Fundraising as the main entrepreneurs problem

1

Fundraising as the Main Entrepreneur’s Problem

Vasily RyzhonkovDecember, 2012

www.CrowdSynergy.com

@ Copyright 2012 CrowdSynergy (www.crowdsynergy.com)

http://www.crowdsynergy.com/

www.crowdsynergy.com 2

Questions to answer

1. What is the main bottleneck in startups funding?

2. How much venture and angel capital do we have available in the world? What is the demand for it?

3. Do all early-stage entrepreneurs have sufficient access to capital?

4. Could we change situation with financing not 1% of entrepreneurs, but more? If yes, how?


Entrepreneurship Statistics

Main Entrepreneurs’ Problems

Capital Availability in the World

Fundraising through Crowdfunding

CrowdSynergy solution

Agenda


Background

CrowdSynergy is Virtual Business Incubator and Innovation Ecosystem Platform

Founded in 2012 More than 10 years were devoted for analysis, research and

development of the concept “Platform for World Innovation Ecosystem” Our main solutions are:

Virtual Business Incubator Solutions for Innovation Ecosystems Management Corporate Innovation and Business Incubation Programs Solutions for Expert Communities and Mentors Crowdsourcing and Crowdfunding Solutions Investments Management



www.crowdsynergy.com

Number of Entrepreneurs in the World (2010 -> 2011)

6

*Less than 3,5 years of activity; recovered after recession of 2008-2009**According to GEM, out of 54 economies in the age between 18 and 64

388 million entrepreneurs were actively engaged in starting and running new businesses

in 54 countries in 2011**

250 million early-stage entrepreneurs* in 59 economies in 2010


Main Problems of Entrepreneurs

Capital Availability in the

World

Fundraising through Crowd

funding


www.crowdsynergy.com

388 million entrepreneurs in 2011 included: 163 mln women early-stage entrepreneurs 165 mln young early-stage entrepreneurs between the

ages of 18 and 35 69 mln early-stage entrepreneurs that offer innovative

products and services that are new to customers and have few other competitors

23,5% increase in TOTAL EARLY-STAGE ENTREPRENEURIAL ACTIVITY in 2011

Number of Entrepreneurs in the World (2010 -> 2011)

7




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2011

2012

2013

Number of Entrepreneurs in the World (2011 -> 2012 -> 2013)

513 to 606 million **

446 to 485 million*

388 million

15% t0 25% increase in total and TEA

*Strongly pessimistic estimation of CrowdSynergy based on OECD, GEM, WEF data from 2011 – in reality figure is 3-5 times more. This estimation was made considering possible downturns and risks.**Optimistic estimation of CrowdSynergy based on decision tree analysis and data from previous years (growth, increase rate, economic growth ad cycles)

59 to 69,7 million**

51,3 to 55,8 million*

44,6 million

Total entrepreneurs Early-stage entrepreneurs = 11,5% (avg unweighted)*

15% t0 25% increase in total and TEA




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Main Entrepreneurs’ Problems


Access to capital** Access to networks of mentors, experts,

investors, entrepreneurs, etc… Lack of knowledge / business skills / technical

skills Team building / selection / organization Business model and strategy etc…

Main Problems of Early-stage* Entrepreneurs

*Early-stage–the state of a project after the concept and idea formulation through the seed(formation) stage but before middle stage (generating revenues). **According to Market research by CrowdSynergy and secondary data from BCG, GEM, OPORA, SG 2012Entrepreneurship

StatisticsMain Problems of

Entrepreneurs


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Let’s consider only one problem (perceived by early-stage entrepreneurs in efficiency-driven economies as the main one):

…we need to understand in detail what, why, how and who of the problem ->

Is access to capital one of the most important problems?

Access to capital or Fundraising as the main problem of early-

stage entrepreneurs




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How to get capital? Do we have enough

capital for early-stage entrepreneurs?

What is demand for capital from

entrepreneurs side?


Why (Venture) Capital is important? – WHAT of the “Access to Capital” problem

Venture capital has enabled the United States to support its entrepreneurial talent and appetite by turning ideas and basic science into products and services that are the envy of the world.

Venture capital funds build companies from the simplest form–perhaps just the entrepreneur and an idea expressed as a business plan – to freestanding, mature organizations

Venture Capital Association, the industry’s main lobbyist, claims a study it sponsored shows that venture-backed companies from 1970–2005 accounted for 10 million jobs and $2.1 trillion in revenues by 2005, as well as representing 17 percent of U.S. gross domestic product (GDP)*.

