1 THE RISE OF CROWDFUNDING Threats and Opportunities for the Global Wealth Management Industry Report Extract Original Report with 159 pages October 2015 MyPrivateBanking Report
THE RISE OF CROWDFUNDING 2 CONTENTS TABLE OF CHARTS 5 1.0 EXECUTIVE SUMMARY 6 2.0 METHODOLOGY 10 2.1 CROWDFUND PROFILES 10 2.2 CROWDFUNDING: A THREE-WAY TYPOLOGY 12 2.3 APPROACH TO CROWDFUNDING INTERNET PRESENCES 13 2.4 MARKET SIZE ESTIMATES 13 2.5 INVESTOR PERSONAS 14 2.6 CROWDFUNDING GLOSSARY TERMINOLOGY 14 3.0 THE CROWDFUNDING MARKET HAS THE POTENTIAL TO GROW TO $1 TRILLION WITHIN 10 YEARS; LET S LOOK AT WHAT THIS MEANS FOR WEALTH MANAGERS 17 3.1 INTRODUCTION 17 3.2 THE GLOBAL SCOPE OF THE CROWDFUNDING SECTOR 18 3.3 DONATION AND REWARD-BASED CROWDFUNDING 21 3.4 MARKETPLACE LENDING 23 3.5 P2B LENDING 24 3.6 EQUITY CROWDINVESTING 25 3.7 MEASUREMENTS OF CROWDFUNDING SUCCESS 28 3.8 CROWDFUNDING S PLACE IN THE VENTURE CAPITAL INDUSTRY AND ITS IMPORTANCE TO ENTREPRENEURS 33 3.9 CROWDFUNDING AND GEOGRAPHY 36 3.10 COMPLEXITY IN CROWDFUNDING BUSINESSES 37 3.11 MARKET RISKS RELATED TO CROWDFUNDING 38 3.12 PRIVATE BANKS AND WEALTH MANAGEMENT FIRMS CURRENT INVOLVEMENT IN CROWDFUNDING 39
THE RISE OF CROWDFUNDING 3 4.0 WEALTH MANAGEMENT STRATEGIES IN CROWDFUNDING 40 4.1 CROWD FUNDING STRATEGIES FOR WEALTH MANAGERS: UNDERSTAND, PARTNER, INVEST 40 4.2 CROWDFUNDING PERSONAS 42 4.3 APPLYING PERSONAS AS INDICATORS FOR A RELEVANT CROWDFUNDING STRATEGY 44 4.4 BASIC HYPOTHESES 45 4.5 THE MAIN STRATEGIC OPTIONS FOR WEALTH MANAGEMENT IN THE CROWDFUNDING ARENA 48 4.6 WEALTH MANAGEMENT STRATEGIES IN RELATION TO THE THREE MAIN TYPES OF CROWDFUNDING 49 4.7 CROWDFUNDING INFRASTRUCTURE THE PROVIDERS OF BEHIND THE SCENES INFORMATION AND SERVICES 61 4.8 CROWDFUNDING AND SECONDARY MARKETS 62 4.9 FUTURE IMPROVEMENTS IN CROWDFUNDING 64 5.0 THE CROWDFUNDING TECHNOLOGY CHOICE: MAKE, BUY OR PARTNER 65 5.1 BECOMING AN AGGREGATOR 67 5.2 CROWDFUNDING AUTONOMY/A D-I-Y APPROACH 67 5.3 APPLICATION PROGRAMMING INTERFACES (API) 68 6.0 WEALTH MANAGEMENT & CROWDFUNDING: RECOMMENDATIONS 70 7.0 DONATION AND/OR REWARD-BASED CROWDFUND PLATFORM PROFILES 76 7.1 KICKSTARTER 76 7.2 MITEINANDER ERFOLGREICH ( SUCCESSFUL TOGETHER ) 81 7.3 ULULE 86 8.0 MARKETPLACE LENDING PLATFORM PROFILES 90 8.1 FUNDING CIRCLE 90 8.2 LENDING CLUB 95
THE RISE OF CROWDFUNDING 4 9.0 EQUITY CROWDINVESTING PROFILES 100 9.1 CIRCLEUP 100 9.2 COMPANISTO 105 9.3 CROWDCUBE 111 9.4 EMERGING CROWD 117 9.5 EUREECA 121 9.6 INVESTIERE 126 9.7 MICROVENTURES 131 9.8 OURCROWD 135 9.9 SHEKRA 141 10.0 SERVICE PROVIDERS PROFILES 145 10.1 CROWDENGINE 145 10.2 ORCHARD PLATFORM 149 10.3 PROFILE SOFTWARE S FMS.NEXT P2P LENDING PLATFORM 152 11.0 AUTHORS 156 12.0 APPENDIX 157 13.0 DISCLAIMER 159 IMPORTANT NOTICE AND DISCLAIMERS: 159
THE RISE OF CROWDFUNDING 5 TABLE OF CHARTS Bursting out of financial constraints; a frame from the first TV ad by dotmogo for Funding Circle, the UK/US business lending platform, in late 2014... 18 MyPrivateBanking prognosis of crowdfunding volumes... 19 Ulule projects... 22 Ulule: the trend in donations, from the platform s own Stats page... 22 Kickstarter s failure statistics... 28 Funding Circle UK, bad debt (annualized, current and forecast) by Funding Circle s own risk categories in August 2015... 30 Investment opportunities countdown to successful funding on the Syndicate Room home page... 31 Utrecht s iconic 112m high cathedral tower... 49 Alternativa.fr s secondary market interface... 