David Drake

November 18, 2015: Alternative financing emerged following the 2008 global financial crisis. Two of these alternative financing mechanisms are peer-to-peer or P2P lending and crowdfunding where funds are raised online. The growth of alternative financing has been consistent since its introduction, raising $2.7 billion in 2012 across the globe by funding over one million online campaigns using all types of crowdfunding. Since then, amounts raised through alternative finance platforms each year have consistently increased by more than 100 per cent annually, reaching $6.4 billion in 2013 and $16 billion in 2014. Following this growth trend, alternative financing platforms could likely raise up to $34 billion globally by the close of 2015.

Projected growth

In 2013, amounts raised using alternative finance platforms exceeded the expected $5.1 billion mark by about $1.3 billion. A study by the World Bank in the same year projected that amounts raised via crowdfunding globally in developed economies would range between $90 billion and $96 billion over the next consecutive 25 years. This amount is 1.8 times the current size of the venture capital industry globally.

Growth in alternative finance has been driven partly by the entry of established businesses into the crowdfunding and peer lending space. At first, alternative finance platforms featured nascent firms that wanted to raise capital to fund their seed stages when it became difficult to obtain capital from conventional sources. With time, the industry took a leap and is now capturing the attention of well established businesses largely due to the cost-saving opportunities it presents and the speed at which fundraising targets are met.

Addressing a critical gap

This success is giving rise to a modern day digital investing community of investors, issuers, information providers, funding platforms and markets that are competing with conventional financing approaches. From a geographical point of view, developed nations such as the US, China and the UK constitute about 96 per cent of the crowdfunding financial market. However, none of these regions can claim sole control of the digital investing environment because generally, alternative financing operates in a global realm.

The digital investing environment today features different sectors and players that service each stage of the funding cycle online. This means that nascent companies no longer have to find seed capital from friends or family, borrow from banks, seek growth capital from venture capitalists or approach public markets to address liquidity problems.

Instead, the different players and sectors operating alternative financing platforms are creating a digitally integrated space that addresses a very specific economic gap — providing capital to expanding businesses that cannot access funding through conventional financing methods in the most affordable way. The alternative finance approach is therefore doing away with information barriers and making funding from private investments accessible for investors and issuers — a move that enhances access to various asset classes.

Entrepreneurs, who opt for the alternative financing route, are able to raise the level of product awareness and develop a customer base — something that is hard to achieve through conventional fundraising approaches.

Financing early stages

Crowdfunding for debt and equity is able to satisfy the capital gap: a critical need within the small and medium enterprises financing cycle. While angel investors and venture capitalists are increasingly seeking enterprises that demonstrate a clear exit strategy, excluding most nascent firms from accessing funding in the process, equity-based and debt-based crowdfunding now exist to provide funding for enterprises that are shifting from prototype, startup and early growth stages. In 2014, 58 per cent of crowdfunding deals were raised for seed stages while 28 per cent were for Series A stages.

The opportunity

The market opportunity for alternative financing is huge. The current addressable market stands at about $3.3 trillion with already $300 billion of early stage market having been exploited. Crowdfunding contributed some $65 billion into the global economy in 2014 from a combination of both accredited and more than 100 million non-accredited investors. From 2012 to 2014, equity-based crowdfunding rose by more than 400 per cent, representing a 351 per cent rise in quarterly revenue in 2014. In the same year, crowdfunding generated about 270,000 jobs.

In 2015, crowdfunding is likely to surpass the $20 billion raised through angel investing and $34 billion raised through venture capital in 2014.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group.

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David Drake

July 20, 2015: Scott Purcell is a serial entrepreneur experienced in securities, banking, technology, internet infrastructure, publishing, social networking and music industry. He is best known for founding Epoch Networks, one of the first internet providers in the United States as well as the brain behind a trust company that exceeded 1 billion dollars in assets. Scott is a top capital raiser who has raised more than 140 million dollars in angel and venture investments. Today, he is the founder and chief executive officer at FundAmerica, a crowdfunding platform based in San Francisco. In addition, he serves in the Crowdfunding Intermediary Regulatory Association as a Board Member.

FundAmerica

Scott Purcell founded FundAmerica in 2011 with the aim to provide software, compliance management and technology systems to investment advisers, crowdfunding portals, broker dealers, and other entities that constitute online fundraising businesses compliant with Title I and Title II of the Jumpstart Our Business Startups Act (JOBS Act). The Act allows for small and newly established businesses to raise capital through crowdfunding. As an equity and debt-based crowdfunding platform, FundAmerica uses FinTech to deliver value to its customers as well as the crowdfunding industry. By 2013, FundAmerica had raised $1.4 million worth of investment in a single round from a team of angel investors.

