The speakers also included Daniela Castrataro, co-founder of ICN (the Italian Crowdfunding Network), Claudio Bedino, CEO and founder of Starteed.com, and Virginia Carolfi, the co-founder of GINGER, a new crowdfunding platform for the Emilia Romagna region.

With Italy’s financial regulator, CONSOB, in many ways taking the lead in Europe on crowdfunding regulations with its Decreto Crescita (‘Growth Decree’), we have seen the emergence of many different online funding marketplaces that aim to facilitate crowdfunding by using the new exemptions.

The attendees in Imola were in part optimistic and in part sceptical of the likely effectiveness of the new regulations. As the European Crowdfunding Network explains:

One provision of the CONSOB draft regulation requires, as a condition precedent to commence the online offer, a 5% subscription of the share capital to be made by a financial investor. The reason behind this decision is the need to have at least one investor to professionally evaluate the business and the investment, in order to protect the other shareholders’ investment (i.e. those coming from the “crowd”).

Paul’s presentation focused on the importance of situating crowdfunding platforms within the connected financial ecosystems in which they must take part. For instance, since Italy lacks a substantial internal venture capital market there must be a consideration for follow-on rounds, and so the condition to require an institutional investor to take part in a crowdfunding round might be a sensible addition.

This type of co-investment model also reflects several investment marketplaces that we see around the world that have the cooperation of larger (active or passive) funders built in to the platforms from the start.

A further condition in CONSOB’s proposed roles is that the startup looking for investment through a crowdfunding platform must qualify as ‘innovative’, which requires the startup to register with the Italian Chamber of Commerce to confirm that it has invested in research and development activities, for example. At the time of writing we understand that there are around 830 such startups that have registered, although not all of them have necessarily done so with crowdfunding in mind, as this status also affords other administrative benefits.

Some attendees expressed some frustration at this limited pool of qualified companies, especially given the importance placed by investment advisors and family offices on their proprietary deal-flow and selection process.

In our view it is often prudent to start step-by-step whether in regulations or in actually operating a crowdfunding platform, and starting with some firm foundations that are within a comfort zone will always leave open the option to broaden the criteria later on, should that be worthwhile.

You can see Paul’s presentation ‘Crowdfunding negli eco-sistemi connessi‘ (‘Crowdfunding in connected ecosystems’) on SlideShare here:

English: Taken by Neutronic (Photo credit: Wikipedia)

“In one way or another, power to the people is just beginning. Say hello to the democratization of energy.”

Ernst &Young, Renewable Energy Country attractiveness index, May 2013

The industrial revolution originated a centralized model of electricity generation and distribution. Worldwide 93% of all electricity is still supplied this way and every year billions of tons (in oil equivalent) of fossil fuels such as oil, gas and coal are burned in large thermal power stations, transmitting the generated energy via the power grid to the consumers. It is a very inefficient system as it wastes two thirds of the primary energy input; as a result, the electricity and heat sector currently accounts for 41% of the worldwide greenhouse gas emissions. This is a large contributing factor to climate change, whose adverse effects are becoming more and more evident. In addition, 1.2 billion people around the world still are living in energy poverty, having no access to electricity at all.

The 21^st century has provided us with effective means to address such challenges. Renewable energy solutions have matured and are now offering cost-effective alternatives to a centralized system reliant on fossil fuels. Solar power, for example, has now reached grid parity in many countries, meaning that it costs the same as electricity from the power grid. Naturally, renewable energy technology is more decentralized and provides higher supply security as faults can’t easily cascade. In addition it reduces water consumption, as there is no need for cooling towers. So there is a strong business case for sustainable, decentralized energy systems. But the necessary transition will require investments on a massive scale. The International Energy Agency (IEA) estimates that the renewal of the entire energy system worldwide will require $37 trillion for energy supply infrastructure and $6.4 trillion for investment in renewables by 2035[1].

Governments with their constraint budgets are unlikely to provide those funds, so the largest portion needs to come from private capital. Traditional capital markets with their long supply chains and requirements for large deal size are not an efficient mechanism for financing such an energy revolution.

Decentralized energy installations are typically small in size and involve different stakeholders to those in traditional energy markets. So new ownership models and a decentralized finance solution are needed, which is exactly what crowdfunding has to offer.

