Chain Crowd

ChainCrowd

A B2B Proposition for an Open Crowdfinancing Administration Platform Built on the Blockchain for US Crowdfunding Initiatives

This proposal is put forward Richard Kastelein — a Canadian Innovation expert living in the Netherlands.


Glossary

  1. Equity Based Crowdfunding: Investors receive a stake in the company. (If Pebble goes big, you get a percentage of the prize).
  2.  Donation Based Crowdfunding: Contributions go towards a charitable cause. (You paid for 50 children in Africa to receive watches).
  3. Lending Based Crowdfunding: Investors are repaid for their investment over a period of time. (You invest in Pebble, and get your money paid back over time).
  4. Reward Based Crowfunding:Investors receive a tangible item or service in return for their funds. (You invest in Pebble, and get a first edition watch.)

For our purpose in this proposal we use (Crowdfunding) for Donation and Reward-based projects and (Crowdfinancing) for Lending and Equity-based funding.

Crowdfinancing


Executive Summary

The primary objective of this proposal is to explore the idea of creating an open crowdfinancing administration platform (backend) built on the blockchain for American funding initiatives and to create common reporting standards similar to XBRL in the capital markets for the crowdfinancing community.

The primary problem we are trying to solve is fragmentation in the crowdfinancing sector in terms of proprietary software, lack of transparency and security in current systems, portability between different vendor systems, and lack of a common reporting standard. A common open source backend administration system for crowdfinancing sites which would utilize a decentralised ledger via blockchain technology to facilitate transparency and security would reduce friction and allow the crowdfinancing sector to rapidly grow and therefore stimulate innovation at a much higher rate.

NASDAQ is gearing up to become the first stock exchange operator to utilize blockchain technology by 2016 and it's clear that blockchain technology is coming to the financial markets in a big way. Here's what Blockchain can do more efficiently.

CB

Beginning in February 2016, due to new additions to the US JOBS Act, privately owned startup companies will be permitted to raise up to USD$1 million annually by selling shares directly to small investors through equity crowdfunding in the US — without having to cut through the red tape of registering those securities with the Securities and Exchange Commission. This is expected to increase the size of the equity crowdfunding sector ten fold in the US in a short time.

In a 2015 report titled, “The Future of Finance.” Goldman Sachs Group, Inc (GS) described crowdfunding as “potentially the most disruptive of all the new models of finance globally.’’

From Wall Street to Main Street, this marks the first time in over eighty years that everyday American citizens will have access to investing in early stage companies. The barriers everyday citizens have experienced in participating in early stage private investing are slowly but surely going away. In the past, wealthy institutions, VCs, and Angels have had exclusive access to investing in high-growth startups, but with the new legislation we see the beginning of a more level playing field for information and access for everyday investors to early stage private investments.

Crowdfinancing has the potential to dwarf the most disruptive marketplaces.  By lowering the cost to participate in the market, crowdfunding will expand participation in the market. 

All told, if equity crowdfunding lives up to just a fraction of its potential, the finance markets will experience a level of disruption that almost no other industry has ever experienced.

VC and angel investing as we know will not  die  but rather   a hybrid model will emerge where VC’s and Angels will lead and set the terms at which they want to invest, and then leverage equity crowdfunding platforms for distribution to a much larger set of investors.

Small investors — previously locked out of this pre-IPO market — will be permitted to invest the following:

Jobsact

The SEC plans to begin registering "funding portals" — the JOBS Act equivalent of the online brokers where you can buy and sell publicly listed stocks — on January 29, 2016. And a few months later, probably as early as next summer, the floodgates will open on crowdfinancing.

The American market is ripe for exploitation and a plethora of crowdfunding sites are expected to move into crowdfinancing as well as newcomers who want to enter the market.

