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US-EU Meeting Alternative Finance Presentation

  1. Grow VC Group ++ ++ @growvc ++ Enabling Digital Finance ++ Copyrights © Grow VC Group 20161 Alternative Finance Market and SME Access to Finance: EU – US Meeting, Transatlantic Economic Council Jouko Ahvenainen, Tallinn, June 2, 2016
  2. Finance Sector Challenges 2 1.  The finance crisis in 2008 started a chain reaction that impacted regulation, credibility and business models of banks 2.  More regulation and requirements on capital have limited banks’ capability to lend to business customers 3.  Digital currencies and especially underlining technology, like blockchain, enables new ways to make transactions without payment processors and banks 4.  People and companies are more critical towards finance institutions and service costs, e.g. in fund raising, wealth management and asset management ›  Leads to try alternative providers ›  Crowdfunding and p2p lending have emerged 5.  Goldman Sachs has estimated that the alternative finance addressable market is $3.3 Trillion 6.  Average growth rate of the UK alternative Finance market is 159% 47% 68% 23% 49% UK US Level of confidence in banks 2008 2013 Source: Edelman Trust Barometer 350m 873m 2337m 0 500 1000 1500 2000 2500 2012 2013 2014 The UK alternative finance market growth Source: University of Cambridge and EY: The European Alternative Finance Benchmarking Report
  3. Emerging New API Ecosystems 3 Digital Back Office Services: •  Authentications, transaction processing, user accounts, transaction history, reporting •  Assets and their securities, ownership ‘tables’, finance instrument models •  Interfaces to 3rd party components, databases, ‘blockchain ledger’processing Payment processing Credit RatingID verification3rd party services Blockchain ‘type’ services Investing Service A Investing Service B P2P Lending Service A Users: Private & Institutionals MarketData Services Wealth Management A Secondary Market Service A Asset Management A Syndicate Service A Digital Fund Service A RiskManagement and insuranceservices
  4. Data from the US and Europe Alternative Finance Market 4
  5. DATA-DRIVEN DEAL EXCHANGE May 2016 Real-time data and deals on private companies raising capital, backed by analytics, insights and research
  6. MASSIVE CAPITAL MARKETS MOVING ONLINE Number of Crowdfunding Platforms Worldwide 1,250 $300BN Estimated Size of the Global Crowdfunding Market in 2015 $34.4BN Value of the Early Stage Investment Market Estimated Revenue Crowdfunding Added to the Global Economy in 2014 $65BN Sources: Massolution Crowdfunding Research 2015; CB Insights (; Crowdfunder!
  8. Tracking Private Companies & Assets Fund-Raising Online Coverage across assets classes: Equity Crowdfunding Marketplace Lending Real Estate Crowdfunding Online M&A Private Deals Some of the asset classes listed above are not yet live on the DealIndex data platform!
  9. DealIndex Dashboard
  11. DealIndex Partners Some of the Featured Platforms Media and Financial Institutions Partnering across Alternative Finance
  12. MINI-IPO CROWDFUNDING IN US: REG A+ CROWDFUNDING $50M Equity Crowdfunding Under Regulation A under Title IV of the JOBS Act. Growth companies raise up to $50 million from accredited and unaccredited investors in a mini-IPO style offering serving as a potential alternative to venture capital or other institutional capital! ! Case Study: Elio Motors Elio Motors an American startup automaker founded in 2009. Elio Motors raised $17 million from 6,600 investors in Dec 2015 on a Los Angeles based platform Start Engine, this was the first company to make use of the recently approved Regulation A crowdfunding category in the US, which allows unaccredited/ regular investors to invest alongside sophisticated / accredited investors in the US. ! ! The company listed its shares at on the over-the-counter market on February 19 providing liquidity opportunity for its shareholders. The share price for Elio Motors during the crowdfunding raise was $12 a share and traded at $20-$24 a share on listing. This is the first example of a company in the US making use of the new Reg A+ offering and subsequently listing its shares.! ! !