Community-based decentralized renewable energy generation financed by a large number of small investors is not a new concept and there are currently hundreds of projects around the world under development. Germany is widely recognized as a leader in this field; in fact Germany’s energy-transition (“Energiewende”) was to a large extent enabled by “energy cooperatives” leveraging 800 million euros in investments from more than 80,000 private citizens[2].

Crowdfunding is the evolution of such a cooperative finance model. Facilitating the investment process via a collaborative internet-based system with great potential for scalability can offer an accelerated deployment of decentralized renewable energy. Crowdfunding is already beginning to offer individual investors great opportunities to invest directly in a transparent and efficient way into renewable energy projects or cleantech startups. The environmental and often affiliated social impact of such projects is measurable and gives people the opportunity to cast a vote with their money for the world they want to see.

The transition to such a sustainable finance model will not happen overnight, but in time crowdfunding will generate the billions of dollars that institutional or corporate developers now provide. The merger of democratized energy with a democratized finance system such as crowdfunding presents the solution to one of the greatest challenges mankind is facing at the moment: giving access to power to everyone on the planet without destroying it in the process.

European flag outside the Commission (Photo credit: Wikipedia)

Crowd Valley has been invited to advise the European Commission on a regulatory policy and a framework for stimulating growth in the small- to medium-sized enterprise sector (SMEs). Markus from the Crowd Valley team will appear before the European Commission on Monday in Brussels to share his views on the need for a uniform market in Europe and how to improve conditions for SME-led innovation, growth and resourcing.

In many important respects, particularly with regard to securities regulation in relation to crowdfunding, Europe remains highly fragmented.  Even with our experience, it remains extremely difficult to navigate the various regulatory regimes in Europe; we suspect that, for an SME, doing so might be nearly impossible.   Unification of the crowdfunding market across Europe could create one of the world’s largest markets and help leverage the power of the Internet to move capital and create jobs.

State of Seed-Stage and SME finance in Europe

Financial support for early stage companies that represent a large portion of innovation and job growth across the global (GEM, 2011) has been dismal in the whole of Europe. Venture Capital funds have invested only 3-4% of all their investments into seed-stage deals, while total VC investments have decreased 45% since the start of the financial crisis (EVCA, 2012). Part of this decrease is likely due to the structural challenges faced by the VC market, particularly its continued reliance on the public sector since the start of the financial crisis. Private placements are an increasingly small part of the entire venture sector’s investments, where the majority of capital originates from public sources through government agencies like the European Investment Fund (EIF). The EIF’s intervention is a conscious choice, but the repercussions of the lessened private capital may be unforeseeable. Public capital has been coupled with lesser efficiency than that of private capital, which may amplify structural issues. Despite the fact that the Eurozone’s GDP is roughly $2 trillion (or roughly 12%) larger than that of the United States, the market for business angel investments is 80% smaller in the Euro zone than in the United States ($5 billion vs $20 billion) . This, coupled with the inability or unwillingness of VC funds to make sub 1M€ investments, creates a real gap in seed-stage investments for SMEs. We believe that crowdfunding can help fill this gap. Furthermore, there is capital inflow into Europe possibly due to deflated price levels and a positive long term outlook from outside the continent, such as from the Middle East and Asia. This is true for many sectors, including in limited significance the startup and SME sector, but also for example real estate properties in high value locations. If SMEs can gain access to seed capital, such opportunities can result in real growth for the continent.

It’s also worth noting that SME’s in Europe account for over 99% of all European businesses. As in the US, these companies are also responsible for net employment increase, innovation and research and development across the market. Out of the 99% SME’s, 9 out of 10 is considered a micro company, employing under 10 people (EC, 2010).  This further reinforces the impact and importance of the seed stage even in macroeconomic terms.

Prospectus ‘Passporting’ as a Benchmark

The European Prospectus Directive (Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003) was enacted to facilitate the use of one prospectus for offers and sales of securities to the public and admissions to trading in more than one member state in an efficient and purposeful manner. Article 17 of the Prospectus Directive states that a prospectus (and its supplements), if approved by the competent authority of the home member state, is valid for public offers and admissions in any number of host member states.