Top-tier VC funds dominate in the West as VC consolidation continues Global “dry powder” is US$117.7 billion (capital committed to VC firms but not invested yet) and remains at a level similar to the past few years, as VCs invest at a pace that is reflected by their fund-raising volume**.Entrepreneurship

StatisticsMain Problems of

Entrepreneurs


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funding


*Kauffman Foundation, June 10, 2009**Globalizing venture capital Global venture capital insights and trends report 2011, Ernst & Young


Capital sources vary depending on the venture’s stage of development, economic and financial situation in the environment, availability and maturity of government policies and institutions in a given economy.

We will list main of them with the focus on early-stage entrepreneurs.

Capital Sources




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Company Funding Stages (traditional breakdown) –

HOW of the “Access to Capital” problem

Seed

Start-up

1st stage (Round A,B)

2nd stage (Round C,D)

Bridge

IPO or Sale

Capital for product development, market research and building management infrastructure

Completing product development and in business 1yr or less

Initial capital is gone and now need capital for full-scale production, sales or initial phase of expansion

This is where venture creation stops and the venture is launched

Capital to expand product to national markets

ConceptThis is where venture needs to be before raising capital

Capital to maintain until pending liquidity event




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In the most difficult period there is the least access to capital for entrepreneurs


Capital Funding Stages (explained) – HOW of the “Access to Capital” problem

Seed or start-up stage ($0-1M)• Complete the team, formalize the plan, complete initial arrangements. • Financial capital from angels, fools, friends and family.

Development stage (series A) ($2-5M)• Product development and prototype, ready for launch. Financial capital from venture

capital funds.Growth stage (series B or C, and other as required) ($5-20M)

• Launch and growth phase. Customer acceptance proven. Financial capital from venture capital firms.

Competitive or maturity stage (IPO) ($5 – 30M+)• Mature firm in a competitive context. Financial capital from offerings in the public equity

markets.




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Owner’s Money

Family, Fools & Friends

Angels

Seed Capital

Venture Capital

Banks and Govt Programs

Private Placements

IPOs

Who is funding Entrepreneurial Start-up Companies? –

WHO of the “Access to Capital” problem

Financing continuum (as it was before Crowdfunding)The following diagram shows the typical financing for start-up companies

$10-100K $20-250K

$100K-2M$500K-3M

$2-50M $5K & up

$500K & up

$5M & up

Source: “Successful Angel Investing”, Indiana Venture Center, 2008




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CROWDFUNDING ENTERS HERE


Capital Sources – WHO of the “Access to capital” problem

Source: CrowdSynergy Analysis, 2012




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Capital Sources – 3 Main Pillars for Early-stage

Entrepreneurs

Venture

Capital

Angel Capit

al

Private

Capital

Sources of Capital for Early-Stage Entrepreneurs

Bottleneck

Main sources of capital nowadays (Dec, 2012)

Small but Expanding at Extreme Speed Anti Funnel

Future source of capital

$8,77B out of$196,B10% growthDecades of existing

$22,5Bout of$108,23B12,1% growth20+ years of existing

$39M*out of$8000+B114-300% exponentialgrowth2 years of existing




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Sum of $31,27B reaches entrepreneurs (10% of available)

*Crowdfunding capital via equity-based model (statistics from 2012)



Venture Capital Statistics Worldwide, 2011

Venture Capital raised in 2011- $18.7B Venture Capital available in 2011 (“dry power”) - $196.9B Venture Capital invested in 2011:

$48,7B; 3209 deals (Dow Jones VentureSource); $5M – median size of investment

Venture Capital available for early-stage entrepreneurs: $4,87-8,77B*

VC growth 2010/2011 – 7-10% Number of Venture Capital:

No. of VC Professionals - 6,125 (in USA), 8700+ (in the World)** No. of VC Funds in Existence - 1,274 (in USA), 1800+ (in the World)**Sources: PricewaterhouseCoopers/National Venture Capital Association, MoneyTree™ Report based on data from Thomson Reuters; Dow Jones VentureOne; * - according to different sources only 10-18% of the total amount of venture capital investment (unchanged from the level in 2010) were seed and first-round financings ; ** - CrowdSynegy Estimation, 2012

Private

Capital

Angel

Capital

Venture

Capital




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Venture Capital Investments, 2005-2011

Global Annual VC Investment (Ernst&Young, 2011)

Proportion of Aggregate Value of Venture Capital Deals by Region: 2010 - 2012 YTD (10th May 2012)

Private

Capital

Angel

Capital

Venture

Capital




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Venture Capital – Private Equity is a Cyclical Business

US buyout deal value (Bain, 2011)

Private

Capital

Angel

Capital

Venture

Capital




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Characteristics of Venture Capital Funds & Firms - 1

Professional, institutional managers of risk capital.

Typically require five to eight years to be launched.

Investment made is an equity investment in a company whose stock is essentially illiquid and worthless until company maturity.

Investment “rounds” typically occur every year or two.

