La breve (o no tan) historia del Equity Crowdfunding

Y en esta parte de la historia es cuando tenemos que volver a pensar todo nuevamente, y puede que tengamos que corregir algunas cosas que les conté en el post anterior.

Tal y como les había mencionado previamente, el “último” en aparecer, allá por el 2010 fue el Equity Crowdfunding.

Recuerdo que al principio del posteo previo les dije que el concepto de financiamiento colectivo comenzaba hace unos 300 años aproximadamente y en aquel listado, el concepto de equity crowdfunding o financiamiento colectivo de compañías con la venta de acciones, se encuentra último en la lista.

Pero si repasamos la historia no sería del todo así.

Si vamos a los casos concretos y a la esencia de la actividad en sí, cualquier compañía que atravesó un proceso de IPO u Oferta Pública Inicial, básicamente también accionó para llevar participaciones de la empresa (acciones) al público en general, al igual que hacen las plataformas de financiamiento colectivo modernas, gracias a la tecnología.

Para hablar de estos primeros casos nos tenemos que remontar a la época de la República Romana, donde existió la primera forma de empresa que emitía acciones públicas. Al igual que las sociedades anónimas modernas se dividían en acciones o partes. Existe evidencia de que estas acciones se vendieron a inversores públicos y se negociaron en una especie de mercado extrabursátil en el Foro Romano.

Mucho tiempo después, en 1602 se produjo la primera oferta pública inicial moderna cuando la Compañía Holandesa de las Indias Orientales ofreció acciones de la empresa al público para recaudar capital. La Compañía Holandesa de las Indias Orientales (VOC) se convirtió en la primera empresa en la historia en emitir bonos y acciones para el público en general.

En otras palabras, la VOC fue oficialmente la primera empresa que cotiza en bolsa.

Y recién en 1783 existió la primera oferta pública en Estados Unidos, el Banco de Norte América.

Y entonces …

¿Cuál es el motivo por el que ahora hablamos de Oferta Pública Inicial y de Equity Crowdfunding?

El proceso es realmente similar, y muchos podrán decir que la principal diferencia es que las acciones que se obtienen a través de las campañas de crowdfunding no cotizan en una bolsa o mercado como si las que se obtienen a través de un IPO u Oferta Pública Inicial.

Y este punto podría haber sido válido durante los primeros años y con los primeros sitios de Equity Crowdfunding, pero esa barrera fue prácticamente eliminada por el avance de la tecnología y ya hay varios casos de sitios que cuentan con un mercado secundario que brinda liquidez a los inversores de las campañas de financiamiento colectivo.

Pero hoy en día la principal diferencia yace en las regulaciones que imponen las diferentes comisiones de valores de cada país.

Todos los reguladores comenzaron a controlar las Ofertas Públicas Iniciales y convirtieron, lo que alguna vez fue una alternativa para compañías que exploraban el mundo, o mejor dicho, emprendedores que buscaban cambiar el mundo y la forma de hacer negocios, en una alternativa costosa y pensada únicamente para empresas muy grandes que ya pueden afrontar estos costos y procesos.

Beneficios de las Ofertas Públicas Iniciales:

Permitir un acceso más barato al capital
Incrementar la exposición, el prestigio y la imagen pública
Facilitar adquisiciones (potencialmente a cambio de acciones)
Creación de múltiples oportunidades de financiación: acciones, deuda convertible, préstamos bancarios más económicos, etc.

Desventajas:

Costos legales, contables y de marketing significativos, muchos de los cuales están en curso
Requisito de divulgar información financiera y comercial
Se requiere tiempo, esfuerzo y atención significativos de la gerencia
Riesgo de que no se obtenga la financiación necesaria
Difusión pública de información que pueda ser de utilidad para competidores, proveedores y clientes.

Para el equity crowdfunding existen las mismas ventajas y desventajas, pero hay una que la vuelve una alternativa real y a considerar para todos los emprendedores y empresas que quieren continuar creciendo y encuentran en el capital un factor limitante:

No existen los costos legales, contables y honorarios de todas las partes involucradas para realizar el costoso proceso de IPO u Oferta Pública Inicial.

Y acá es el punto donde quiénes más conocen sobre el mercado de valores y su funcionamiento me dirán que las plataformas tampoco cumplen y pasan todo el proceso, con todas las partes y actores que intervienen en un proceso de IPO.

Esto es completamente verdadero. Es verdad que faltarían varios de los intermediarios que existen en este largo y costoso proceso, pero hoy contamos con la ventaja que la tecnología los vuelve rápidamente prescindibles y se puede lograr el objetivo de obtener el financiamiento necesario gracias a esto.