The potential economic impact of crowdfinancing is significant. The global equity crowdfunding market has grown from $400 million in 2013, to $1.1 billion in 2014, and $2.6 billion in 2015 (estimated). The World Bank estimated that crowdfinancing would reach $90 billion by 2020. If the current trend of doubling year over year continues, we’ll see $90 billion by 2017. VC funding, a well-travelled avenue for small businesses trying to raise capital, accounts for roughly $30 billion a year. Angel investing, meanwhile, accounts for roughly $20 billion a year. In short, the crowdfinancing industry is scaling up rapidly with VC and angel investing firmly in its crosshairs.

The intention is to build the CHAINCROWD platform over a one year timeframe partly based on the Ethereum platform and a to-be-determined cryptoshare blockchain technology, then make available the software and other research to the crowdfunding and crowdfinancing communities as a backend solution for managing complex financial transactions , providing transparency, enabling liquidity and portability between providers.

The main result we seek from CHAINCROWD is to build a common administration backend built on the Blockchain which would be available to all crowdfunding and crowdfinancing sites in the market as a PAAS product, therefore allowing them significant savings in terms of not having to build a solution from scratch to manage the more complex administration found in crowdfinancing products.

The revenue model within this open source framework can range from licensing fees for Enterprise version, fees for advanced modules and addons to the core code to consulting, data revenue and more. The core technology should be open source.

With CHAINCROWD we also want to see common standards and a common open technology framework for administering American crowdfinancing projects benefit in other ways:

Benefits

Crowdfunding and crowdfinancing simply create opportunities for more people, who otherwise would not have access to traditional channels of finance, to become entrepreneurs. It creates competition for other sources of finance, and as it is often used by innovative, artistic and social projects as it promotes innovation, culture and social entrepreneurship.

The CHAINCROWD team will provide their various deep knowledge in the crowdfinancing industry, Blockchain financial technology and legal expertise to craft a solid platform which will have open standards and be available as a solution to American crowdfunding platforms upon completion. If successful, further expansion will be considered later.

The core technology and databases will be housed centrally in a cloud-based infrastructure and available for crowdfunding platform developers from anywhere to tap into via Application Programme Interfaces (APIs) and Software Development Kits (SDKs).

We think CHAINCROWD will cost approximately $400.000-$750.000 to build over 12-18 months.

Though a project like this could easily take two to three years, we feel a pressing urgency to get to market quickly with the CHAINCROWD product due to the market opening up in February 2016.


Objectives

The primary objectives of the proposal are:

Objectives

Our main objective is to build a crowdfinancing administration system built on the Blockchain with open standards to administer obligations from entrepreneurs back to the crowdfinancers, to distribute repayments of loans, to distribute capital from exit of shares and to have access to a detailed overview of portfolios.

The rapid rise in crowdfunding in the United States has led to enormous fragmentation in the market in terms of software with individual companies in the crowdfunding market primarily building proprietary front and backend versions of their platforms. This is not only duplicitous, it is also ineffective in terms of cost and sheer human resources, besides the fact that there is a lack of standardisation in terms of user experience for American investors and project owners who use these services.

The fragmentation has also lead to lack of common standards when it comes to the needed backend legal and financial reporting for the crowdfinancing companies in particular and there is no frontend interoperability between the platforms.

A secondary objective is to facilitate a common crowdfinancing standard for legal and financial reporting which is also compliant with reporting requirements of most regulators, similar to XBRL which is supported by the American Banking Authority (EBA). XBRL (eXtensible Business Reporting Language) is a freely available and global standard for exchanging business information. XBRL allows the expression of semantic meaning commonly required in business reporting.

Thirdly, there is a need for legal research and investigation into legal issues surrounding crowdfinancing and how to best fit into the new JOBS Act — Title IV legislation and how this will shape the CHAINCROWD project from a technological perspective. With issues such as taxation, liability and data protection (to name a few) it)s very complicated for (gift and donate) crowdfunding companies to expand their products into a crowdfinancing platform (equity, P2P loan, convertible loans and other financial instruments).