63 Increasing a crowdfunder s reach: API how to information on the Ulule website... 68 Be on the lookout for crowdfunders in your space... 71 Vox, the Ulule forum for discussions, provides expert advice, as seen here, plus discussion and comment by project creators and users.... 86 From the Investing your money page of the Crowdcube website... 111 A Crowdcube equity fundraising pitch page... 114 A capital raisers promotional video on the Emerging Crowd platform... 118 News of successful financings on the investiere blog... 126 OurCrowd s invitation to hedge funds, family offices, venture funds and corporate investment departments... 135 The Orchard Lendscape... 150
THE RISE OF CROWDFUNDING 6 EXTRACT OF EXECUTIVE SUMMARY (Executive Summary in full report) Crowdfunding: a Major Threat to the Global Wealth Management Industry Despite the explosive growth and potentially disruptive impacts of crowdfunding on private banks and wealth management companies, interest in crowdfunding on the part of the wealth management industry has remained very low. This is one main finding of the MyPrivateBanking report Crowdfunding: Threats and Opportunities for the Global Wealth Management Industry, which estimates that the overall global crowdfunding market will reach $1 trillion by the year 2025. The MyPrivateBanking report defines and analyzes crowdfunding as the practice of funding a project or venture through many donations (typically small, but not exclusively) from a large number of people, usually raised via the Internet. The funding can be in the form of debt, equity or donations. For this report, MyPrivateBanking explored more than 50 crowdfunding platforms that are of strong relevance to the wealth management industry because of their innovative and unique features. Service providers and software vendors that are relevant in the crowdfunding space were also analyzed. Wealth managers fall behind competitors in grasping impact of crowdfunding The report states that each of the main manifestations of crowdfunding poses different challenges to the wealth management industry. These challenges range from opportunities for fresh approaches to philanthropy and sponsorship provided through donation and reward-based crowdfunding, to the possibility of turbo-charging the ability of cash to generate income in P2P lending and the potential for equity crowdinvesting to work as a new form of venture capital for wealth clients. In MyPrivateBanking s view, wealth management companies have taken false comfort from crowdfunding s reputation for democratizing finance, failing to bear in mind that democratization can provide the wealthy with new options, too; less exclusive ones, yes, but also more profitable or cost effective ones. Although other players in the investment industry, such as brokers and funds, and the family offices show a keen interest in crowdfunding developments, the MyPrivateBanking report finds scarce evidence of any general engagement on the part of private banks and wealth managers. The possibilities and the dangers of crowdfunding for wealth managers may not have been spelled out but they are nonetheless real. As a consequence, MyPrivateBanking believes that wealth managers are in danger of misinterpreting the situation and see no immediate cause for concern. As the report shows, for example, in the US many equity crowdinvesting platforms target accredited investors (an individual with an income of $200K or more, or investable worth of over $1 million).