This was the second round of funding raised by Scott Purcell, with the money raised going towards the improvement of FundAmerica’s crowdfunding platform. Initially, FundAmerica was called Arctic Island before it was rebranded.  FundAmerica applies an aggressive strategy that enables it to serve as a crowdfunding platform for accredited investors and companies, as well as a syndication platform for investment banks and brokers making it easy for accountants and lawyers to provide advice about client offerings.

According to Scott Purcell, there are numerous startups in the United States with little or no access to initial capital. At the same time, the United States has millions of big and small investors looking for opportunities to support startups so that they can grow and generate jobs. This is where FundAmerica comes in to provide a wide platform for these groups to interact.

Crowdfunding potential

For Scott Purcell, “crowdfunding is bigger than the internet” for different reasons because its implementation significantly affects businesses, culture and the economy. The internet allowed for the creation of new forms of art, transformed societies and created new industries like crowdfunding. For Scott, the revelation of the potential that crowdfunding holds came after reading the proposed legislation of the ‘Entrepreneurs Access to Capital’ that came before the JOBS Act in 2011. The idea evoked similar excitement in him as the graphical window that Marc Andreessen produced for the internet that made its innovation huge.

Scott holds that the impact of crowdfunding on the society, culture and economy is already being felt. With the approval of Regulation A+ in March 2015, the impact of crowdfunding will be felt even more as startups gain access to capital of up to $50 million. The new rules released by the Securities and Exchange Commission (SEC) also did away with the requirements for state compliance and extended the pool of investors not only from accredited investors but to non-accredited investors as well.

According to Scott Purcell, the space created by Reg A+ for unaccredited investors to participate in crowdfunding and the fact that the law created tradable security was a big plus. However, Reg A+ is more costly when it comes to legal and accounting costs as well as filing of annual reports compared to the previous 506(c). This means that issuers will require more time to get an offering out there.

How FundAmerica works

FundAmerica provides services that allow people to develop its technology on their platforms or websites using Application Programming Interfaces or widgets. Users can also use the forms directly from FundAmerica’s website. Initially, FundAmerica is offering backend services that are required by most participants in the market for which they cannot get done by themselves. Such backend services include broker-dealer services, escrow, electronic signing and storage of investor subscription agreements, checking for PATRIOT Act compliance, anti-money laundering background checks, disclosure template and payment processing. FundAmerica does not offer front-end UX design or web design for participants. This crowdfunding platform does not engage with investors or businesses directly as well.

In June 2015, FundAmerica introduced a new online service that enables participants to confirm accreditation of investors for 506(c) offerings. This service attracts a $30 fee for each investor per year irrespective of the number of investments they make. This service is built into the platform’s Invest Now Button.

Purcell was quick to point out that the interesting thing about this service is that they really did not want to do it; they thought other people should do it. “But we got so much encouragement/pushing from our platform customers that we ultimately caved in and built it.”

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group.

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The post ‘Crowdfunding is bigger than the internet’ appeared first on International Finance.

David Drake

February 24, 2015: Funding to pursue creativity and innovation in India is very limited, particularly when an idea has no connection with technology. This, coupled with the lack of accountability and transparency in the use of funds on projects that are purely creative, makes the situation worse. Ventures that are one-off in nature and not in need of multiple funding, as well as those that are designed to scale and require huge amounts to become sustainable, find it challenging to access capital. Crowdfunding helps to address these needs with its ability to help unconventional entrepreneurs and innovators bridge the funding gap.

Wishberry is currently one of India’s leading crowdfunding platforms that recently raised $650,000 from different individual investors. The platform allows entrepreneurs to raise project capital in the fields of Film, Art, Music, Publishing, Technology, Gaming, Design and Apps. Wishberry will use these funds to expand its technology and marketing team as well as raise awareness about crowdfunding in India. Over the past one and half years, the crowdfunding platform has been outsourcing marketing, accounting, and technology functions.

The platform has helped to raise capital for 600 projects which included HeadBanger’s Kitchen, a heavy metal cooking show that raised Rs 244,401 (about $4,000) from 143 backers and  Printajob, a startup based in Ahmedabad that engages in printing Instagram photos for collage and decorations, which achieved its fundraising target of Rs 102,500 (about $1,650) from 52 backers.

The Goa Project 2014 reached its Rs 15 lakh (about $24,000) target on Wishberry crowdfunding platform within two days. The project has so far fundraised Rs 369, 500 (about $6,000) from some 55 backers. Wishberry is currently helping fundraise Rs 50 lakhs (about $80,000) for a lingerie brand referred to as Buttercups.

Founded in 2012 by Priyanka Agarwal and Anshulika Dubey who consulted for McKinsey, Wishberry has a community of more than 9,000 funders drawn from more than 50 countries. The success rate of fundraising campaigns on this crowdfunding platform stands at 75 percent, making it the top reward-based crowdfunding platform in the country, commonly known as India’s Kickstarter. So far, 70 percent of all funds raised through Wishberry have funded creative projects with most funds going to film and music.

