Global Alternative Funding Forum: Crowdfunding Has Ushered in the New Era of Capital
It seems like it’s getting harder and harder to keep up with the colossal wave of financial innovation permeating through seemingly every corner of the capital markets in recent years. Just as everyone was becoming accustomed to concepts and new industries like Fintech and the JOBS Act, a new wave of innovations like artificial intelligence and blockchain technology come on deck to entirely change the game. But for innovators, pioneers and entrepreneurs, they probably wouldn’t have it any other way.
With that said, in order to stay on the cutting edge of industry developments, it’s important to be able to connect with those leading the charge. That’s exactly what entrepreneurs, investors and industry professionals can do at the 5th annual Global Alternative Funding Forum, which is taking place on Nov. 11, 2016 at the The Skirball Center in Los Angeles, CA.
As the “Premier Forum on Venture Financing and FinTech,” the conference brings together thought leaders and industry standouts to discuss the most pending and forward-looking issues affecting the market. Victoria Silchenko, an economist turned entrepreneur and Founder of the Global Alternative Funding Forum as well as Metropole Capital Group, gives us a preview of this year’s event, which is themed, “The Future Is Now – Access to Capital, Redefined,” and drops some very keen insights on the beginnings of this financial revolution thus far.
EQ: This year’s Global Alternative Funding Forum is entering its fifth year with this year’s event. How has the market for alternative funding evolved since the first event? Is the market’s rate of progress accelerating?
Silchenko: We were pioneers here in SoCal, featuring and promoting various crowdfunding models that have emerged outside of the traditional venture financing system–such as venture capital, angel investing and banking. We are still the only business event in the world that, from its very first edition in 2012, has been uniting all financing actors to foster entrepreneurship, innovations and an impact.
The important point to remember: crowdfunding – whether it is a reward-based, donation-based or online lending or regulation crowdfunding – is not the end; it is a beginning of the venture financing process that is typically being done in stages. So while some like to think about crowdfunding as a replacement of the traditional incumbents, I look at it rather as an additional or hybrid tool that perfectly fills in the need for the early-stage financing.
VCs are looking primarily for the high-growth, technology-led, exit-driven companies and that banks don’t like to loan less than $200K (and only if you are already profitable). There are only about 300,000 active angel investors in the whole country that are investing in start-ups. Who else is available?
Since 2012, crowdfunding platforms raised $2.7 billion worldwide and the industry has been accelerating at an unprecedented rate, reaching $34.4 billion in 2015. The future looks bright: Technavio’s report entitled Global Crowdfunding Market, forecasts that the industry will grow at a compounded average annual rate of 27% during 2016-2020.
EQ: You’ve noted that observers have called the Forum, the “Davos of Entrepreneurship”. What does that mean to you? How does that help shape the expectations and level of quality of the thought leadership and networking that participants bring to the table?
Silchenko: We’ve been lucky to have numerous world-class experts and true game-changers such as Jeff McCarthy, Manager Director of Lending Club (LC) (now MD at LoanXchange); Korstiaan Zandvliet, our guest from Netherlands who is the CEO & Co-Founder at Symbid, the first equity crowdfunding platform in Europe (now publicly traded SBID (OTCMKTS); Arthur Lipper, a Wall Street legend and fintech inventor for the past 50 years; David Weild, the “father” of the JOBS ACT. That’s to name just a very few, and this year we are welcoming, for example Cromwell Coulson, the President, CEO & Director of OTC Markets Group (OTCM), who will be one of other 40 top-notch speakers expected.
We’ve been known for not just all-star speaker lineups, but also for attracting the most relevant and sophisticated audience and I “blame” it on our “pitch-free” zone and highly interactive “think-tank” approach where the audience can jump in the discussions. This year they’re themed as “The Future is Now: Access to Capital, Redefined” – an exclusive annual gathering made by entrepreneurs for entrepreneurs.
We are striving for a larger impact, beyond just a typical business event. In fact, as this year our Forum will take place just three days after the country has elected a new President, we’ve started to crowdsource recommendations from our forum’s participants about what financing policies the entrepreneurial community would like to see coming from the White House in 2017. We are non-partisan and our platform is not intended to produce any political statements.
And while the government is being discussed primarily from the administrative point, I would like to remind everyone that it is also the most active financier in the entrepreneurial world.
Here is some enlightening data: In 2015, the money awarded to SME in total was $165 billion (including $91 billion on small businesses). In the same year, angel investors put $24 billion in startups and VCs invested $59 billion. Add to this the fact that the main backer of VC funds are pension funds, which contributed 20% of the VC industry’s overhaul, and you might understand my quest for the public-private partnerships, which I predict will be the next fin-tech disruption.
EQ: In the past two years, we’ve seen major shifts on the regulatory front, primarily key provisions of the JOBS Act taking effect, united with a wave of innovation driven by the Fintech industry. Are we witnessing a landmark period for the US and global financial markets?