London Stock Exchange Tower from street level, May 2007 (Photo credit: Wikipedia)

The process of passporting out of a home country has proven to be a valuable part of the regulated financial markets in the fragmented financial market within Europe. Furthermore, with respect to unregistered offerings to sophisticated investors, such as angel and private deals, the regulatory landscape is generally thought to be much more conducive and uniform, leading to more cross border and international fund raisings. Crowdfunding and the facilitation of securities via new online models must evolve to allow for cross border fundraising in order to facilitate the type of deal and capital flow to make the market viable, both for capital raising and for growth of the relevant SME’s. Issuers simply do not have the time or the sophistication to understand and follow 27 different regulatory regimes.

Conclusion and Consideration

It is therefore suggested that the already functional processes and best processes of Passporting of Prospectuses be studied and evaluated as to lightening requirements and making available exemptions in order to facilitate capital offerings cross national lines. We believe creating a robust, but fair framework for unregistered offerings such as crowdfunding will support innovation, job growth and the unification of the world’s largest market.

Some of the most intriguing discussions that ensued involved entrepreneurs running companies with significant intellectual property behind them in sectors such as biomedical technology, which require significantly more capital than a typical early-stage startup.

As we see more and more Crowd Valley customers operating crowdfunding platforms or peer-to-peer investment marketplaces in niche industries, it is interesting to think about the role of these platforms for companies whose most important concern is to protect the privacy of their technology assets.

There are usually three points during a crowdfunding process at which an entrepreneur would submit information about the company:

1. When applying to join a crowdfunding platform, to help the network operator decide whether to allow your listing on their site;
2. When completing one’s profile, to help potential investors understand one’s proposition; or
3. When going through due diligence, to help potential investors make a final decision.

The range and depth of information required increase at each step, so entrepreneurs should expect to provide more data during due diligence than they do when initially applying to join the platform.

For an entrepreneur of a high-tech company looking at crowd-based investment, the concerns about sharing critical information publicly are understandable. But due diligence during the closing process of a crowdfunding round is not necessarily very different from due diligence from a more traditional angel or venture round. If your investors would expect to see certain information before they invest directly then they will most likely expect to see the same information when investing through a crowdfunding platform.

However, entrepreneurs can reduce this risk by choosing the right platform for their funding round, which focuses on their sector and attracts investors who will understand the proposition and concerns about sharing too much information.

You can see Paul’s full presentation on SlideShare here:

House for sale in Elson Road (Photo credit: Wikipedia)

Recently we wrote on a few structures of organizing a real estate transaction and crowdfunding platforms’ back-end operations. From our perspective of supporting several hundred peer to peer marketplaces, portals and online networks, we see a lot of action in the properties sector; the applications are vast.

Despite real estate being a commonly understood and relevant asset class, ownership of properties has long been locked with the responsibility of upkeep, maintenance and possibly development of said property. Crowdfunding may present a new paradigm in shared ownership and responsibility for properties in a sharing-oriented or distributed-actor economy.

There are several operating models and functions, but the two major parameters that can be identified are:

1. Security type, i.e. equity or debt transactions
2. Initial offerings or secondary transactions

Equity and debt models

Equity and debt transactions are both possible, as with the case of early or later phase companies, but both present different ways of structuring the deal for its stakeholders. Debt transactions may be simpler in implementation, as interest can be paid on the actual debt note. In some cases an upside is included with a debt transaction, where a property may be flipped and the profits distributed to the initial funders. In the case that an equity only model is used, a vehicle is often used to facilitate the transaction and profits are paid out upon the realization of the investment. For more information and details on the type of transactions, see our earlier post on structuring real estate crowdfunding.

As in any other model, the underlying goal of the transaction will ultimately determine the appropriate methodology. While there may be many reasons for raising capital, as with any other industry, certain best practices will emerge on the most efficient framework.

Purpose of the fundraise

Despite a nascent (online) market, there are already several spins on the underlying role for crowdfunding to play in the real estate sector. To highlight the diversity of the market, we want to give a few practical applications in this sector.

1. Initial raises to acquire a property
2. Owner occupied real estate

Initial raises

The most commonly applied model to the real estate sector is undoubtedly to raise capital in a more efficient manner, utilizing either an equity or debt model, to acquire a property with the aim of making a profit on the property. This profit and utility sought from the property can range all the way from renovating and flipping the property and distributing profits, to seeking to rent out the property to generate revenue on the property. While both models have parallels, their utility and characteristics are vastly different and will be applicable to different contexts.