Though crowdfunding is still at nascent stage in India, the people are very much aware of the crowdfunding ecosystem globally. Indians have been the biggest funders on global crowdfunding platforms such as Kickstarter in countries where this platform is inactive. In 2014, a total of $824,800 were contributed by 4,690 Indians to projects on Kickstarter.

Project Selection

The projects on Wishberry are selected according to their ability to attract investors. Since Indians are not accustomed to the Do-It-Yourself concept, Wishberry assigns crowdfunding coaches to guide selected campaign developers in generating compelling pitch videos, marketing and developing rewards. Wishberry is an all or nothing crowdfunding platform.

When a campaign is uploaded on the crowdfunding platform, project developers are expected to attain their targets within 60 days. Failure to do so will see the fundraised amount refunded to contributors. Wishberry uses this approach to create trust and transparency among issuers and backers. A Rs 2,500 ($40) non-refundable fee is charged as campaign consulting fee while projects that successfully meet their target pay a 10 percent commission on the raised amount.

Shankar Mahadevan, a top Bollywood composer and one of Wishberry’s strategic investors says, “I am excited to find the next generation of great musicians who create inspiring purposeful music.” According to Vikramaditya Motwane who is also a strategic investor at Wishberry, “having a funding avenue for independent filmmakers is a great idea.”

Future Plans

According to Google India Managing Director Rajan Anandan, who also co-led Wishberry’s crowdfunding campaign that raised $650,000 to fund its marketing and technology efforts, “In India, crowdfunding has huge lasting potential. The Wishberry team has a broad understanding of how to win India.”

Wishberry’s CEO Priyanka Agarwal says that their platform’s major goal is to raise Rs 100 crores (about $16 million) over the next two years for 5,000 projects as well as to raise funds for their Series A round. “Wishberry hopes to create a community of at least three to four million funders over the coming five years to support some 50,000 creative projects,” she adds.

Ignite Intent and Pikaventure are two of the local crowdfunding platforms that compete with Wishberry in this new space. Globally, Wishberry is competing with platforms such as Indiegogo and Kickstarter. However, for potential investors, it is all about identifying project ideas that capture their fancy.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group. 

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The post India’s Kickstarter appeared first on International Finance.

David Drake

December 4,2014:We’ve seen life imitate art but rarely have we seen life imitate a board game. In  Hasbro’s popular board game, Monopoly, players often land in jail as well as own massive hotels on Park Place and other iconic locations. What you cannot do in Monopoly, however, is trade your hotel for bail money, but that’s exactly what Sahara Group chairman Subrata Roy has been trying to do for the past several months.

Roy has been incarcerated in India since late February of this year, when India’s Supreme Court decided to take action after a protracted battle between Roy and the Securities and Exchange Board of India. Roy is accused of defrauding investors through unsecured fundraising schemes and running afoul of a number of India’s financial regulations. He has fought, appealed and disobeyed a number of court orders over the past two years, but only recently sought permission to leave the country in order to “take care of his overseas business interests,” according to Yahoo! Finance.  He was arrested shortly thereafter.

Roy has enjoyed the fruits of financial success, rising from poverty to massive wealth through banking, airline and now real estate ventures, amassing a network of companies worth tens of billions of dollars and hobnobbing with the country’s movie stars and wealthy elite.

Iconic hotels for sale

As part of Roy’s ploy to raise over a billion and a half dollars in bail money, he’s offered to sell his stake in three hotels: The Plaza and The Dream in New York City, and the Grosvenor House in London.

The Plaza has been featured in multiple American films and remains a major tourist destination, as well as a hotspot for the wealthy and famous. Other former owners of The Plaza Hotel, which was designated a historic landmark in New York City in 1986, include Donald Trump and Conrad Hilton. Roy’s stake through the Sahara Group is valued at $592 million, according to The Financial Express

PLAZA HOTEL, NEW YORK

The Dream is a boutique hotel near New York’s Chelsea neighborhood and other nightlife and shopping hot spots. The Sahara Group’s interest in the hotel is valued at $252 million, according to The Financial Express.

DREAM DOWNTOWN HOTEL, NEW YORK

Roy’s biggest item, however, is the Grosvenor House, London’s biggest luxury hotel with a royal past. The Sahara Group’s stake in the famous building is worth a whopping $879 million, according to the Financial Express.

                                                GROSVENOR HOTEL, LONDON

Royal suitors

While Roy has been living the life of real estate royalty, it may in fact take a king to bail him out of jail.  According to Jon Rosenthal of Crillon Capital in Thousand Oaks, California, the polarizing Sultan of Brunei is “still considering buying the properties”.  In October, several websites carried news stories of a proposed $2.2 billion dollar deal in which the Sultan would purchase all of Roy’s interests in the three hotels.

