Mapping the Crowdinvesting Ecosystem

A colorful ecosystem is evolving around the investment crowdfunding industry. Companies are developing products and services to alleviate nearly every conceivable pain point of the system’s stakeholders, including businesses (supply), platforms (infrastructure) and investors (demand).

In some cases products are being designed from the bottom-up to solve new and unique challenges crowdinvesting markets present. Take Asurvest, for example: it’s structuring an insurance product to cover crowdfunded securities. Insurance products have long existed in other industries but Asurevest is the first, to my knowledge, to go after early-stage private securities. Another great example is CrowdCheck, a company building out a holistic portfolio of products & services laser-focused on preventing fraud in securities crowdfunding markets.

In other cases—as often happens in new industries—companies are re-segmenting their products/services to the crowdinvesting market. The degree to which ranges. From as light as a new landing page with dedicated copy—say an accounting firm that launches an account for your crowdfunding raise service—to as heavy as a carving out a dedicated division.

Mapping the Crowdinvesting Ecosystem

The ecosystem is big, and it’s changing daily. Additionally, for participants preparing for retail crowdfunding, it has an unfortunately large dependence on yet to be implemented regulations. That said, let’s map out of the baseline. Where it is today, and where it may go tomorrow. For brevity—well, at least I can say I tried ;-)—this list is U.S.-focused.

Here’s the personal framework I use. I segment companies into six categories.

  1. Technology Infrastructure
  2. Financial & Compliance Infrastructure
  3. Due Diligence Products & Services
  4. Campaign Products & Services
  5. Data & Analytics
  6. Media & Education

A few things to note before we dive in.

First, I’ve included both existing and prospective market participants. Existing participants are directly serving the investment crowdfunding market today; whereas prospective participants are not, but they have relevant products/products, and may choose to do so in the future. I’ve used judgement here—it’s speculative, to be sure—but I believe including them gives a fuller picture. I’ve tagged these prospective participants with “P”.

Secondly, these lists are not curated or rank ordered. It’s important to do individual due-diligence. Lastly, I sincerely apologize beforehand for any companies I miss. Please do leave a comment or shoot me a note at j@thecrowdcafe.com, and I’ll update in short order!

Technology Infrastructure

These companies “power” securities-based crowdfunding platforms. Also referred to as white-labeled solutions or Platforms-as-a-Service (PaaS). Some focus only on the technology and leave compliance to customers; others bake in fully compliant solutions. Furthermore, some integrate suggested business models through affiliate systems and other potential revenue streams.

  1. Apicista/CommunityLeader (US)
  2. Crowdclear (US)
  3. CrowdEngine (US)
  4. CrowdfundConnect (US)
  5. CrowdValley (US)
  6. Invested.In (US)
  7. Katipult (US)
  8. Launcht (US)
  9. Proseeder (US)
  10. RebuildingSociety (Debt-based/UK)
  11. SecondMarket > DIY 506(c) offering product (US)
  12. Sponsorcraft (Rewards/Equity/UK)
  13. Symbid (NL)
  14. Webclusive (Netherlands)

Who are their customers? Look for the following: (i) existing access to deal flow; and/or (ii) existing access to investors, and you’ll find them. They include existing broker-dealers, venture funds, angel groups, universities, accelerators, upstart crowdinvesting platforms of course, and local community organizations. While many are geographically concentrated today, I wouldn’t count out global ambitions. As supportive regulations lead in new geographies, vibrant crowdinvesting markets—and the demand for facilitating infrastructure—will follow.

We should also note that select platforms license their technology in addition to managing their own marketplace. It can be purely white-labeled, or “gray-labeled,” where the licensor’s branding remains. SeedInvest for example recently launched HALO, a private funding product for angel groups and incubators; it enables them to manage a private marketplace, with the option of syndicating deals across the broader SeedInvest network.

These participants are rapidly improving their respective solutions. The technology alone is becoming more commoditized by the day.

Financial & Compliance Infrastructure

These companies are dedicated to facilitating clean and compliant transactions at scale. They’re mostly B2B: they’re primary customer are platforms.