Secondary offerings

There are several companies pioneering new models where occupancy and ownership of a property can be separated in a manner of (ideally) providing lesser risks associated with ownership of real estate, as well as diversification of a possible increase of value of the property. In practice in this model the person(s) residing in the property may not be the ones owning all or even part of the property. There are several possible auxiliary applications and development to make the housing market more accessible, as well as (one would hope) more secure as well as liquid.

Outlook

Access to large asset class as well as a local impact angle (e.g. supporting and having a say in what you want developed locally) and efficiency are often at the core of these endeavors. The crowdfunding market is in its infacy and applications will surely build upon realized success. Real estate presents a largely known asset class and many all over the world are looking to add transparency and efficiency to it with modern, online tools.

What is a no action letter and does it have the force of law?

A “no action letter” does not have the force of law.

An individual or entity who is not certain whether a particular product, service, or action would constitute a violation of the federal securities law may request a “no-action” letter from the SEC staff. Most no-action letters describe the request, analyze the particular facts and circumstances involved, discuss applicable laws and rules, and, if the staff grants the request for no action, concludes that the SEC staff would not recommend that the Commission take enforcement action against the requester based on the facts and representations described in the individual’s or entity’s original letter.

It is important to note, however, that these letters do not have the force of law and might, when tested in a court, be overturned or ignored when applied to a specific set of facts.

AngelList Letter

What are the services and the investment structures with respect to which AngelList sought no action relief?

There are two deal structures proposed by AngelList: “Angel Followed Deals” and “Angel Advised Deals”. Both deal structures start with forming AngelList Advisors (“Advisors”) and both envision a LLC or partnership under Advisors.

What is the timing around offering the investment opportunity, generating interest and closing the fundraising?

1. Each interested Investor will submit, through the platform, a non-binding request for information (“RFI”) to Advisors specifying the Portfolio Company about which the Investor is seeking information and the investment amount the Investor is considering.
2. In order to submit an RFI each Investor must:
   1. complete a detailed questionnaire certifying that he or she is an Accredited Investor, a qualified client, and if necessary, a qualified purchaser;
   2. wait at least thirty days from the time he or she submits the questionnaire before he or she closes on the investment;
   3. execute an agreement with Advisors acknowledging the terms of use of the AngelList platform and restrictions relevant to the terms of the Investor’s participation; and
   4. if relevant, provide AngelList with any supplemental information that may be necessary to identify the type of investments in which the Investor might wish to participate.
3. Each Investor will have the right withdraw an RFI at any time prior to the Investor’s binding agreement to invest in the Investment Vehicle.
4. Upon submission of an RFI, a potential Investor will receive the following information with respect to the Portfolio Company from Advisors electronically over Advisors platform:
   1. the private placement memorandum or similar offering document from the Portfolio Company;
   2. a supplemental memorandum that provides pertinent information about the Investment Vehicle, AngelList Advisors, the Lead Angel (if applicable), the general risks of investing in angel and venture companies, and conflicts of interest in connection with the Investment Vehicle; and
   3. any relevant addendum to the private placement memorandum reflecting the terms of the investment.
5. Advisors will not close on an Investment Vehicle for at least 3 business days following the later of the distribution of the supplemental memorandum or the addendum to the supplemental memorandum.
6. If Advisors receives a sufficient amount of investment interest (in the judgment of Advisors) to proceed with the investment, Advisors will close the Investment Vehicle and collect a Subscription Agreement from each participating Investor.
7. Advisors will be responsible for reviewing the completed Subscription Agreements and determining whether each potential Investor meets the applicable qualification criteria for the particular investment.
8. Upon acceptance by Advisors and the Portfolio Company of his Subscription Agreement, each Investor will be instructed to forward his capital contribution directly to a bank or other financial institution at which the Investment Vehicle maintains an account. Such funds will then be contributed to the Portfolio Company. Neither the Lead Angel nor Advisors will handle Investor funds or securities.

What are the important assumptions presented by AngelList and relied upon by the SEC staff?