CHAINCROWD will not solve crowdfinance legal issues — that)s beyond the scope of the project. But, from a technological perspective, the CHAINCROWD system itself, with code contributors from different legal jurisdictions adding to the system, this will ease some pain for the crowdfinancing community in terms of legal issues. There is some impact in terms of state legislation in the US in these regards.

CHAINCROWD is not just a platform, we are building a community. Both a developer community and a platform-user community will evolve from CHAINCROWD and we expect more lines will open up in terms of knowledge sharing, which will undoubtedly include chatter about the different legislative hurdles in the US and possibly globally if the platform goes international.

But to start, creating an open standards solution geared towards American securities law for the crowdfunding and crowdfinancing communities, we can also further strengthen innovation by lowering the bar for entry into crowdfinancing platforms for American and international companies.


Open Standards

Open Source

Crowdfunding overall, by nature, certainly encourages bottom up innovation activities and addresses critical factors for successful demand-driven societal innovation. And by opening up CHAINCROWD, we will encourage more crowdfunding initiatives which will in turn, create much more innovation. Rewards-based and donation-based crowdfunding platforms will be encouraged to expand into equity, peer to peer lending and new hybrid models of crowdfinancing when the costs of developing those features is reduced drastically due to the presence and availability of CHAINCROWD.

Though crowdfinancing SMEs and startups is a relatively recent development in crowdfunding, there is no shortage of new lending programmes, equity structures, hybrids and other creative investment opportunities in this realm. Crowdfinancing is a collaborative business model that works across many sectors.

Seeing our platform will have open standards, the technology shall be transferable and scalable to other communities in different domains and societal challenges via different crowdfunding initiatives.

By creating a common platform and common reporting standards, CHAINCROWD will really help with raising awareness about the effectiveness and best practices in the overall crowdfunding market when it comes to crowdfinancing.

The current financial climate in the United States is tough for startups and has been since their primary source of funding, banks, have pulled way bank since the banking crisis in 2008 in terms of investing and supporting innovative, early stage innovation and companies in the United States. As the world changes even faster and American SMEs and startups need to pivot and adapt to a rapidly evolving market, there's a huge funding gap in what American innovation and enterprise needs and what is currently available to them.

The new generation of bootstrapped startups are far more likely to move towards news models of funding such as crowdfinancing which can offer better terms and more control over their own IP (a CTO from your VC and an advisory board chock full of investors can lead to bad decisions).

Due to the detrimental impact of the financial and real economic crisis on startups, a number of American policy initiatives such as JOBS have been put in place to promote startup financing in the United States including crowdfunding and crowdfinancing as a potential measure to improve startup access to finance. And catch up with the Europeans who are far ahead in this particular sector.


Concept and approach

The overall concept is to accelerate crowdfinancing in the United States by creating a consortium of necessary participants in order to build an open standards software administration platform based on the Blockchain that will lower the bar of entry for new players as well as provide a standard solution for the industry.

Crowdfinancing is a growing phenomenon in the US — which consists of a number of different models of financing for SMEs and startups. Despite the hype around reward and donation crowdfunding sites like Kickstarter and Indiegogo, crowdfinancing (i.e. lending, equity, hybrid models) is actually a significant slice of the overall alternative lending market in the United States. These new models offer a new, fast-growing financing option to startups.

In late March, 2015, the SEC in the United States finally democratized equity crowdfunding with the new JOBS Act - Title IV. After three long years of waiting for the revision, non-accredited investors can now participate in equity crowdfunding and investment in private startups and small businesses in the USA. On Oct. 30, 2015, The Securities and Exchange Commission adopted final rules to permit companies to offer and sell securities through crowdfunding. The Commission also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.

Regulation A+ investment offerings are now a reality in the States. This will also open the doors for more hybrid forms of alternative lending such as convertible loans.

The head start that Europeans have had in reregulated crowdfinancing is over.

In the last few years in Europe, crowdinvesting platforms that allow investors to electronically participate as a shareholder (either directly or indirectly through convertible loans) in high-potential start-ups seeking growth funding — have popped up in the United Kingdom, The Netherlands, Scandinavia, Germany and elsewhere.