Hoy la tecnología nos brinda la posibilidad de disminuir los pasos y procesos burocráticos existentes para asistir a los emprendedores en la búsqueda de capital y financiamiento. Como así también la tecnología les brinda una nueva opción a los inversores de ser parte de estas oportunidades y acompañar a personas con la iniciativa para buscar cambiar industrias, mercados, y por qué no, el mundo.

2017’s Industry Recap and 2018 Hottest Industries for Venture Capital

According to KPMG´s Venture Capital market report, it experienced the highest amount of investment in the U.S. in 2017. The total amount of investment in this sector was over $84 billion last year. Although, the deal value increased from $21.24 billion in the third quarter to $23.75 billion in the fourth quarter, the overall deal volume experienced decline as it fell from a total of 1997 to 1778 deals. The reason for the decline was growing interest of investors in smaller companies with profitable prospects instead of placing bigger bets on large companies.

Sneak-peak at 2017

The investors in the United States were mainly focused on late-stage deals during 2017. This eventually lead to the decrease in deals with other funding levels. Seed and angel deals were the ones that got affected the most as they suffered a decline from 50 percent in 2016 to 47 percent in 2017.

Biotech and healthcare were two sectors that stood out among the rest, especially during the fourth quarter when a number of large deals were successfully completed. Healthcare sector was also at the top in terms of exits, which triggered an increased activity overall.

The late-stage deals hit $250 million in the last quarter of 2017, which was very high as compared to $135 million a year before that. Companies that raised funds of over billion dollars were Cancer-screening biotech Grail Technology that raised $1.2 billion and Ride-hailing company Lyft that managed to get $1.5 billion.

Expected Trend in 2018

The trend seems quite optimistic as it will build momentum, especially via strong exit markets in Mergers and Acquisition and Initial Public Offering (IPO) for companies backed by venture capital.

At this time, it isn’t sure whether 2018 will have a record number of IPOs as experienced in 2015 or not, but this year will definitely have an increasing number of IPO activities. The co-lead partner of KPMG VC practice, Conor Moore, was of the opinion that as more firms are deciding to remain private in the long run, the secondary market is sure to experience more growth.

Following are some of the prominent sectors investors are likely to invest their money in:

Blockchain Technology

Instead of investing directly in the cryptocurrency, investors are inclined to invest in underlying blockchain technology. The reason is simple; the prices of digital currencies have skyrocketed. Investors are trying to find creative ways to make profitable investments.

A partner in Canvas Ventures, Rebecca Lynn, is looking for firms that use blockchain to build their infrastructure, especially the ones that store health records and track trademarked and copyrighted licensing rights and content.

Artificial Intelligence Businesses

Investors are searching for tangible business ideas. For example, David Pakman, a partner in Venrock, is in search of startups that will be using Artificial Intelligence so as to assist companies in making decisions that were previously taken by the people; it includes preparing manufacturing instructions for machines, sales planning, and the hiring process.

Pop-up Stores

With the rapidly increasing concept of driver-less cars, startup companies are in for a treat. Venture capital firms, such as the Fifth Wall are offering a short-term lease for pop-up stores, including parking lots. Some startups that can benefit from this are Katerra (a construction company), Kasita.com (the firm that makes modular housing units), and Factory OS (a company that makes modular buildings).

Voice-centric Devices

These devices have taken the market by storm. This has encouraged startup companies to seek new opportunities to use voice, including advertising. It has been predicted by WIRED that new firms with creative solutions are expected to do really well in 2018, which makes it an attractive sector for venture capitalists.

Subscription-based Products

In the last few years, VC firms were drawn to digital media startup companies, such as Vox media, BuzzFeed, Mashable, Mic, and many more. However, some of these companies have undergone layoffs in recent times. This has eventually made the investors move on to subscription-based products, such as Patreon. In September last year, this company raised around 60 million dollars.

Another example is Medium, which raised over 130 million dollars from VC firms. This company has shifted to a subscription-based model just recently.

Will 2018 Mark the End of Initial Public Offerings?

2017 turned out to be a great year for technology-based IPOs (Initial Public Offerings) that were backed by venture capital.

So many names in a corporate world went public last year, including SendGrid, StitchFix, BlueApron, Cloudera, and Yext. In fact, one of the most successful IPOs in the last few years was Snapchat. In 2018, there are some potential firms that are likely to go public, which is great because the Dow and S&P 500 are at the record high.

Beginning of the End for IPOs?

However, dark clouds have started to form on a distant horizon regarding IPOs. Spotify will probably go for direct listing and bypass the bank underwriting to go public. On the other hand, blockchain technology is booming and has attracted many retail investors, especially the ones who are skeptical about the IPOs and the corruption in this sector. Similarly, SoftBank Vision Fund is also trying to raise as much private capital as possible to provide protection to firms from the devastating effect of vulture funds.

