Transatlantic economic council grow vc 2013 10-07

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Regula'on  Update  and  Crowdfunding  Co-­‐inves'ng  Models    Transatlan'c  Economic  Forum  –    Jouko  Ahvenainen  Brussels,  October  7,  2013  

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:: Regulation

Services

•  New regulation being implemented by the SEC to catalyze job growth and create viable funding channels (JOBS Act).

•  Provisions enacted to allow for easier and more effective Initial Public Offerings (IPOs) via new S-1 filings •  For “Emerging Growth Companies” with revenues or non-

convertible debt less than $1B per year (e.g. Twitter) •  Financial services industry to transform from new

information on private securities becoming public domain.

US Regulation Framework

1.  With the SEC changing rules governing marketing of securities offerings, the new Reg D, Rule 506(c) offering creates new public information on private securities.

2.  Private securities, including private companies of all stages, various real assets and other asset classes, can now be marketed using modern channels and networks

3.  The emergence of previously private information opens opportunities to access and leverage new information for more effective capital allocation, both domestically and cross border (e.g. Regulation S)

4.  Public information forces paradigm shift for actors whose revenue models build on asymmetric information in the marketplace, as issues and investors can connect more transparently.

US Regulation

•  General small crowdfunding rounds are possible in EU (100k euro, in some countries already increased to 1.5M euro), but clarification of rules needed

•  The UK has quite active crowdfunding market, a license from the regulator is needed

•  Italy got a new crowdfunding regulation, mainly for startups and requires a co-investment (lead investor) from a professional investor

•  The European Prospectus Directive (Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003) was enacted to facilitate the use of one prospectus for offers and sales of securities to the public and admissions to trading in more than one member state

•  Most of the states have crowdfunding services for startups, but not yet really for other assets, expect some activities in the UK

•  For companies and investors larger funding (inside EU and inter-state in the US, and also over Atlantic) market typically bring value

EU Regulation

•  More common investment market would bring value to companies and investors better deal flow, more investors, more right matches and capital for good companies •  Need to have clear rules and reasonable costs to operate in

several markets •  In the US Finra coordinates self-regulation, not similar

arrangement in Europe •  Co-investing and syndicate models important to for the market

combine money and other resources from old and new models •  Also regulatory questions and fund policy issues

•  The market is still in early phase and mainly for early phase small companies, but now the market start to achieve critical mass and several models emerge

•  Investors, companies and market places especially need clear rules and market place costs must be reasonable to keep the market effective

Next steps

::Peer 2 Peer and Co investment Models

Framework

1.  Direct investments •  An investor invest directly in a company, becoming a shareholder, company can

have hundreds of small shareholders. 2.  Investments through an instrument

•  An investor can select a company he/she invests in, but the actual investment is done by an investment company that aggregates all investments together, the investment company is the actual shareholder.

3.  Crowdfunding of investment instruments •  The crowdfunding model is used to raise capital to a fund and the fund makes

investments. 4.  Co-investment models

•  Different models to make co-investments with crowdfunding.

Models Investing

•  It is typically important to get crowdfunding to work with other investment models •  Get other investors and money •  Help to manage investments •  Continuity for the next funding rounds

•  Investors can also offer other added value •  There can be several co-investment models, passive or active

•  Models can be local, off-shore or global •  Work amount, timetable, and costs depend on many factors, e.g. instrument,

regulation, jurisdiction and partner arrangements

•  It is also important to build co-operation with business angels, VC’s and incubators

Other models Investing

•  Co-investment partners •  Partners follow crowd-investments

•  Typically these are not automated investments but use crowdfunding to filter investment opportunities

•  Leading investors offer cases to crowd and crowd follows them

•  Syndicate models •  Either of the two models as above with formalized co-investment models on pre-defined models,

shares and responsibilities

•  Built-in investment instruments •  Investment instruments that are built to work with crowdfunding, e.g. automated co-investment •  Instruments can be like traditional funds or modified versions

•  Other co-investment instruments •  Investment decisions are based on crowd investments, e.g. if a company gets 70% from crowd, the

remaining 30% is invested from co-investment instrument •  Investors can join the instrument online, by defining their investment criteria like the total sum and

the number of companies (diversification)

Co-investing Investing

•  Bank lending •  Lending linked to investments and crowd support •  Typically not only commercial banks, but also other lending organizations

•  P2P lending •  Crowd funding can also include crowd loan components, depending on needs,

company and growth expectations •  Public funding

•  Crowdfunding to trigger or support public funding •  Loan guarantee and other supporting models

•  For example, national system to grant loan guarantees to companies that are able to collect investors

Non-investing models Co-investing

:: Grow VC Group

Framework

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