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Written by Louis BELLOIN on August 2013 - Contact: fr.linkedin.com/in/louisbelloin/	
  
Year 2012/2013
MSc Management Report
ANALYSIS AND EVALUATION OF THE CONCEPT OF CROWDFUNDING. WHICH
ORGANISATIONS CAN BENEFIT FROM IT, AND HOW SHOULD THEY GO ABOUT IT? DISCUSS
WITH EXAMPLES.
Louis BELLOIN
Word Count - Main text: 4,557 words
Word Count - Total (Main Text, References, Appendix): 9645 words
2
TABLE OF CONTENTS
TABLE	
  OF	
  CONTENTS	
  .........................................................................................................................	
  	
  
ACKNOWLEDGEMENTS	
  .....................................................................................................................	
  	
  
ABSTRACT	
  ........................................................................................................................................	
  I	
  
MAIN	
  TEXT	
  ......................................................................................................................................	
  1	
  
Introduction .............................................................................................................................. 1	
  
Definition.................................................................................................................................. 2	
  
i.	
   General Idea .................................................................................................................. 2	
  
ii.	
   History ........................................................................................................................... 3	
  
The different types of Crowdfunding and Projects................................................................... 4	
  
i.	
   Types of Crowdfunding .................................................................................................. 4	
  
ii.	
   Type of Projects, Motivation to invest, Reasons to fail.................................................. 6	
  
Position in the market .............................................................................................................. 9	
  
i.	
   Evolution ........................................................................................................................ 9	
  
ii.	
   The French market ...................................................................................................... 11	
  
Real Cases, and the case of Antabio .................................................................................... 11	
  
Limits and Regulation ............................................................................................................ 14	
  
Conclusions and Recommendations ..................................................................................... 17	
  
REFERENCES	
  ..................................................................................................................................	
  18	
  
APPENDICES	
  .....................................................................................................................................	
  i	
  
Appendix 1 - Questions to Paola KHAWATMI.......................................................................... i	
  
Appendix 2 - Questions to Aymeric DUGRAY ..........................................................................ii	
  
Appendix 3 - Questions to Raphael BESSIS ...........................................................................vi	
  
Appendix 4 - Questions to Benoit BAZZOCCHI.......................................................................ix	
  
Written by Louis BELLOIN on August 2013 - Contact: fr.linkedin.com/in/louisbelloin/	
  
