HBSAB Panel: Crowdfunding Part II

DANIEL GORFINE DIRECTOR OF FINANCIAL MARKET POLICY AND LEGAL COUNSEL, MILKEN INSTITUTE DECEMBER 4, 2013

State of Angel Capital

Total Angel Investment 2001-2012
35
Billions

80000 30 70000

30
25 20

25.6 22.5
18.1 15.7 23.1

26

22.5
19.2 20.1 17.6

22.9

60000

50000
40000 30000

15 10 5 0
20000 10000 0

Sum of Total Angel Investment (in billions)

Sum of Total Ventures Funded

Data Source: UNH Center for Venture Research

State of Venture Capital

Total Venture Capital Investment 1995-2012
120 105.12 Billions 100 7000 80 6000 5000 9000

8000

60

54.85 4000 40.96

40 21.47 20 8.01 0 11.35 22.17 23.26 23.59 27.59

31.93 29.97 20.25 23.29

3000 29.67 26.96 2000

19.69

15.01 1000
0

Sum of Total Venture Capital Investment Data Source: NVCA/ PWC Moneytree Report

Sum of Total Number of Deals

Venture Capital Moving Away from Seed

VC Investment 2000-2013Q3
Billions 18 16 14 12 10 8 6 4 2 0 Startup/Seed Avg=$3mil Early Stage Avg=$5mil Expansion Avg=$8mil Later Stage Avg=$10mil

Data Source: NVCA/ PWC Moneytree Report

100

110

120

130

140

60

70

80

90

Source: Thomson Reuters/PayNet Small Business Lending Index

State of Small Business Lending

Volume of New Commercial Loans and Leases to Small Businesses Q1 2005-Q2 2013

Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

Sources of Startup Financing Limited

Sources of Startup Financing (% of firms)
Personal/Family Savings Credit Card Bank Loan Other personal/family assets 11 10 7 7 4 1 3 10 19 60 62

Home equity
Government Loan Venture Capital None needed 0

0.7 0.3 11 10 20 Employers 25 30 SolePropreitor 40 50 60 70

Source: Corporate Executive Board, US Small Business Administration

US IPO Market: Small vs. Big Companies

US IPOs with Pre-IPO Annual Sales Less Than or Greater Than $50m/Year

Source: SEC Advisory Committee on Small and Emerging Companies, September 2012; Ritter, University of Florida

Public vs. Private Market

2012: Public Market Totaled $1.2tn Private Market Totaled $1.7tn

Aggregate Capital Raise 2009-2012 by Offering Method

Source: Ivanov, SEC

Billions

New Capital Access Tools

2013 Milken Institute

 2013 Milken Institute

Funding Landscape

Angel Investment: Range based on lowest and highest total annual Angel investment per deal from 2001-2012, UNH data VC Investment: Range based on lowest and highest total annual VC investment per deal from 1995-2012, NVCA data Investment Stage range based on lowest and highest total annual VC investment per stage per deal from 1995-2012, NVCA data Startup/Seed: $3.2mil Early Stage: $5.0mil; Expansion: $8.4mil; Later Stage : $10.3mil

Data Source: ACA, NVCA

2013 Milken Institute

Donation-Based Crowdfunding in 2012

Source: TechCrunch, massoultion

Crowd Investing: Title III JOBS Act

Source: Fundable, Earn MBA degree.

Crowd Investing Disclosures Vary by Offering Amount

Crowd Investing Offering Amount (including offerings in preceding 12 mo.)
Up to $100,000

Disclosure Requirements

Most recent income tax returns; financial statements certified by issuers executive officer Financial statements reviewed by independent public accountant Audited financial statements

$100,000 - $500,000

$500,000+

Source: sec.gov

SEC Proposed Rules

Title III
Investment Advice/ Recommendations
Portal Compensation Models Ongoing Disclosures

Investor Education Requirement

Rule 506(c) Investing

Title II of the JOBS Act Ban on General Solicitation Lifted Accredited Investor Verification Required Reasonable Belief Investor Accredited Proposed Rules

Regulation A+
Small Company IPOs have declined as a share of overall market Total filing expenses under Regulation A+ are estimated to decrease by 50% when compared to smaller reporting company S-1 filings, and by 71% when compared to traditional S-1 filings IPOS in US % of Total Number of Deals
79% 73% 59%

54%

56%

58% 47% 49% 52%

57%

$100+mil

51%

51%
41%

25% $50-100mil 10% $25-50mil $0-50mil 11%

29% 24%

30%

27%

25% 15%

28%

30% 18%

34%

19%
10% 15% 12% 6% 9% 12%

19%
8% 1% 5% 3%

8% 8% 6%

4% 9%

0% 3%

4% 3%

4%

Data Source: WR Hambrecht + Co, Dealogic