  1. Amazon Payments (Payments)
  2. Balanced Payments (Payments)
  3. BancBox Invest (Payments)
  4. MediaShares > Qwikshares (Payments)
  5. Paypal (Payments)
  6. WePay (Payments)
  7. 506accredited.com (Compliance)
  8. AccreditedInvestorSolutions (Compliance)
  9. CrowdBouncer (Compliance)
  10. CrowdCheck > For Platforms (Compliance)
  11. CrowdClear (Compliance)
  12. Crowdentials (Compliance)
  13. cTradeExchange (Compliance)
  14. Gravitasity (Compliance; Recently inactive, may be shut down?)
  15. Invigor Law > Investor Verification Service (Compliance)
  16. SecondMarket > Accreditation Verification Service (Compliance)
  17. VerInvest (Compliance)
  18. DocuSign (Digital Signature)
  19. EchoSign (Digital Signature)
  20. Right Signature (Digital Signature)
  21. Docracy (Legal Docs)
  22. VentureDocs (Legal Docs)

Compliance is a broad categorization. Crowdbouncer, for instance, provides many services under this umbrella while others are focused on one.

Let’s drill down on Accredited Investor Verification (“AIV”). It’s particularly important because it’s required of all investors who participate in 506(c) deals—the publicly advertised private offerings that make up the “accredited crowdfunding” market. This verification requirement has perhaps been the most vocalized criticism of choosing 506(c) versus 506(b), which requires only self-certification.  How is this point of friction being overcome? 

A  couple observations. First, check out InVigor Law. It’s a full-stack Seattle law firm that’s carving out a niche in securities crowdfunding. Interesting. Will we see AIV  become a staple service of boutique law firms? Or—a la SecondMarket’s AIV service—will we see a few large players become de-facto clearing houses? Or it may be blended, with “clearing houses” partnering with feet on the ground—accountants, lawyers, etc.—to aggregate completed verifications. If I’m a high net-worth individual, I may feel more comfortable verifying through my existing accountant, opposed to an unknown (and online) third-party.

My hope is we’ll see something of an “Accreditation Passport” emerge that allows investors to verify once and then carry the designation over to all platforms. This isn’t necessarily optimal for (all) platforms—it cannibalizes a potential revenue stream and reduces switching costs—but it would dramatically lower the friction of entering and actively participating in accredited crowdfunding markets.

Due Diligence Products & Services

These companies offer products (technology-driven) and/or services (human-driven) aimed at optimizing due diligence processes. The types and structures vary significantly between equity and debt but they a share a common goal: helping investors evaluate opportunities more efficiently and effectively.

PRODUCTS

  1. Equidam (Valuation tool)
  2. PMVTool (Valuation tool)
  3. Worthworm (Valuation tool)
  4. EquityNet > Valuation Calculator (Valuation Tool)
  5. Angellist > Quality Score (Scoring System)
  6. Mattermark Score (Scoring System)
  7. EquityNet > Ratings (Scoring System)
  8. Evisors.com (Expert Network)
  9. Maven.co (Expert Network)
  10. Dun & Bradstreet > Credibility Score (Financial “Trust”)
  11. TrustCloud (Social “Trust”)
  12. MiiCard (Social “Trust”)
  13. Klout (Social “Trust”)
SERVICES

  1. Navocate (Financial due diligence)
  2. MVCtest (Consumer survey tool)
  3. CrowdVibe (Consumer survey tool)
  4. CrowdCheck > For Investors (Due Diligence Services)
  5. CrowdInspect (Due Diligence Services)
  6. CrowdDiligence (Due Diligence Services)
  7. CatapultIntelligence (Due Diligence Services)

Due diligence is enormously laborious. It’s likely to be the single greatest cost-center of platforms that curate deal-flow. Scanning their team ranks, it’s not uncommon to find former investment banking (IB), or even private equity (PE), experience. It’s not cheap—1st year PE experience, with generous equity and/or participation, will run upwards of $100k, likely much more. Of course, technology also plays a role. Each platform is creating their own unique due diligence recipe—and these recipes will prove critical to achieving scale economically. How will platforms (i) surface “high-quality” investment opportunities, and (ii) guide mutually-fair valuations? The guidance of valuations isn’t talked about as much, but it’s equally important because most platforms will one day be defined by their returns—and returns are baselined by valuations.

Perhaps you’re wondering why I included Expert Networks. Where do they fit? There’s an enormous amount of distributed knowledge out there, just waiting to be creatively harnessed. Think of an amorphous “Shark Tank” structure, where one of the Sharks evaluating each deal has domain-expertise. Online, this is quite possible to do on an ad-hoc basis.

It’s not unlike what Angellist has done with Syndicates: they’re distributing the due diligence to the Lead investor, who often has domain-expertise. Lots of interesting implications of how distributed knowledge—either within or outside a platform’s network—can be harnessed to improve the efficacy and scalability of due diligence.