Year 2012/2013
ACKNOWLEDGEMENTS
First of all, I would like to thank the different experts I have had the opportunity to talk to.
Thomas ROCHE, the founder of GoodMorningCrowdfunding, who oriented my research and
gave me a good overview of the environment. Cyril ROCCA who works in Private Equity and
helped me to understand the opportunities and downside crowdfunding presents as opposed
to Traditional Funds. Aymeric DUGRAY, the CFO of Antabio, who was passionate about
what he does and gave me an insight into how crowdfunding can help a company to emerge.
Benoit BAZZOCCHI, the founder and CEO of SmartAngels, thanks to his experience, I
learned about the operational aspects of how to conduct an equity-crowdfunding operation.
Raphael BESSIS, the founder of Krama-Heritage, they juste started their crowdfunding
campaign, during my research, so we exchange a lot about the subject. Finally, Paola
KHAWATMI, Project Manager at Ulule, who gave me a good insight into a leading French
Platform.
I would also like to thank all of the team at Imperial College, the teaching staff and faculty,
and especially Marco MONGIELLO and Kate RAISON. I acquired all the knowledge I
expected, and the experience as part of this Masters was an incredible opportunity that will
accompany me throughout my life.
Finally, I would like to dedicate this research to Clémence and Gaspard, without them, this
adventure would not have been possible.
Louis BELLOIN  - Report on Crowdfunding - 2013
I
ABSTRACT
I wanted to focus my report on real experience. I based my research on professionals that
work with this industry, and I had the chance to discuss with parties that participate
throughout the whole process of crowdfunding. In my report, I have focused on the French
Market as it is my native country, and a place where crowdfunding is in continuous growth.
After a brief introduction on crowdfunding, I will focus on equity-crowdfunding.
Finally, the main challenge in relation to this report is that crowdfunding is not fully regulated,
which leads to questions about its future. In accordance with my work experience (6 months
in Private Equity and 6 months in Mergers and Acquisitions), I wanted to focus my research
on both the limits of crowdfunding as compared with the other types of funding, and the place
that crowdfunding could occupy alongside traditional funding, such as Business Angels and
Private Equity Funds.
Louis BELLOIN  - Report on Crowdfunding - 2013
1
MAIN TEXT
Introduction
“To transform social capital into financial support”1
(K. Grell, 2013). This sentence gives a
good overview of what crowdfunding provides.
The concept of gathering financial funds under the name crowdfunding appears in 2006.
However, the concept of financing projects by a large number of supporters is much older. I
have listed some examples, some of which are surprising:
− Mozart and Beethoven financed the publication of compositions via subscribers and
those subscribers would put in money and get a copy of the book with their name
inscribed inside or a copy of the concerto, or a preview of the concert.2
− The Statues of Liberty: the American Committees were unable to raise enough
money to finance the site and the pedestal on which the statue would sit. Through the
newspaper the World, they involved the American people in completing the
monumental project and raised $100,000 in five short months through micro
donations (over 120,000 donations, which were, in most cases, less than a dollar).3
This new way of financing offers the possibility for everyone to invest in a project (cultural,
not-for-profit organisation or company). In this report, the analysis will be based on a
definition of what crowdfunding is, the position of this new type of financing in relation to
traditional sources, an analysis of the main players in the sector, with particular attention to
the French Market, and finally, what it offers to the company that benefits from it with an in-
depth analysis of the next step: what happens for a company after being funded using
crowdfunding.
To personalise this report, I will base my observations on interviews with a professional in the
sector and people that benefit from it. I had the opportunity to meet Aymeric DUGRAY, the
CFO and founder of Antabio, the world’s first biotech start-up to exit crowdfunding, Thomas
ROCHE, the founder of GoodMorningCrowdfunding, Cyril ROCCA who works in Private
Equity. Raphael BESSIS, the founder of Krama-Heritage, Paola KHAWATMI, Project
1
Stephanie Carmichael, SC, 2013. Crowdfunding nearly doubled last year with 1M in successful campaigns. Venturebeat,
[Online] Available at: http://venturebeat.com/2013/04/08/crowdfunding-nearly-doubled-last-year-with-1m-successful-campaigns/
[Accessed April 8, 2013, 5:00 a.m.]
2
David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC)
3
DailyCrowdSource, 2013. Pulitzer crowdfunded the Statue of Liberty? DailyCrowdSource, [Online] Available at:
http://dailycrowdsource.com/20-resources/projects/169-pulitzer-crowdfunded-the-statue-of-liberty
2
Manager at Ulule, and Benoît BAZZOCCHI, the founder and CEO of Smart Angels, a
crowdfunding platform. Furthermore, my research will focus on the European Market and
more specifically, the French one.
Definition
i. General Idea
How do you finance a charity? How do you place your private money in a project that you
like? How do we highlight the entrepreneurial spirit that we possess when financing a
company? How do we invest our own money in line with our own values and convictions? Or
be able to participate in the creation of the pub in our street in a formal and official way?
Crowdfunding answers all of these questions. A definition used in most academic papers has
been established by Armin SCHWIENBACHER (An academic specializing in finance):
“Crowdfunding involves an open call, essentially through the Internet, for the provision of
financial resources either in form of donation or in exchange for some form of reward and/or
voting rights.”4
Some companies had the idea of meeting supply and demand through the Internet. It started
with an artistic project, financing a book that people liked or a singer that uploaded songs
online and people can finance and take part in the project to launch the CD.
Thanks to its unstoppable ascension, unlisted companies, start-ups and small businesses
found it was in their interest. Now people can present their business online and ask for funds,
and in exchange, new investors can acquire an interest in the capital or research how to
monetise this loan with the founder.
In practice, this means that interested users donate an amount of money for concrete
projects via Internet. The projects have a target to achieve within a limited time frame. Then
two issues arise:
− If the targeted percentage of the budget is reached, the project is considered as
successful and the founder receives the money;
− If the targeted percentage of the budget is not reached, all the money is returned to
users and the project is cancelled.
4
David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC)
3
ii. History
Crowdfunding is usually understood as being a subtopic of crowdsourcing. The term
“Crowdsourcing” was introduced in 2006 by Jeff HOWE.5
Crowdsourcing is the act of
outsourcing tasks to an undefined large group of people or community (Crowd) through the
Internet (the method most often used). Starting with the funding of cultural events (movies,
CDs…), crowdfunding is taking further steps towards investment in companies, using the
same principle: by raising funds through Internet platforms, they start to take the place of
Business Angels by becoming shareholders of start-ups at a very early stage.
Following the 2008 crisis, looking for money through funds or banks was very difficult,
particularly for biotech companies6
where R&D can take 10/15 years of investments of
hundreds of millions of Euros. After the Series A Crunch (financing a company after the seed
stage), crowdfunding appeared as a good solution to value the interest of an idea. You will
find below a small explanation of the Series A Crunch by John Cook:
“The number of seed-stage/angel deals has nearly quadrupled in the past four years.
Meanwhile, series A financing rounds haven’t budged much. The ratio between seed stage
and series A now stands at 3.3 to 1. In 2008, that ratio stood at just 1.9 to 1.7
”
The example of Antabio, which we will discuss later, is the perfect illustration of what
companies can expect from crowdfunding.
5
Jeff Howe, 2006. The rise of Crowdsourcing. WIRED [Online] Available at:
http://www.wired.com/wired/archive/14.06/crowds.html [June 2006]
6
Carine La, 2013. Entreprises Biotech et Crowdfunding: une grande attente pour les entrepreneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March 5, 2013]
7
John Cook, 2013. Chart: The ‘Series A Crunch’ is alive and well. Geekwire. [Website] Available at :
http://www.geekwire.com/2013/chart-series-crunch-real/ [January 18, 2013]
4
The main reasons for this change came about during the 2008 Crisis. Firstly, entrepreneurs
were looking for other sources of funding, secondly, Business Angels did not want to take big
risks by investing money in ideas that could fail and thirdly, people had lost confidence in
traditional finance and were looking for opportunities to earn money through projects they
believed in.
The first and main advantage of this type of funding is the fact that it came at a time when
investors had lost confidence in banks and traditional funds and on the other hand, people
were interested in looking to invest their money in projects in which they were interested8
.
Crowdfunding has been one of the best solutions as it offers a new market with a new type of
investor: people, people that invest in a business because they have an emotional interest or
strongly believe in the project.
The different types of Crowdfunding and Projects
Ngo Excellence, Rewards Based Crowdfunding, 2013.
i. Types of Crowdfunding
There are three big families of crowdfunding: crowd supporting (giving money without any
rewards), for example to charities, crowdfunding (investing for benefits, either rewards or
return on investments), and peer-to-peer lending initiatives also known as person-to-person
lending, avoids the bank as a middleman.
8
Thomas Lestavel, 2013. Financement de projet : le boom du Crowdfunding. 01Business. [Newspapers] Available at:
http://pro.01net.com/editorial/597455/financement-de-projet-le-boom-du-crowdfunding/ [July 1, 2013]
5
Donation without rewards
The principle of donation is completely altruistic as the recipient has no obligation regarding
the donors. Most of the projects involved in this category are social, and could be either
charity (http://octopousse.com/projets/profaso) or cultural-based
(http://octopousse.com/projets/yann-le-webdoc).
Crowd Sponsoring
This category was the most successful at the beginning of crowdfunding. Generally, it
includes cultural projects such as singers, painters or writers. The rewards could be Cods,
DVDs, download options, or contacts with artists. The most successful platform is Kick-
starter in the US and MyMajorCompany in France (with the example of the song “Tomboy”9
).
Pre-Selling
In this case, the reward could be the product itself which is the aim of the project (book,
movie, music, gadget, etc.). This structure is quite interesting as the reward can be
compared with an advanced sale. In my discussion with R. BESSIS, the founder of Krama
Heritage, they offer donors one of their Kramas (http://www.reservoirfunds.com/projet/krama-
h%C3%A9ritage).
Lending
Equivalent to the peer-to-peer structure, the rewards take the form of returned loans. This
loan can have different forms: revenue-based loans, interest-based loans or donation-based
loans, with only a symbolic repayment, the UK Platform Buzzbnk is an example, as well as
Babyloan in France.
Investments (Equity-Crowdfunding)
This is the most profitable form with the most interesting future. The reward is company
equity, shares, dividends or voting rights. It demands a specific authorisation from the
financial market authority in some countries (such as France).
The regulation gets more extensive as the rewards get higher.
9
MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg
[June 8, 2008]
6
More than money, equity-crowdfunding is a real entrepreneurial adventure, and people
became investors of companies or projects they are interested in10
. The example of Antabio
(explained below) is the best illustration as it was the first biotech company to be funded by
crowdfunding. They obtained € 300 K through the platform Wiseed and gathered together
209 people that invested between € 100 and € 30,000 (A. DUGRAY, 2013)11
.
ii. Type of Projects, Motivation to invest, Reasons to fail
Type of Projects
As well as the type of crowdfunding, there are a lot of different projects. They differ through:
- The purpose of the crowdfunding project:
- Business: Antabio: http://www.antabio.com/ (A. DUGRAY, 2013)12
- Creative: The French artist Judith:
http://www.mymajorcompany.com/projects/tombee-du-lit
- Political
- Social: http://octopousse.com/projets/yann-le-webdoc
- The aim of the founder:
- Donation (Charities): http://octopousse.com/projets/profaso
- Non-financial rewards: Krama-Heritages13
(R. BESSIS, 2013)
- Financial rewards: Antabio
- Return of loan.
- The underlying tax-regime (for profit or not-for-profit).
10
Carine La, 2013. Enterprises Biotech et Crowdfunding : one grande attente pour les entrepreneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March, 5 2013])
11
Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN
from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 a.m. (GMT)
12
Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN
from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 am (GMT)
13
Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN
from London, R. BESSIS from New-York. 24/07/2013, 6.40 pm (GMT NYC)
7
Motivation to invest
The CrowdCafeCrowdfunding Motivations — What Drives People to Invest? 2013
The two extreme reasons are philanthropic or profit, and there are thousands of different
reasons in between. This diversity is the definition itself of what I suggest at the beginning of
the report: democratisation of finance.
According to one very interesting article by Jonathan SANDLUND, there are 4 archetypal
investor motivations14
:
1. Friends & family motivated by the desire to support a friend or family member.
2. Consumer motivated by the product or service of the company (e.g. Pebble
smartwatch).
3. Affinity motivated by a shared interest, passion, belief or sense of identity (e.g.
university alumni, interest graphs, geography/”local”).
4. Financially motivated by a potential financial return.
The Fourth reason is the only one which is financially oriented. The others involve an
emotional aspect, which can lead to more irrational decision. However, it is important to
understand that one investor can be guided by other aspects (emotional + financial benefit).
Some Equity-Crowdfunding platforms are mainly driven by financial return on investment.
During my interview with Benoit BAZZOCCHI from SmartAngels I asked him the question,
here is his answer:
“Return on Investment is by evidence the driver of our business. However, I must admit that I
have been amazed by the involvement; investors want to have in the companies they invest
14
Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at:
http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013]
8
in. They are willing to give advice, to help the managers, to create a strong relationship with
them15
.” (B. BAZZOCCHI, 2013)
In my personal opinion, I strongly believe that to create a sustainable and profitable
business, investors need both financial + social aspects, they are going to invest their time
and money to understand the project, help the founder to develop it and get a return on their
investment. Emotionally speaking, they will be proud of the work they have done, even if they
are not the creator of the business.
Why projects fail? - Some advice in order to succeed with your crowdfunding campaign
Although it appears easy to launch a crowdfunding campaign (on average, a few minutes
after your project has been approved by the platform (P. KHAWATMI, 2013)), setting up the
strategy is more than difficult. Here are some tips on understanding why a project fails and
what the key elements when launching your own campaign are.
According to Aymeric DUGRAY, CFO of Antabio, one of the main reasons why Antabio’s
campaign was a success is “Communication”. As he stated during the interview: “The most
important point that helped us to succeed with this fundraising was our ability to present the
project to people. Our business is technical, but we worked on our presentation to explain
our idea in simple terms” (A. DUGRAY, 2013). To highlight the reason, Benoit BAZZOCCHI
the founder of the Equity-Crowdfunding Platform, SmartAngels answered in the same way:
“For me, beyond the specific example, the most important reason for failure depends on how
the managers present their idea to the public and whether it is easy for the business to make
itself understood by everyone. It is not a question of complexity. A technical biotech company
may raise more money if their managers know how to make people understand their
business in a simple way16
.” (B. BAZZOCCHI, 2013)
“Take the time to prepare the campaign17
” (H. HOBEIKA, 2013). This Lebanese engineer
managed to raise $60,000 in one month to produce a monitor that helps swimmers during
competitions. She took time (2 months) to prepare the campaign, think about its strategy and
15
Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit
BAZZOCCHI from Paris. 8/08/2013.
16
Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit
BAZZOCCHI from Paris. 8/08/2013.
17
Aline MAYARD. 10 conseils pour réussir sa campagne de crowdfunding par des entrepreneurs qui ont réussi et échoué.
Wamda [Website] Available at: http://fr.wamda.com/2013/06/10-conseils-pour-r%C3%A9ussir-sa-campagne-de-crowdfunding-
par-des-entrepreneurs-qui-ont-r%C3%A9ussi-et-%C3%A9chou%C3%A9 [June 10, 2013]
9
the people she wanted to target. For the same reason, Krama-Heritage, founded by R.
BESSIS, revealed during his interview that they did not put much effort into the preparation of
their campaign. As he stated: we gave it our best effort18
” (R. BESSIS, 2013). Yet he pointed
out a real problem that entrepreneurs face: they have a lot to do and run out of time. They
have to be on schedule and as crowdfunding is not very common at present, it is difficult to
get good advice.
“To start up, the amount to be raised is quite small” (A. DUGRAY, 2013), compared to
what a Business Angel (BA) can provide. It is true that while the process is much faster than
for a BA, in most cases, the money provided thanks to crowdfunding is a small amount and it
could be useful for a specific project rather than for financing the entire firm.
Position in the market
To find funds and credit is difficult today as bankers are reluctant to finance any projects,
especially for companies that require huge investment from the beginning and could only
provide a return on investments several years later, such as Biotech Companies19
i. Evolution
In 2012, 1 million crowdfunding campaigns achieved their objectives worldwide. This
represents a total of $ 2.7 billion20
. There are 308 crowdfunding platforms worldwide.
According to the forecast, this number should rise to $ 5 billion this year21
, while some
specialised firms have predicted a $ 1,000 billion-strong economy from 202022
(the Soho loft,
2013). Most of the projects will remain cultural (songs, movie production, etc.).
In Europe, the market amounted to $ 945 million with a growth of 65% according to
Financement Alternatif, last year. With growth of 105% and $ 1.6 billion raised, the United
States is the most attractive market. (Financement Alternatif, 2013)
18
Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Interviewer] Raphael BESSIS from
