http://www.accralaw.com/publications/crowdfunding-filipino-smes

INCREASINGLY INTERCONNECTED HUMAN COMMUNITY

http://crowdfunding.cmf-fmc.ca/facts_and_stats/crowdfunding-modelsCrowdfunding Definition & Models

Crowdfunding Defined

Crowdfunding is the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media.

Crowdfunding Models

The Donation Model: Individuals make a financial contribution to a project without any expectation of a financial return on that contribution. Projects and platforms that employ the donation model typically also use a reward or incentive system to help stimulate contributions whereby contributors are thanked for their support with a small reward. Rewards or incentives vary from recognition in the projects credits to branded merchandise or opportunities to meet with creators and/or attend special events such as a launch party or premiere screening event. Rewards or incentives often increase in number and/or value in accordance with the amount of the contribution being given.

The Lending Model: This crowdfunding model is similar to any typical lending scenario, where individuals lend money to a project or company with the expectation that it will be repaid. In the context of crowdfunding, the lending model can take a number of forms, such as:

A traditional lending agreement standard terms are used and there is an expectation for a monetary reimbursement in the form of interest. In this case, the loans may or may not be guaranteed, depending on the crowdfunding platform being used.A forgivable loan contributions are reimbursed to the lender only if one of two possible conditions is met: a) if and when the project begins to generate revenue or b) if and when the project begins to make a profit.Pre-sales the finished product is promised in return for the contributors pledge. In the case of a pre-sale lending model, the contribution amounts are determined according to an assessment of the fair market value of the product. In addition, larger contribution amounts are typically accompanied by a promise of more copies of the product equal to the value of the amount of the contribution. Pre-sales are often combined with a rewards-based donation model.

The Investment Model: Resembles a standard equity investment, where an individual receives equity in an entity in return for financing. There are two standard sub-categories of Investment Model crowdfunding:

Securities Investment Model shares in the company are bought by investors. In this model, contributors would be buying ownership in the parent company or rights in a project.Profit or Revenue-sharing Model a share of the revenue or profits of the project is earned by investors, as opposed to shares in the underlying company. This is also known as a Collective Investment Scheme.

http://seedingfactory.com/2012/10/3-models-of-crowdfunding/3 MODELS OF CROWDFUNDING

The crowfunding model seems to be easy: a group a people, often large, accepts to finance a project by investing relatively small amount of money via web platform and virtual money transfer tools. The power of union at its paroxysm!

But in reality it exists different crowdfunding models, mainly divergent according to the way money is promised. Actually 3 models can be highlighted

#1 Donation Model

This is the first identified model.

Indeed we can say than a charity aiming at raising money is a basic case of crowdfunding. Whatever it is a one shot or monthly-based donation, people giving money to charities relatively provide small amounts.

In this model, several factors seems to drive donors, and get back financial returns isnt one of them:

returns isnt one of them:

- Satisfaction of helping a good cause (most of charities)

- Receiving news, tangible proofs that the money was efficiently used

Up to know most of the crowdfunding platform are based on the Donation Model. By the way lots of additional strategies can be implemented to turn this forgivable donation model into something else, more appealing for potential donors.

This is the case of KickStarter or IndieGogo for instance. The famous platform set up the reward section in order to enhance commitment of backers. Rewards can be tangible (goodies, t-shirts, ) or intangible (name in credit lines, invitation for a show, ).

Another famous strategy was also born on those donation-based crowdfunding platform. It is the pre-order model. The method consists of promising a pre-selling version of a product, at a cheaper price, in exchange of a pledge. The most successful crowdfunding campaign at this date, realized by PEBBLE followed this strategy.

#2 Lending Model

We all know how a bank lends money. Well this model is based on the same method, including interest rate (depending on the quality of borrower) and period of reimbursement. But the point is that lenders are no more banks but individuals like you and me.

The Lending-based crowdfunding is also called P2P Lending or Personal Loans.

Heavily influenced by micro-credit model first implement in developing nations, lending-based crowdfunding platforms eventually appeared and attracted people in Western countries. Some website like Prosper or The Lending Club are leader in the US for personal loans. On this website people seek money for debt consolidation or purchase a car and for investor a system of grade allow them to evaluate risk.

Closer to the initial micro-credit model, Kiva is a place where you can invest on project in the developing world. A mix between philanthropy and investment!

#3 Equity Model

Last but not least the Equity Model!

This model is still the less common model in term of volume invested but is one of the most promising one. If it has not emerged as its potential require it is mainly because of regulation. Actually the equity-based crowdfunding model doesnt match with present laws in many countries and is hard to regulate.

For example, the US have just decided to modify the law in favor of crowdfunding thanks to the JOBS Act signed by Obama in April 2012. However the government institution that rules the financial industry (SEC) recently disappointed the community when they released guidelines around this new law.

However in Europe the model is more developed because regulations are more accommodating. Indeed pioneering platforms such as CrowdCube in the UK or Wiseed in France have proved that the model works.