They have served as laboratory of sorts — an experiment for what happens when mom-and-pop investors are given access to unproven startups, which in the past, has been risky territory once populated only by those with deep pockets. Laws that were put in place in Europe to protect small investors were eased long before the Americans loosened up — because rather than shield and protect the regular small time investor, it was more apparent that it was excluding them from participating in the new wealth being created. But this is about to change in 2016 in the US with the legislative changes brought on by the JOBs Act.

The promise of crowdfinancing is, of course, that one will be smart enough — or more than likely, lucky enough — to invest in the next American Unicorn. In the UK, the current reality for small time investors that they can now own equity shares in crowdfunded companies for as little as £10 . That changes the ballgame as the potential is there for many more Americans to invest in the next big thing and a lot more Americans can reap the financial benefits from it. Economy of scale is key here.

The administration on Crowdfinancing platforms is more complex than other forms of crowdfunding systems and require advanced administration software in order to provide proper checks and balances if they are to provide a viable channel for financial intermediation in the seed and early-stage market in the United States.

It is important to explore this new channel of funding startups and young, innovative firms given the critical role these startups can stimulate job creation and economic growth — as well as help create positive traction and awareness of the companies.

The space is currently without standard reporting formats such as XBRL for reporting or standard software platforms that American crowdfinancing vendors can use. Instead, the market is flush full with expensive, one-off, proprietary solutions built by a variety of crowdfinancing website owners that are at different stages of development and market penetration. These are still not offering the level of sophistication and professionalism that the sector needs to grow to have its potential unleashed.

American crowdfinancing platforms are openly addressing key issues like transparency for investors but at different rates and with varying degrees of success. This sets the industry up for the real chance of failure if things really go wrong in terms of lack of transparency or other potential legal problems with any one of the players in the crowdfinancing space in the US.

The Blockchain can solve these problems.

The other advantage of leveraging Blockchain technology is it allows the ability to govern crowdfunding company conduct and establish liquidation rights for investors via Smart Contracts.

It also takes care of liquidity rights or, the ability to sell your shares to someone else which is a difficult issue that is likely to be an ongoing problem for crowdfinancing investors and lenders in the future who are not using Blockchain technology.

An open standards solution can be created that will be able to deal with liquidity issues at a core level, but also be able to be modular enough to allow flexibility for different financial instruments and provide an open enough platform that one will be be able to add plugins or add-on)s to the core software in order to manage their own unique challenges.

Continuing down the path of technological fragmentation in the administration of crowdfinancing in the United States will, without doubt:

  1. Leave wide holes for security issues with too much weak software being produced that is not backed the the Blockchain.
  2. Hold back the entire industry unless a common framework strategy is proposed and enacted.
  3. Create problems when crowdfinancing platforms fail leaving no other entity able to financially justify taking over portfolio.
  4. Stagnate growth (both of crowdfunding platforms and startups) by impeding a standard data flow for market analysis and common reporting standards.

The Market

An important driver of the integration of capital markets is the rapid development of new technologies, which have contributed for example to the development of electronic trading platforms, high frequency trading and so-called "FinTech" companies. "Fintech" can be defined as the combination of innovative financial services and the availability of capital through the use of new (digital) technologies, such as crowdfunding and crowdfinancing.

According to a recent report, since 2008 global investment in FinTech ventures has tripled to nearly $3 billion in 2013; this trend is set to continue, with global investment on track to grow to up to $8 billion by 2018.

The free flow of capital is a fundamental principle on which America was built. CHAINCROWD is a solution that can help free up capital in a way that banks and older lending institutions simply can)t or won)t.

Crowdfunding and crowdinvesting, if provided with the right earth (common platform, common reporting language and common legal framework), will compound and provide the rich bed for the seed funding needed to build new, high-growth, technology companies in the United States.

CHAINCROWD wants to provide that rich soil.

