As one year comes to end it is a good opportunity to reflect on past events. The preceding 12 months have been a momentous period for internet finance including capital formation online. Fintech started as a curiosity that engendered much excitement – and fear for some. Disruptive finance is now quickly becoming mainstream as all finance migrates online to be managed, monitored and leveraged for all types of services. We expect more of the same with some twists for 2017 but today we are reviewing some of the larger stories that occurred during the last year. Below is a small selection of some of the top stories published on Crowdfund Insider during 2016.
This is a big win for the entire US crowdfunding industry.
Gust founder David Rose took the gloves off and went to war against a patent troll and won. AlphaCap Ventures, a company created to defend a spurious patent on crowdfunding, not only lost the case but was assessed attorneys fees and court costs. Ouch. Kudos to Gust. The entire crowdfunding industry owes you a debt of gratitude (drinks on us in 2017).
This was actually a series of articles as uFundingPortal filed numerous, questionable Reg CF offers only to disappear from the ranks of approved platforms in November.
FINRA later clarified why uFundingPortal got the proverbial ax. The expulsion came as no surprise to many industry participants and now stands as a point of caution for other regulated crowdfunding portals.
First proposed on the pages of Crowdfund Insider, the Small Business Advocate will now play a role in advocating on behalf of all small businesses within the halls of the SEC.
Signed into law by President Obama as part of a flurry of last-minute acts of legislation that had broad bi-partisan support, contingent upon the person who holds the office – this could be a turning point in defending the needs of SMEs. Too frequently the SEC has addressed the issues surrounding the largest companies to the detriment of smaller firms. The Small Business Advocate will now be in a position to assist the true engines of the US economy – SMEs (and that is good for us all).
The UK has been lauded as the gold-standard in crafting a forward-thinking regulatory approach when it comes to internet finance. The interim report indicates that additional rules are on the way. Depending on how it all shakes out, the UK may continue its reign as the Fintech capitol. More in the coming months.
Big news in a not so positive way.
As the online lending industry struggled to regain its footing after a tumultuous year, DealStruck saw its funding channel dry up and thus was compelled to close its doors. A shudder went through the entire online lending sector.
Anticipated for quite some time, the second largest rewards-based platform pushed into equity crowdfunding in a partnership with MicroVentures. Indiegogo’s move was viewed as further validation of the new form of online capital formation. The first four deals listed on the platform quickly hit their funding targets as Indiegogo predicted rapid growth in 2017.
The election of Donald Trump as President will have a profound impact across all manners of policy. Fintech may benefit from his opinion that excessive regulation has stifled economic growth harming business (both large and small) and consumers alike. With the change in government 2017 is poised to be an interesting year.
France displayed a very encouraging ability to work with the emerging investment crowdfunding industry by listening to the advice of industry participants. The increase in the funding cap came 2 years after the first French regulations were revealed. US policy makers could learn something by this relatively quick action in improving access to capital and thus helping boost the nascent industry.
The insurance industry is an old lumbering giant that is in dire need of an update and a tech refresh. It is finally happening with entrants like Lemonade and Metromile. More to follow.
The UK Financial Conduct Authority and Cambridge Centre for Alternative Finance (CCAF) Collaborate on Regulatory Review
CCAF has been a leader in global Fintech research with its regional reports on the rise of intenet finance. The fact they are working with a government agency in a regulatory review is not only a “first” but should help provide some balance in the final outcome of forthcoming rule changes.
The National Crowdfunding Association of Canada (NCFA) hammered the country’s regulatory approach to internet finance in a strongly worded letter to the Alberta Securities Commission. Earlier in the year, one prominent industry participant labeled the Canadian regulatory environment a “mess.” It appears the constructive criticism is having an effect as Ontario has acknowledged that Fintech demands a new approach.
At least they are being honest. The EU admitted that harmonized investment crowdfunding rules just weren’t going to happen.
Transparency is paramount in the emerging investment crowdfunding sector. Publishing honest and understandable return estimates are something every platform should eventually provide for investors. Seedrs published a report that was created with the assistance of Ernst & Young thus increasing the credibility of the numbers. Hopefully, other platforms will eventually follow suit.
China is the largest online lending market in the world. The industry rose to prominence as borrowers needed access to capital and the state-based banks were ill-equipped to provide it. The rapid growth was matched by rampant fraud as too many investors were fleeced and platforms failed. The new rules may bring a semblance of order to the huge Chinese internet finance sector.
CCA and several other platforms like NextGen have published reports on a rolling basis of the emerging Reg CF securities crowdfunding industry. The first CCA report showed a “healthy start” allaying fears that Reg CF wouldn’t generate significant momentum out of the gate.
Fundrise, the first real estate crowdfunding platform to launch in the US, revamped their model as an issuer of eREITs using the updated securities exemption Reg A+. And it is working too. Fundrise now has 5 different eREITs seeking $50 Million from investors. The first two have sold out.