Paris. 24/07/2013.
19
Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March 5, 2013]
20
Stéphanie Chaptal, 2013. Financement Alternatif. [Newspaper] May 2013.
21
Thomas ROCHE, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorning Crowdfunding [Website] Available
at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July 27, 2013].
22
Fabien RISTERUCCI, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les
Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique-
economique/221173232/emergence-finance-particip [May 28, 2013].
10
Statista, Global Crowdfunding Volume Reaches $2.7 Billion in 2012 by Felix Richter, 2013
The average transaction size of a reward campaign hovers around $ 5,000, whereas the
average investment campaign (Equity-Crowdfunding) raises around $ 100,00023
. However
those numbers do not accurately reflect reality, and it depends on the country, type and
structure of the platform and its market. As an example, SmartAngels (French-based
platform) targeted Business Angels that have huge resources (see interview with Benoit
BAZZOCCHI in Appendix), but on the contrary, Ulule targeted people that invest a small
amount of money per project (See interview with Paola KHAWATMI in Appendix).
An example of one of the biggest fundraising campaigns is a watch connected to your
Smartphone: Pebble, which raised $ 10 M on the Kickstarter platform.
Peble’s Campaign on Kickstarter - Screen Shot, 2013
Allocation of the funds according to the type of Crowdfunding.
- Crowd-Sponsoring amounted to $ 1.4 billion in 2012
23
Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at:
http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013]
11
- Lending amounted to $ 1.2 billion in 2012
- Equity-Crowdfunding amounted to $ 116 million in 2012.
The category projects for Crowdfunding
- Charity: 27.4%
- Business and enterprise: 17%
- Theatre: 12%
- Music: 7.5%
- Energy and environment: 6%
- Below 6%: Fashion, Art, IT, Photography, science and biotechnology
ii. The French market
“In France we have 25 Platforms, which enables 35,000 web users to finance 15,000
projects in a total amount of € 6 M since 2008, the start of the activity24
”, as noted by Arnaud
POISSONIER (Founder of Babyloan in March 2012).
It started with a song by the singer Grégoire “Toi+Moi25
” that collected € 70,000 on
MyMajorCompany (YouTube, 2008).
In France, Crowdfunding started with platform that promoted cultural projects: CDs, singers,
and writers. Here is the list of some of the first players on the market: My Major Company
(2007), Babeldoor (2009), Kisskissbankbank (2010), Ulule (2010). Other are specialised in
micro-credit: Babyloan (2008), or social and charity projects: SPEAR (2011), Ecobole, for
sustainable development (2013).
Finally, some recent platforms focus on companies that are already created, that have just
started their business or that have project in development: Smart Angels (2012), Anaxago
(2012), FinanceUtile (2009), Wiseed (2008).
Real Cases, and the case of Antabio
Starting this report, I managed to contact industry players and all the parties that are involved
in crowdfunding: The CEO of the platform SmartAngels, the CFO of Antabio, a company that
24
Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper]. Available at:
http://www.latribune.fr/entreprises-finance/banques-finance/industrie-financiere/20121219trib000738345/le-crowdfunding-
europeen-interpelle-michel-barnier.html [December 12, 2012].
25
MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg
[June 8, 2008]
12
managed to use this type of fundraising, an employee at Ulule, a French Platform, a Banker
who worked in a Private Equity fund and who has an interesting opinion of crowdfunding, and
a journalist that has launched his own crowdfunding blog: Good Morning Crowdfunding.
In this section, I will present some sections of the interview with Messrs. DUGRAY (AD) and
BAZZOCCHI (BB) in order to get the point of view of the different professionals involved in
Crowdfunding. All the interviews have been retranscripted in the Appendix. The people
involved have approved them.
Aymeric DUGRAY is the CFO of Antabio. Antabio is a France-based biopharmaceutical
company dedicated to the discovery and development of first-in-class molecule compounds
to treat severe hospital and community-acquired infections caused by multi and pan-drug
resistant bacterial pathogens. They are the world’s first biotech start-up to exit from
crowdfunding.
Benoit BAZZOCCHI is the CEO and founder of SmartAngels. SmartAngels is the first French
Crowdfunding platform dedicated to the direct investment in the capital of start-ups or SMEs.
SmartAngels simplifies the process for investors and entrepreneur to meet each other. More
than 4,000 Members financed companies each year between € 300K and € 1M per
operation. Their main contributors are qualified investors, Business Angels or company
managers.
- How did you have the idea of raising funds through crowdfunding?
Aymeric Dugray (AD): When we started looking at solutions to raise money, we were in a
“Death Valley” without any solutions for financing our project. The idea of raising money
through crowdfunding seemed like the best solution at that stage. Although it was quite a
new model, we trusted Thierry MERQUIOL (CEO of Wiseed), who we knew at that time and
the reputation of his platform, Wiseed, which was one of the only equity-crowdfunding
platforms in France.
- Could you explain the steps involved in this fundraising?
AD: After an audit and a robust examination of the project and the team by experts mandated
by Wiseed, we were authorised to launch our project on their platform.
Then Wiseed set up a holding and designated one person to be the representative of this
holding. This organisation helped to coordinate all the 209 investors we had.
13
The most important point that helped us to succeed with this fundraising was our ability to
present the project to people. Our business is technical, but we worked on our presentation
to explain our idea in simple terms.
Finally, at the start of the project, we established a fair value of our business with an expert
that was the prorata of our target budget. Then, as this target was progressively exceeded,
our company was revaluated according to the new budget.
What were the features of your project? The target budget, the time frame, the type of
investors and the return they get?
AD: We fixed a limit of € 100,000. At the end of the 3-month period, we had obtained €
300,000. The most important contribution came from the Business Angel (€ 30,000) and the
smallest ones from people interested in our project (€ 100). Investors get a return of 1.45
times their investment (net of charges) after 18 months. Some wanted to stay within our
capital structure.
- Seen from today’s standpoint, was this experience a good idea?
AD: This experience was a great idea. We are the world’s first biotech start-up to exit crowd
funding. We are now in discussion with Private Equity Funds. It helped us to create value
really fast. We could have developed our company with traditional funds or Business Angels,
but it would have taken more time and the conditions would not have been the same. Thanks
to this fundraising, we entered a virtuous circle, our project become interesting to other funds
and we managed to obtain other fundraising.
- What are the limits of crowdfunding?
AD: Crowdfunding is really recent, platforms are not as specialised as funds and in my
opinion, the project can only work if it is easy for the investors to be impacted by the idea and
if it is easy to understand. Biotech companies are technical and generally, people have no
idea of our existence until we launch a good product.
- What is your personal opinion of crowdfunding?
AD: Crowdfunding is a new tool pack for start-ups and an amazing opportunity for them.
Today, I see it as a solution that complements traditional funds. It is the perfect solution to
finance the early stages of a company and increases your credibility as a professional.
14
BB: Crowdfunding is a new job for the finance industry. A new intermediary for start ups and
companies that are looking for money. I am sure that there is a good future for this activity. In
addition, countries are setting up regulations, all the discussions with professionals have
been taken into consideration and we are now waiting for them to be implemented.
Limits and Regulation
Crowdfunding is about money and sentiment. People invest with their sentiments. As
compared to Private Equity Funds or Business Angels, crowdfunding does not provide
advice for managing a company. Nowadays, more than money, entrepreneurs need people
that are experts in their fields, have a network and can help them to position themselves on
the market.
During my internship at a private equity fund, in addition to financial analyses and
quantitative methods to analyse the potential return on investment the companies might
provide us with, we analysed the team, the management of the companies and the people
that manage the fund. With crowdfunding, you cannot have access to all the documents and
research that are provided by the funds. Platforms try to find solutions to that problem, by
hiring corporate finance experts and trying to be as transparent as possible for the investors.
An example is Wiseed, which organises a forum where project managers and investors can
interact freely to provide information.
The translation of crowdfunding is another limit: opening a small business to hundreds or
thousands of small investors26
is dangerous for the survival of the company. At the moment,
there is no way of controlling everyone’s decisions and strategic decisions are taken at the
early stages in the life of a company
Regulation is another aspect that needs improvement. The USA, as stated above, created
regulations, and started regulating this new concept. French regulators had published a
guide to enable people to understand what crowdfunding is and the government, assisted by
players in the field, will implement a reform program in September to codify the different
types of investment.
26
Carine La, 2013. Enterprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March, 5 2013]
15
However, each country has its own perception and regulations concerning these new
phenomena.
United States
In the US, the JOBS (Jumpstart Our Business Start-Up) Act has been passed by the Senate
this year. It mainly states that companies remain private even if there are 2,000 investors in
their capital27
.
United Kingdom
In the UK, the SEIS offers a guarantee against loss of investment in a start-up if there is any
default28
.
France
In France, the Government and main players involved held a round table. There are several
issues. In order to start thinking about these regulations, the French Financial Services
Authority (AMF) has launched two crowdfunding guides29
that are simply an introduction to
crowdfunding, one for the public and the other for platforms and project providers. (Read
more on these guides at: AMF Website)30
.
According to Paola KHAWATMI, Project Manager at Ulule, a French Platform, “If no answers
are provided in September, the platform will move outside the country and one of the
strengths of Crowdfunding, which could also be a limit, is that as it works through Internet, it
doesn’t matter where the platform is based31
”.
Intermediaries need financial approval to organise acquisition of equity interests in a
company and at present, few companies own one. Thus, there are only a few platforms that
can organise equity-crowdfunding. In addition, people may also wish to engage in Over-the-
Counter operations. However, it is not possible at the moment to engage in this type of
operation with different intermediaries, which is the case for crowdfunding. Finally, regulators
27
Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March 5, 2013].
28
Crowdcube, 2013. The Seed Enterprise Investment Scheme (SEIS). [Blog] Available at: http://www.crowdcube.com/pg/seis-
tax-relief-543 [2013]
29
GUIDE DU FINANCEMENT PARTICIPATIF, 2013, Place of publication: France.
30
Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les
Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique-
economique/221173232/emergence-finance-particip [May 28, 2013].
31
Paola KHAWATMI. 2013. Questions to Paola KHAWATMI. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN
from London, P. KHAWATMI from Paris. 16/07/2013.
16
have to define what it is possible to do with the funds that are maintained through the
platform. At the moment, in order to keep funds, companies need a financial status, which is
difficult to obtain.
However, Minister Fleur PELLERIN has confirmed her wish to make France and the
European Commission the precursor in terms of setting up crowdfunding regulations, and the
results are expected in September32
. The different companies that provide these services
have to come together and create a common association in order to reach a compromise
and highlight the risk of investing money33
.
Some ideas have been provided to make this structure attractive:
- People that finance a project which is under € 3,000 should not fall within the scope of the
regulations, and private individuals that lend money would get a fiscal advantage as is the
case for donors34
.
Others players are less worried by this regulated future, and clearly stated that everything
has been discussed clearly with regulators and there will be no surprises with these bills of
law: “all the discussions with professionals have been taken into consideration and we are
now waiting for them to be implemented.35
” (B. BAZZOCCHI, 2013)
Europe
European Crowdfunding Network in Brussels agreed that CF is an alternative for financing
SMEs, and a committee has been organised to respond and come up with common
regulations. This should lead the way with respect to keeping entrepreneurs in Europe36
.
32
Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog
dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente-
pour-les-entrepreneurs/ [March 5, 2013].
33
Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les
Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique-
economique/221173232/emergence-finance-particip [May 28, 2013].
34
Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper]. Available at:
http://www.latribune.fr/entreprises-finance/banques-finance/industrie-financiere/20121219trib000738345/le-crowdfunding-
europeen-interpelle-michel-barnier.html [December 12, 2012].
35
Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit
BAZZOCCHI from Paris. 8/08/2013.
36
Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les
Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique-
economique/221173232/emergence-finance-particip [May 28, 2013].
17
Conclusions and Recommendations
Thomas Roche from GoodMorningCrowdfunding stated “there is always someone,
somewhere on internet who will find your proposals interesting37
”. Equity-Crowdfunding is the
tool pack that was missing for some start-ups to support some projects. More than money, it
offers credit and confidence to entrepreneurs that have great ideas and few resources.
However, in order for it to succeed it needs harmonisation. Here lies the main problem: as all
of this business is on Internet, do we need to set up local rules for each country or global
regulations that would make this economy open to everyone? Moreover, in a near future, will
it be a fierce competitor of traditional funds or a strong complementary solution for young
entrepreneurs?
In my personal opinion, all the opportunities crowdfunding generates amaze me. I met some
passionate entrepreneurs who are taking the risk of raising money, and they care about their
project and finding a way to share it with everyone. Crowdfunding may be the solution that
enables people to be reconciled with finance.
Remarks: For any information as regard with this report please do not hesitate to
contact me linkedln : fr.linkedin.com/in/louisbelloin/
37
Thomas Roche, 2013. 5 Projets Incrowdible, financés par le Crowdfunding. GoodMorning Crowdfunding [Website] Available
at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July 27, 2013].
18
REFERENCES
Stephanie Carmichael, SC, 2013. Crowdfunding nearly doubled last year with 1M successful campaigns.
Venturebeat, [Online] Available at: http://venturebeat.com/2013/04/08/crowdfunding-nearly-doubled-last-year-
with-1m-successful-campaigns/ [Accessed April 8, 2013 5:00 AM]
David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC)
DailyCrowdSource, 2013. Pulitzer crowdfunded the Statue of Liberty?, DailyCrowdSource, [Online] Available at :
http://dailycrowdsource.com/20-resources/projects/169-pulitzer-crowdfunded-the-statue-of-liberty
Jeff Howe, 2006. The rise of Crowdsourcing. WIRED [Online] Available at:
http://www.wired.com/wired/archive/14.06/crowds.html [June 2006]
John Cook, 2013. Chart: The ‘Series A Crunch’ is alive and well. Geekwire. [Website] Available at :
http://www.geekwire.com/2013/chart-series-crunch-real/ [January 18, 2013]
Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review
[Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-
une-grande-attente-pour-les-entrepreneurs/ [March, 5 2013]
Thomas Lestavel, 2013. Financement de projet: le boom du Crowdfunding. 01Business. [Newspapers] Available
at: http://pro.01net.com/editorial/597455/financement-de-projet-le-boom-du-crowdfunding/ [July, 1 2013]
MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at:
http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008]
Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview]
L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 am (GMT)
Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Telephone Interview] L.
BELLOIN from London, R. BESSIS from New York. 24/07/2013, 6.40 pm (GMT NYC)
Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website]
Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March, 18 2013]
Aline MAYARD. 10 conseils pour réussir sa campagne de Crowdfunding par des entrepreneurs qui ont réussi et
échoué. Wamda [Website] Available at: http://fr.wamda.com/2013/06/10-conseils-pour-r%C3%A9ussir-sa-
campagne-de-crowdfunding-par-des-entrepreneurs-qui-ont-r%C3%A9ussi-et-%C3%A9chou%C3%A9 [June 10,
2013]
Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Questioner] Raphael
BESSIS from Paris. 24/07/2013.
Thomas ROCHE, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorningCrowdfunding
[Website] Available at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-
crowdfunding/ [July 27, 2013]
19
Fabien RISTERUCCI, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en
France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-
conjoncture/politique-economique/221173232/emergence-finance-particip [May 28, 2013]
Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website]
Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013]
Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper]
Available at: http://www.latribune.fr/entreprises-finance/banques-finance/industrie-
financiere/20121219trib000738345/le-crowdfunding-europeen-interpelle-michel-barnier.html [December 12, 2012]
MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at:
http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008]
Crowdcube, 2013. The Seed Enterprise Investment Scheme (SEIS). [Blog] Available at :
http://www.crowdcube.com/pg/seis-tax-relief-543 [2013]
GUIDE DU FINANCEMENT PARTICIPATIF, 2013, Place of publication: France
Paola KHAWATMI. 2013. Questions to Paola KHAWATMI. Interviewed by Louis BELLOIN [Telephone Interview]
L. BELLOIN from London, P. KHAWATMI from Paris. 16/07/2013.
Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone
Interview] Raphael BESSIS from Paris. 8/08/2013.
Thomas Roche, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorningCrowdfunding [Website]
Available at http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July
27, 2013]
Stéphanie Chaptal, 2013. Financement Alternatif. [Newspaper] May 2013.
Félix RICHTER, 2013. Global Crowdfunding Volume Reaches $2.7 Billion in 2012. Statista. [Online Newspaper]