For American entrepreneurs with an idea, it is not always clear where and how funds can be raised.

Banks are simply afraid to lend money in this day and age and they are asking for more and more security against the loan that young entrepreneurs can back it with.

Effective, standardised crowdfinancing platforms can enable startups to make a direct call to the public to support their great ideas and in return find investments, favourable loan terms and/or the opportunity to dilute and sell some shares in their vision and their project.

Crowdfinancing is not only a very disruptive and potential threat to the venture capital industry — they also have the potential to have an impact on the banking industry.

Banks loan money to provide solid returns, venture capitalists invest with the hope of a spectacular return... but the crowd?

They invest for a number of reasons. They invest because they would like to see a project become real — they invest to get a reward, they invest to get a piece of the action with a stake and they lend in order to receive a higher rate of interest than the banks give.

In the realm of crowdlending, in general the projects offering the highest interest rates are the ones most easily funded. People are looking for a more interesting opportunity than the <1% interest rate offered by the banks. But most people (the ones not yet crowdfunding) still keep their savings in their bank accounts because the sector of crowdfunding is not visible enough but also not professional enough.

This platform, CHAINCROWD focuses on standardization with detailed and easy overviews for the individual investor — and in the end data on performance of loan and investment portfolios. This will help to convince the mainstream crowd to participate in crowdfunding and thereby stimulate the startup sector. CHAINCROWD will bring the sector to a level of professionalism that comes closer to what a bank offers and exactly that is needed to let the sector grow.

Crowdfinancing platforms across the world raised $16.2bn in 2014, growth of 167% on 2013.

Massolution(s) Crowdfunding Industry Report analysed 1,250 sites globally and predicts this will increase by a further 112% over the course of this year, to reach $34.4bn in 2015. The Asian market is now larger than The United States, growing 320% and raising $3.4bn to The United States)s $3.26bn in 2014. But the US still dominates, seeing $9.46bn raised last year.


Scope

In a recent paper published by the Research Department of the International Organization of Securities Commissions (IOSCO) entitled Crowd-funding: An Infant Industry Growing Fast , there a number of benefits of crowdfinancing including boosting economic growth through flows of credit to startups and other users in the real economy, filling in a credit gap left by banks, offering lower cost of capital/high returns, leveraging off a lower cost basis and providing a new product for portfolio diversification

Interestingly, one of the five main risks includes platform risk which is an important problem that CHAINCROWD can help to solve - as it)s simple for any crowdfinancing platform using CHAINCROWD to pick up the portfolio of any other platform that fails and goes offline.

For crowdfunders it)s important to have a much more sophisticated and complete overview on all their investments in crowdfunding projects (loan & equity) to feel comfortable in investing more through crowdfunding.


Ambition

With no lack of modesty, we want to be the technology catalyst for what we think is a coming rapid growth of crowdfinancing in the United States.

According to the World Bank, the global crowdfunding and crowdfinancing markets will be worth more than $92 billion by 2025, twice as much as the current global venture capital market.

Our ambition is to be part of that power shift from one to many to many to many — or what is also called democratisation — of lending and investment in SMEs and startups.

Ultimately the goal of CHAINCROWD is to build a crowdfinancing administration platform build on the Blockchain with open standards for American funding initiatives, creating common reporting standards which will help ensure a level-playing field for all participants across the market.

Our approach to building a common framework for administering emerging forms of complex crowdfunding such as crowdfinancing and new hybrids will also help to rapidly increase alternative finance opportunities for American SMEs and startups and drive innovation across the board in many sectors.

A common administration platform built on Blockchain with open standards for more complex equity and lending crowdfunding industry players will help harmonise the industry by creating technology standards for transparency, cross-border communication of data, reporting, adherence to legislation and a modular framework which can be further enhanced and built upon by all users of the technology. By outsourcing the innovation to the industry at large rather than each individual company building proprietary versions of basically the same crowdfinancing backend product CHAINCROWD will save both time and money for everyone involved.