THE RISE OF CROWDFUNDING 7 Wealth managers can benefit from crowdfunding in various ways as long as they overcome their fear and aversion MyPrivateBanking sees the following as being the key reasons for the lack of direct involvement in crowdfunding by private banks or wealth management firms: Fear of cannibalization of their client base Fear of regulatory and reputational missteps An aversion to FinTech and crowdfunding in a conservative industry Conceptual difficulties that make it difficult to give marketplace lending and equity crowdinvesting space in a traditional asset allocation strategy A misconception that crowdfunding abolishes or claims to do away with the need for professional financial expertise MyPrivateBanking forecasts a substantial and increasingly disruptive potential for the wealth management industry and strongly recommends that private banks and wealth management companies take steps to craft a suitable response to crowdfunding to better serve their clients and protect, or even expand, their client recruitment prospects. The report details five strategic options each wealth manager has, with varying amounts of room to maneuver or mix. 1. Hand-holding for clients who wish to engage in crowdfunding personally 2. Crowdfunding commentary and analysis for clients, including basic education on the topic e.g. helping clients appreciate the illiquidity of crowdfunding 3. Fulfilling an investment advisory (discretionary) role for clients in relation to one or more of the main crowdfunding asset classes 4. Partnering with selected crowdfunding platforms or taking a minority stake in a crowdfunding platform 5. Creating the wealth manager s own platform MyPrivateBankings regards the dynamic, interactive and confident way in which crowdfunding platforms are able to benefit from their digital relationship with individual members of their particular crowd as a central component of crowdfunding. In consequence, the rise of crowdfunding might not only take away substantial assets under management from the wealth management industry; even more threatening is crowdfunders ability to also steal the hearts and minds of wealthy investors. In-depth Profiles of Crowdfunding Platforms in the report: CircleUp, Companisto, Crowdcube, Emerging Crowd, Eureeca, Funding Circle, Investiere, Kickstarter, Lending Club, Microventures, Miteinander Erfolgreich, Ourcrowd, Shekra, Ulule. In-depth Profiles of Service Providers and Technology Vendors for Crowdfunding Services in the report: Crowdengine, Orchard Platform, Profile Software s FMS.next P2P Lending solution
THE RISE OF CROWDFUNDING 8 Other platforms and providers that are mentioned in the report: Alternativa.fr, Bankless24, Bondora, Cashare, Daily Deed, DealGlobe, EquityNet, Fuer-Gruender.de, Fundme Securities, Indiegogo, ifunding, InvestX, Kapipal, MyMicroInvest, OneVest, Prosper, Raizers, Ratesetter, Seedrs, Smava, Snowball Effect, SquareKnot, StartNext, Syndicate-Room, TexasNetworks.com, TexasTruCrowd, Zopa.
THE RISE OF CROWDFUNDING 9 2.0 METHODOLOGY In this chapter, we ll briefly set out MyPrivateBanking s approach to researching the crowdfunding sector for this report to and at the same time provide a bird s eye view of the main components of the topic as our analysts see them at the current time. ( more in full report page 10 to 16)
THE RISE OF CROWDFUNDING 10 3.0 THE CROWDFUNDING MARKET HAS THE POTENTIAL TO GROW TO $1 TRILLION WITHIN 10 YEARS; LET S LOOK AT WHAT THIS MEANS FOR WEALTH MANAGERS 3.1 INTRODUCTION Although there has been little acknowledgment from the wealth management industry, the rise in crowdfunding in recent years has been remarkable. In this chapter, we begin by looking at the recent growth of crowdfunding overall, the current situation and likely growth from hereon. ( more in full report page 17 to 39)
THE RISE OF CROWDFUNDING 11 4.0 WEALTH MANAGEMENT STRATEGIES IN CROWDFUNDING ( more in full report page 40 to 64)
THE RISE OF CROWDFUNDING 12 5.0 THE CROWDFUNDING TECHNOLOGY CHOICE: MAKE, BUY OR PARTNER ( more in full report page 65 to 69)
THE RISE OF CROWDFUNDING 13 6.0 WEALTH MANAGEMENT & CROWDFUNDING: RECOMMENDATIONS ( more in full report page 70 to 75)
THE RISE OF CROWDFUNDING 14 7.0 DONATION AND/OR REWARD-BASED CROWDFUND PLATFORM PROFILES ( more in full report page 76 to 89)