Others have speculated that there are as many as five possible buyers, including a businessman from China and a royal family from the Middle East. Adar Poonawalla, son of Indian billionaire Cyrus Poonawalla, allegedly made an offer of more than $900 million for Roy’s stake in the Grosvenor Hotel.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group, a global financial media company with divisions in Corporate Communications, Publications and Conferences.

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Is there something like better tobacco?

Anatomy of a real estate crowdfunding transaction

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The post In Monopoly move, Sahara chairman offers hotel for bail appeared first on International Finance.

David Drake

October 31, 2014: As the biotech firm  22nd Century Group, Inc. (NYSE MKT: XXII) rang the closing bell on the New York Stock Exchange last Thursday, the multi-billion dollar tobacco industry is at the threshold of this firm’s biotechnological efforts as it went public.

The company has developed a technology based on genetic engineering and plant breeding techniques that they say can control the tobacco plant’s nicotine and nicotinic alkaloid levels. This allows them to grow the plant and reorient its addictive nicotine components without interfering with the taste that smokers are familiar with.

Biotechnology and cigarette smoking

With biotechnology, the company increased the nicotine level in the tobacco plant that aided them in developing “Red Sun” as a premium brand.  It targets “upscale educated smokers” who are looking for a more highly differentiated, super premium brand. The premium cigarette sells at 10 to 15 percent premium than Marlboro and is top billed as the “Best Cigarette Ever Made”.

The company also developed other product offerings intended for the health-conscious populace that have developed a particular liking for cigarettes but do not want the negative effects that goes with it or plan to kick off the habit over time.

Its cessation aid product, called X-22, claims to reduce nicotine dependence among smokers.  They say X-22 smells, smokes and tastes like the conventional cigarette, although it contains very low nicotine. It is currently under evaluation by the Food and Drug Administration (FDA). Congress has given FDA the authority to reduce nicotine in cigarettes to almost zero. Thus, X-22 should have an advantage should it pass the FDA evaluation.

Its Brand A-coded product claims to have very low nicotine content.  It is undergoing modified risk evaluation at FDA so it can be marketed in the country.

Its Brand B-coded product is said to have a tar to nicotine ratio of 6:1, which is lower than the average cigarette ratio of 13:1. This means that a smoker would inhale only 50 percent of the smoke present in an average cigarette. If this is approved by the FDA, this could be welcome news to the people who are at the receiving end of second-hand smoke which causes a variety of diseases.

These three products represent for the firm $1 billion opportunities of the target market segment they are aiming for, according to company press releases.

Using its technology to regulate nicotine levels in tobacco plants, the company is also working with Anandia to come up with Cannabis varieties that they said would give a more potent form of cannabinoids for use in the medical industry. Increasing potency would aid in improving production efficiency and lower costs. The Cannabis market is estimated to be worth over $30 billion in the US.

Market spread and delivery

Growing the plant and creating the products are half the challenge. Does the company have the distribution channel and mechanism to bring them to their target market?

To gain access to more wholesalers and retailers that carry only Master Settlement Agreement (MSA) brands, in September 2014 the company became a signatory to the US Tobacco Master Settlement Agreement.

They also signed a worldwide research license agreement in October 2013 granting British American Tobacco (BAT) access to their technology. BAT’s presence in 180 countries means wider market reach for their products as well.

The firm also forged a consulting agreement with Crede Capital Group to advise on how to venture into new markets in Asia and China. Crede also invested $10 million in the company.

With good execution, these collaborations can potentially secure for them a wider market and more efficient delivery of their products.

Future outlook

Using biotechnology, the company aims to diversify its product lines in order to cater to the booming luxury market and the growing market that puts a premium on health and wellness.

Despite the possibility of their cessation aid products luring away smokers to eventually be non-smokers, the multi-billion dollar tobacco industry might still stand to profit. If their modified risk products get the nod of approval from the FDA, these new brands — with less nicotine or less smoke — could in fact create and sustain a new market out of people seeking both the smoking experience and a healthy lifestyle.

Their plans to conquer the luxury as well as health and wellness markets through biotechnology can be viewed as a strategic move as they venture into the stock market.

According to Bloomberg, the company’s loss of $6.7 million had grown to an even bigger loss of $26.2 million by December 2013, despite increased revenues from $18.8K to $7.3 million. In the same report, it says that the company has a strong balance sheet, that it has grown its cash reserves between 2010 and 2013 to as much as $5.8 million. It also highlighted that the company as among the most efficient in managing inventories. It has only 1,042.34 days of its Cost of Goods sold tied up in inventory.

With its price closing at $2.13 on the NYSE, the 22nd Century Group is an interesting company to watch.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group, a global financial media company with divisions in Corporate Communications, Publications and Conferences.

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Anatomy of a real estate crowdfunding transaction 

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