Technology alignment via an open standards framework and ethos will not only create more unity in the industry but will also make the American industry more resilient towards outside technology providers gaining large market share.

We want to build something unique in Fintech. We want to create not only an open software platform that could seriously compound the growth of the crowdfinancing industry, but we also want to build a closer community.

It)s one thing to have organisations, think tanks, boards, and other groups that work to build unity amongst stakeholders, and it)s another to have unity come from stakeholders working to build something together.


Innovation breeds innovation.

To make that more clear, having open standards with open reporting (and open doors in general) will build a community around driving innovation in the sector. More innovation and openness in the platform means more platforms being built due to lowering the bar of entry. Which leads to more crowdfinancing sites supporting innovators and startups.

On a more abstract note — think about it this way. Apple, Google, Facebook and Twitter have hundreds of thousands of people innovating on their platforms which drives innovation at the speed of light. Microsoft can)t fill up enough plane hangars in Seattle with paid staff to compete with that level on innovation.

An open crowdfinancing administration platform with a developer community will never be on the scale mentioned above of course, but it will still be able to innovate faster than any single company in the market that is building their own proprietary system. And by innovating faster, it will facilitate more crowdfunding platforms which will seed more innovation projects that seek funding.

One of our other thoughts is to add cryptocurrency eWallet functionality into CHAINCROWD to allow crowdfinancers to invest and lend across different platforms. eWallet functionality highly encourages money from repaid loans and capital gains from exits to be reinvested into new projects, and eventually new projects on multiple platforms — keeping the money available for startup growth instead being parked again in a bank account.

Another possibility is to include a side offering of cryptoshares of some kind. A Cryptoshare is a digital share for submission, registration, storage and transfer of which the technology of a decentralized public registry (BlockChain) is used.


Good innovation breeds even more innovation

There is no true off-the-shelf solution for administering crowdfinancing websites and due to the fragmented legal and technological state of the industry in the United States currently, the only solutions being built are by the crowdfinancing sites themselves. Usually from scratch and at great cost.

Though we don)t expect CHAINCROWD to be a total off-the-shelf solution, we do expect that due to our plans to build a modular design, that the core code base made available via an SDK and various APIs will ensure that the vast differences between different types of crowdfinancing platforms and the different legal issues they may have to deal with are able to be met with a simple bolt-on and bolt-off framework.

We will need to run a Freedom to Operate analysis in the initial stage but due to the nature of the market, there)s little reason to worry about Patent issues at this stage. There are no current plans to patent any of the core technology due to its open nature. Having said that Goldman Sachs is making efforts to patent Blockchain technology. However, we don)t feel a threat building a product with open standards based on open source software.


Impact

The CHAINCROWD project will specifically contribute to society overall by demonstrating how using collaboration by way of open standards when building an internet software solution can offer solutions to societal and sustainability challenges.

In this case, the problem is more societal in nature — due to the financial crash of 2008, there is a finance gap when it comes to supporting SMEs and startups in the United States. Banks are more reticent to loan money and growth is simply being stunted. Innovation is what is on the forefront of many American government policies and initiatives but it)s not enough. There also have to be private sector solutions for stimulating growth and CHAINCROWD believes that the future lies in crowdfinancing to overcome some of the current and future problems with getting businesses off the ground or growth financing is concerned.

There are far too many American SMEs and startups whose demand for financing is not met by any existing sources of finance, which have referred several times as the financing gap in this proposal. Some parts of the economy, such as social enterprises, sustainability projects or the cultural and creative sector really have a hard time finding funding due to lack of clear commercial and business models, presenting objectives that are too social in nature, or laying out weak commercial ideas that are far too dependent on assets that are intangible as well as a high uncertainty of market demand.

It)s not just about financing high risk innovation and ideas, it)s about helping budding entrepreneurs understand the fundamentals of building a business, it)s about knowledge sharing in communities, and about building new role models.