• Advisors will be a registered investment adviser with the Commission or one or more states.
• Advisors will operate an internet-based platform that will be exclusively available to accredited investors.
• Investments in each Investment Vehicle will be offered and sold in compliance with Rule 506 of Regulation D. This means that, until the prohibition on general solicitation and advertising is lifted, there will be no “general solicitation or general advertising”.
• Advisors and any Lead Angel (if applicable), will receive compensation only in the form of carried interest and will not receive any transaction-based compensation. No officer, director or employee of Advisors or any Lead Angel will receive any transaction-based compensation in connection with interest in any Investment Vehicle or any Portfolio Company.
• Neither Advisors nor any Lead Angel will handle any customer funds or securities.
• Neither Advisors nor any Lead Angel will solicit Investors, aside from the website itself

Key takeaways from AngelList’s letter

• AngelList has referred customers to SecondMarket and seems to assume this will continue in the future.
• AngelList will select the Portfolio Companies and the Lead Angels.
• Recouping the costs incurred by Advisors in setting up the Investment Vehicle will not be considered transaction related compensation.
• The period between when an interested Investor requests an RFI and the close of any investment by that interested Investor must be at least 30 days. This is, in part, to avoid issues with general solicitation/advertising.
• Advisors will not:
  • Receive any transaction related compensation (only carried interest);
  • Participate in any negotiations between the Portfolio Companies and the Investors;
  • Directly assist Investors in completing a transaction;
  • Hold itself out as providing securities related services other than a listing or matching service.
• AngelList does not intend to carry out activities or provide services that would lead to the requirement to register as a broker-dealer.

FundersClub Letter

What are the services and the investment structures with respect to which FundersClub sought no action relief?

FundersClub Inc. (“FC Inc.”) is venture capital fund adviser that solely advises venture capital funds. FundersClub Management LLC (“FC Management”) is a wholly owned subsidiary of FC Inc. and is also a venture capital fund adviser. FC Inc. and PC Management identify and perform due diligence on start-ups for which FC Management may wish to form investment funds.

What is the timing around offering the investment opportunity, generating interest and closing the fundraising?

1. Start-up identified and diligenced by FC Inc. and FC Management.
2. FC Management enters into a non-binding term-sheet with the Portfolio Company with target amount of capital that would be invested.
3. FC Inc. then posts information about that Portfolio Company, provided by the Portfolio Company, on its thefundersclub.com website. The name of and information about a start-up company is available online only to FundersClub members who have already been qualified as accredited investors
4. FC Inc. members offer non-binding indications of interest.
5. FC Inc. provides those members who express indications of interest in an investment fund with standardized legal documentation through which they will invest in that investment fund.
6. When an investment fund reaches indications of interest sufficient to fund the target amount originally agreed upon between FC Inc . and the Portfolio Company (or if the company agrees to increase the target level of capital), then FC Inc. closes the indication of interest process.
7. FC Inc. then reconfirms the indication of interest with each member who has offered the indication of interest and reconfirms the accredited investor status of each of those members. Simultaneously, FC Inc. negotiates the final terms of the investment fund’s investment with the Portfolio Company.
8. FC Inc. obtains signed agreements from the members who had provided non-binding indications of interest concerning that investment fund, but until the investment fund closes (as discussed below), the members can withdraw their indications of interest without penalty at any time. When FC Management has reached a definitive agreement with the start-up company on the terms of the investment by the investment fund, FC Management then signs the limited liability company agreements with the investors and closes the transaction.
9. Investors in an investment fund provide funds for their investment in the investment fund directly or indirectly to a custody account. The custodian bank or trust company serves as custodian for the life of the investment fund.
10. An investment fund’s investment in a start-up company is funded directly from the custodian bank or trust company account to the account specified by the start-up company.
11. The custodian bank or trust company provides periodic statements for the investment fund directly to each of the fund investors, or indirectly through a fund administrator.

What are the important assumptions presented by FundersClub and relied upon by the SEC staff?

• FundersClub and FC Management are advisers solely to venture capital funds as defined in Rule 203(1)-( 1) under the Investment Advisers Act of 1940.
• FC Management’s management services include: exercising any rights negotiated with the start-up company; providing the start-up company with strategic advice and networking assistance; voting investment fund shares; offering or selling its securities in the start-up company; deciding on any tender offers; and winding up the investment funds.
• FundersClub and FC Management receive compensation (i.e., carried interest) for their services, the nature of which are traditional advisory and consulting services, and not transaction-based compensation.
• The officers, directors and employees of FundersClub and FC Management personally do not receive transaction-based compensation for their efforts in raising investments for the investment funds.
• Any portion of the administrative fee remaining in the custody account at the time a fund is wound up will be distributed to investors along with the other assets of the fund.
• Neither FundersClub nor FC Management is able to withdraw any deposited funds from the custody account for its own use, and while an investor’s funds will pass through an escrow account or similar account established for the benefit of the investor, the only permitted withdrawals from such account are either to an investment fund’s custody account to purchase fund interests for the investor or back to the investor if a proposed investment fund does not close.
• FC Inc. and FC Management do not handle customer funds or securities for the investment funds or the investors in the investment funds.