Available at: http://www.statista.com/topics/1283/crowdfunding/chart/1034/funds-raised-through-crowdfunding-in-
2012/ [April 10, 2013]
NGO Excellence, 2013. 2 Types of Crowdfunding for NGO’s. [Online Blog] Available at:
http://ngoexcellence.wordpress.com/2013/01/20/2-types-of-crowdfunding-for-ngos/ [January 20, 2013]
Louis BELLOIN  - Report on Crowdfunding - 2013
i
APPENDICES
Appendix 1 - Questions to Paola KHAWATMI
Project Manager at ULULE
In an interview (Appendix X), the findings of the report were reviewed and White agreed with
Paola KHAWATMI, the project manager at Ulule. The interview was in French and accurately
transcribed into English by Louis BELLOIN and approved by Paola KHAWATMI.
Summary - Information from the website: http://fr.ulule.com/
ULULE is the first European crowdfunding platform. It brings together projects that are
creative or innovative, or are community-minded projects.
Interview
- Louis BELLOIN: What does ULULE’s business consist of?
Paola KHAWATMI: ULULE focuses on one specific aspect of crowdfunding: reward
crowdfunding. People invest in ideas and in exchange they receive goodies and gadgets.
- What is the specificity of ULULE?
In accordance with the interests and backgrounds of our founders, ULULE mainly focuses on
cultural projects, and most of them are IT projects, computer games, etc.
- What is the story and growth of ULULE?
Two people passionate about IT created ULULE in 2011 with only 3 projects. At present, we
have 400 projects under review and more than 2,000 projects have been realised.
62% of all our projects have been a success.
- How does ULULE choose its projects?
It is very simple, we look for diversity, and we have 3 criteria: creativity, innovation or charity
projects.
The project starts with the work of the founder. He has to show us that his immediate circle of
friends and family are investing in the project. It enables us to check whether the project is
real and genuine.
ii
Finally, the founder has to set an amount and a period of time. If, at the end of the deadline,
the amount has not been achieved, we give the money back to investors. On the other hand,
the money can exceed our expectations. There is the example of Noob, a webseries. At the
start of the project, the founders expected to raise 40,000 Euros. At present, the fundraising
has just ended and we collected 680,000 Euros.
- In your opinion, what are the limits of crowdfunding?
At the moment, there is no regulation. The AMF (French Financial Regulator) released an
official booklet for people to understand what crowdfunding is but there are no specific rules.
Another limit: at the moment crowdfunding is not well known in France, and we need better
visibility to continue to grow.
Finally, crowdfunding should not be the sole solution for financing. It has to be combined with
other sources.
France has to make the effort to stay in the competition. If there are still no answers in
September, platforms will move outside the country and one of the strengths of
crowdfunding, which could also be one of its limits, is that as it is through Internet, it does not
matter where the platform is based.
- What are the motivations of the investors?
Mainly emotional, as there is no financial compensation.
- What is your most incredible project?
NOOB, a webseries. To date, we have raised 680,000 Euros, the most important amount
raised in Europe by crowdfunding.
Appendix 2 - Questions to Aymeric DUGRAY
Questions to Aymeric DUGRAY - CFO of Antabio
Source:
In an interview (Appendix X), the findings of the report were reviewed and White agreed with
Aymeric DUGRAY, the CFO of Antabio. The interview was in French and transcribed into
English by Louis BELLOIN, and approved by Aymeric DUGRAY.
iii
Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN
[Telephone Interview] L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013,
9.30 a.m. (GMT)
In text reference: (A. DUGRAY, 2013)
Summary - based on Antabio’s Website (www.antabio.com)
Aymeric DUGRAY is the CFO of Antabio. Mr. DUGRAY has a scientific and business
background with acknowledged expertise in the structuring and negotiation of financing deals
in start-up companies. Following a PhD in Biology and an MSc in Business Development at
ESCP-Europe, he set up his own company in 2006. In 2009, he met Marc LEMONNIER. Mr.
LEMONNIER was looking for an expert in finance and business development and as Mr.
DUGRAY was attracted to entrepreneurship, he was looking for a strong project.
In October 2009, they created ANTABIO in Toulouse. One year after that, as a start up they
needed funds. They used crowdfunding via the Wiseed Platform. At present, they are the
world’s first biotech start-up to exit with crowdfunding .
History:
2009: Aymeric and Marc have the idea of founding ANTABIO.
2010: Fundraising thanks to the French crowdfunding Platform Wiseed.
2011: A French/Swiss Business Angel acquires an interest in Antabio.
2012: Buy-Back of the equity interests of all the 209 Antabio investors, who were grouped in
a holding.
2013: Antabio receives a €4.7 Million Wellcome Trust Seeding Drug Discovery Award to
develop novel small molecule drugs for the treatment of life-threatening infections caused by
multi-drug resistant Gram-negative bacteria.
INTERVIEW
Louis BELLOIN: What does Antabio’s business consist of?
iv
Aymeric DUGRAY: Antabio is a France-based biopharmaceutical company dedicated to the
discovery and development of first-in-class molecule compounds to treat severe hospital and
community-acquired infections caused by multi and pan-drug resistant bacterial pathogens.
- How did you have the idea of raising funds through crowdfunding?
When we started looking at solutions to raise money, we were in a “Death Valley” without
any solutions for financing our project. The idea of raising money through crowdfunding
seemed like the best solution at that stage. Although it was quite a new model, we trusted
Thierry MERQUIOL (CEO of Wiseed), who we knew at that time and the reputation of his
platform, Wiseed, which was one of the only equity-crowdfunding platforms in France.
- Could you explain the steps involved in this fundraising?
After an audit and a robust examination of the project and the team by experts mandated by
Wiseed, we were authorised to launch our project on their platform.
Then Wiseed set up a holding and designated one person to be the representative of this
holding. This organisation helped to coordinate all the 209 investors we had.
The most important point that helped us to succeed with this fundraising was our ability to
present the project to people. Our business is technical, but we worked on our presentation
to explain our idea in simple terms. Another important fact was that our core business is easy
for people to appropriate. They easily understand the point of our research and when, for
example, you know that a member of your family may have cancer and that you have the
opportunity to contribute to a company that may be able to fight it, you are more willing to
contribute to the project.
Finally, at the start of the project, we established a fair value of our business with an expert
that was the prorata of our target budget. Then, as this target was progressively exceeded,
our company was revaluated according to the new budget.
What were the features of your project? The target budget, the time frame, the type of
investors and the return they get?
We fixed a limit of € 100,000. At the end of the 3-month period, we had obtained € 300,000.
The most important contribution came from the Business Angel (€ 30,000) and the smallest
ones from people interested in our project (€ 100).
v
Investors get a return of 1.45 times their investment (net of charges) after 18 months. Some
wanted to stay within our capital structure.
- Seen from today’s standpoint, was this experience a good idea? Do you think you
could have developed your business without crowdfunding? What happened after the
fundraising?
This experience was a great idea. We are the world’s first biotech start-up to exit crowd
funding. We are now in discussion with Private Equity Funds. It helped us to create value
really fast. We could have developed our company with traditional funds or Business Angels,
but it would have take more time and the conditions would not have been the same.
Thanks to this fundraising, we entered a virtuous circle, our project become interesting to
other funds and we managed to obtain other fundraising.
- One of the limits of crowdfunding is the lack of experience of the investors and the
absence of professional advice that a traditional Business Angel is able to give. Was
this a problem?
We didn’t have this kind of problem, it was quite simple to implement and one of the features
of Wiseed is that there is an interactive forum where investors can ask questions and get
explanations. We answered the people interested in our project directly.
- What is your opinion of this fundraising now?
This fundraising was very important for us. We were able to increase our credibility with
potential investors that have seen how successful this has been.
Crowdfunding is an excellent and adaptable tool to finance the early stages of a company’s
existence. It can help it to increase the credibility and value of the company.
- What, in your opinion, are the advantages and drawbacks of crowdfunding compared
with traditional funds (Private Equity and Business Angels)?
This fundraising was simple to set up, quick to realise, and helped us to demonstrate our
capacity to find innovative ways of financing.
vi
However, there are drawbacks that could be prejudicial for some companies, such as people
not knowing the technical aspects of our job or our industry. In addition, the amount to raise
was quite small and limited for a start-up.
- What are the limits of crowdfunding?
Crowdfunding is really recent, platforms are not as specialised as funds and in my opinion,
the project can only work if it is easy for the investors to be impacted by the idea and if it is
easy to understand. Biotech companies are technical and generally, people have no idea of
our existence until we launch a good product.
- What is your personal opinion of crowdfunding?
Crowdfunding is a new tool pack for start-ups and an amazing opportunity for start ups.
Today, I see it as a solution that complements traditional funds. It is the perfect solution to
finance the early stages of a company and increases your credibility as a professional.
Appendix 3 - Questions to Raphael BESSIS
CEO Krama-Heritage
In an interview (Appendix X), the findings of the report were reviewed and White agreed with
Raphael BESSIS, CEO of Krama-Heritage. The interview was in English, transcribed by
Louis BELLOIN and approved by Raphael BESSIS.
Krama-Heritage (http://www.krama-heritage.net/)
Interview
- Louis BELLOIN: What does Krama Heritage’s business consist of?
Krama-Heritage is a fashion and social impact project related to the Krama, which is
Cambodia’s traditional scarf. Our objective is to launch a fashion trend out of the Krama,
starting in Paris while supporting Cambodia at our modest level in several respects.
- How did you get the idea of raising funds thanks to crowdfunding?
Reservoir Funds, the crowdfunding platform on which we are registered, contacted us a few
months after we started the company. At that point, we did not yet need financial support but
5 months later we did, so we contacted them again.
vii
- Which platform and why?
Reservoir Funds, since they contacted us. We did not conduct a crowdfunding market study.
- Could you explain the steps involved in this fundraising?
The steps are as follows: prepare a file with a text presenting the project and setting out the
reasons why we are resorting to crowdfunding, photos and a video and advertise it,
essentially through social media.
-What is happening right now? How much do you want to obtain?
It has now been 5 days since we have started the 60-day campaign asking for the 5,000
Euros that we need for our development. I must admit that I’m disappointed with the result
since we haven’t collected much, and definitely not the amount we hoped for, despite intense
communication on social networks.
- One of the limits of crowdfunding is the lack of experience of the investors and the
absence of professional advice that a traditional Business Angel is able to give. - Is
this a problem for you? What do you except from Crowdfunding?
It is possibly a problem. Even though our platform guided us through some steps, they were
not following us closely. As for now, I don’t know yet what went wrong, or if things went
wrong at all. I see four possible reasons.
The first, which I rule out, is that our project does not appeal to investors. I’m really not being
boastful or over-confident but ever since the launch of our company, lots of people, some
whom we knew but mostly not, have showed us a lot of love and support for our project. The
words “I adore”/”had a real crush” (on) Krama-Heritage do come up quite often, which is very
flattering and great.
The second is that possibly our video did not urge enough people to invest. We spent maybe
10 hours shooting and editing the video; it was the best effort we could come up with (it’s me
and my partner presenting all the aspects of our project in front of the Louvre with pictures
fading in to make the presentation more dynamic). I haven’t had enough feedback so far but
what I have had, has been really good. My partner was told though that the video did not
impact enough, either technically speaking or in terms of humour. On those two points, as I
said, I believe that we gave it our best effort: technically, we were very limited, and I could
not see us presenting our humanist and social project laughing our asses out. We were far
viii
from being austere on the video, but we could not act as comedians. Still, our video had 350
views on YouTube and we only have 5 donators.
The third option is that as we are aged 25, we address an audience of that age, young adults
do not have the philanthropic call to crowdfunding nor the financial means. All our friends
have helped us a great deal with our project – posing in front of our cameras to advertise our
Karmas or buying lots of them – but I really don’t see them reacting positively to a guy asking
them in a video “help me out, give me some money”, even if that guy is a very close friend of
theirs. Even for me, someone with the entrepreneurial spirit, I have to admit that I don’t see
myself giving to entrepreneurs based on a video, most of all because I don’t have the
financial means to do so. I am almost sure that the average age of crowdfunding investors is
at least 30.
The last reason is that possibly Reservoir Funds is not a popular enough platform. They have
800 likes on their page, which is pretty low. Two-thirds of their projects are not being
financed. Still, a third is, so I’m not putting the blame on them.
- What is your opinion of this fundraising now?
Cf. supra
- What are the advantages and drawbacks in your opinion of crowdfunding compared
with traditional funds (Private Equity and Business Angels)?
Crowdfunding is easy to set up, very accessible to most entrepreneurs and, provided it
works, easily provides the entrepreneurs with funds with very few constraints. The other side
of the coin is that its outcome is very random and, in non Anglo-Saxon countries, it is little
known. Entrepreneurs should not rely exclusively on crowdfunding in those countries.
Traditional funds provide you with money. If they love your project, you will get the amount of
money that you need. The drawback is that there are a lot of constraints. They tie your
hands, and the reward they ask for is equity, which may not of course be to the
entrepreneur’s taste.
- What is your personal opinion of crowdfunding?
Cf supra. A good financing channel that needs further development in non-Anglo-Saxon
countries.
ix
Appendix 4 - Questions to Benoit BAZZOCCHI
CEO and Founder at SmartAngels
In an interview (Appendix X) the findings of the report were reviewed and White agreed with
Benoit BAZZOCCHI Founder and manager at SmartAngels. The interview was fairly reported
by Louis BELLOIN and Approved by Benoit BAZZOCCHI.
Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN
[Telephone Interview]. 8/08/2013.
In text reference: (B. BAZZOCCHI, 2013)
Summary - https://www.smartangels.fr/homepage:
SmartAngels is the first French Crowdfunding platform dedicated to the direct investment into
the capital of start-ups or SME.
SmartAngels simplifies the process for investors and entrepreneurs to meet each other. More
than 4,000 Members financed companies each year between € 300K and € 1M per
operation.
Their main contributors are qualified investors, Business Angels or company managers.
- Louis BELLOIN: What makes SmartAngels Unique?
SmartAngels was created in March 2012. As of today, we have funded 7 projects for a total
amount of € 2M.
The specificity of SmartAngels is the investors that we target. We look for people that are
ready to invest a significant amount of money. We could be considered as a premium
Platform.
Our team brings together people from investment banking. We consider Crowdfunding like a
new financial job. We undertake a rigorous financial analysis of the companies we accept on
our platform
x
- How does SmartAngels choose its projects?
Our strength is not the number of projects that we have on our platform, we make a strong
selection based on financial results, strategy and the team.
We set up due diligence and our approach could be compared to the one used in private
equity funds.
We look for companies with potential growth and favor companies rather than specific
projects by companies or subsidiaries.
- In your opinion, what are the limits of Equity-Crowdfunding?
Foreign, especially US-based platforms, will become competitors as all the business lies on
Internet.
I have no doubt that there will be strong growth in the industry. However some platforms, due
to bad choices, may fail because of the lack of management.
Finally, we are not in competition with traditional funds or Business Angels. They look at
business that raise bigger amounts of money.
- Why do some projects fail to reach their target?
For me, beyond specific example, the most important reason for failure depends on how
managers present their idea to the public and whether it is easy for the business to make
itself understood by everyone. It is not a question of complexity. A technical biotech company
may raise more money if their managers know how to make understand their business in a
simple way.
- Do you have any examples of fraud? How can you create follow-up of the projects
after their fundraising?
I don’t have any in mind. I believe that reward-Crowdfunding is the category that will be the
most subject to fraud as there is no follow up after the fundraising.
SmartAngels pays attention so as to be as transparent as possible for everyone. We provide
information to investors and we ask managers to update news through a forum.
xi
We have the role of an intermediary and try to be present over the long-term as that is the
vision of the investors involved.
- What are the motivations of the investors?
Return on investment is obviously the driver of our business. However, I must admit that I
have been amazed by the involvement investors want to have in the companies they invest
in. They are willing to give advice, to help the managers, to create a strong relationship with
them.
- What is your most incredible project?
Recently, we financed a company that builds table with tactile screens integrated in them.
- What is your opinion of Crowdfunding?
Crowdfunding is a new job for the finance industry. A new intermediary for start-ups and
companies that are looking for money. I am sure that there is a good future for this activity. In
addition, countries are setting up regulations, all the discussion with professionals have been
taken into consideration and we are now waiting for them to be implemented.