Campaign Products and Services

These companies are guiding and supporting issuers thorough their crowdfunding raises, many focused on specific pain points. My hope is that platforms curate a recommended list of providers—or integrate the services themselves. This will help with quality control. I’m unfortunately already seeing lots of shady stuff out there… we must not let the same shenanigans that have overrun the public markets pollute the private markets as well. I included one example below. They’re hard to miss.

PRODUCTS

  1. Enloop (Business plan software)
  2. LivePlan (Business plan software)
  3. CrowdfundingRoadmap (Business plan / Crowdfund Raise software)
  4. CommunityLeader > CampaignLeader (Business plan / Crowdfund Raise software)
  5. Leverage PR > CrowdBuilder (Marketing / PR software)
SERVICES

  1. CrowdfundMafia
  2. Marketing Spider
  3. Agency20
  4. Crowdfundingformula (Shame on you GrowThink!)
  5. Crowdfundingbank
  6. Thorsby + Associates
  7. Command Partners
  8. DeliverTheCrowd
  9. Hoolabaloon
  10. ThePitchClinic
  11. Cricca Funding
  12. Many other freelance/small-agency service providers I’m missing.

Data & Analytics

These companies are bringing greater visibility to online private capital markets. Some are directly or pseudo-positioned as the “Bloomberg for private markets.”

  1. 530Funds
  2. CBInsights
  3. CFEXS
  4. Crowdfunding4all
  5. Crowdlanding
  6. Crowdnetic
  7. Crowdsunite
  8. Crowdsurfer.co
  9. TechCrunch > Crunchbase
  10. Dashboard.io/Indicate.io
  11. Dealflow.com
  12. Dow Jones > VentureSource
  13. EarlyIQ
  14. MatterMark
  15. PitchBook.com
  16. VCExperts
  17. VentureDeal

I’m psyched about the data that will materialize as transactions move online. Questions that are incredibly difficult to accurately answer today—”What is average valuation of fast-casual restaurants with revenues between $500k-$1mm?”—will become common queries. This is a ways away of course, but it provides a glimpse into the possibilities.

I’m not a huge believer in bottom-up valuations for early-stage companies; simply too many exogenous factors at play. But I am super bullish on comparable transaction valuations. They’ll become all but automated—perhaps with premiums/discounts applied against unique attributes—as historical transactional data is captured and stored. What does this mean? It means the friction involved in setting accurate valuations, especially for non-tech companies, will be largely removed. The sooner we get here the better. It will do wonders for growth on the supply-side of the market.

It not unlike how Y-Combinator et al. have standardized their seed-stage term sheets, in effect taking big question marks off the table from the get-go.

Media

These companies, including myself :-), fall under the “Media” umbrella. We publish content on the industry in hopes of accelerating awareness and education. Some participants also host events and / or offer professional consulting services. Larger players haven’t aggressively entered the space yet—it’s still too small—but they will.

Our addressable audiences vary—from (i) issuers to (ii) investors to (iii) the industry. There’s often spillover. Crowdsourcing.org, for instance, as well as more or less myself, are mostly focused on the industry. Crowdfundinsider speaks to all three, in addition to covering rewards-based crowdfunding.

  1. Accreditedinvestormarkets (Media)
  2. Coastal Shows (Media / Events)
  3. Crowdability (Media)
  4. Crowdfund Capital Advisors (Media / Consulting)
  5. Crowdfund Productions (Events)
  6. Crowdfundbeat (Media / Events)
  7. Crowdfunding Campuses (Media / Events)
  8. CrowdfundingRoadmap > Crowdfunding Bootcamp (Events)
  9. Crowdfundinsider (Media)
  10. Crowdnetic > NowStreetJournal (Media / Events)
  11. Crowdsourcing.org (Media / Consulting / Events)
  12. Dealflow Media (Media / Events)
  13. Earlyinvesting.com (Media)
  14. Eyeofthecrowd.com
  15. TheCrowdCafe (Media)

In addition to independent participants, individual platforms are also building their own media presence. Think “Platform ABC University”, where accredited investors learn more about investing in ABC’s asset class. It’s likely to be a strong investor acquisition and retainment channel for many platforms; especially so in financial services, individuals are sticky when they find a trusted source of guidance and education. (Rarely do people leave their financial advisors.)

Concluding Thoughts

What the ecosystem looks like today is very different from what it will look like tomorrow. It’s rapidly evolving, and we’ll see many more entrants as it scales to support larger players coming downstream. We’re already seeing a bit of this today. The inclusion of the retail investor—individuals whom are not accredited—will also bring to bear significant change.

