FINTECH TODAY: CROWDFUNDING
capitalmarketsciooutlook

FINTECH TODAY: CROWDFUNDING

By Nin Desai, President and CEO, NIN Ventures

Nin Desai, President and CEO, NIN Ventures

The United States Financial market is the largest and represents 7.3 percent(or $1.4 trillion) of U.S gross domestic product. In 2015, the United States exported $119.6 billion in financial services and insurance and had a $46.7 billion surplus in financial services and insurance trade. The industry offers the greatest array of financial instruments and products to allow consumer to manage risk, create wealth, and meet financial needs. The five major subsectors in this industry are: banking, asset management, insurance, venture capital, and private equity.

Over the years technology has changed the Financial Services industry and now FinTech has transformed into digital banks and banking software, payments and remittances, robo advisors, block chain and digital currencies, and personal finance both business and consumer. While the total size of the U.S Fintech market is difficult to reconcile, it is likely between 0.5 percent and 1.5 percent of total financial services revenue as reported by the US Census. 

The venture capital industry was created in the United States and the venture capital ecosystem continues to support many of the most innovative companies. In 2016, 253 venture capital funds raised $41.6 billion, a ten-year high, to deploy into promising startups. Venture Capital backed companies’ employ 38 percent of the U.S. workforce within public U.S. companies and account for 82 percent of private sector research and development since 1979. Annually, VC backed companies have historically generated revenue equal to 21 percent of U.S. GDP.

Since beginning of the 20th century, venture capital has been the domain of wealthy individuals and families. A typical LP base in a venture fund would be institutions, pension funds, endowments, family offices, etc.  The 2008 Financial Meltdown led to liquidity crises for entrepreneurs, companies, LPs, & VCs. Fewer IPOs in the market means no exits for VCs, no returns for LPs, and as a result venture funds were on a decline. No new funds mean less startup funding, low employment, and slow economic growth. Thus on April 5, 2012, The Jumpstart Our Business Startups Act (JOBS Act) was introduced, which enables crowdfunding for all Americans.

Crowdfunding is a practice of funding a project or venture by raising contributions from a large number of people, typically via the Internet. The market is flooded with various types of crowdfunding options like donation, reward, lending, equity, royalty, and even hybrid versions. Since 2014 the crowdfunding industry has grown from $16 billion to an estimated $34 billion in 2015 and is doubling or more every year, and according to the World Bank estimates, crowdfunding will have a global market of $96 billion by 2025 - 1.8 times today’s global Venture Capital industry. The two most popular types of Crowdfunding methods are Reward and Equity. For rewards based Crowdfunding, entrepreneurs pre-sell a product or service to launch a business, and some times even in return for gifts or thank you notes. For equity Crowdfunding, the backer receives share of a company, usually in exchange of the money pledged. For NIN Ventures (or NIN.VC), it would be limited partner interest in the NIN Ventures Technology (QP) Fund. However, there is a major flaw with Crowdfunding in general; and that is what NIN.VC is solving. 

"I come from an Entrepreneurial family so I can speak on their behalf. Entrepreneurs are brave and courageous bunch that are determined to change the way an existing industry functions. On that journey they need lot more than just financing. They need guidance or domain expertise, help with PR/marketing, recruiting, viable exit strategy, more often follow up financing, etc., which Crowdfunding portals are not able to support.

On the other hand Crowdfunding exposed investors to a whole new asset class, which the normal population never had the knowledge or expertise to invest in. About 99 percent of startups fail, on top of that low minimum investments like $1,000 does not give them a say or a board seat, putting investors at high degree of risk.

At NIN.VC we solved all of those issues. NIN.VC provides diversification, we take board seat on all our investments and lend the necessary support that an Entrepreneur needs to build a business, like they would get at a traditional Venture Capital fund. And are also in a position to gauge and be a part of the valuation process when it comes to addressing dilution and follow up financing rounds. However, the most IMPORTANT part that investors care about is the ability to direct invest and enjoy direct returns, which is not the case with a traditional venture capital fund."

NIN.VC is a Crowdfunded Technology Venture Capital firm offering membership interests under the JOBS Act & Regulation D of the US Securities Act of 1933. NIN.VC is a unique and first of its kind attempt to bring venture capital retail and give people the freedom to directly invest in a fund with an amount of their choice, which also leads to a better financial reward system. This offering is being made via general solicitation and general advertising, which is permitted by Rule 506(c) as contemplated by Title II of the JOBS Act. Learn more about NIN.VC on Facebook, Twitter, LinkedIn, NIN Ventures TV, etc. 

NIN.VC invests in series A & B rounds of 3D printing, the 4th industrial revolution, ad tech, financial services, education software, and other disruptive technology companies. During the postwar period, recessions and recoveries, were mostly matters of business cycles. When demand recovered, GDP growth resumed, and employers hired again. But for the past two decades, this pattern has been broken. Innovation and investing in new technologies and startups is the solution to job creation – but are we creating jobs at the cost of the consumer and in return damaging our economy?

Currently, the U.S Asset Management market is $51 trillion, and the global alternative asset market is approximately $8 trillion and expected to be $14 trillion by 2020, according to PwC. Crowdfunding is estimated to have a global market of $96 billion by 2025. While there is a huge potential for growth in this space, currently majority of crowdfunding investors are pouring their money investing in companies exposing themselves and the American Economy to a high degree of risk, with a 90 percent start up failure rate. Recently, the SEC approved Title III JOBS Act, Equity Crowdfunding for non-accredited investors, which allows any U.S. citizen, regardless of income, to make direct investments via a Crowdfunding portal. However, investment in crowdfunded venture capital funds is still limited to accredited investors. Given funds are a less risky asset class compared to Crowdfunding in companies, perhaps it’s time to revisit their investor eligibility, alter the definition of an “accredited investor” and make Crowdfunding available for everyone, and truly democratize venture capital.

Read Also

Asset Allocation Analytics for End-State Corporate Pension Plans

Asset Allocation Analytics for End-State Corporate Pension Plans

Michelle (Yu) Teng, PhD, CFA, Vice President, with contribution from Junying Shen, Senior Associate, PGIM
Building a Community Defense Model to Protect Critical Assets

Building a Community Defense Model to Protect Critical Assets

William B. Nelson, President and CEO, FS-ISAC
How Big Data is Painting a New Picture of Properties and Portfolios

How Big Data is Painting a New Picture of Properties and Portfolios

Mikhail Palatnik, Vice President, Product Management, Insurance & Spatial, CoreLogic

Weekly Brief