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Louis BELLOIN - Report on Crowdfunding - 2013

  • 1. Written by Louis BELLOIN on August 2013 - Contact: fr.linkedin.com/in/louisbelloin/   Year 2012/2013 MSc Management Report ANALYSIS AND EVALUATION OF THE CONCEPT OF CROWDFUNDING. WHICH ORGANISATIONS CAN BENEFIT FROM IT, AND HOW SHOULD THEY GO ABOUT IT? DISCUSS WITH EXAMPLES. Louis BELLOIN Word Count - Main text: 4,557 words Word Count - Total (Main Text, References, Appendix): 9645 words
  • 2. 2 TABLE OF CONTENTS TABLE  OF  CONTENTS  .........................................................................................................................     ACKNOWLEDGEMENTS  .....................................................................................................................     ABSTRACT  ........................................................................................................................................  I   MAIN  TEXT  ......................................................................................................................................  1   Introduction .............................................................................................................................. 1   Definition.................................................................................................................................. 2   i.   General Idea .................................................................................................................. 2   ii.   History ........................................................................................................................... 3   The different types of Crowdfunding and Projects................................................................... 4   i.   Types of Crowdfunding .................................................................................................. 4   ii.   Type of Projects, Motivation to invest, Reasons to fail.................................................. 6   Position in the market .............................................................................................................. 9   i.   Evolution ........................................................................................................................ 9   ii.   The French market ...................................................................................................... 11   Real Cases, and the case of Antabio .................................................................................... 11   Limits and Regulation ............................................................................................................ 14   Conclusions and Recommendations ..................................................................................... 17   REFERENCES  ..................................................................................................................................  18   APPENDICES  .....................................................................................................................................  i   Appendix 1 - Questions to Paola KHAWATMI.......................................................................... i   Appendix 2 - Questions to Aymeric DUGRAY ..........................................................................ii   Appendix 3 - Questions to Raphael BESSIS ...........................................................................vi   Appendix 4 - Questions to Benoit BAZZOCCHI.......................................................................ix  
  • 3. Written by Louis BELLOIN on August 2013 - Contact: fr.linkedin.com/in/louisbelloin/   Year 2012/2013 ACKNOWLEDGEMENTS First of all, I would like to thank the different experts I have had the opportunity to talk to. Thomas ROCHE, the founder of GoodMorningCrowdfunding, who oriented my research and gave me a good overview of the environment. Cyril ROCCA who works in Private Equity and helped me to understand the opportunities and downside crowdfunding presents as opposed to Traditional Funds. Aymeric DUGRAY, the CFO of Antabio, who was passionate about what he does and gave me an insight into how crowdfunding can help a company to emerge. Benoit BAZZOCCHI, the founder and CEO of SmartAngels, thanks to his experience, I learned about the operational aspects of how to conduct an equity-crowdfunding operation. Raphael BESSIS, the founder of Krama-Heritage, they juste started their crowdfunding campaign, during my research, so we exchange a lot about the subject. Finally, Paola KHAWATMI, Project Manager at Ulule, who gave me a good insight into a leading French Platform. I would also like to thank all of the team at Imperial College, the teaching staff and faculty, and especially Marco MONGIELLO and Kate RAISON. I acquired all the knowledge I expected, and the experience as part of this Masters was an incredible opportunity that will accompany me throughout my life. Finally, I would like to dedicate this research to Clémence and Gaspard, without them, this adventure would not have been possible.
  • 5. I ABSTRACT I wanted to focus my report on real experience. I based my research on professionals that work with this industry, and I had the chance to discuss with parties that participate throughout the whole process of crowdfunding. In my report, I have focused on the French Market as it is my native country, and a place where crowdfunding is in continuous growth. After a brief introduction on crowdfunding, I will focus on equity-crowdfunding. Finally, the main challenge in relation to this report is that crowdfunding is not fully regulated, which leads to questions about its future. In accordance with my work experience (6 months in Private Equity and 6 months in Mergers and Acquisitions), I wanted to focus my research on both the limits of crowdfunding as compared with the other types of funding, and the place that crowdfunding could occupy alongside traditional funding, such as Business Angels and Private Equity Funds.
  • 7. 1 MAIN TEXT Introduction “To transform social capital into financial support”1 (K. Grell, 2013). This sentence gives a good overview of what crowdfunding provides. The concept of gathering financial funds under the name crowdfunding appears in 2006. However, the concept of financing projects by a large number of supporters is much older. I have listed some examples, some of which are surprising: − Mozart and Beethoven financed the publication of compositions via subscribers and those subscribers would put in money and get a copy of the book with their name inscribed inside or a copy of the concerto, or a preview of the concert.2 − The Statues of Liberty: the American Committees were unable to raise enough money to finance the site and the pedestal on which the statue would sit. Through the newspaper the World, they involved the American people in completing the monumental project and raised $100,000 in five short months through micro donations (over 120,000 donations, which were, in most cases, less than a dollar).3 This new way of financing offers the possibility for everyone to invest in a project (cultural, not-for-profit organisation or company). In this report, the analysis will be based on a definition of what crowdfunding is, the position of this new type of financing in relation to traditional sources, an analysis of the main players in the sector, with particular attention to the French Market, and finally, what it offers to the company that benefits from it with an in- depth analysis of the next step: what happens for a company after being funded using crowdfunding. To personalise this report, I will base my observations on interviews with a professional in the sector and people that benefit from it. I had the opportunity to meet Aymeric DUGRAY, the CFO and founder of Antabio, the world’s first biotech start-up to exit crowdfunding, Thomas ROCHE, the founder of GoodMorningCrowdfunding, Cyril ROCCA who works in Private Equity. Raphael BESSIS, the founder of Krama-Heritage, Paola KHAWATMI, Project 1 Stephanie Carmichael, SC, 2013. Crowdfunding nearly doubled last year with 1M in successful campaigns. Venturebeat, [Online] Available at: http://venturebeat.com/2013/04/08/crowdfunding-nearly-doubled-last-year-with-1m-successful-campaigns/ [Accessed April 8, 2013, 5:00 a.m.] 2 David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC) 3 DailyCrowdSource, 2013. Pulitzer crowdfunded the Statue of Liberty? DailyCrowdSource, [Online] Available at: http://dailycrowdsource.com/20-resources/projects/169-pulitzer-crowdfunded-the-statue-of-liberty
  • 8. 2 Manager at Ulule, and Benoît BAZZOCCHI, the founder and CEO of Smart Angels, a crowdfunding platform. Furthermore, my research will focus on the European Market and more specifically, the French one. Definition i. General Idea How do you finance a charity? How do you place your private money in a project that you like? How do we highlight the entrepreneurial spirit that we possess when financing a company? How do we invest our own money in line with our own values and convictions? Or be able to participate in the creation of the pub in our street in a formal and official way? Crowdfunding answers all of these questions. A definition used in most academic papers has been established by Armin SCHWIENBACHER (An academic specializing in finance): “Crowdfunding involves an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights.”4 Some companies had the idea of meeting supply and demand through the Internet. It started with an artistic project, financing a book that people liked or a singer that uploaded songs online and people can finance and take part in the project to launch the CD. Thanks to its unstoppable ascension, unlisted companies, start-ups and small businesses found it was in their interest. Now people can present their business online and ask for funds, and in exchange, new investors can acquire an interest in the capital or research how to monetise this loan with the founder. In practice, this means that interested users donate an amount of money for concrete projects via Internet. The projects have a target to achieve within a limited time frame. Then two issues arise: − If the targeted percentage of the budget is reached, the project is considered as successful and the founder receives the money; − If the targeted percentage of the budget is not reached, all the money is returned to users and the project is cancelled. 4 David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC)
  • 9. 3 ii. History Crowdfunding is usually understood as being a subtopic of crowdsourcing. The term “Crowdsourcing” was introduced in 2006 by Jeff HOWE.5 Crowdsourcing is the act of outsourcing tasks to an undefined large group of people or community (Crowd) through the Internet (the method most often used). Starting with the funding of cultural events (movies, CDs…), crowdfunding is taking further steps towards investment in companies, using the same principle: by raising funds through Internet platforms, they start to take the place of Business Angels by becoming shareholders of start-ups at a very early stage. Following the 2008 crisis, looking for money through funds or banks was very difficult, particularly for biotech companies6 where R&D can take 10/15 years of investments of hundreds of millions of Euros. After the Series A Crunch (financing a company after the seed stage), crowdfunding appeared as a good solution to value the interest of an idea. You will find below a small explanation of the Series A Crunch by John Cook: “The number of seed-stage/angel deals has nearly quadrupled in the past four years. Meanwhile, series A financing rounds haven’t budged much. The ratio between seed stage and series A now stands at 3.3 to 1. In 2008, that ratio stood at just 1.9 to 1.7 ” The example of Antabio, which we will discuss later, is the perfect illustration of what companies can expect from crowdfunding. 5 Jeff Howe, 2006. The rise of Crowdsourcing. WIRED [Online] Available at: http://www.wired.com/wired/archive/14.06/crowds.html [June 2006] 6 Carine La, 2013. Entreprises Biotech et Crowdfunding: une grande attente pour les entrepreneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March 5, 2013] 7 John Cook, 2013. Chart: The ‘Series A Crunch’ is alive and well. Geekwire. [Website] Available at : http://www.geekwire.com/2013/chart-series-crunch-real/ [January 18, 2013]
  • 10. 4 The main reasons for this change came about during the 2008 Crisis. Firstly, entrepreneurs were looking for other sources of funding, secondly, Business Angels did not want to take big risks by investing money in ideas that could fail and thirdly, people had lost confidence in traditional finance and were looking for opportunities to earn money through projects they believed in. The first and main advantage of this type of funding is the fact that it came at a time when investors had lost confidence in banks and traditional funds and on the other hand, people were interested in looking to invest their money in projects in which they were interested8 . Crowdfunding has been one of the best solutions as it offers a new market with a new type of investor: people, people that invest in a business because they have an emotional interest or strongly believe in the project. The different types of Crowdfunding and Projects Ngo Excellence, Rewards Based Crowdfunding, 2013. i. Types of Crowdfunding There are three big families of crowdfunding: crowd supporting (giving money without any rewards), for example to charities, crowdfunding (investing for benefits, either rewards or return on investments), and peer-to-peer lending initiatives also known as person-to-person lending, avoids the bank as a middleman. 8 Thomas Lestavel, 2013. Financement de projet : le boom du Crowdfunding. 01Business. [Newspapers] Available at: http://pro.01net.com/editorial/597455/financement-de-projet-le-boom-du-crowdfunding/ [July 1, 2013]
  • 11. 5 Donation without rewards The principle of donation is completely altruistic as the recipient has no obligation regarding the donors. Most of the projects involved in this category are social, and could be either charity (http://octopousse.com/projets/profaso) or cultural-based (http://octopousse.com/projets/yann-le-webdoc). Crowd Sponsoring This category was the most successful at the beginning of crowdfunding. Generally, it includes cultural projects such as singers, painters or writers. The rewards could be Cods, DVDs, download options, or contacts with artists. The most successful platform is Kick- starter in the US and MyMajorCompany in France (with the example of the song “Tomboy”9 ). Pre-Selling In this case, the reward could be the product itself which is the aim of the project (book, movie, music, gadget, etc.). This structure is quite interesting as the reward can be compared with an advanced sale. In my discussion with R. BESSIS, the founder of Krama Heritage, they offer donors one of their Kramas (http://www.reservoirfunds.com/projet/krama- h%C3%A9ritage). Lending Equivalent to the peer-to-peer structure, the rewards take the form of returned loans. This loan can have different forms: revenue-based loans, interest-based loans or donation-based loans, with only a symbolic repayment, the UK Platform Buzzbnk is an example, as well as Babyloan in France. Investments (Equity-Crowdfunding) This is the most profitable form with the most interesting future. The reward is company equity, shares, dividends or voting rights. It demands a specific authorisation from the financial market authority in some countries (such as France). The regulation gets more extensive as the rewards get higher. 9 MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008]