So where’s it going—where are the opportunities? Here are a few things that pique my interest.

  1. Standardization of Valuation (Pre-Funding) For non-tech businesses particularly—think single-location restaurants—valuation creates enormous friction in the fundraising process. Standardizing & automating this will drive huge efficiencies in the market: giving issuers instant baseline visibility into the implications of a fundraise;  and giving investors greater peace-of-mind in valuations. This is super important to portfolio management—manually running sanity checks on the valuations of hundreds of deals would create one heck of a headache!
  2. Optimization of the Cap Table (Pre-Funding) This assumes the luxury of choice. Some will have it. And I believe platforms/services will attempt to quantify the relevancy of individual investors to specific deals. “Investor Scoring.”  For instance, I’m a seed-stage startup selling software to Hospitals. Which investors have experience selling into enterprise, perhaps hospitals even? They should be surfaced. Likewise, they should see my deal. Investor scoring maximizes the relevancy for both issuers and investor. (Notably, a Kauffman Foundation study (PDF) shows that, in aggregate, angels who invest in their domains outperform those who do not.)In my mind, LinkedIn’s professional graph is the holy grail. Imagine querying a platform’s 100,000 active investors—hey, I’m looking ahead ;-)—for hyper-specific experience. “These 350 members have worked in Big Pharma. In these geographies. For this long. In this capacity. They’re sorted by investor activity.” Platforms that connect to LI accounts via OAuth/OpenID/etc. will have access to this data. When coupled with their own proprietary data… a gold mine, right.
  3. Optimization of Execution (Post-Funding) We’ve raised our round. Sweet! But not so fast on the champagne. Raising capital is not success—execution is. How can we maximize our odds of execution? Well, we did just curate our cap table with targeted investors, stacking the deck. And—let’s assume favorable regulations—we also opened a tranche to retail investors.We now have 800 investors whom all have a vested interest in us. They’re insanely biased, as will be their friends, and maybe even their friend’s friends. How do we interact with our extended network? Reach out for support, for customers. We’re social creatures—if a friend asks me to download an app that he’s invested in, or check out a restaurant he backed, will I? Absolutely! A try at least. Lots of possibilities here for maximizing the value of a distributed investor network post-funding. (Nielsen ran a study that showed consumers are 4x more likely to buy if referred by a friend.)

I’d love to hear your views. What developments particularly excite you?

It’s been lots of fun witnessing this growing ecosystem. I’ve had the great pleasure of getting to know many of its participants, and I’m psyched for what’s next. Regulations have created painful and frustating uncertainty, but that hasn’t stopped the private sector. It marches on, its dynamism matched only by its resilience.

About Jonathan Sandlund

Founder, TheCrowdCafe

  • Jean-Baptiste Vayleux

    Excellent article as usual. I’d like to know your thoughts about something. If, as you say:
    1/ Due diligence is “enormously laborious”

    2/ Finding the right experts able to assess companies is key (knowing that companies come from many different fields)
    Won’t we be headed towards niche platforms?
    Won’t general equity platforms try to focus on what’s more profitable for them and where they’ll be able to demonstrate unquestionable expertise?

    • Thanks, Jean! I’m bullish on niche platforms but the economics are still really tough—and will continue to be for quite some time, imo. Sourcing and curating quality deal flow requires transactional experience, preferably buy-side. And this experience has a huge opportunity cost.

      Many of my friends are just transitioning into 1st year private equity (pe) from i-banking. They’re >all making $150k+ base, and some, even participation on deals. Fully-baked with benefits they’re looking at ~$200k / year.

      For anyone with this experience—the skill-set needed to to operate a curated, niche platform—this sets an insanely high hurdle amount for launching a platform — e.g. $400k / profit / year for a co-founding team of 1st year pe analysts…

      Until the incentive structure becomes more favorable I think we’ll see most low-volume and “niche” players choose to tap existing platforms. We’re seeing the implications of this play out right now through structure like angellist syndicates and others. Super interesting. I mean, who didn’t aspire to be a mini Warren Buffett growing up ;-)

      • Jean-Baptiste Vayleux

        Thanks for the answer, I did not see things from that perspective.
        Just discovered the Angelist syndicates thanks your post, great idea to have well known investors pick a startup to attract other investors.

  • Vineet Mathur

    I agree Jean-Baptiste that niche platforms will turn out to be winners.

