CROWDFUNDING

Equity crowdfunding still a relevant, dynamic financing tool

Singapore

EQUITY crowdfunding remains a relevant and dynamic market even with the advent of cryptocurrency crowdfunding, which is believed to be the latest innovation in crowdfunding, says Jon Medved, chief of OurCrowd, an Israel-based crowdfunding platform backed by UOB.

For one thing, equity crowdfunding continues to fulfil a funding need among startups, he tells The Business Times in an interview. It allows small, innovative companies to easily raise funds from accredited investors globally - despite their lack of collateral or track record, which many banks still demand before they offer a loan.

It also offers networks that will benefit startups, says Mr Medved. "Accredited investors are not just normal people, but people of means. They have a tremendous capability to help, and millions of connections, some among them can be potential hires or sources of funding for a startup."

Moreover, it allows investors to tap investment opportunities once reserved for only big players such as venture capital firms. "The magic of equity crowdfunding is allowing many people to get into this asset class of startups - comprised of unicorns - before they go public."

Since 2013, OurCrowd has amassed nearly 20,000 global investors, who have invested over US$440 million into some 120 portfolio companies and funds.

When asked if startups will prefer cryptocurrency crowdfunding to equity crowdfunding because the former does not require them to give up equity while raising funds, Mr Medved disagrees. "Giving up equity is part of the nature of startups, most of which need help with funding. The question is how much equity to give away and at what terms, and if the investor can add value."

Cryptocurrency crowdfunding, unlike equity crowdfunding, uses only virtual currencies and lets entrepreneurs issue their own digital tokens (that can be bought by investors) to raise funds for their projects; no equity is thus lost. Equity crowdfunding, on the other hand, entails investing in startups using regular currency, in exchange for shares.

Equity crowdfunding is becoming a more intelligent and efficient financing tool, Mr Medved adds.

"Artificial intelligence (AI) will be involved soon."

OurCrowd, for instance, is using AI to power two unique initiatives, namely OurNetwork (a global investment service to help multinationals connect with, support and invest in startups); and OurCrowd Connect, (a business development engine for portfolio startups to find skills or strategic connections among OurCrowd's exclusive network of investors).

Mr Medved says: "We're a fintech - we're now up to 15 developers. Our emphasis on tech applies to what we use ourselves and what we invest in."

He shared that AI will soon be used to "make the first call" in OurCrowd's due diligence process, which currently can take months. That is, AI will be harnessed to reject 60-80 per cent of startups that apply to the platform but do not satisfy its criteria.

"We curate companies carefully before they go on the platform. We want to get in on the best companies . . . not those with business model innovation or a cutesy idea for a website."

Asked what are some deal-breakers when it comes to approving startups for the platform, Mr Medved cites startup founders who are narcissists ("obsessed with me"), not willing to be coached, or have no knowledge of their sectors.

"Of course, you can't just meet somebody once and form an impression. I don't hire a senior partner (to my firm) until my wife and I have had dinner with him and his wife."

A successful equity crowdfunding platform is ultimately one that delivers consistent, top returns to investors, and creates companies that have a lasting and important impact on the world, Mr Medved says.

Zoomcar is one such company. It has raised over US$6 million via OurCrowd. Based in India, it allows Indians (many of whom still cannot afford to purchase a car) to rent a car through its app, pick up the car at one of hundreds of local spots in six major Indian cities, unlock the car using their phone and drive away.

"We're surprised at how many of our companies are making an impact. It comes down to the quality of our relationships. We want active investors who are involved, connected to the network, and helping our startups."

The American venture capitalist adds: "With 30 years in this business, we know that crowd wisdom has to be managed and guided."