To Be Takei II, The Wrath of Crowdfunding B

Yesterday in Part A:
  • Examination of internet based equity, debt and rewards based funding paradigm known as Crowdfunding.
  • Examination of crowdfunding critics and successful utilization by George Takei; World Bank; YouTube; Google and publicly held Chapel Down.
Today in Part B
  • Examination of categories; past market growth; future potential through global market penetration for internet capable devices.
  • Examination of legislation; non-accredited vs accredited investor status; breakdown of non-accredited overhead costs.


As Rod Serling would have said: Tonight's offering, submitted for your approval... They were best friends and coworkers in the halcyon days of the mid 80's... when profits were rising, Keating & Milken were flying high and zestful youth was theirs. "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us." - Dickens
The other night, this showed up in my inbox. I have been aware of Dawn's unfortunate journey to a stage IV metastatic colon cancer diagnosis since 2012. I have never been able to reconcile the tragedy when one so young is given a "dead man walking" prognosis. In an effort to meet their medical costs, one must applaud the ingenuity of her husband in utilizing a crowdfunding platform Gofundme.com, and so our fortunate journey for today begins... and now Part B of our feature presentation...


Crowdfunding 101
Crowdfunding is an internet based way for businesses, individuals or organizations to raise money from donations to or investments in their concern. Web savvy individuals (like Mr. Takei and my friend Dawn's spouse) and companies have raised billions of dollars in debt, equity, and donations for projects over the past five years by utilizing web based communication through online communities and social networks.

Categories
There are three categories of crowdfunding:
  • (DCF) Donation (reward based, non equity) crowdfunding raises capital for creative projects or charity causes.
  • (CB) Credit based crowdfunding matches prospective borrowers and pools of investors who are willing to accept the credit terms through Crowdfunding sites such as the Lending Club and Prosper (not to be confused with...)
  • (CFI) Crowdfund investing (equity-based) raises capital by selling financial instruments related to the company's assets and/or financial performance. Includes raising debt capital through loans, selling claims to intellectual property, and selling ownership shares.

Market Growth
Growth in US and European crowdfunding platforms 2009-2012:
  • expanded at a 63% compound annual growth rate (CAGR).
  • equity based platforms exhibited a CAGR of 114%, lending-based platforms 78%, donation-based 43%, and reward-based 524%.
Worldwide crowdfunding industry growth:
  • 2012 = $2.7 billion.
  • 2013 = $5.1 billion.
Futures in developing markets (World Bank estimates)
  • 2025 = $96 billion
  • 2025 = $48 billion in China alone.

    Installed Base & Potential Futures

    12/13/2013 from BusinessInsider:
    (click to enlarge)
    2013 world population 7.125 billion of which 65% (4.6 billion) lack Internet access. But did you know...
    • 35% (2.5 billion) have Internet access.**
    • 85% (6 billion) have mobile phone access.
    • 22% (1.56 billion) have internet enabled smartphones.
    • 20% (1.43 billion) have PC's.
    • 6% (427 million) have internet enabled tablets.
    • Online social platforms have grown to more than 1.5 billion members.
    • 80% of the world's online population interacts with social networks on a regular basis.

    Crowdfunding Legislation
    In April 2012, Title III of the 2012 Jumpstart Our Business Startups (JOBS) Act covering equity crowdfunding for non-accredited investors was signed into law. The JOBS act gave the SEC 270 days to come up with a final set of regulations.

    On October 23, 2013 the Securities and Exchange Commission (SEC) issued the proposed rules (585 pages) for regulating crowdfunding. The legislation requires that the selling of crowdfund securities take place on registered websites. The websites hosting the transactions are known as funding portals or broker dealers.

    The proposed rules allow for bifurcated or parallel offerings, where entrepreneurs can make a crowdfund offering to unaccredited investors at the same time they make a private offering to accredited investors.

    So what is all the fuss about and why is it taking so long (over 940 days have passed since the JOBS act was signed) for the SEC to come to a final decision?

    Reg D non accredited vs accredited investors
    This is where the rubber meets the road, remember our lex parsimoniae, follow the money...

    A non accredited individual investor under Reg D is one who has a net worth of less than $1 million (including spouse) and who earned less than $200,000 annually ($300,000 with spouse) in the last two years, constituting greater than 98% of the population.

    Aside from all the usual suspects (FINRA accredited and registered)...

    bank, S&L association, insurance co, broker/dealer, trust, corporation, partnership or registered investment adviser... anyone exceeding the Reg D income requirements is a qualified accredited investor, constituting less than 2% of the population.

    The usual suspects don't like food being taken off their plate... the proposal would allow companies to raise up to $1 million annually via crowdfunding. Companies could raise up to $5,000 annually from individuals with incomes under $100,000 while wealthier investors could contribute up to $100,000 annually.

    Non Accredited Crowdfunding Costs
    01/02/2014 from VentureBeat: For raises under $100,000, the SEC estimates portal and compliance fees will eat up between 12.9% and 39% of the money raised. For raises over $100,000 but less than $500,000, that figure may drop down to 7.96%. And for raises over $500,000 but under $1M, it may drop to 7.66%.
    The Nattering One muses...

    My muse for this trilogy, Dawn's Medical Bill Fund. 
    Stay tuned, more to come in Part C, no flippin. 

    Tomorrow in Part C
    • Examination of oversight and compliance; crowdfunding startups, 100 crowdfunded companies; crowdfunding roadmap; crowdfunding convention; the niche's; general market plays and conclusions.


    Footnotes

    ** With the advent of new broadband solutions, internet and smartphone penetration is growing. Figures presented are estimates from the World Bank and BI intelligence as of 2013. We estimate that there are just under 3 billion (1.5b with PC + 1.5b smartphone + .5b tablet * .85) with some form of internet access.

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