  13. CROWDFUNDING IN EUROPE UK COMPRISES 80-90% OF THE MARKET The UK has been widely lauded as an innovator in alternative finance arena as the industry has seen assistance from both elected and appointed policy makers. One of the key drivers underpinning this development is the growing institutionalisation of the sector! ! Online alternative finance in UK grew 84% to £3.2 billion from £1.74 billion in 2014.! ! UK SMEs were the biggest beneficiaries as approximately 20,000 raised about £2.2 billion on digital platforms during the year. ! ! Equity crowdfunding continues to grow rapidly jumping 295% to £332 million from only £84 million in 2014. This segment now represents 15% of all UK seed and venture funding.! ! Institutional investors are playing a larger role in alternative finance with 32% of consumer lending and 26% of business lending being driven by big money.! ! ! ! !
  14. TradeUp Export Capital Stats 15 TradeUp is the premier growth capital platform for globalizing companies, an outperforming segment: •  Its customers are typically US companies that are starting export or globalization •  Companies have come to TradeUp seeking > $200m over past 9 months •  Typical company has ~$3m revenues, seeking $2m in capital •  TradeUp rejects ~85% of companies •  Working with partners and companies in 10+ countries Main sectors Average revenue ($000s) Total Capital Sought Financial Services 3,000 45,000 Healthcare 500 6,000 Tech / Clean Tech 1,000 76,600 Manufacturing 12,000 11,000 Project Finance N/A 36,000
  15. Combine alternative and public markets and combine digital to traditional finance Hybrid Finance 16
  16. Many Forces Drive Disruption 17 New finance models and instruments 2. Distribution: Need for new scalable cost-effective distribution channels 3. Instruments: New Alternative Finance instruments 1. Capital: Increased requirements to have capital for loans 4. Customers: Look for competitive prices and better ROI
  17. 1. Better Capital Efficiency 18 Investors •  Combining equity and lending enables, for example, to 1.  Leverage equity investments 2.  Get collateral for loans •  Investors can use platforms to attract more co-investors and syndicate investments •  Participate in the securitization of p2p loans as an additional option to invest Banks •  Banks have regulatory requirements (e.g. Basel II / III) to have a certain capital ratio for their risk-weighted assets •  Even well profitable loans can tie so much capital that capital requirements make them to have sub par ROI •  Equity investors, other lenders, different lender seniority levels and use of equity or loan from p2p as a collateral helps manage the capital ratio •  Possible to develop instruments (funded through platforms) that can offset loan liability or in cases work as a guarantee for loans Ins*tu*onal Investors or Lenders P2P Lenders or Investors Required Capital Less capital required, if other investors or lenders decrease risk of loans
  18. 2. More Effective Distribution 19 Platform as a Customer Interface •  Investors and lenders can operate in equity and lending platforms •  Platforms take care of many needed processes like customer acquisition, origination, KYC, Due Diligence, collection •  Typically possible to choose a risk level •  Open API also enables to automate a part or all of this work •  Requires trust in platforms, and agreements and T&C that are in line by all parties Automated Allocation to Smaller Ticket Size •  Pension funds and other large LP’s cannot handle small investments (e.g. less than $500M) in a cost effective way •  Funds to make smaller investments have significant management fees •  Technology enables the automation of smaller investments based on given criteria •  Hybrid models combine automated processes and professional work Large Fund (e.g. $100B) Small Fund Small Fund Small Fund Small Fund Investment Opportuni*es Automated Inves*ng Alloca*on PlaNorm Management fees
  19. 3. New Instruments for Investors 20 New Finance Instruments •  Alternative Finance offers new attractive investment opportunities and its securitizations make the market more liquid •  Instruments to invest and lend money in platforms •  E.g. ‘p2p trust’ type instruments •  Securitization of online and p2p loans •  Risk management and guarantee instruments •  Work needed to find optimal regulatory and instrument models for these instruments (e.g. Open-Ended, Closed-Ended, ETF, or Evergreen fund) •  Crucial to have enough data from platforms and assets Fund Simulators •  Technically implemented investment services that work like funds •  Investors can define their investment criteria, e.g. •  Geographical, industry sector, and risk level •  No costs from traditional management work •  Data and analytics needed to enable these products Investment / Lending PlaNorm Investment / Lending PlaNorm P2P Fund Crowd Fund Securi*za- *on Fund Simulator Investors