And according to a recent report (The Crowdfunding Industry Report, Massolution) equity-based crowdfunded project are much more attractive to investor if we compare amount invested per project:

http://www.americanbar.org/news/abanews/aba-news-archives/2014/11/sec_commissionerkar.htmlWe live in an increasingly inter-connected global community, said Kara M. Stein, an SEC commissioner since August 2013. And with it is a duty to learn from one another and work together for the benefit of all.

Stein was the featured speaker at a 2-hour webinar from Washington, D.C., on Nov. 13 at the law offices of Baker & McKenzie LLP. The session, which included other SEC officials, is the yearly review of recent developments in global securities regulation and enforcement sponsored by the ABA Section of International Law.

In October 2013, the SEC released what news media characterized as a long-awaited plan for crowdfunding, a requirement of the 2012 Jumpstart Our Business Startups (JOBS) Act. The law, which attracted bipartisan support, was intended to spur small business growth. Final rules are pending after a comment period that ended earlier this year.

The SEC plan would essentially open new sources of money for startups and small businesses by allowing solicitation of a broader pool of investors and by streamlining some of the paperwork requirements.

Crowdfunding regulation is of particular importance to the international community because as we all know the Internet is not contained by international borders. Equity-based crowdfunding is still in its infancy worldwide, but we have already seen exponential growth in other types of crowdfunding, Stein said, citing debt-crowdfunding and funding through donations, similar to Kickstarter.

As soon as we get sound rules in place for equity-based crowdfunding, I expect we will see the same phenomenal growth. As we all know, crowdfunding holds tremendous promise to harness the power of the Internet to bring investors and businesses together in a new way to provide capital for startups and small businesses, she added.

Stein said she deals with a dozen or so enforcement cases each week and the SEC, in its final rules, needs to strike the right balance between the need for funding for businesses and protections for investors.

As we consider how to strike the right balance here, we must also consider how our crowdfunding regulation may impact and interact with others around the world, Stein said. If we dont have adequate oversight not only will fraudsters potentially be able to get out of reach from United States authorities, but foreign platforms might become vehicles for money laundering or worse.

And while crowdfunding is premised on the concept that the Internet community, which is global, can identify and grow the most promising new companies, we may want to take it slowly and allow these ideas to develop locally, mature and become successful, she said.

http://spendmatters.com/tfmatters/p2bi-applies-crowdfunding-model-to-asset-based-lending-for-small-business/

P2Bi applies Crowdfunding Model to Asset Based Lending for Small

DAVID GUSTIN - November 26, 2014 5:03 AM

Categories: Asset Based Lending | Tags: alternative finance, crowdfunding, P2P lending

P2Bi describes themselves as a crowdfunding model for credit lines to businesses.

Krista Morgan, cofounder of P2Bi, was working for an agency in London in 2005, doing digital marketing strategy for the likes of Coke, Barclays, and Johnson and Johnson. So how did she develop P2Bi? By her own admit, she fell into this by accident. She came across Peer to Peer lending in London looking at a direct lending model. Her Dad was thinking about how to raise money for a factoring business and Krista talked about P2P and crowdfunding and convinced him to help start P2Bi. Today, they have made the third round of angel funding.

According to Krista, We originally set out with the intention we would do things the way Lending Club did but for Receivables. Then we realized that was a) unprofitable and b) not great for investors due to monitoring of receivables, account fraud is a big thing.

P2Bi actually lend on balance sheet, providing full-recourse loans based on the borrowers commercial receivables (and sometime additional assets such as equipment, inventory, or contracts). P2Bis asset-backed lending products are designed to provide growth-stage businesses with a middle path between traditional lenders and expensive alternative financing companies. A crowd of accredited investors participates in funding each credit line, and investors earn a fair return on the platform in exchange for supporting P2Bis small business clients.

Today, they mostly source deals via banks referrals and only do deals in the US. The average size company is $2m to $10M and typically involves revolving line deals of $0.5M to 3M. The company now provides over $10.5 million in lines of credit to 19 clients and purchased more than $24 million in invoices since May 2014. To date, P2Bi has financed the growth of companies in manufacturing, technology, personnel services, and natural foods with annual revenues ranging between $2 and $10 million.

The process to request a line is simple and is outlined on their web site.

A company submits completes an application with eligible accounts receivable and aging reports to P2Binvestor.

P2Binvestor determines a rate and issues a term sheet based on the application information.

P2Binvestor funds and advances a line of credit to the company of up to 90% of the receivables balance. The line is opened to investor participation on their investor platform.

The companys invoice payments are issued to a bank account managed by P2Binvestor. These payments are used to draw down the line of credit, and the balance is remitted to the company.

Investors own a proportional share of the cash flows from the invoices and typical APRs are 7% to 15%. One concern here is the issue of co-mingling investors to make loans. If there is a default, you may have multiple investors with an interest in the facility. How does P2Bi handle this? As a trustee, P2Bi said the crowd has a first interest in anything they buy and they are in the process of putting in place a bankruptcy remote structure so that if they can no longer collect receivables someone else can get into their lockbox and know how much principal in ever invoice paid who gets how much principal back.

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- See more at: http://spendmatters.com/tfmatters/p2bi-applies-crowdfunding-model-to-asset-based-lending-for-small-business/#sthash.seMRRDNd.dpuf