Silchenko: As one of the first supporters of the JOBS Act, I am glad to see that regulations are finally emerging from the dark age where we see a set of thoughtfully-defined asset classes that converge with the age of a digital economy and network effects. The diverse nature of the crowdfinance industry means that a wide variety of businesses and projects will find its way to the appropriate funding source – and that’s what was missing in the traditional financing system.
But I believe that we are at the very beginning of a financing renaissance where crowdfinance is still set for further disruption with the emergence of strong and powerful partnerships with traditional incumbents and a much more active role of the crowd eventually breaking off the limitations of the accredited rule.
I also would love to see that eventually fundraisers will be able to connect directly with funders via their own platforms or websites – or even products. I had a lunch the other day with Andy Klein – a legendary innovator who was the very first in the financing history to raise capital directly from his customers for his tiny Manhattan-based brewing company, Spring Street almost 22 years ago (about $1.6 million from around 3500 people). I loved his story where his team was putting a snapshot of his offering on the beer bottles’ labels.
EQ: With regards to innovation, especially for the finance industry, there has always been a balance between risk versus reward, and regulation versus growth. How do you look at this?
Silchenko: Well, if someone wants to sing the old song, “but people might lose their investments,” think about the fact that last year Americans spent over $73 billion on lottery tickets. This is $14 billion more than VC investments and triple the size of Angels financings.
Meanwhile the data confirms that while 400,000 new businesses are launched every year, 470,000 per year are dying. The death rate of over 1,280 businesses per day is a frightening number. If we are living in an environment when new businesses – the real engines of the economy and job creators – are dying faster than they are being born, you start to wonder what’s wrong with the financing system that is meant to exist to deliver the oxygen for new ventures.
As an educator and entrepreneur myself I am getting to the point that access to capital – any capital – is simply the most important factor for any new venture. Just ask South Korea, Germany, Sweden, Japan and Switzerland – the top five innovative economies in the 2016 Bloomberg Innovation Index. The U.S. economy, the largest economy in the world, has made it to 8th place only.
EQ: There are a number of great topics and issues to be addressed at this year’s Forum, including the rise of artificial intelligence in financial services, alternative funding sources for entrepreneurs and startups, private market access for non-accredited investors, and so much more. On the surface, these seem to be separate emerging themes within the financial industry, but collectively, how does these combined trends pave the way for a new economy?
Silchenko: We live in the world where networking capabilities are increasing exponentially with costs declining – leading to new methods of disintermediation that would have been impossible just a few years ago. So this year we’ve added new topics covering blockchain and artificial intelligence while giving a big attention on resolving the liquidity problem. This is why we are happy to have on board OTC Markets Group and NASDAQ Private Markets taking the lead in building the new venture exchanges.
EQ: What are some of the key challenges that you hope are addressed at this year’s Forum?
Silchenko: The truth is – founders and investors are overloaded with the information and our forum presents the most actionable information in a condensed, actionable and unbiased ways. Here is a snapshot of our Agenda:
- Redefining Securities Distribution through Crowdfinance
- Alternative Funding Tools, Access to Liquidity and Rise of Venture Exchanges
- Funding Options Under the JOBS Act: Building Brand Loyalty via Stock-Ownership
- Royalties as the Alternative Way for Investing & Financing
- Federal and Corporate Financing Programs in support of SMB
- EB-5 programs as a financing tool
- Artificial Intelligence and the Rise of Robotics in Financial Services
- The Changing Face of Angel Investors
- Venture Capitalists on the Future of Venture Capital
- How and Why Blockchain is Transforming the Venture Financing industry
EQ: Traditional financial institutions are starting to dip their toes into this market. How do you think that will impact the pace of growth? When will alternative funding become the new traditional?
Silchenko: It’s not enough for the large companies to “dip their toes” in the water. Because of their bureaucratic style and slow response to market, it’s likely that they will be so far behind the learning curve that the new focused platforms and other participants in the alternative funding space will leave the traditional companies behind. Think of Amazon (AMZN) who decided to become an online retailer in the face of potential competition from Walmart (WMT), Target (TGT), and other department stores who were too slow to react and lost the global online market to Amazon and other focused competitors.
But we certainly will see more and more partnerships aka “big guys befriend with small guys” – Visa (V), for example has just announced its partnership with blockchain startup Chain – stay tuned.
EQ: Do you have any additional thoughts or closing comments?
Silchenko: I am thinking about one of my favorite quotes by Alvin Toffler, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn. ” I strongly believe at this age we have to re-write the rules for the modern financing system that would be based not on two – but on three quantitative measures – risk, return PLUS impact. But this is a whole new discussion.
For more information on the 5th annual Global Alternative Funding Forum, visit http://metropoleglobalforum.com/
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