    BTW, Bancbox Crowd is now called Bancbox Invest and it offers payments, escrow and loan servicing solution build from ground up for CrowdFunding industry. Here are couple of relevant articles:
    http://techcrunch.com/2013/11/22/bancbox-invests-crowdfunding-api-processes-4m-inside-three-months/
    http://www.crowdfundinsider.com/2013/11/27204-crowdfunding-escrow-payment-api-bancbox-invest-shares-early-stats/

    • Thanks, Vineet, just updated. And congrats on your continued growth!

  • very detailed and structured analysis of the crowdfunding ecosystem. nice work, Jonathan

  • Adam Pressman

    Agree with the other comments, Jonathan, it’s a great snapshot. Like all snapshots it can’t show the action, often behind the scenes. One area of services that could be added for a future map is crowdfunding assurance. I know of two firms, mine and another, working, mostly behind the scenes so that platforms can, in their own way, offer principal protection to investors. We all know (hope?) that crowdfunding will bring a larger demographic to startups and that demographic is very risk averse. I’m pleased Crowdfund Roundup, and its peers, can assure these investors can’t lose in the event of a failed venture.

    • Hey Adam,
      Thanks for the feedback. I updated the list with Crowdfund Roundup.

      I’d love to hear more about the crowdfunding assurance product. How will it work?

  • Mark Easley

    Hi Jonathan, another brilliant piece! I love it the way you are tracking the industry in ways that nobody else is doing, and that has such great value. Keep up the good work!

  • Jonathan, you forgot to mention MediaShares in your Campaign Products and Services. We provide a transaction system for share purchases on an issuer’s own website stock purchase page. This page is fully FINRA 2111 compliant, connects with their FINRA broker, and uses the DIrect Registration system for the actual transaction. The stock is purchased through an ACH checking account debit (eliminates pre-funding the account), and stock can be purchased in tiny increments.

    MediaShares also provides the marketing (fully compliant with SEC Rule 33-8591) to drive purchasers to this purchase page on the issuer’s website. Both of MediaShares’ methods create a fully electronic IPO or DPO, and we think our system, software, and methodology can revolutionize S-1 registered (and possibly Regulation A+) public offerings.

    I saw your presentation in Vegas and have been a fan of yours for some time.

    • I updated the list with MediaShares > Qwikshares. Thanks for the heads up!

  • Jenny Kassan

    Hello! I wanted to make sure you know about CuttingEdgeX.com, a listing site that is open to the public. The companies/organizations listed there have all done the legal compliance that allows them to offer securities to the public, both accredited and unaccredited.

  • 4GeorgeBush2

    Great resource, thanks for all the hard work and insights.

  • mia

    Hi Jonathan – you totally missed real estate.

    • Hey Mia,
      Thanks for the note! This article covers only the services ecosystem — not the platforms themselves. Do you know of services companies focused on real estate crowdfunding?

  • Pedro Alvarez

    Jonathan, you’re the man!! As I mentioned before, I’m interested in real estate crowdfunding, I’m developing a business plan for a platform specializing in funding real estate developments in Latin America. Appreciate any feedback or if you could point me to some additional resources. Keep up the great work!!

  • Jonathan. What a great piece. You are on it! All the states still working on intrastate exemptions should look at this ecosystem map and make sure the legislation supports it as much as possible. I would also like to add to your list eyeofthecrowd.com. It is a media/education site that focuses exclusively on crowdfunding investors. It is currently advocating for a viable ecosystem and helping aspiring investors learn about startups. Again, Great work, best I have seen for this space yet.

  • Does anyone know of any insurers that are willing to provide E and O insurance to crowdfunding portals not registered as broker dealers? Or of any trustees willing to hold this asset class once the market exists in Self Directed IRAs. Part of the ecosystem will be market makers and making it easy for non-accredited investors to invest.

  • Fred Lerner

    Jonathan…without question, the best resource document available on crowdfunding! Question…where would you put CircleUp? Comment…would very much like you to add another field for “curated platforms.” Thank you again!

    • Thanks, Fred. Much appreciate the feedback! I didn’t include funding platforms in this. Rather, this focuses on the periphery ecosystem of products and services.

      Here’s a database of platforms: http://www.thecrowdcafe.com/platforms. I’ll work on adding a filter for “curated” platforms :)

  • Fred Lerner

    Thanks for the link…it just gets better and better :)

  • Hey Jonathan. Thanks for adding great value to crowdfunding industry. I would also suggest you to add list crowdfunding campaign marketing agencies. I think it might help campaigners. Just a suggestion.

    I also wanted to let you know about http://www.zingohub.com/en-IN/, a crowdfunding platform that is helping creators and innovators in Asia market. You can consider adding it to the platform list on your site.

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