There is an increasing awareness that current IPO sector is a hub of corruption, wherein, only those people are benefiting from the firms growth cycle who know the ‘right people’. The retail investors, however, are on the losing end as they are getting sufficient returns. This growing awareness is not going to subside, especially when there is a constant increase viability of other options.

Robust Technology – An Alternative to Conventional IPO

The fall of IPOs has been predicted so many times in the past, but it hasn’t happened yet. Ten or so years back when Google went for a Dutch-style IPO, so many people anticipated that it could a soon-to-be-ending road for banks who want to run a roadshow for investors. Similarly, a few years ago, when the pipeline of initial offerings dried up, the same hype was created.

Despite all the noise, the IPO has continued to provide good business. Although, firms will continue to go public by trading shares or securities, they are undergoing certain changes. For example, conventional ways of big banks to charge a huge fee is going to be replaced by more effective alternatives. So many bankers have already begun to lose their jobs after the introduction of technology. Goldman Sachs has already built an application that manages the IPO process. These steps are being taken to enhance the efficiency of operations.

There are only a few who have anticipated that IPOs will get a support of ethereum tokens and the Dutch East India company. However, no one can deny the fact that IPOs are growing weaker day by day, and they won’t survive in the long run if drastic measures are not taken.

Spotify’s Direct Listing

The company has managed to secure around 70 million paying subscribers, but at the same time, its chief content officer has resigned. In addition to that, the company is also dealing with some lawsuits filed by the music labels, which can be very damaging in the future.

Despite all the ups and downs, the news has come to light that Spotify is planning to go public via the direct listing. By undergoing direct listing, the company will not issue any new shares nor will it raise any capital through the process. For IPOs, this arrangement can be very devastating as financial institutions like Goldman Sachs will become deprived of underwriting fees, whereas, institutional investors will lose an opportunity to buy IPO shares at a huge discount like they did in the past.

Although, a direct listing of Spotify will be a little bumpy, it doesn’t mean that the process will end in disaster. The rise of digital trading based on algorithms will help Spotify stabilize the price after analyzing the market. The process will be executed as fast as it does for other initial offerings.

Increasing Trend of ICOs

Another disruptive disaster expected to happen is the rising trend of ICOs. Initial coin offerings or ICOs are being considered as a replacement for VCs. The rush of initial coin offerings among startup companies has placed a big question mark on the existence of IPOs. ICO model might not be applicable to every company, but being a competitive threat to IPO, they do not necessarily have to apply to every firm.

All in all, IPO is facing back to back attacks; a direct public offering will dramatically reduce the fees involved in conventional IPO, whereas, ICO will be an effective tool for potential financial growth. These disruptive tools are definitely going to rule out the need to go public so as to achieve financial strength, which would eventually impact the long-term sustenance of IPOs.

Should Regulators be Concerned About This Profitable Investment?

Although investors from around the world have shown increasing interest in the digital currency, many regulators negatively criticize Blockchain and Initial Coin Offerings (ICOs). However, there has been an exception recently as Yao Loong Ng, the executive director of the Financial Market Strategy department, is encouraging the regulatory authorities around the globe to learn about cryptocurrency and ICOs. He even pointed out the fact that learning about the developments in the world of digital currency can be useful for regulators.

In a panel discussion of the South East Asian Nation Capital Markets Conference that was held in Malaysia, Ng said that it takes a lot less time to market for the ICOs as compared to IPOs (Initial Public Offerings).

IPOs can take as much as 9 months to market. This is why he believes that if the entire process of writing a white paper for ICOs and its subsequent listing is taking just a few days, then regulators certainly have something to learn from it.

Current Developments in Cryptocurrency

But the question is, why is there a need to regulate it? Cryptocurrencies have gained a lot of traction in the last few years and so many investors have been investing in the virtual currency. In fact, in July 2017, Alex Tapscott, Blockchain Revolution’s author, made an announcement of closing an over-subscribed financing of 20 million dollars for his digital investment funds. The hedge fund is called NextBlock Global. His opinion is that this fund has everything, including domain expertise, and market access to have a bright future.

Last year in September, Olaf Carlson also created a hedge fund of digital currencies, which had more than $200 million in Assets Under Management. Among many venture capital firms that are backing this fund, Union Square Venture, Sequoia Capital, Andreessen Horowitz are a few leading names.

Currently, the majority of the investors in the world of digital currency are either individuals with high wealth or retail investors. Institutional investors have so far shown very limited interest in cryptocurrencies. But this is not going to stay the same. In fact, the change has already started taking place. The new flow of investment by the institutional investors will give a boost to bitcoins and other altcoins by pushing its value rapidly in the upward direction due to their small market capitalization.

