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HBSAB Panel: Crowdfunding Part II DANIEL GORFINE DIRECTOR OF FINANCIAL MARKET POLICY AND LEGAL COUNSEL, MILKEN INSTITUTE DECEMBER 4, 2013


State of Angel Capital Total Angel Investment 2001-2012 Billions

35

30

80000 30

70000

25.6

25

22.5

20

26

23.1

18.1

22.5 19.2

20.1 17.6

15.7

22.9

60000

50000 40000

15 30000

10

20000

5

10000

0

0

Sum of Total Angel Investment (in billions)

Data Source: UNH Center for Venture Research

Sum of Total Ventures Funded


State of Venture Capital Total Venture Capital Investment 1995-2012 120

9000

Billions

105.12

8000

100 7000 80

6000 5000

60

54.85 4000 40.96

40 21.47 20 8.01

11.35

22.17

19.69

23.26 23.59

27.59

3000

31.93 29.97

29.67 20.25

23.29

26.96 2000

15.01 1000

0

0

Sum of Total Venture Capital Investment Data Source: NVCA/ PWC Moneytree Report

Sum of Total Number of Deals


Venture Capital Moving Away from Seed

Billions

VC Investment 2000-2013Q3 18 16 14 12 10

Startup/Seed Avg=$3mil Early Stage Avg=$5mil

8

Expansion Avg=$8mil Later Stage Avg=$10mil

6 4 2 0

Data Source: NVCA/ PWC Moneytree Report


Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13

State of Small Business Lending Volume of New Commercial Loans and Leases to Small Businesses Q1 2005-Q2 2013

140

130

120

110

100

90

80

70

60

Source: Thomson Reuters/PayNet Small Business Lending Index


Sources of Startup Financing Limited Sources of Startup Financing (% of firms) Personal/Family Savings

60

62

11 10

Credit Card Bank Loan

19

7

Other personal/family assets

10

7

Home equity

4

Government Loan

1

9

3

0.7 0.3

Venture Capital

11

None needed 0

10

25 20

Employers

Source: Corporate Executive Board, US Small Business Administration

30 SolePropreitor

40

50

60

70


US IPO Market: Small vs. Big Companies US IPOs with Pre-IPO Annual Sales Less Than or Greater Than $50m/Year

Source: SEC Advisory Committee on Small and Emerging Companies, September 2012; Ritter, University of Florida


Public vs. Private Market 2012: Public Market Totaled $1.2tn

Private Market Totaled $1.7tn

Billions

Aggregate Capital Raise 2009-2012 by Offering Method

Source: Ivanov, SEC


New Capital Access Tools

Š 2013 Milken Institute


Š 2013 Milken Institute


Funding Landscape

Angel Investment: Range based on lowest and highest total annual Angel investment per deal from 2001-2012, UNH data VC Investment: Range based on lowest and highest total annual VC investment per deal from 1995-2012, NVCA data Investment Stage range based on lowest and highest total annual VC investment per stage per deal from 1995-2012, NVCA data Startup/Seed: $3.2mil Early Stage: $5.0mil; Expansion: $8.4mil; Later Stage : $10.3mil

Data Source: ACA, NVCA

Š 2013 Milken Institute


Donation-Based Crowdfunding in 2012

Source: TechCrunch, massoultion


Crowd Investing: Title III JOBS Act

Source: Fundable, Earn MBA degree.


Crowd Investing Disclosures Vary by Offering Amount Crowd Investing Offering Amount (including offerings in preceding 12 mo.)

Disclosure Requirements

Up to $100,000

Most recent income tax returns; financial statements certified by issuer’s executive officer

$100,000 - $500,000

Financial statements reviewed by independent public accountant

$500,000+

Audited financial statements

Source: sec.gov


SEC Proposed Rules Title III Investment Advice/ Recommendations

Portal Compensation Models Ongoing Disclosures

Investor Education Requirement


Rule 506(c) Investing  Title II of the JOBS Act  Ban on General Solicitation Lifted  Accredited Investor Verification Required  Reasonable Belief Investor Accredited  Proposed Rules


Regulation A+  Small Company IPOs have declined as a share of overall market  Total filing expenses under Regulation A+ are estimated to decrease by 50% when compared to smaller reporting company S-1 filings, and by 71% when compared to traditional S-1 filings IPOS in US % of Total Number of Deals 79% 73%

54%

$100+mil

58%

56%

51%

47%

49%

59%

57%

52%

51% 41%

25% $50-100mil

30%

24%

27%

19% 10%

$25-50mil $0-50mil

29%

11%

10% 15%

12%

25%

9%

Data Source: WR Hambrecht + Co, Dealogic

4%

19%

18% 8%

8%

34%

30%

15%

6% 12%

28%

6%

4% 9%

0% 3%

4% 3%

8% 1%

5% 3%


Crowdfunding Panel at Harvard Business School (Dec 4, 2013)