  • 12. 6 More than money, equity-crowdfunding is a real entrepreneurial adventure, and people became investors of companies or projects they are interested in10 . The example of Antabio (explained below) is the best illustration as it was the first biotech company to be funded by crowdfunding. They obtained € 300 K through the platform Wiseed and gathered together 209 people that invested between € 100 and € 30,000 (A. DUGRAY, 2013)11 . ii. Type of Projects, Motivation to invest, Reasons to fail Type of Projects As well as the type of crowdfunding, there are a lot of different projects. They differ through: - The purpose of the crowdfunding project: - Business: Antabio: http://www.antabio.com/ (A. DUGRAY, 2013)12 - Creative: The French artist Judith: http://www.mymajorcompany.com/projects/tombee-du-lit - Political - Social: http://octopousse.com/projets/yann-le-webdoc - The aim of the founder: - Donation (Charities): http://octopousse.com/projets/profaso - Non-financial rewards: Krama-Heritages13 (R. BESSIS, 2013) - Financial rewards: Antabio - Return of loan. - The underlying tax-regime (for profit or not-for-profit). 10 Carine La, 2013. Enterprises Biotech et Crowdfunding : one grande attente pour les entrepreneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March, 5 2013]) 11 Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 a.m. (GMT) 12 Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 am (GMT) 13 Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, R. BESSIS from New-York. 24/07/2013, 6.40 pm (GMT NYC)
  • 13. 7 Motivation to invest The CrowdCafeCrowdfunding Motivations — What Drives People to Invest? 2013 The two extreme reasons are philanthropic or profit, and there are thousands of different reasons in between. This diversity is the definition itself of what I suggest at the beginning of the report: democratisation of finance. According to one very interesting article by Jonathan SANDLUND, there are 4 archetypal investor motivations14 : 1. Friends & family motivated by the desire to support a friend or family member. 2. Consumer motivated by the product or service of the company (e.g. Pebble smartwatch). 3. Affinity motivated by a shared interest, passion, belief or sense of identity (e.g. university alumni, interest graphs, geography/”local”). 4. Financially motivated by a potential financial return. The Fourth reason is the only one which is financially oriented. The others involve an emotional aspect, which can lead to more irrational decision. However, it is important to understand that one investor can be guided by other aspects (emotional + financial benefit). Some Equity-Crowdfunding platforms are mainly driven by financial return on investment. During my interview with Benoit BAZZOCCHI from SmartAngels I asked him the question, here is his answer: “Return on Investment is by evidence the driver of our business. However, I must admit that I have been amazed by the involvement; investors want to have in the companies they invest 14 Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013]
  • 14. 8 in. They are willing to give advice, to help the managers, to create a strong relationship with them15 .” (B. BAZZOCCHI, 2013) In my personal opinion, I strongly believe that to create a sustainable and profitable business, investors need both financial + social aspects, they are going to invest their time and money to understand the project, help the founder to develop it and get a return on their investment. Emotionally speaking, they will be proud of the work they have done, even if they are not the creator of the business. Why projects fail? - Some advice in order to succeed with your crowdfunding campaign Although it appears easy to launch a crowdfunding campaign (on average, a few minutes after your project has been approved by the platform (P. KHAWATMI, 2013)), setting up the strategy is more than difficult. Here are some tips on understanding why a project fails and what the key elements when launching your own campaign are. According to Aymeric DUGRAY, CFO of Antabio, one of the main reasons why Antabio’s campaign was a success is “Communication”. As he stated during the interview: “The most important point that helped us to succeed with this fundraising was our ability to present the project to people. Our business is technical, but we worked on our presentation to explain our idea in simple terms” (A. DUGRAY, 2013). To highlight the reason, Benoit BAZZOCCHI the founder of the Equity-Crowdfunding Platform, SmartAngels answered in the same way: “For me, beyond the specific example, the most important reason for failure depends on how the managers present their idea to the public and whether it is easy for the business to make itself understood by everyone. It is not a question of complexity. A technical biotech company may raise more money if their managers know how to make people understand their business in a simple way16 .” (B. BAZZOCCHI, 2013) “Take the time to prepare the campaign17 ” (H. HOBEIKA, 2013). This Lebanese engineer managed to raise $60,000 in one month to produce a monitor that helps swimmers during competitions. She took time (2 months) to prepare the campaign, think about its strategy and 15 Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit BAZZOCCHI from Paris. 8/08/2013. 16 Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit BAZZOCCHI from Paris. 8/08/2013. 17 Aline MAYARD. 10 conseils pour réussir sa campagne de crowdfunding par des entrepreneurs qui ont réussi et échoué. Wamda [Website] Available at: http://fr.wamda.com/2013/06/10-conseils-pour-r%C3%A9ussir-sa-campagne-de-crowdfunding- par-des-entrepreneurs-qui-ont-r%C3%A9ussi-et-%C3%A9chou%C3%A9 [June 10, 2013]
  • 15. 9 the people she wanted to target. For the same reason, Krama-Heritage, founded by R. BESSIS, revealed during his interview that they did not put much effort into the preparation of their campaign. As he stated: we gave it our best effort18 ” (R. BESSIS, 2013). Yet he pointed out a real problem that entrepreneurs face: they have a lot to do and run out of time. They have to be on schedule and as crowdfunding is not very common at present, it is difficult to get good advice. “To start up, the amount to be raised is quite small” (A. DUGRAY, 2013), compared to what a Business Angel (BA) can provide. It is true that while the process is much faster than for a BA, in most cases, the money provided thanks to crowdfunding is a small amount and it could be useful for a specific project rather than for financing the entire firm. Position in the market To find funds and credit is difficult today as bankers are reluctant to finance any projects, especially for companies that require huge investment from the beginning and could only provide a return on investments several years later, such as Biotech Companies19 i. Evolution In 2012, 1 million crowdfunding campaigns achieved their objectives worldwide. This represents a total of $ 2.7 billion20 . There are 308 crowdfunding platforms worldwide. According to the forecast, this number should rise to $ 5 billion this year21 , while some specialised firms have predicted a $ 1,000 billion-strong economy from 202022 (the Soho loft, 2013). Most of the projects will remain cultural (songs, movie production, etc.). In Europe, the market amounted to $ 945 million with a growth of 65% according to Financement Alternatif, last year. With growth of 105% and $ 1.6 billion raised, the United States is the most attractive market. (Financement Alternatif, 2013) 18 Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Interviewer] Raphael BESSIS from Paris. 24/07/2013. 19 Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March 5, 2013] 20 Stéphanie Chaptal, 2013. Financement Alternatif. [Newspaper] May 2013. 21 Thomas ROCHE, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorning Crowdfunding [Website] Available at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July 27, 2013]. 22 Fabien RISTERUCCI, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique- economique/221173232/emergence-finance-particip [May 28, 2013].
  • 16. 10 Statista, Global Crowdfunding Volume Reaches $2.7 Billion in 2012 by Felix Richter, 2013 The average transaction size of a reward campaign hovers around $ 5,000, whereas the average investment campaign (Equity-Crowdfunding) raises around $ 100,00023 . However those numbers do not accurately reflect reality, and it depends on the country, type and structure of the platform and its market. As an example, SmartAngels (French-based platform) targeted Business Angels that have huge resources (see interview with Benoit BAZZOCCHI in Appendix), but on the contrary, Ulule targeted people that invest a small amount of money per project (See interview with Paola KHAWATMI in Appendix). An example of one of the biggest fundraising campaigns is a watch connected to your Smartphone: Pebble, which raised $ 10 M on the Kickstarter platform. Peble’s Campaign on Kickstarter - Screen Shot, 2013 Allocation of the funds according to the type of Crowdfunding. - Crowd-Sponsoring amounted to $ 1.4 billion in 2012 23 Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013]
  • 17. 11 - Lending amounted to $ 1.2 billion in 2012 - Equity-Crowdfunding amounted to $ 116 million in 2012. The category projects for Crowdfunding - Charity: 27.4% - Business and enterprise: 17% - Theatre: 12% - Music: 7.5% - Energy and environment: 6% - Below 6%: Fashion, Art, IT, Photography, science and biotechnology ii. The French market “In France we have 25 Platforms, which enables 35,000 web users to finance 15,000 projects in a total amount of € 6 M since 2008, the start of the activity24 ”, as noted by Arnaud POISSONIER (Founder of Babyloan in March 2012). It started with a song by the singer Grégoire “Toi+Moi25 ” that collected € 70,000 on MyMajorCompany (YouTube, 2008). In France, Crowdfunding started with platform that promoted cultural projects: CDs, singers, and writers. Here is the list of some of the first players on the market: My Major Company (2007), Babeldoor (2009), Kisskissbankbank (2010), Ulule (2010). Other are specialised in micro-credit: Babyloan (2008), or social and charity projects: SPEAR (2011), Ecobole, for sustainable development (2013). Finally, some recent platforms focus on companies that are already created, that have just started their business or that have project in development: Smart Angels (2012), Anaxago (2012), FinanceUtile (2009), Wiseed (2008). Real Cases, and the case of Antabio Starting this report, I managed to contact industry players and all the parties that are involved in crowdfunding: The CEO of the platform SmartAngels, the CFO of Antabio, a company that 24 Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper]. Available at: http://www.latribune.fr/entreprises-finance/banques-finance/industrie-financiere/20121219trib000738345/le-crowdfunding- europeen-interpelle-michel-barnier.html [December 12, 2012]. 25 MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008]
  • 18. 12 managed to use this type of fundraising, an employee at Ulule, a French Platform, a Banker who worked in a Private Equity fund and who has an interesting opinion of crowdfunding, and a journalist that has launched his own crowdfunding blog: Good Morning Crowdfunding. In this section, I will present some sections of the interview with Messrs. DUGRAY (AD) and BAZZOCCHI (BB) in order to get the point of view of the different professionals involved in Crowdfunding. All the interviews have been retranscripted in the Appendix. The people involved have approved them. Aymeric DUGRAY is the CFO of Antabio. Antabio is a France-based biopharmaceutical company dedicated to the discovery and development of first-in-class molecule compounds to treat severe hospital and community-acquired infections caused by multi and pan-drug resistant bacterial pathogens. They are the world’s first biotech start-up to exit from crowdfunding. Benoit BAZZOCCHI is the CEO and founder of SmartAngels. SmartAngels is the first French Crowdfunding platform dedicated to the direct investment in the capital of start-ups or SMEs. SmartAngels simplifies the process for investors and entrepreneur to meet each other. More than 4,000 Members financed companies each year between € 300K and € 1M per operation. Their main contributors are qualified investors, Business Angels or company managers. - How did you have the idea of raising funds through crowdfunding? Aymeric Dugray (AD): When we started looking at solutions to raise money, we were in a “Death Valley” without any solutions for financing our project. The idea of raising money through crowdfunding seemed like the best solution at that stage. Although it was quite a new model, we trusted Thierry MERQUIOL (CEO of Wiseed), who we knew at that time and the reputation of his platform, Wiseed, which was one of the only equity-crowdfunding platforms in France. - Could you explain the steps involved in this fundraising? AD: After an audit and a robust examination of the project and the team by experts mandated by Wiseed, we were authorised to launch our project on their platform. Then Wiseed set up a holding and designated one person to be the representative of this holding. This organisation helped to coordinate all the 209 investors we had.
  • 19. 13 The most important point that helped us to succeed with this fundraising was our ability to present the project to people. Our business is technical, but we worked on our presentation to explain our idea in simple terms. Finally, at the start of the project, we established a fair value of our business with an expert that was the prorata of our target budget. Then, as this target was progressively exceeded, our company was revaluated according to the new budget. What were the features of your project? The target budget, the time frame, the type of investors and the return they get? AD: We fixed a limit of € 100,000. At the end of the 3-month period, we had obtained € 300,000. The most important contribution came from the Business Angel (€ 30,000) and the smallest ones from people interested in our project (€ 100). Investors get a return of 1.45 times their investment (net of charges) after 18 months. Some wanted to stay within our capital structure. - Seen from today’s standpoint, was this experience a good idea? AD: This experience was a great idea. We are the world’s first biotech start-up to exit crowd funding. We are now in discussion with Private Equity Funds. It helped us to create value really fast. We could have developed our company with traditional funds or Business Angels, but it would have taken more time and the conditions would not have been the same. Thanks to this fundraising, we entered a virtuous circle, our project become interesting to other funds and we managed to obtain other fundraising. - What are the limits of crowdfunding? AD: Crowdfunding is really recent, platforms are not as specialised as funds and in my opinion, the project can only work if it is easy for the investors to be impacted by the idea and if it is easy to understand. Biotech companies are technical and generally, people have no idea of our existence until we launch a good product. - What is your personal opinion of crowdfunding? AD: Crowdfunding is a new tool pack for start-ups and an amazing opportunity for them. Today, I see it as a solution that complements traditional funds. It is the perfect solution to finance the early stages of a company and increases your credibility as a professional.
