Equity Crowdfunding is about to undergo a major facelift

“opening up investment in private companies will help diversify the types of companies that get funding. It will also help develop a more diverse group of investors. ” ERIN GLENN, CEO, QUIRE

ON TREND . SOPHISTICATED . FASHION FUND

•  Rockstar team from Estee Lauder, McKinsey etc. •  Many collective exits •  Deep background in regulatory compliance •  Understand the “business of fundraising” •  Plan to specialize in Regulation A+

Who We Are

Startup investing: no longer just for rich

•  On Oct 30, the SEC finalized rules to give regular people the opportunity to make investments previously limited to big-money folks.

•  SEC voted 3-to-1 to open up equity crowdfunding to a much wider group of people. Startups will now be able to raise up to $1 million a year via online platforms.

•  At the center of the change is the JOBS Act, which

passed three and half years ago with bipartisan support in Congress. Much of the law has already been implemented.

•  Commissioner Kara Stein noted that the SEC will conduct a three-year study to evaluate how crowdfunding develops. "Let's see how this experiment works," she said.

•  Supporters of the JOBS Act say the change will level the playing field for investors, while also giving startups the ability to raise money from more people.

•  Critics fear the requirements for startups seeking

investment will be too demanding, or that unschooled investors could lose their money.

Power to the People

•  Startups have already been using equity crowdfunding companies like SeedInvest, Fashion Fund and CircleUp to raise capital -- but only from "accredited investors."

•  businesses looking to raise $500,000 or more will be

required to have financial statements reviewed by an auditor.

•  Those raising between $100,000 and $500,000 must do outside financial review, but it doesn't have to be audited. And companies seeking less than $100,000 can submit their own statements.

Title III Differences

Title III: The Diversity Antidote

•  Lack of diversity starts with venture capital firms. In the tech community, VCs are the arbiters of what lives by deciding who gets funded.

•  Study after study has shown that VC firms are largely run by White/Caucasian men. Merely 8.2% of VC firm decision makers are female, and roughly 2% are Black or Latino.

•  Wielding this power, VCs tend to fund founders who solve problems they can most relate to, and who are demographically similar to themselves. This has led to female and minority-founded businesses being vastly underfunded.

Title III: Diversity Data

Title III: The Qualification Delta

•  Lots of highly educated people can’t invest under current laws. This inconsistency is irreconcilable, especially in light of what motivates people to invest.

•  Of the respondents with a bachelor’s degree, 70% can’t invest, and of those with a postgraduate degree/certification (e.g. PhD, MBA, JD, CPA, MD), 47% can’t invest.

•  While deemed competent to provide advice to others,

these people are deemed incapable of making investment decisions for themselves, or at least of being held responsible for their decisions.

Title III: Qualification Delta

Title III: Investor Financial Knowledge

Title III: Investor Motivations

•  No doubt, people invest to make a financial return. 94% of our respondents marked that as a reason.

•  70% of respondents had additional motivations for investing. For them, investing isn’t where they either make millions or they lose.

•  For instance, the majority of our respondents would also invest to support a company’s mission and founders. And nearly half would invest to spur innovation and job creation.

•  These motivations aren’t surprising.

Title III: Investor Motivations

Title III: Conclusions

•  The SEC should certainly implement appropriate safeguards to protect investors, but we urge them to meet their mandate and allow everyone to invest in startups by finalizing Title III.

•  We hope these results helped shatter some of the myths that are used to support the current prohibitions. And we hope that they shed light on the great impact that Title III can have when it’s finalized.

WHY

“Fashions fade. Style is eternal” YVES SAINT LAURENT

Equity Investors by Category

Only viable source of equity funding for most fashion, design and hardware deals •  Significant upfront costs are required to finance the

production over a period of months/years •  Revenues will not be generated until the production

is complete •  Investment is highly speculative (no guarantee that

the production will be a hit, however well made)

Equity Crowdfunding for the Creative Class

“A means of raising funds to support the development of a business through the issue of shares in return for money”

Benefits •  Money doesn’t need to be paid back •  Investor may bring added value to the business through their knowledge/ contacts etc Risks •  Loss of control

- investor may influence the direction that the business takes in order to maximise the potential return on their investment - once you’ve issued shares in your business, you may not be able to control how these are subsequently traded

Equity vs. Debt

Growth potential – the business must be scalable

Market opportunity – is there a market for the product/service?

Protection of assets - is their any IP in the business, and how will this be protected?

You – who are the people behind the business? Are they “investable”? Have they got the drive, commitment and skills necessary to take the business forward?

Return on investment – how much money can I expect to make from the sale of my shares in X years time, if all goes to plan?

Risk – what is the likelihood of this business failing to achieve it’s financial projections?

What Investors Look For

“Success is not a random act. It arises out of a predictable and powerful set of circumstances and opportunities.”

` MALCOLM GLADWELL