Governance of the crowdfunding industry overall will be further empowered by the CHAINCROWD platform due to its potential ability to collect massive amounts of anonymised data on the behaviour of crowdfunders and companies being crowdfunded. With actionable data, governance of the industry can be based on tangible metrics and not interviews and surveys, but real numbers - available in XML, Json or another malleable Internet framework, not PDF reports.

By both housing some key functions on a central database and core file structure in a common cloud location and decentralising some actions such as smart contracts and other data transations via Blockchain, this would be a hybrid solution most likely. More research needs to be done in terms of how to best fit blockchain technology into CHAINCROWD.

On an innovation level the expected impacts are pretty clear. Existing administration software solutions are proprietary, expensive, fragmented and keep the barrier to entry very high for those that want to build products and services in the crowdfinancing industry online. It)s very clear of the huge impact that using a new bottom-up, open and distributed approach will have — not only by exploiting network effects, but it could have an impact on how the entire alternative financing community eyes growth in the future. And not only that, also have an indirect impact on accelerating the growth of much needed innovative SMEs and startups in The United States.

Fintech is a notoriously closed world when it comes to open standards and open source software. There are a few open source solutions for reward and donate crowdfunding sites, but they are more or less lightweight content management systems (CMS) that manage a simple crowdfunding website, but can)t nearly handle complex backend crowdfinancing needs, which is more like banking software than a traditional CMS architecture.

No one seems to mind using some open source standards and code to build solutions but no one is openly sharing innovation in crowdfinancing administration platforms for the greater good of the industry. CHAINCROWD wants to change that by introducing a participatory open innovation model built on open standards and the Blockchain, an open platform and open reporting methods - that produces anonymised open data.

A Blockchain-powered CHAINCROWD could also potentially offer Crowdfincancing platforms the technology to raise funds by selling (cryptographic shares) to early backers. In more intelligible words, this means that investors in a crowdfunding campaign get tokens that represent shares of the startup they support and can actually benefit from the token value appreciation.

Crowdfinancing is on the cusp of the American Zeitgeist in terms mass market. It)s almost there but needs a push. CHAINCROWD can be part of that push.

There are a number of barriers and obstacles to building a successful CHAINCROWD solution including: Disseminating and getting sites to use the platform, legal obstacles in terms of open standards, licensing, IP ownership, common reporting standards, and impact of the various legislations, as well as Freedom to Operate issues.


Gender Dimension

One study from the US has concluded that Women outperform men on crowdfunding sites like Kickstarter — Researchers found that women-led ventures - particularly technology firms — were more likely to reach their funding goals than male-led ventures. There is a trend on crowdfunding platforms which shows that female backers disproportionately support women-led projects in areas where women are historically underrepresented.

The traditional VC world has problems with gender equality. For every nine men raising equity financing to start and scale their businesses, only one woman does, according to Access to Capital by High-Growth Women-Owned Businesses, a report by the American National Women)s Business Council. Half of the top 25 US VC firms — the ones that have given out the majority of funding in the past two years — do not have a woman in a decision-making capacity.

Crowdfinancing can help level the playing field in many ways — for example, it provides an open venue for women entrepreneurs to get support from women investors. As well as family, friends and other people in their networks — including men of course.


Minority Report

According to a report by economist Robert W. Fairlie, minority small businesses are less likely to receive small business loans than non-minority firms and are more likely to receive lower loan amounts than non-minority firms. In addition to loan amounts, minorities are more likely to receive higher interest rates even with credit profiles that are equal to those of non-minority borrowers. Lending discrimination suits against many major lenders in many cases present evidence that show patterns of discriminatory lending practices against minority applicants.

Crowdfinancing can great improve access to funds for minorities, but allowing them to easly offer a stable and transparent route to investment for their family, friends and immediate network. And also open up to potential funding from others in the related industries or same ethnic groups.


When we look at the lack of capital access and observe some of the banking practices, the apparent reality is that the banking institutions have failed to properly address the needs of minority entrepreneurs and small business owners.