Key takeaways from FundersClub’s letter

• FundersClub stated that it expects to take between 20%-30% carried interest in any given investment.
• The focus here is on the ability of venture capital funds to bring their fundraising online.
• As with AngelList, FundersClub does not intend to carry out activities that would lead to the requirement to register with the SEC or FINRA as a broker-dealer.

Conclusions

Although the no action letters discussed above represent a small step forward in online investing, the letters also illustrate the limits of the current crowdfunding market. Both AngelList and FundersClub go a long way to avoid designation as a broker dealer and although the models are interesting for accredited investors, these “no action” letters likely represent just one step in the evolution of equity crowdfunding in the United States.

The panelists included :

- Nicholas Thomas, Founder and President at Fincity, Salt Lake City, UT
- Dave Milliken, Founder and CEO at Grofolio, Inc., Boulder, CO
- Benjamin Hadley, Managing Director and President, Latin America at Clicksco, Vail, CO
- James Dowd, Managing Director at North Capital, INC., San Francisco, CA
- Brian Korn at Pepper Hamilton LLP, New York, NY
- Bill Decker at Partners International, Inc., Denver, CO
- Paul Niederer, CEO at Australian Small Scale Offerings Board (ASSOB), Sydney, Australia
- Korstiaan Zandvliet, Managing Director at Symbid, Rotterdam, Netherlands

Watch the video in full on YouTube here.

But how does it actually work? What are investors actually buying? How and when is the money raised?

Green For Sale sign (Photo credit: Diana Parkhouse)

The answer to these questions is that there is no single answer. Processes will vary depending on the jurisdiction, the type of asset, the type of investment structure and the type of investors. We’ve set out a few of the questions and options below.

When is the money raised and when is the property purchased?

Although it would be preferable to raise funds based on a specific property, this seems unlikely to work for at least the first few properties that any Manager/Syndicator crowdfunds. In order to raise funds for a specific property, the Manager/Syndicator would either need to (1) purchase the property with cash and then raise the funds, or (2) somehow get a property under contract without a pre-approved mortgage or proof of sufficient funds and seek to raise the required amount between putting the property under contract and closing.

Option 1 entails a large capital commitment and increased risk.

Option 2 is unlikely to work in the absence of an extremely active and liquid investment community/market due to the timing given that the Manager/Syndicator would have approximately 30 days to raise the funds.

Another option is put the property under contract, agree to take out a mortgage with a 10%-20% down payment (as required), raise the funds and then either (1) decline to take out the mortgage (if the funds are raised before closing), or (2) pay off the mortgage with the funds once raised. As above, option 1 raises the risk profile. Option 2 may result in material additional costs and penalties, including prepayment of the mortgage.

Let’s look at the Timeline

The timeline below assumes that the Manager/Syndicator raises funds for the purchase of a property in a specific market (i.e. geographic location).

Days -60 through Day 0: Listing and Fundraising

1. Manager/Syndicator raises funds by providing information to potential accredited investors, including:

Buyer/Manager: credentials, experience, background checks

The total amount to be raised, based on property type;

• target amount, including:
• cost of property;
• renovations;
• other costs (e.g. closing costs); and
• if debt structure, interest rate and costs should be considered.
• Manager/Syndicator should consider contributing 10%-20% of the total amount raised

Duration of investment

• Fix and flip (potentially best for loan/debt structure); or
• Buy, hold, rent (potentially best for equity structure)

Potential return to investors (accredited investors only, for now!):

• Interest rate to be paid to investors (8%-10%); or
• Potential equity share including: target purchase price (range), target investment in property (renovation), target rental income (as applicable), length of holding and target sales price (range).

Details of potential property

• Market (upmarket or downmarket, finished or requiring heavy renovation)
• Geographic location

2. Funding process:

• Investors express non-binding interest in fund, including the amount they would like to invest.
• Once the total amount required is reached (or usually exceeded to allow some investors to pull out), investors execute investment agreement.
• Funding closed.
• Investors transfer money to account of Manager/Syndicator.