  • 20. 14 BB: Crowdfunding is a new job for the finance industry. A new intermediary for start ups and companies that are looking for money. I am sure that there is a good future for this activity. In addition, countries are setting up regulations, all the discussions with professionals have been taken into consideration and we are now waiting for them to be implemented. Limits and Regulation Crowdfunding is about money and sentiment. People invest with their sentiments. As compared to Private Equity Funds or Business Angels, crowdfunding does not provide advice for managing a company. Nowadays, more than money, entrepreneurs need people that are experts in their fields, have a network and can help them to position themselves on the market. During my internship at a private equity fund, in addition to financial analyses and quantitative methods to analyse the potential return on investment the companies might provide us with, we analysed the team, the management of the companies and the people that manage the fund. With crowdfunding, you cannot have access to all the documents and research that are provided by the funds. Platforms try to find solutions to that problem, by hiring corporate finance experts and trying to be as transparent as possible for the investors. An example is Wiseed, which organises a forum where project managers and investors can interact freely to provide information. The translation of crowdfunding is another limit: opening a small business to hundreds or thousands of small investors26 is dangerous for the survival of the company. At the moment, there is no way of controlling everyone’s decisions and strategic decisions are taken at the early stages in the life of a company Regulation is another aspect that needs improvement. The USA, as stated above, created regulations, and started regulating this new concept. French regulators had published a guide to enable people to understand what crowdfunding is and the government, assisted by players in the field, will implement a reform program in September to codify the different types of investment. 26 Carine La, 2013. Enterprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March, 5 2013]
  • 21. 15 However, each country has its own perception and regulations concerning these new phenomena. United States In the US, the JOBS (Jumpstart Our Business Start-Up) Act has been passed by the Senate this year. It mainly states that companies remain private even if there are 2,000 investors in their capital27 . United Kingdom In the UK, the SEIS offers a guarantee against loss of investment in a start-up if there is any default28 . France In France, the Government and main players involved held a round table. There are several issues. In order to start thinking about these regulations, the French Financial Services Authority (AMF) has launched two crowdfunding guides29 that are simply an introduction to crowdfunding, one for the public and the other for platforms and project providers. (Read more on these guides at: AMF Website)30 . According to Paola KHAWATMI, Project Manager at Ulule, a French Platform, “If no answers are provided in September, the platform will move outside the country and one of the strengths of Crowdfunding, which could also be a limit, is that as it works through Internet, it doesn’t matter where the platform is based31 ”. Intermediaries need financial approval to organise acquisition of equity interests in a company and at present, few companies own one. Thus, there are only a few platforms that can organise equity-crowdfunding. In addition, people may also wish to engage in Over-the- Counter operations. However, it is not possible at the moment to engage in this type of operation with different intermediaries, which is the case for crowdfunding. Finally, regulators 27 Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March 5, 2013]. 28 Crowdcube, 2013. The Seed Enterprise Investment Scheme (SEIS). [Blog] Available at: http://www.crowdcube.com/pg/seis- tax-relief-543 [2013] 29 GUIDE DU FINANCEMENT PARTICIPATIF, 2013, Place of publication: France. 30 Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique- economique/221173232/emergence-finance-particip [May 28, 2013]. 31 Paola KHAWATMI. 2013. Questions to Paola KHAWATMI. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, P. KHAWATMI from Paris. 16/07/2013.
  • 22. 16 have to define what it is possible to do with the funds that are maintained through the platform. At the moment, in order to keep funds, companies need a financial status, which is difficult to obtain. However, Minister Fleur PELLERIN has confirmed her wish to make France and the European Commission the precursor in terms of setting up crowdfunding regulations, and the results are expected in September32 . The different companies that provide these services have to come together and create a common association in order to reach a compromise and highlight the risk of investing money33 . Some ideas have been provided to make this structure attractive: - People that finance a project which is under € 3,000 should not fall within the scope of the regulations, and private individuals that lend money would get a fiscal advantage as is the case for donors34 . Others players are less worried by this regulated future, and clearly stated that everything has been discussed clearly with regulators and there will be no surprises with these bills of law: “all the discussions with professionals have been taken into consideration and we are now waiting for them to be implemented.35 ” (B. BAZZOCCHI, 2013) Europe European Crowdfunding Network in Brussels agreed that CF is an alternative for financing SMEs, and a committee has been organised to respond and come up with common regulations. This should lead the way with respect to keeping entrepreneurs in Europe36 . 32 Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding-une-grande-attente- pour-les-entrepreneurs/ [March 5, 2013]. 33 Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique- economique/221173232/emergence-finance-particip [May 28, 2013]. 34 Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper]. Available at: http://www.latribune.fr/entreprises-finance/banques-finance/industrie-financiere/20121219trib000738345/le-crowdfunding- europeen-interpelle-michel-barnier.html [December 12, 2012]. 35 Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Benoit BAZZOCCHI from Paris. 8/08/2013. 36 Fabien Risterucci, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco-conjoncture/politique- economique/221173232/emergence-finance-particip [May 28, 2013].
  • 23. 17 Conclusions and Recommendations Thomas Roche from GoodMorningCrowdfunding stated “there is always someone, somewhere on internet who will find your proposals interesting37 ”. Equity-Crowdfunding is the tool pack that was missing for some start-ups to support some projects. More than money, it offers credit and confidence to entrepreneurs that have great ideas and few resources. However, in order for it to succeed it needs harmonisation. Here lies the main problem: as all of this business is on Internet, do we need to set up local rules for each country or global regulations that would make this economy open to everyone? Moreover, in a near future, will it be a fierce competitor of traditional funds or a strong complementary solution for young entrepreneurs? In my personal opinion, all the opportunities crowdfunding generates amaze me. I met some passionate entrepreneurs who are taking the risk of raising money, and they care about their project and finding a way to share it with everyone. Crowdfunding may be the solution that enables people to be reconciled with finance. Remarks: For any information as regard with this report please do not hesitate to contact me linkedln : fr.linkedin.com/in/louisbelloin/ 37 Thomas Roche, 2013. 5 Projets Incrowdible, financés par le Crowdfunding. GoodMorning Crowdfunding [Website] Available at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July 27, 2013].
  • 24. 18 REFERENCES Stephanie Carmichael, SC, 2013. Crowdfunding nearly doubled last year with 1M successful campaigns. Venturebeat, [Online] Available at: http://venturebeat.com/2013/04/08/crowdfunding-nearly-doubled-last-year- with-1m-successful-campaigns/ [Accessed April 8, 2013 5:00 AM] David Röthler, DR, 2011. Crowdfunding Schemes in Europe. European Expert Network on Culture (EENC) DailyCrowdSource, 2013. Pulitzer crowdfunded the Statue of Liberty?, DailyCrowdSource, [Online] Available at : http://dailycrowdsource.com/20-resources/projects/169-pulitzer-crowdfunded-the-statue-of-liberty Jeff Howe, 2006. The rise of Crowdsourcing. WIRED [Online] Available at: http://www.wired.com/wired/archive/14.06/crowds.html [June 2006] John Cook, 2013. Chart: The ‘Series A Crunch’ is alive and well. Geekwire. [Website] Available at : http://www.geekwire.com/2013/chart-series-crunch-real/ [January 18, 2013] Carine La, 2013. Entreprises Biotech et Crowdfunding : une grande attente pour les entrepreuneurs. MTI Review [Blog dedicated to economy] Available at: http://mti-review.com/2013/03/05/entreprises-biotech-et-crowdfunding- une-grande-attente-pour-les-entrepreneurs/ [March, 5 2013] Thomas Lestavel, 2013. Financement de projet: le boom du Crowdfunding. 01Business. [Newspapers] Available at: http://pro.01net.com/editorial/597455/financement-de-projet-le-boom-du-crowdfunding/ [July, 1 2013] MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008] Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 am (GMT) Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, R. BESSIS from New York. 24/07/2013, 6.40 pm (GMT NYC) Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March, 18 2013] Aline MAYARD. 10 conseils pour réussir sa campagne de Crowdfunding par des entrepreneurs qui ont réussi et échoué. Wamda [Website] Available at: http://fr.wamda.com/2013/06/10-conseils-pour-r%C3%A9ussir-sa- campagne-de-crowdfunding-par-des-entrepreneurs-qui-ont-r%C3%A9ussi-et-%C3%A9chou%C3%A9 [June 10, 2013] Raphael BESSIS. 2013. Questions to Raphael BESSIS. Interviewed by Louis BELLOIN [Questioner] Raphael BESSIS from Paris. 24/07/2013. Thomas ROCHE, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorningCrowdfunding [Website] Available at: http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le- crowdfunding/ [July 27, 2013]
  • 25. 19 Fabien RISTERUCCI, 2013. L’émergence de la finance participative pour un nouveau modèle de croissance en France. Les Echos [Newspapers] Available at: http://lecercle.lesechos.fr/economie-societe/politique-eco- conjoncture/politique-economique/221173232/emergence-finance-particip [May 28, 2013] Jonathan Sandlund, 2013. Crowdfunding Motivations — What Drives People to Invest? CrowdCafe [Website] Available at: http://www.thecrowdcafe.com/crowdfunding-motivations/ [March 18, 2013] Christine Lejoux, 2012. Le « Crowdfunding » Européen interpelle Michel Barnier. La Tribune [Newspaper] Available at: http://www.latribune.fr/entreprises-finance/banques-finance/industrie- financiere/20121219trib000738345/le-crowdfunding-europeen-interpelle-michel-barnier.html [December 12, 2012] MyMajorCompany, 2008. Toi+Moi by Grégoire [You Tube Video] Available at: http://www.youtube.com/watch?v=kOru9ITtVIg [June 8, 2008] Crowdcube, 2013. The Seed Enterprise Investment Scheme (SEIS). [Blog] Available at : http://www.crowdcube.com/pg/seis-tax-relief-543 [2013] GUIDE DU FINANCEMENT PARTICIPATIF, 2013, Place of publication: France Paola KHAWATMI. 2013. Questions to Paola KHAWATMI. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, P. KHAWATMI from Paris. 16/07/2013. Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview] Raphael BESSIS from Paris. 8/08/2013. Thomas Roche, 2013. 5 Projets Incrowdible financés par le Crowdfunding. GoodMorningCrowdfunding [Website] Available at http://www.goodmorningcrowdfunding.com/5-projets-incrowdible-finances-par-le-crowdfunding/ [July 27, 2013] Stéphanie Chaptal, 2013. Financement Alternatif. [Newspaper] May 2013. Félix RICHTER, 2013. Global Crowdfunding Volume Reaches $2.7 Billion in 2012. Statista. [Online Newspaper] Available at: http://www.statista.com/topics/1283/crowdfunding/chart/1034/funds-raised-through-crowdfunding-in- 2012/ [April 10, 2013] NGO Excellence, 2013. 2 Types of Crowdfunding for NGO’s. [Online Blog] Available at: http://ngoexcellence.wordpress.com/2013/01/20/2-types-of-crowdfunding-for-ngos/ [January 20, 2013]
  • 27. i APPENDICES Appendix 1 - Questions to Paola KHAWATMI Project Manager at ULULE In an interview (Appendix X), the findings of the report were reviewed and White agreed with Paola KHAWATMI, the project manager at Ulule. The interview was in French and accurately transcribed into English by Louis BELLOIN and approved by Paola KHAWATMI. Summary - Information from the website: http://fr.ulule.com/ ULULE is the first European crowdfunding platform. It brings together projects that are creative or innovative, or are community-minded projects. Interview - Louis BELLOIN: What does ULULE’s business consist of? Paola KHAWATMI: ULULE focuses on one specific aspect of crowdfunding: reward crowdfunding. People invest in ideas and in exchange they receive goodies and gadgets. - What is the specificity of ULULE? In accordance with the interests and backgrounds of our founders, ULULE mainly focuses on cultural projects, and most of them are IT projects, computer games, etc. - What is the story and growth of ULULE? Two people passionate about IT created ULULE in 2011 with only 3 projects. At present, we have 400 projects under review and more than 2,000 projects have been realised. 62% of all our projects have been a success. - How does ULULE choose its projects? It is very simple, we look for diversity, and we have 3 criteria: creativity, innovation or charity projects. The project starts with the work of the founder. He has to show us that his immediate circle of friends and family are investing in the project. It enables us to check whether the project is real and genuine.
  • 28. ii Finally, the founder has to set an amount and a period of time. If, at the end of the deadline, the amount has not been achieved, we give the money back to investors. On the other hand, the money can exceed our expectations. There is the example of Noob, a webseries. At the start of the project, the founders expected to raise 40,000 Euros. At present, the fundraising has just ended and we collected 680,000 Euros. - In your opinion, what are the limits of crowdfunding? At the moment, there is no regulation. The AMF (French Financial Regulator) released an official booklet for people to understand what crowdfunding is but there are no specific rules. Another limit: at the moment crowdfunding is not well known in France, and we need better visibility to continue to grow. Finally, crowdfunding should not be the sole solution for financing. It has to be combined with other sources. France has to make the effort to stay in the competition. If there are still no answers in September, platforms will move outside the country and one of the strengths of crowdfunding, which could also be one of its limits, is that as it is through Internet, it does not matter where the platform is based. - What are the motivations of the investors? Mainly emotional, as there is no financial compensation. - What is your most incredible project? NOOB, a webseries. To date, we have raised 680,000 Euros, the most important amount raised in Europe by crowdfunding. Appendix 2 - Questions to Aymeric DUGRAY Questions to Aymeric DUGRAY - CFO of Antabio Source: In an interview (Appendix X), the findings of the report were reviewed and White agreed with Aymeric DUGRAY, the CFO of Antabio. The interview was in French and transcribed into English by Louis BELLOIN, and approved by Aymeric DUGRAY.