In times like this, it has become increasingly important to step forward. Instead of negatively criticizing the new form of currency, it’s time to embrace it and start the efforts of regulating it. Although, there has been a constant backlash from the regulators community at large, there are a few countries where authorities are working on creating regulations.

Regulating the Digital Currency

In Malaysia, the Security Commission has made an announcement that it is currently in the process of preparing guidelines and regulations on how these currencies should function, which includes secondary market trading of established digital assets and currencies.

Tan Sri Ranjit Singh, the chairman of the commission said that they are working closely with the central bank of Malaysia to develop a framework on cryptocurrencies. He further added that it will take a few months for the framework to complete. He also mentioned that they are observing it very carefully and since the Security Commission control and regulate the secondary market, they will design the rules and regulations in such a way that there is a right condition in place for trading values in order to secure market integrity. This is also being done for providing the projection to investors.

Regulatory Efforts

A consultant at the Institute of Defence Studies and Analyses, Munish Sharma, talked about the dilemma faced by most regulators, especially when it comes to the existence of this new technology in the highly regulated space. He said that digital currency has gained a lot of investors’ attention in the past 5 years, but at the same time, there have been growing concerns among the financial institutions’ regulators around the world.

Instead of just letting the digital currency grow without any interference or regulation, governments of various countries are brainstorming with the regulators on how to regulate these virtual currencies.

Venture Capital Ecosystem – Now

The current Venture Capital ecosystem has begun to revive and experienced growth in the last two-quarters. Let’s take a look at the situation of the venture capital ecosystem to evaluate the liquidity and investment position in the market.

Overview

In the first and second quarter of 2017, VC sector continued to grow despite the rolling financial market in China, Euro crisis, UK’s exit from the EU, controversial election in the U.S. and obstructed technology IPO market. Although, new uncertainties have surfaced, investors have learned to adapt and adjust. Whereas, the profits made in the first quarter further increased in the second quarter.

Funding Activity at a Global Level

The number of deals around the world has also increased. Equity funding rounds in the second quarter of this year increased by 5.7% as compared to the first quarter, adding about 300 rounds. This change took place as a result of angel investment and seed stage investment.

If you compare it with the second quarter of 2016, the overall growth in the funding rounds was about 8.8%, which came about as a result of early stage firms.

Dollar Volume

According to a report by CrunchBase, the overall investment increased by 16% in dollar terms, which is an increase of about $6.6 billion in the deployed capital. There was a fair distribution of gain. Late stage startups, early stage startups, startups at the seed stage and angels received about 20% funding in the current quarter as compared to the previous one. The only thing that faced a downturn was a technology growth rounds.

However, the global VC market is not yet restored. In the second quarter of last year, the total investment amount was $51.5 billion, but this year it was $47,8 billion, i.e., 7.2% less than the previous year. On the other hand, technology and seed sector experienced growth by 10.75% and 16.5% respectively.

Leading Investors

In a CrunchBase report, a total of 3200 VC rounds was analyzed during the second quarter of this year. During the first quarter, it was Tencent Holdings, Sequoia Capital and Accel Partners that secured the first position, wherein, each had a total of 9 rounds. In the current quarter, however, Tencent led 11 rounds, whereas, Sequoia and Accel led 14 and 20 rounds respectively.

In this quarter, some newcomers were also in the leading position, including Samsara, Grammarly, and General Catalyst. SoftBank also formed part of this list in the second quarter of 2017 along with True Ventures. Some firms dropped down from a leading position, while other newcomers made it to the top.

Technology Growth

Growth capital in the technology sector is also known as a growth equity in the business. Technology growth rounds have been defined as private equity rounds in the CrunchBase report. In these rounds, some VC investors from the previous rounds also participated as a continuation.

The dollar and deal volume also increased in this quarter compared with a volume of the same period last year. The overall increase was about 32%. The increase in dollar volume was of $160 million. Although, the deals in the current quarter were two times more than the deals in the previous quarter, the total value of funds was 45% less than the last quarter. This downfall represents the decline in round sizes over time.

Initial Public Offerings

The second quarter of 2017 experienced a small increase in the technology initial public offerings (IPOs), both in the United States and the Europe. This toned down the speculative noise that IPO window was closed for everyone except the big firms.

No significant regulatory filings or announcements were made in the third quarter of this year. Redfin, a real estate brokerage, filed documents with the Security and Exchange Commission, showing its interest to raise $100 million. And so far, it has managed to raise over $167 million from investors like Tiger Global Management, Draper Fisher Jurvetson, and others.

Although, the global VC market experienced a severe decline at the end of last year, the second quarter of 2017 was relatively better. Growth was observed in the dollar and deal volume for two-quarters back to back. Rounds are also experiencing growth; some venture capitalists doubled the bet on their investing activities. If the upward trend continues, the third quarter will bring the market back to normal after full recovery.