Source: NVCA Yearbook, 2012 including statistics from the PricewaterhouseCoopers/National Venture Capital Association, MoneyTree™ Report based on data from Thomson Reuters

Private

Capital

Angel

Capital

Venture

Capital




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Venture capital is more than money: venture capital partners become actively engaged

with a company, typically taking a board seat; with a startup, daily interaction with the

management team is common. This limits the number of startups in which any

one fund can invest. Few entrepreneurs approaching venture capital firms

for money are aware that they essentially are asking for 1/6 of a person!

Private

Capital

Angel

Capital

Venture

Capital




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Yet active engagement (which is business incubation) is critical to the success of the fledgling company*.

Any successful company that broke through the gravity evolved from the original business plan concept with the careful input and help of an experienced hand/mentor**.*Many one- and two-person companies have received funding but no one-or two-person company has ever gone public!**Source: NVCA Yearbook, 2012 including statistics from the PricewaterhouseCoopers/National Venture Capital Association, MoneyTree™ Report based on data from Thomson Reuters

Private

Capital

Angel

Capital

Venture

Capital




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What venture capital firm looks for?

Source: NVCA Yearbook, 2012; CrowdSynergy’s venture industry analysis and estimation

Management team (perfect track record?) Concept and Business Model (superb scalability? Limited

timeframe? Truly innovative?) Marketplace (world and international markets?) Fit to the fund’s objectives (minimum 3-5x ROI?) Value-added potential for the firm Capital needed to build a successful business etc… A busy venture capital professional’s most precious

asset is time. If your concept doesn’t fit tough due diligence

criteria it’s not likely to get even a close look.




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Private

Capital

Angel

Capital

Venture

Capital



Private

Capital

Angel Capital invested: $22,5B; 66,230 venture received angel funding* $340K – median size of investment 42% - invested in seed/start-up stage 55% - invested in post-seed/start-up stage

Angel Capital potentially available: $108,23B** Angel Capital available for early-stage entrepreneurs: $21,8B Angel Capital growth – 12,1%* Number of Business Angels: 318,480 (in the World)

Angel Capital Statistics Worldwide, 2011

*Center for Venture Research, The Angel Investor Market in 2011, 2012** 318K x $340K = $108,23B – theoretically available Angel Capital

Angel

Capital

Venture

Capital




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Business Angels

Advantages

Angels’ Characteris

tics

Investment Characteris

tics

Added Bonuses

Disadvantages Little

follow-on moneyWant a say

in firmCould turn out to be “devils”

No national reputation to leverage

Characteristics of Angel Capital

Source: Pros and Cons of Business Angel Investments, 2000

• Value adding• Geographically dispersed• More permissive investors

• Seek smaller deals• Invest in high-tech firms• Invest in all industry sectors• Prefer start-up and early-stage

• Leveraging effect• Give loan guarantees• No high fees

Private

Capital

Angel

Capital

Venture

Capital




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What are Additional Screening Factors to Get Capital from Angels and VCs?


Bureaucracy Time to get funds from Angels and VCs Gates:

by a country’s or region’s cultural fit, tolerance for failure, services infrastructure that supports developing companies, Intellectual property protection, efficiency of capital markets and innovation ecosystem, the willingness of big business to purchase from small

companies world’s and region’s economic and political uncertainty




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Private

Capital

Angel

Capital

Venture

Capital


Only 1% of entrepreneurs gets funding – WHY of “Access to capital” problem

Only 1 ends up being fundedOnly 10 usually

or so get a serious look100 business plans come

to a venture capital firm for funding


99% early-stage entrepreneurs are rejected




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Private

Capital

Angel

Capital

Venture

Capital



Demand for Capital from Entrepreneurs Worldwide

Source: *CrowdSynergy’s venture industry analysis and estimation; ** 51,3 to 55,8 million x $50K (avg size of preseed/seed capital) in 2012; *** 59 to 69,7 million x $50K (avg size of preseed/seed capital) in 2012

20 million projects have not received funding in 2011* Annual global capital demand for early-stage

innovation projects is $2565-2790B in 2012** Annual global capital demand for early-stage

innovation projects is $2950-3485B in 2013*** World capital demand for early-stage projects by 2030

will be more!!!




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Supply of Capital from Angels and VCs Worldwide (just to remind…)

Sum of $31,27B reaches entrepreneurs (10% of available capital by Angels and VCs)

World’s possibilities don’t fit World’s capital demand

Is there any solution or improvement that can be done?




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Crowdfunding is…

Small Money, Large Crowd JOBS act in USA as manifesto for private

investors in 2012 No gatekeepers, anyone can invest (up to the limit

- $1M in USA) Connects professional investors from outside network Scales friends & family network Greater transparency and trans nationality




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Why Crowdfunding?