  • 29. iii Aymeric DUGRAY. 2013. Questions to Aymeric DUGRAY. Interviewed by Louis BELLOIN [Telephone Interview] L. BELLOIN from London, A. DUGRAY from Toulouse. 18/07/2013, 9.30 a.m. (GMT) In text reference: (A. DUGRAY, 2013) Summary - based on Antabio’s Website (www.antabio.com) Aymeric DUGRAY is the CFO of Antabio. Mr. DUGRAY has a scientific and business background with acknowledged expertise in the structuring and negotiation of financing deals in start-up companies. Following a PhD in Biology and an MSc in Business Development at ESCP-Europe, he set up his own company in 2006. In 2009, he met Marc LEMONNIER. Mr. LEMONNIER was looking for an expert in finance and business development and as Mr. DUGRAY was attracted to entrepreneurship, he was looking for a strong project. In October 2009, they created ANTABIO in Toulouse. One year after that, as a start up they needed funds. They used crowdfunding via the Wiseed Platform. At present, they are the world’s first biotech start-up to exit with crowdfunding . History: 2009: Aymeric and Marc have the idea of founding ANTABIO. 2010: Fundraising thanks to the French crowdfunding Platform Wiseed. 2011: A French/Swiss Business Angel acquires an interest in Antabio. 2012: Buy-Back of the equity interests of all the 209 Antabio investors, who were grouped in a holding. 2013: Antabio receives a €4.7 Million Wellcome Trust Seeding Drug Discovery Award to develop novel small molecule drugs for the treatment of life-threatening infections caused by multi-drug resistant Gram-negative bacteria. INTERVIEW Louis BELLOIN: What does Antabio’s business consist of?
  • 30. iv Aymeric DUGRAY: Antabio is a France-based biopharmaceutical company dedicated to the discovery and development of first-in-class molecule compounds to treat severe hospital and community-acquired infections caused by multi and pan-drug resistant bacterial pathogens. - How did you have the idea of raising funds through crowdfunding? When we started looking at solutions to raise money, we were in a “Death Valley” without any solutions for financing our project. The idea of raising money through crowdfunding seemed like the best solution at that stage. Although it was quite a new model, we trusted Thierry MERQUIOL (CEO of Wiseed), who we knew at that time and the reputation of his platform, Wiseed, which was one of the only equity-crowdfunding platforms in France. - Could you explain the steps involved in this fundraising? After an audit and a robust examination of the project and the team by experts mandated by Wiseed, we were authorised to launch our project on their platform. Then Wiseed set up a holding and designated one person to be the representative of this holding. This organisation helped to coordinate all the 209 investors we had. The most important point that helped us to succeed with this fundraising was our ability to present the project to people. Our business is technical, but we worked on our presentation to explain our idea in simple terms. Another important fact was that our core business is easy for people to appropriate. They easily understand the point of our research and when, for example, you know that a member of your family may have cancer and that you have the opportunity to contribute to a company that may be able to fight it, you are more willing to contribute to the project. Finally, at the start of the project, we established a fair value of our business with an expert that was the prorata of our target budget. Then, as this target was progressively exceeded, our company was revaluated according to the new budget. What were the features of your project? The target budget, the time frame, the type of investors and the return they get? We fixed a limit of € 100,000. At the end of the 3-month period, we had obtained € 300,000. The most important contribution came from the Business Angel (€ 30,000) and the smallest ones from people interested in our project (€ 100).
  • 31. v Investors get a return of 1.45 times their investment (net of charges) after 18 months. Some wanted to stay within our capital structure. - Seen from today’s standpoint, was this experience a good idea? Do you think you could have developed your business without crowdfunding? What happened after the fundraising? This experience was a great idea. We are the world’s first biotech start-up to exit crowd funding. We are now in discussion with Private Equity Funds. It helped us to create value really fast. We could have developed our company with traditional funds or Business Angels, but it would have take more time and the conditions would not have been the same. Thanks to this fundraising, we entered a virtuous circle, our project become interesting to other funds and we managed to obtain other fundraising. - One of the limits of crowdfunding is the lack of experience of the investors and the absence of professional advice that a traditional Business Angel is able to give. Was this a problem? We didn’t have this kind of problem, it was quite simple to implement and one of the features of Wiseed is that there is an interactive forum where investors can ask questions and get explanations. We answered the people interested in our project directly. - What is your opinion of this fundraising now? This fundraising was very important for us. We were able to increase our credibility with potential investors that have seen how successful this has been. Crowdfunding is an excellent and adaptable tool to finance the early stages of a company’s existence. It can help it to increase the credibility and value of the company. - What, in your opinion, are the advantages and drawbacks of crowdfunding compared with traditional funds (Private Equity and Business Angels)? This fundraising was simple to set up, quick to realise, and helped us to demonstrate our capacity to find innovative ways of financing.
  • 32. vi However, there are drawbacks that could be prejudicial for some companies, such as people not knowing the technical aspects of our job or our industry. In addition, the amount to raise was quite small and limited for a start-up. - What are the limits of crowdfunding? Crowdfunding is really recent, platforms are not as specialised as funds and in my opinion, the project can only work if it is easy for the investors to be impacted by the idea and if it is easy to understand. Biotech companies are technical and generally, people have no idea of our existence until we launch a good product. - What is your personal opinion of crowdfunding? Crowdfunding is a new tool pack for start-ups and an amazing opportunity for start ups. Today, I see it as a solution that complements traditional funds. It is the perfect solution to finance the early stages of a company and increases your credibility as a professional. Appendix 3 - Questions to Raphael BESSIS CEO Krama-Heritage In an interview (Appendix X), the findings of the report were reviewed and White agreed with Raphael BESSIS, CEO of Krama-Heritage. The interview was in English, transcribed by Louis BELLOIN and approved by Raphael BESSIS. Krama-Heritage (http://www.krama-heritage.net/) Interview - Louis BELLOIN: What does Krama Heritage’s business consist of? Krama-Heritage is a fashion and social impact project related to the Krama, which is Cambodia’s traditional scarf. Our objective is to launch a fashion trend out of the Krama, starting in Paris while supporting Cambodia at our modest level in several respects. - How did you get the idea of raising funds thanks to crowdfunding? Reservoir Funds, the crowdfunding platform on which we are registered, contacted us a few months after we started the company. At that point, we did not yet need financial support but 5 months later we did, so we contacted them again.
  • 33. vii - Which platform and why? Reservoir Funds, since they contacted us. We did not conduct a crowdfunding market study. - Could you explain the steps involved in this fundraising? The steps are as follows: prepare a file with a text presenting the project and setting out the reasons why we are resorting to crowdfunding, photos and a video and advertise it, essentially through social media. -What is happening right now? How much do you want to obtain? It has now been 5 days since we have started the 60-day campaign asking for the 5,000 Euros that we need for our development. I must admit that I’m disappointed with the result since we haven’t collected much, and definitely not the amount we hoped for, despite intense communication on social networks. - One of the limits of crowdfunding is the lack of experience of the investors and the absence of professional advice that a traditional Business Angel is able to give. - Is this a problem for you? What do you except from Crowdfunding? It is possibly a problem. Even though our platform guided us through some steps, they were not following us closely. As for now, I don’t know yet what went wrong, or if things went wrong at all. I see four possible reasons. The first, which I rule out, is that our project does not appeal to investors. I’m really not being boastful or over-confident but ever since the launch of our company, lots of people, some whom we knew but mostly not, have showed us a lot of love and support for our project. The words “I adore”/”had a real crush” (on) Krama-Heritage do come up quite often, which is very flattering and great. The second is that possibly our video did not urge enough people to invest. We spent maybe 10 hours shooting and editing the video; it was the best effort we could come up with (it’s me and my partner presenting all the aspects of our project in front of the Louvre with pictures fading in to make the presentation more dynamic). I haven’t had enough feedback so far but what I have had, has been really good. My partner was told though that the video did not impact enough, either technically speaking or in terms of humour. On those two points, as I said, I believe that we gave it our best effort: technically, we were very limited, and I could not see us presenting our humanist and social project laughing our asses out. We were far
  • 34. viii from being austere on the video, but we could not act as comedians. Still, our video had 350 views on YouTube and we only have 5 donators. The third option is that as we are aged 25, we address an audience of that age, young adults do not have the philanthropic call to crowdfunding nor the financial means. All our friends have helped us a great deal with our project – posing in front of our cameras to advertise our Karmas or buying lots of them – but I really don’t see them reacting positively to a guy asking them in a video “help me out, give me some money”, even if that guy is a very close friend of theirs. Even for me, someone with the entrepreneurial spirit, I have to admit that I don’t see myself giving to entrepreneurs based on a video, most of all because I don’t have the financial means to do so. I am almost sure that the average age of crowdfunding investors is at least 30. The last reason is that possibly Reservoir Funds is not a popular enough platform. They have 800 likes on their page, which is pretty low. Two-thirds of their projects are not being financed. Still, a third is, so I’m not putting the blame on them. - What is your opinion of this fundraising now? Cf. supra - What are the advantages and drawbacks in your opinion of crowdfunding compared with traditional funds (Private Equity and Business Angels)? Crowdfunding is easy to set up, very accessible to most entrepreneurs and, provided it works, easily provides the entrepreneurs with funds with very few constraints. The other side of the coin is that its outcome is very random and, in non Anglo-Saxon countries, it is little known. Entrepreneurs should not rely exclusively on crowdfunding in those countries. Traditional funds provide you with money. If they love your project, you will get the amount of money that you need. The drawback is that there are a lot of constraints. They tie your hands, and the reward they ask for is equity, which may not of course be to the entrepreneur’s taste. - What is your personal opinion of crowdfunding? Cf supra. A good financing channel that needs further development in non-Anglo-Saxon countries.
  • 35. ix Appendix 4 - Questions to Benoit BAZZOCCHI CEO and Founder at SmartAngels In an interview (Appendix X) the findings of the report were reviewed and White agreed with Benoit BAZZOCCHI Founder and manager at SmartAngels. The interview was fairly reported by Louis BELLOIN and Approved by Benoit BAZZOCCHI. Benoit BAZZOCCHI. 2013. Questions to Benoit BAZZOCCHI. Interviewed by Louis BELLOIN [Telephone Interview]. 8/08/2013. In text reference: (B. BAZZOCCHI, 2013) Summary - https://www.smartangels.fr/homepage: SmartAngels is the first French Crowdfunding platform dedicated to the direct investment into the capital of start-ups or SME. SmartAngels simplifies the process for investors and entrepreneurs to meet each other. More than 4,000 Members financed companies each year between € 300K and € 1M per operation. Their main contributors are qualified investors, Business Angels or company managers. - Louis BELLOIN: What makes SmartAngels Unique? SmartAngels was created in March 2012. As of today, we have funded 7 projects for a total amount of € 2M. The specificity of SmartAngels is the investors that we target. We look for people that are ready to invest a significant amount of money. We could be considered as a premium Platform. Our team brings together people from investment banking. We consider Crowdfunding like a new financial job. We undertake a rigorous financial analysis of the companies we accept on our platform
  • 36. x - How does SmartAngels choose its projects? Our strength is not the number of projects that we have on our platform, we make a strong selection based on financial results, strategy and the team. We set up due diligence and our approach could be compared to the one used in private equity funds. We look for companies with potential growth and favor companies rather than specific projects by companies or subsidiaries. - In your opinion, what are the limits of Equity-Crowdfunding? Foreign, especially US-based platforms, will become competitors as all the business lies on Internet. I have no doubt that there will be strong growth in the industry. However some platforms, due to bad choices, may fail because of the lack of management. Finally, we are not in competition with traditional funds or Business Angels. They look at business that raise bigger amounts of money. - Why do some projects fail to reach their target? For me, beyond specific example, the most important reason for failure depends on how managers present their idea to the public and whether it is easy for the business to make itself understood by everyone. It is not a question of complexity. A technical biotech company may raise more money if their managers know how to make understand their business in a simple way. - Do you have any examples of fraud? How can you create follow-up of the projects after their fundraising? I don’t have any in mind. I believe that reward-Crowdfunding is the category that will be the most subject to fraud as there is no follow up after the fundraising. SmartAngels pays attention so as to be as transparent as possible for everyone. We provide information to investors and we ask managers to update news through a forum.
  • 37. xi We have the role of an intermediary and try to be present over the long-term as that is the vision of the investors involved. - What are the motivations of the investors? Return on investment is obviously the driver of our business. However, I must admit that I have been amazed by the involvement investors want to have in the companies they invest in. They are willing to give advice, to help the managers, to create a strong relationship with them. - What is your most incredible project? Recently, we financed a company that builds table with tactile screens integrated in them. - What is your opinion of Crowdfunding? Crowdfunding is a new job for the finance industry. A new intermediary for start-ups and companies that are looking for money. I am sure that there is a good future for this activity. In addition, countries are setting up regulations, all the discussion with professionals have been taken into consideration and we are now waiting for them to be implemented.