Crowdfunding & Bridge Financing theories and practice

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1. Crowdfunding & Bridge Financing Presented By: Mohammed Sohail Mustafa, CFA Associate Professor & Director, (Training & Certification Program),BIBM Email: [email protected] 1

2. Concepts of Crowdfunding Crowdfunding is a way to raise money from a large number of people. Large groups of people pool together small individual investments to provide the capital needed to get a company or project off the ground. Individuals, charities or companies can create a campaign for specific causes and anyone can contribute. 2

3. The Benefits of Crowdfunding Reach – By using a crowdfunding platform like Fundable, you have access to thousands of accredited investors who can see, interact with, and share your fundraising campaign. Presentation – By creating a crowdfunding campaign, you go through the invaluable process of looking at your business from the top level—its history, traction, offerings, addressable market, value proposition, and more—and boiling it down into a polished, easily digestible package. PR & Marketing – From launch to close, you can share and promote your campaign through social media, email newsletters, and other online marketing tactics. As you and other media outlets cover the progress of your fundraise, you can double down by steering traffic to your website and other company resources. 3

4. The Benefits of Crowdfunding……..contd. Validation of Concept – Presenting your concept or business to the masses affords an excellent opportunity to validate and refine your offering. As potential investors begin to express interest and ask questions, you’ll quickly see if there’s something missing that would make them more likely to buy in. Efficiency – One of the best things about online crowdfunding is its ability to centralize and streamline your fundraising efforts. By building a single, comprehensive profile to which you can funnel all your prospects and potential investors, you eliminate the need to pursue each of them individually. So instead of duplicating efforts by printing documents, compiling binders, and manually updating each one when there’s an update, you can present everything online in a much more accessible format, leaving you with more time to run your business instead of fundraising. 4

5. Types of Crowdfunding Donation-Based Crowdfunding - Broadly speaking, you can think of any crowdfunding campaign in which there is no financial return to the investors or contributors as donation-based crowdfunding. Common donation-based crowdfunding initiatives include fundraising for disaster relief, charities, nonprofits, and medical bills. Rewards-Based Crowdfunding - Rewards-based crowdfunding involves individuals contributing to your business in exchange for a “reward,” typically a form of the product or service your company offers. Even though this method offers backers a reward, it’s still generally considered a subset of donation-based crowdfunding since there is no financial or equity return. This approach is a popular option here on Fundable, as well other popular crowdfunding platforms like Kickstarter and Indiegogo, because it lets business-owners incentivize their contributor without incurring much extra expense or selling ownership stake. Equity-Based Crowdfunding - Unlike the donation-based and rewards-based methods, equity-based crowdfunding allows contributors to become part-owners of your company by trading capital for equity shares. As equity owners, your contributors receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend or distribution.   5

6. The Challenges of Crowdfunding Generating this type of widespread support can be a challenge. It takes a strong marketing effort, trustworthy founders and a quality product. According to Ryan Sim, managing director and co-founder of We The People – a company that sells only crowdfunded products – the challenges of crowdfunding are extensive. He listed five key challenges that plague reward-based crowdfunding campaigns: Finding and implementing a cost-effective marketing strategy before, during and after the campaign Crafting the right messaging in the campaign description that will drive interest in the product or service Developing an informative and exciting campaign video that explains the product and its benefits (the main challenge being that it's expensive to create a really good and high-impact video) Creating and planning the rewards program to strategically maximize the ROI Finding the most effective and cost-efficient fulfillment method for the rewards 6

7. Tips for Crowdfunding Success 7

8. Tips for Crowdfunding Success……..contd. 8

9. Comparing The Top Online Fundraising And Crowdfunding Platforms 9

10. How To Choose A Crowdfunding Platform? So you’ve decided that crowdfunding is right for you. Great! But how do you know which crowdfunding platform is right for your needs? Whether you’re raising money for a financial emergency, a business idea, a creative project, a personal dream, or even to help a friend in need, you’ll want to consider these five factors in choosing the right fundraising platform: Type of crowdfunding model Features and performance Trust and fraud protection Customer support Fees 10

11. Bridge Financing Mohammed Sohail Mustafa 11

12. What is Bridge Financing? Bridge finance is an interim financing for an individual or business until permanent financing or the next stage of financing is obtained. Money from the new financing is generally used to pay back the bridge loan, as well as other capitalization needs. It is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing. It is also called a bridging loan. Mohammed Sohail Mustafa 12

13. Use of Bridge Financing by Corporates To inject small amounts of cash to carry a company so that it does not run out of cash between successive major private equity financings. To carry distressed companies while searching for an acquirer or larger investor (in which case the lender often obtains a substantial equity position in connection with the loan). As a final debt financing to carry the company through the immediate period before an initial public offering or an acquisition. Mohammed Sohail Mustafa 13

14. Maturity If the borrower does not pay off a bridge loan at the end of its initial term, the bridge loan will automatically convert into a long-term financing either in the form of a bond or a term loan with a longer maturity ( e.g. , five to 10 years) and a higher interest rate (typically the interest rate at the end of the initial term plus an additional premium). To facilitate conversion of the bridge loan into bonds, the bridge lenders may require the borrower to file a shelf registration with respect to these exchange securities prior to the end of the initial term. In addition, the bridge lenders may also require the borrower to pay liquidated damages equal to a percentage of the principal amount of the exchange securities if the exchange securities are not freely tradeable at the end of the initial term. Mohammed Sohail Mustafa 14

15. Securities Demand Mohammed Sohail Mustafa 15

16. Securities Demand Failure Mohammed Sohail Mustafa 16