In this same report Fairlie's research suggests

"If minority-owned firms would have reached economic parity in 2002, these firms would have employed over 16.1 million workers and grossed over $2.5 trillion in receipts." 

The lack of access to capital is not only inhibiting the potential of minority small businesses, it is also limiting the potential of the US  economy as a whole.


Indirect Competition

Current US Equity Crowdfunding sites (for accredited investors only)Crowdfunder.com

The site reports 75,811 investors and 15,805 companies for $130.5 million in investments. The average size of equity projects is $1.6 million, mostly through seed funding and initial rounds of financing. The company has been operating in the U.K. for quite some time and has a good archive of articles and media from which to learn. Crowdfunder is probably the largest and most established crowdfunding platform for equity investing.

Realtymogul

One of the new crowdfunding sites dedicated to real estate investment, Realtymogul reports more than $39 million investments across 98 properties since its launch in 2013. Realtymogul is not necessarily one of the crowdfunding platforms for equity investing but a crowd platform for real estate investing.

FundersClub

The site touts more than 11,000 accredited investors and $22 million invested over 100 companies. After a company submits an application for review, a committee reviews the application for growth metrics and viability. A panel of investor members, composed of angel investors and entrepreneurs, then reviews the documents in a vetting process.

Fundrise

Fundrise is another real estate investing platform that reports 34,152 members and 12% to 14% average return based on the projected gross returns for each funded offering on the site.

EquityNet

EquityNet has helped 20,000 investors fund more than $250 million to nearly 30,000 companies since its launch in 2005. EquityNet owns several patents for its crowdfunding technology, including one for analyzing enterprise risk and one for its marketplace solution. The strong intellectual property could help the site grow rapidly as the JOBS Act is implemented.


Current Blockchain Crowdfunding Projects

Chromafund

Chroma.fund is an investment crowdfunding platform that allows anyone in Oregon to make investments in local businesses, products, and creative projects. You can think of it as a local market for stocks and bonds. But unlike Wall St. investments, you don)t need a broker to invest in businesses on Chroma.fund. Just a credit or debit card. As with traditional crowdfunding sites like Kickstarter, business owners may use Chroma.fund to create campaigns (we call them (offerings)) that explain the project or business opportunity that they)re attempting to raise money for. But unlike Kickstarter, people contributing money to these businesses are investing instead of donating. Many of the businesses seeking investments on Chroma.fund are issuing something we call the ChromaCoin™ bond. This means that instead of selling a percentage of ownership of their company, they)re instead selling a percentage of future revenue. If you invest in a ChromaCoin™ bond, businesses will use our software to make periodic payments directly into your bank account.

Swarm

Swarm used its own crowdfunding platform to raise funds in July and received $1 million from backers. The platform focuses on projects based on blockchain technology for now. It provides crowdsourced due diligence on each entrepreneur and team its platform backs to eliminate potential scammers.

Koinify

Koinify, has just raised $1 million from IDG Partners, Brock Pierce)s AngelList syndicate and zPark Ventures to fund its development and build an easy-to-use interface. Koinify is focused on funding very specific projects related to blockchain technology and cryptocurrencies: decentralized applications, smart corporations, crypto infrastructure to make access to cryptocurrency easier.

Lighthouse

Lighthouse, a crowdfunding application of the bitcoin blockchain that was more specifically built to fund bitcoin core development, lobbying and community involvement and — like Swarm and Koinify — next-generation bitcoin projects. Hearn won a $40,000 bounty offered by self-proclaimed bitcoin millionaire and entrepreneur Olivier Janssens.

Blocktrust

BlockTrust is an industry leader in crowdfunding solutions, providing an all-inclusive platform for blockchain start-ups.

© Richard Kastelein, 2015
Document information Registered on Proof of Existence servers since:  2015-12-06 14:31:43
6ed1fd53462d8ddc2bde371029703377007b74b0c735de6a693e5d0538ad727d

Contact Richard Kastelein for more information.