Faster go-to-market periods (the less time – the better for a project*)

Same access to information Efficient and effective framework/tools/platforms via

direct participation New customer audiences Access to new asset classes

Crowd is smarter than individual; being provided with tools it’s more efficient, secure and

effective than individualSource: http://www.kickstarter.com/blog/shortening-the-maximum-project-length; www.crowdsourcing.org




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http://www.kickstarter.com/blog/shortening-the-maximum-project-length

http://www.kickstarter.com/blog/shortening-the-maximum-project-length

http://www.crowdsourcing.org/


Crowdfunding Models

Source: www.crowdsourcing.org Report, 2012* - in number of CFPs

Equity-based (15% of total CFPs*) Donation-based (28% of total CFPs) Lending-based (14% of total CFPs) Reward-based (43% of total CFPs)




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http://www.crowdsourcing.org/


Crowdfunding Models




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CrowdFunding Market and Trends:Crowdfunding Revenue Growth

Source: Massolution, 2012

Private

Capital

Angel

Capital

Venture

Capital




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CrowdFunding Market and Trends:Growth in Number of CFPs by Category

Source: www.croudsourcing.com, Report 2012




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Private

Capital

Angel

Capital

Venture

Capital

http://www.croudsourcing.com/


CrowdFunding Market and Trends




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CrowdFunding Market and Trends




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Householding Savings Ratio in the World, 1982 - 2012




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Private

Capital

Angel

Capital

Venture

Capital


CrowdFunding for Entrepreneurs Statistics 2012

536 Platforms 15% have equity-based model 114% growth

$2,81B Industry Revenue, 14% - equity-based model ($39M) 300% growth

$8000-57,400B – potential from householding savings




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Is it enough just to have crowdfunding?

Simple answer is No, because: We need to provide the system which will allow

entrepreneurs to: Find Excellent Team Develop Concept and Business Model with superb

scalability, within limited timeframe; truly innovative Reach world and international markets Add Value for Customers




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Thus, capital needed to build a successful business is not enough – we need to have Business Support System with easy access to capital



CrowdSynergy as a Virtual Business Incubator

We act in a virtual Internet space , not in physical one We give opportunities and business support for everyone, regardless of his/her skills,

knowledge level, geographic location and status We add values to existing business incubation and innovation ecosystem

overcoming its shortages, not competing with it. Our purpose is to integrate all players of innovation ecosystem in one place

(universities, industry, R&D centers, funds, Vcs and Angels, business associations) We use crowdsourcing and crowdfunding as main instruments We provide support for average person, not only brilliant one.


Main Problems of

Entrepreneurs

Capital Availability in

the World

Fundraising through

Crowd funding


We support all pre-seed and seed early-stage entrepreneurs who were rejected (99% of entrepreneurs) by VCs/Physical BIs/Angels/etc.

We lay the foundations of the Value Creation Society


CrowdSynergy as aPlatform for Innovation Ecosystems

For entrepreneurs: Get financing and access to funds Get personal mentor/advisory board for your project Get expertise and business support for your project (business model, strategy,

marketing, PR, legal and accounting services, mergers and acquisitions, etc) Meet and hire team members, services for team building Develop project inside the system using CrowdSynergy and partners’ SaaS services Education services and courses

For investors: Reduce risks of investments through professional instruments for managing startups

portfolio Find a project/team within your area of interests and expertise Find partners for cofunding; Invest in project and manage your personal portfolio Buy and sell shares/equity

For experts: Find and join interesting project/team Get options/shares in the project according to your contribution


Main Problems of

Entrepreneurs


the World

Fundraising through

Crowd funding



CrowdSynergy Services and Solutions


Main Problems of

Entrepreneurs


the World

Fundraising through

Crowd funding



Life Cycle of Typical Startup (with and without CrowdSynergy services)




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While other players try to screen and reduce their risks we build a system where early-stage entrepreneurs could try their ideas, develop concepts, reach first investors, mentors and experts in 3-5 steps and increase their chances for success without any risk for them: Register in the platform www.crowdsynergy.com Fill in info about you, your idea/project Promote and develop your project through services for free Get expertise and market validation of your ideas/projects from

crowd. Successfully? Then … next step Try to reach your first crowd investor/angel/VC investor through our

platform or our partners.Entrepreneurship Statistics



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About CrowdSynergy



Venture Capital in the World


funding


Let’s build future of Innovation together. Join us.CrowdSynergy Team.

“Building Future of Innovation Ecosystem Together.” Join us. CrowdSynergy Team.


CrowdSynergy

Vasily RyzhonkovR&D Director

[email protected]://worldbusinessincubation.wordpress.com/

+7 916 652 95 02 (Russia)+46 76 7158679 (Sweden)

CrowdSynergywww.crowdsynergy.com



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Fundraising as the main entrepreneurs problem