’s World of Security Regulation
• How Venture Capital and Crowdfunding Can Coexist | CFO
• The New Italian Equity Crowdfunding Laws: where are the limits? | Twintangibles
• Can crowdfunding kickstart struggling cities? | The Daily Dot
• The Fundrise Blog – How Big Money Took Over Real Estate | Fundrise
• Crowdfunding for the crowd, not the funds: Why Lively launched on  Kickstarter after raising VC money | Pandodaily

# Lift-Off

• CNBC Gets Into Crowd – Funding Business With ‘Crowd Rules’ | Hollywood Reporter
  Another big-media announcement on the tail of A&Es last week. Enormous opportunity here, with lots of players are going after it. More activity certain to come.
• AngeList Commits to Crowdfunding | Wall Street Journal
  Big news from Angellist. And great data! AL graduated its equity crowdfunding feature, “Angellist Invest”, out of beta, opening it to any “qualifying startup.” Data from its beta: 18 startups; $6.7 million raised; 620 investors participated. Represents a mean raise of ~$372k and mean investment size of ~$11k
• BancBox Launches ‘First’ Automatic Escrow Service Aimed At Crowd Funding Flatforms | TechCrunch
• Foodstart.com Launches New Restaurant Financing Flatform | Prnewswire

# Industry Chatter

• Upstart, A Site For Crowdfunding People Raises $5.9M From First Round, Eric Schmidt, And Others | TechCrunch
• Shark Tank’s Barbara Corcoran to Join Equity Crowdfunding Site | Wall Street Journal
• CommunityLeader Announces Financing for Qualified Crowdfunding Portals | Prweb

# A Personal Read

• What Do Scientific Studies Show? | New York Times
  A new “scientifically-backed” diet seems to sprout up each week. Big media loves it. Eat this, don’t eat that; nevermind, don’t eat this or that! (Eggs are bad for you. Or, maybe not.) Anyone else find it stressful? Anyways, this fantastic piece brings much-needed perspective, and relief. Tip: ignore non-randomized studies. “In published medical research, 80 percent of non-randomized studies (by far the most common) are later found to be wrong.”

The post TheCrowdCafe Weekly, Issue 6 – 4/28/13 appeared first on The Crowd Cafe.

Global Investment Crowdfunding Database

I’ve done my best to track the birth of new platforms across different regions. To be sure, it’s a work in progress. The database now includes 140+ platforms, each classified by its type (securities offered), target addressable market, and corporate location. A few things to note:

• I’ve included reward-based platforms that may be considering supporting investments upon conducive legislation
• Target markets are based on best judgement. Some platforms are targeting multiple markets. Read more about how I personally segment the market here: Segmenting the Investment Crowdfunding Market
• A live list, growing weekly! If you have additional entries please use our submission form. Also, I’ll be updating with additional contextual information in the coming weeks!

I’d like to thank CrowdBouncer for sponsoring this database, and Ellenoff Grossman & Schole LLP for its continued sponsored support of our work!

One more thing…

Crowdfunding has become a global phenomenon. Massolution clocked the aggregate industry growth rate—including donation, reward, and investment— at 81% year-over-year in its 2013 Crowdfunding Report; IndieGogo now supports campaigns in over 200 countries; and hardly a day goes by without a new platform rising to serve a new region.

Crowdfund investing is still in its infancy, but its maturing rapidly in-step with permitting legislation. Continued successes across Europe and Australia, along with implementation of rules in the U.S., should accelerate this trend. And why not? Every city, country and region in the world has a strong vested interest in supporting investment crowdfunding. Empowering local capital to fund local entrepreneurs and innovation, it’s the ultimate bottom-up tool for economic development.

The post Updating our Global Investment Crowdfunding Database appeared first on The Crowd Cafe.

• Why Universities Need to Get Smart on Crowdfunding | TheCrowdCafe
• Who Will Create the Online Store For Successfully Crowdfunded Music? | Hypebot
• The 2012 Halo Report – Angel investigating Report | CB Insights
• The Next Big Thing in Crowdfunding? Kickstarting People | Wired
• Could crowdfunding produce A&E’s next hit show? | Fortune Tech
• CircleUp’s crowdfunding platform helps 11 companies raise $10M in its first year | TheNextWeb

# The Funded

• DietBet.com Crowdfunds $308K on SeedInvest
• SpecialCams becomes the 22nd business to raise capital on UK equity platform, Seedrs

# Lift Off

• An uptick in enterprise activity in crowdfunding this week, bringing additional validation to the burgeoning sector. In the biggest media partnership announced to date (that I’m aware of), RocketHub landed a juicy partnership with A&E Networks. This is the first of many mass media partnerships we’ll see.
• Financial services firm ING Direct partnered with reward-based platform StartSomeGood to launch Dreamstarter, an Australian program for social entrepreneurs.

# A Personal Read 

• Jonathan Zittrain: The Web as random acts of kindness

The post TheCrowdCafe Weekly, Issue 5 – 4/21/13 appeared first on The Crowd Cafe.