  20. 4. Customers Expect Better ROI and Prices 21 Enable Smaller Fees •  Competition in fund and wealth management business is more and more about lower fees and more scalable models •  More effective and automated customer acquisition, investment processes and more scalable investment models make it possible to cut fees •  Data, Analytics and Artificial Intelligence offer new solutions to manage and optimize investments and instruments •  APIs to cooperate with 3rd parties Better ROI with Alternative Finance •  Alternative Finance, e.g. p2p loans, real estate and growth capital, offers new high return opportunities to funds and portfolios •  More uncorrelated assets and better diversification •  Need a scalable and cost effective solutions to invest in different assets •  APIs to invest in Alternative Finance platforms Investment / Fund Management Open API Robo- advisor Bank Investment advisor Investment plaNorm Open API Investors Stock Exchange P2P Lending Equity Crowdfund Deal Aggregator
  21. What Enables All This? 22 1. Knowledge and Competence to Develop New Models ■  Combination of finance, banking, technology, and data science competences ■  Important to understand the API Ecosystem and innovate new business models ■  More global knowledge and mindset are needed 2. Data ■  Data enables institutional investors and banks to participate in the market ■  Data is the key component to develop new instruments and service ■  Advanced analytics and Artificial Intelligence (AI) enables new services and instruments 3. Technology ■  Open API ■  Ubiquitous back offices and middle ware for fundamental finance functions ■  Agile models to develop new applications on an open API back office 4. New innovation models ■  Building a new ecosystem, no one can do it alone ■  Accelerate innovation and ecosystem with partnering and open interfaces
  22. Summary 23 Digital and Alternative Finance are changing finance value chain and products ■  More de-centralized models, e.g. based on API ecosystem and blockchain ■  From service silos to more more seamless collected services Four key areas: 1) Capital, 2) Distribution, 3) Instruments, and 4) Customers ■  This is not only about technical, but it is one key driver to enable new services, business models, better efficiency, and new finance instrument ■  Data is a key components for many new services ■  Develop fast – test – improve Mainly due to regulation, differences in the US and European altfi markets ■  The UK has been the leading market, thanks to FCA’s open minded approach ■  The US market has been more for accredited investors, a mini-IPO market ■  Now more countries develop the regulation and many kind of markets emerge Grow VC Group works in the core of these changes ■  Competence, technology, data, global presence, and constant innovating
  23. Jouko Ahvenainen +44 7889833165 / +1 6463636664 Grow VC Group – ENABLING DIGITAL FINANCE 24
  24. Finance and Services Infrastructure Data, Research & Consulting Grow VC Group Worldwide pioneer and leader Crowd investing, peer-to-peer and digital finance enabler Hong Kong - London - New York - San Francisco - Milan
  25. Global leader of digital finance groups ■  Started its operations in 2009 being the pioneer to start digital finance service ■  Grow VC Group was the first in the world to launch an online startup equity investing service in the world ■  The group includes 10 businesses ■  Grow VC Group companies have more than 100 active customers with millions of end users globally having launched new digital finance services ■  The main hubs are in London, New York, San Francisco and Hong Kong ■  Several its companies are leaders in their own areas, e.g. Crowd Valley, DealIndex and TradeUp Capital Fund People ■  Grow VC Group’s management and founders have been listed as top influencers in the world in digital finance, Fintech, crowdfunding and digital business ■  Our key people are serial entrepreneurs who have experience to launch several new companies and products around the world to consumer and business market ■  Our people have been in executive roles to launch international corporates’ products to new markets and build data analytical approach for go-to-market and sale Grow VC Group FinTech Firm of the Year Award Winner 2015 26
  26. Many Parties Work With Us 27