Day 1 through 30: Finding and purchasing the property

• Manager/Syndicator finds property.
• Manager/Syndicator (now “Buyer”) secures contract for property (closing process (assumed to be 30 days) starts).
• Title of property acquired by Buyer.
• Seller receives money for property.

Days 30 through Day 270 (for example): Renovating and Renting or Selling

• Renovations are made, as required.
• If equity structure is used, the proceeds from the rent and sale are distributed according to the equity structure.
• If debt structure is used, interest is paid to investors until the property is sold. The loan is repaid to investors upon sale of the property.

Conclusions

It’s hard to know exactly how many of the new real estate crowdfunding companies are intending to structure their investments and offerings. The timeline and structure we’ve set out above is just one example. Much of the decision making revolves around issues of timing, disclosure and liquidity. As the market grows, as certain Managers/Syndicators gain prominence and credibility and as the crowdfunding market opens up to non-accredited investors, we expect real estate crowdfunding to evolve into a fundament sector of the market.

There are new applications for the sector developing each day. We’re always looking to support new innovative approaches that add value, and encourage an open dialogue around these models to find sustainable frameworks. If you have any thoughts and comments on what we’ve discussed below, please do get in touch with us.

Crowd Valley, the crowdfunding platform and back-office solution provider announced today that is has established a partnership with TreveriMarket, the global marketplace connecting investors to entrepreneurial startups, so that together they can offer private companies a wide range of professional services, including access to compliance, accounting and due-diligence functions. With the partnership’s established network of approved broker dealers, innovative companies around the world will benefit from access to real capital and to a streamlined framework for securing funds to fuel growth.

The partnership combines TreveriMarket’s expertise in the financial services industry with Crowd Valley’s network of portals facilitating private securities marketplaces around the world. Together, Treveri and Crowd Valley will simplify the process of capital formation that finances well-structured business plans. The two companies’ management teams are motivated by the prospect that their work will benefit local and global economies, and that their partnership will help jumpstart economic growth and job creation.

Streamlining the Process

“One of the major problems private companies face is the friction of closing a deal,” explained Peter Keller, CEO of TreveriMarket. “Even after finding investors, the process of securing real funds needs to be simplified and speeded up. Entrepreneurs deserve transparency in the process, and protection from hidden fees and unwarranted cost. Our partnership with Crowd Valley is designed to streamline the process of funding promising businesses.”

Crowd Valley CEO Markus Lampinen couldn’t agree more. “Lack of transparency and high costs get in the way of small businesses trying to create jobs. By creating access to trusted broker dealers simpler and standardizing the diligence process, a greater volume of deals can be closed more efficiently. We’re not only offering a much-needed service to our clients around the world, we’re also creating more efficient processes for the private securities market to benefit from.”

To ease transparency for all parties before properly offering an investment to clients through its broker dealer partner network, TreveriMarket will give Crowd Valley clients a standardized diligence template. Thanks to this uniform approach, costs on the broker dealer side can be reduced so Crowd Valley clients will effectively receive this service for a fraction of what a broker dealer typically charges.

“This is an exciting time to be in the business of helping solid companies and entrepreneurs find funding,” stated Lampinen. “Never has it been more important to bring investors and private businesses together and together we are taking a big step to making it significantly easier.”

About Crowd Valley

Crowd Valley is the one-stop shop where you can start your own crowdfunding business in minutes and manage every aspect of the community with secure infrastructure, a variety of powerful tools and back-office services. The Crowd Valley infrastructure also allows you the option of connecting your network to hundreds of other networks and investment communities around the world, so you can choose to stay local or go global.

About TreveriMarket

With its transparency, innovation and simplicity, Luxembourg-based TreveriMarket is the first global online marketplace that benefits both companies and investors in the private securities market. TreveriMarket is a web-based capital raising platform built to empower private companies and potential investors to streamline the process of raising capital in the private marketplace. More information is available at www.TreveriMarket.com

More Information

For more information or to get started with your own platform please go to www.crowdvalley.com.

Crowd Valley’s co-founder, Paul Higgins presented on Equity Crowdfunding as part of the discussion forum.

Access the slides and continue the discussion on SlideShare below.