THE RISE OF CROWDFUNDING 15 8.0 MARKETPLACE LENDING PLATFORM PROFILES ( more in full report page 90 to 99)
THE RISE OF CROWDFUNDING 16 9.0 EQUITY CROWDINVESTING PROFILES ( more in full report page 100 to 144)
THE RISE OF CROWDFUNDING 17 10.0 SERVICE PROVIDERS PROFILES ( more in full report page 145 to 155)
THE RISE OF CROWDFUNDING 18 11.0 AUTHORS Francis Groves, Senior Analyst, is a senior analyst for the research on vendors, mobile apps and online services. His specific research interest is communication and understanding in relation to finance topics and investor motivation. He has over 30 years of experience in the field of online business information, having worked for Reuters, the Financial Times and LexisNexis. Francis speaks at conferences and events and has published several books and articles. Among them 'Corporate Actions, A Concise Guide' and 'Exchange Traded Funds, A Concise Guide to ETFs'. Francis has a degree in History, which he studied at the London School of Economics. Steffen Binder, Research Director and co-founder of MyPrivateBanking Research. Steffen is Head of Research and oversees the research agenda and analyst teams. He is responsible for creating and developing powerful concepts and relevant content to help our clients navigate a rapidly changing digital environment. As a regular speaker at finance and technology industry events around the globe, Steffen is frequently quoted by leading business media such as the Wall Street Journal, Handelsblatt and the Financial Times. Prior to this, Steffen was Managing Director of Forrester Germany, Switzerland and Austria. He came to Forrester through its acquisition of Forit GmbH, a leading European technology research company, of which he was also a co-founder. Prior to that, Steffen was a partner at Monitor Company (Strategy Consulting). He holds Master s Degrees in Organizational Behavior from Rutgers University (USA) and in Public Administration from the University of Konstanz (Germany).
THE RISE OF CROWDFUNDING 19 12.0 APPENDIX In addition to profiling 17 companies (14 crowdfunding platforms plus 3 providers of other services), this report includes mentions or, in a few cases, more in-depth coverage of the following companies: Crowdfunding platforms Alternativa.fr Bankless24 Bondora Cashare Daily Deed DealGlobe EquityNet Fuer -Gruender.de Fundme Securities Indiegogo ifunding InvestX Kapipal (part of Grow VC Group) MyMicroInvest OneVest Prosper Raizers Ratesetter Seedrs Smava Snowball Effect SquareKnot StartNext Syndicate-Room TexasNetworks.com TexasTruCrowd Zopa
THE RISE OF CROWDFUNDING 20 Wealth management and banking institutions ABN AMRO Private Banking BNP Paribas (and BNP Paribas Fortis) Brownson, Rehmus and Foxworth Coutts Fidor Bank Goldman Sachs JP Morgan Private Bank Keytrade Morgan Stanley Pictet Royal Bank of Scotland Santander Silicon Valley Bank Societe Generale Private Banking U.S. Trust Crowdfund aggregators Businessagent.com DarcMatter DealIndex (part of Grow VC Group) Investup Nurturemoney.com Fund and asset management Blackstone Carlyle Group Colchis Capital Marshall Wace NSR (formerly Nickel Steamroller) Ranger Capital River North Technology Providers Crowdfund Connect CrowdfundHQ Launcht Tilt/OPEN
THE RISE OF CROWDFUNDING 21 13.0 DISCLAIMER IMPORTANT NOTICE AND DISCLAIMERS: No Investment Advice This report is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This report is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this report will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this report may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Disclaimers There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this report. MyPrivateBanking GmbH will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this report, caused in whole or in part by its negligence in compiling, interpreting, reporting or delivering the content in this report. Copyright MyPrivateBanking GmbH s Products are the property of MyPrivateBanking GmbH, Switzerland, and are protected by Swiss and international copyright law and other intellectual property laws. Customers are prohibited to copy, forward or store MyPrivateBanking Products outside of the legal entity that has made the purchase. MyPrivateBanking GmbH Hafenstrasse 50B CH-8280 Kreuzlingen, Switzerland Tel. +41 71 566 10 05 For our latest reports please check: http://www.myprivatebanking.com/category/reports