Perennial crowdfunding company BrewDog is setting up shop in the US. The craft brewer has selected Columbus, Ohio as the location for their first international brewery. As part of the expansion, BrewDog is offering US investors the chance to own shares, along with some perks, in the iconoclastic company. While the EquityforPunks offer is not doing as well as the UK version, thousands of US investors have indicated their interest in owning shares in BrewDog USA.
The craft brewer has selected Columbus, Ohio as the location for their first international brewery. As part of the expansion, BrewDog is offering US investors the chance to own shares, along with some perks, in the iconoclastic company. While the EquityforPunks offer is not doing as well as the UK version, thousands of US investors have indicated their interest in owning shares in BrewDog USA.
The Asian economic powerhouse of Singapore has decided the Fintech is of strategic importance to their economy. Once they figured that out the country launched multiple initiatives to power their resolve to become the Asian capital of Fintech. And perhaps the world.
If investment crowdfunding is to be successful investors need to generate solid returns. AngelList, ostensibly the largest investment crowdfunding platform in the world, helped to accomplish just that. Dollar Shave Club, a company that raised capital via an AngelList syndicate, sold to Unilever for $1 billion. Early investors in Dollar Shave Club rejoiced.
Additionally, AngelList disclosed that from 2013 to 2015 the platform generated an estimated IRR of 45% after fees and carry. That’s pretty awesome.
As many online lenders retrenched, the most prominent investment bank in the world shunned partnerships and launched their own online lending platform.
Dog fooding equity crowdfunding platform Crowdcube launched an offer for a stake in their company that hurdled the €5 million mark. Part funding round and part proof of concept, the UK-based Crowdcube proved that issuers could raise more than the mandated limit by filing a prospectus. Expect other companies to follow.
The UK’s decision to depart the European Union shook the world. While most UK Fintech participants adamantly supported Bremain – others believed it was a good thing. The country is now doing its best to remain the entrepreneurial capital of Europe. The Jury remains out on the final economic impact.
After years bureaucratic delay, the SEC finally allows investment crowdfunding to take place under Title III of the JOBS Act of 2012, now referred to as Reg CF. While deemed viable, most industry participants pointed to profound shortcomings in the final rules.
Former Lending Club CEO and founder Renaud Laplanche departed the largest marketplace lending club under a cloud of controversy. Viewed as an iconic leader of a sector of finance that he helped to create, the entire online lending industry suffered as investors ran for the door.
US Regulators Decide it is Time to Better Understand Online Lending Causing Fear of More Regulations
The US has created the most convoluted and confusing financial regulatory system in the world. It is not just the cornucopia of federal agencies that have a stake in the game. Each and every state needs to justify their import as well. Every time a bureaucracy says we are from the government and we are here to help private industry shudders with fear – even more so when it comes to financial services. Unfortunately, the cost of regulatory overreach is ultimately born by the consumer.
NextSeed was the first funding portal to receive FINRA regulatory approval. Previously active in the intrastate crowdfunding arena (Texas), NextSeed helped to usher in a new era of investment crowdfunding with its debt focused platform.
The Fix Crowdfunding Act, created by Congressman Patrick McHenry, sought to address many of the incumbent issues of Reg CF. Unfortunately, by the time the bill hit the House floor, it was largely gutted as timid House Representatives fumbled an opportunity to improve on the exemption.
Global investment crowdfunding platform OurCrowd registered its 5th exit in the spring of 2016 as Replay Technologies was scooped up by Intel. Mark Cuban was an investor in the company. Since that date, it has tallied five more. While not disclosing exact returns to investors, OurCrowd is very happy with the results generated by their platform.
While not disclosing exact returns to investors, OurCrowd is very happy with the results generated by their platform.
Mondo schooled the crowdfunding world in how to raise money online super fast. The digital challenger bank raised £1 million in 96 seconds on Crowdcube. If you blinked, you missed out.
The Second Largest Rewards-Based Crowdfunding Campaign of All Time, Coolest Cooler, is No Longer Cool
Coolest Cooler raised an astounding $13 million on Kickstarter several years back. The money ended up not being enough to fully fund the project and deliver on promised rewards to backers. Besides leaving thousands of supporters disgruntled, the project delivered a painful black eye to the rewards sector of crowdfunding.
Fintech, or financial services innovation, has grown rapidly in the past several years. One recent report published by consulting groups KPMG and CBInsights stated this growth is slowing. Other reports have countered this sentiment. A report by Innovate Finance released in the fall said Fintech growth continues to boom. So which is it? Regardless of quarterly variations, Fintech growth will continue unabated (Just our $0.02).
Orchard Platform, the fulcrum of online lending, nailed it in early 2016 when they stated things were going to be different for the sector of finance as opposed to previous years. They probably had no idea at the time, how right they were.