Crowdfunding continues to increase in scale in Europe and it is expected that 26% or $1.3 billion out of a global $5.1 billion will be raised via European crowdfunding platforms in 2013, based on the latest industry report by Massolution. Equity crowdfunding, in particular, will pick up a faster pace as regulatory uncertainties are mitigated and the necessary laws are put in place.
As I continue this series on the Top 100 Global Crowdfunders, I recently caught up with Souleymane Galadima, Business Development and Partnerships Manager at WiSEED. He talked about WiSEED’s leadership position in the equity crowdfunding market in France and in Europe, and its views of the competition both current and potential.
David: WiSEED has a strong brand in France, although the industry there is still nascent. We know that WiSEED closed down for a period of time. Can you summarize your firm’s successes and challenges, including why it closed and how you resurrected its business?
Souleymane: WiSEED was one of the first equity-based crowdfunding platforms in the world. It was created in 2008 (online in June 2009) by Thierry Merquiol and Nicolas Sérès, who got their experience and credibility managing an incubator for several years in the Région Midi-Pyrénées. The investment and support team is made up of six professionals, including the co-founders. WiSEED has financed 26 startups, raising a total of €5 million. One of them, Antabio, a biotech startup, successfully exited in 2012, rewarding its 200 “crowd investors” with an internal rate of return of 45%. It was the first successful exit (cash-out) in the recent history of equity crowdfunding, and the only one until now.
With a community of 15,000 private investors, our main challenges are:
Increase the number of active investors
Industrialize the fundraising process in terms of back and front office
Optimize our financial engineering in line with French and European regulators
Deploy WiSEED as a brand in other European countries by the end of 2014
WiSEED temporarily closed its platform in Q4 2012 when we were asked by the AMF (the French equivalent of the SEC) to stop our online operations. The AMF considers it necessary for us to proceed to non-guaranteed placement activities if we wanted to charge commissions based on the amounts raised. Moving toward a fixed commission could be an interesting move to bypass such constraint. At that time, we decided to maintain a low profile and stop the platform until we signed our technical partnership with AM France (Alternativa). Alternativa is an investment service provider with all the authorizations required by the AMF. WiSEED is so far the only French platform with such a partnership.
David: Who do you consider to be your competitors in the equity- and lending-based crowdfunding industry in France today and why?
Souleymane: Our main competitors are equity-based crowdfunding platforms such as Anaxago, Smart Angels, Finance Utile and Fund Me. We consider them competitors because they chase similar types of investors and early-stage companies.
So far, due to French regulatory constraints, lending-based crowdfunding platforms cannot intermediate operations between non-accredited investors and SMEs. In the future such platforms could be partners rather than competitors, with startups raising both capital with WiSEED and debt with other platforms.
David: How do you view the rewards-based crowdfunding leaders, and how will the entrance of Kickstarter and other foreign rewards-based crowdfunding firms into the French market affect the local rewards-based crowdfunding firms?
Souleymane: U.S. rewards-based crowdfunding leaders represent a serious risk for the current French and European platforms in terms of market share, especially if they decide to extend their offer to equity. However, regulation is so diverse from one European country to another that it will be difficult for any U.S. player to quickly conquer the European market. Moreover, the geographical parameter is crucial in crowdfunding. Crowdfunders like to invest locally, and recruiting a good deal-flow requires an extensive network.
However, U.S. platforms and U.S. regulators are the white knights of crowdfunding, and all their initiatives are beneficial for maturing the crowdfunding market.
France and Europe will need to quickly grasp the potential of crowdfunding in terms of regulation, transparency and marketing. If they want to compete, the important criteria will be the deal-flow quality and partnerships with financing players such as banks, VCs and angels.
David: You have looked into equity-based crowdfunding structures in other regions of Europe. How do you see the British, Dutch, German, Swedish and Italian markets and their progress in equity crowdfunding affecting your future growth?
Souleymane: Our view on other structures is confidential. I can, however, share the study of the European Crowdfunding Network on various regions of Europe.
David: What have you learned from equity crowdfunding firms in the rest of Europe?
Souleymane: So far most European actors are generalist and active in their own countries, except for CrowdCube, which recently arrived in Sweden.
The lessons learned from our competition are:
It is essential to gather both a community of investors and experts. Platforms need to think beyond the simple investment; an investors’ social network may be one vision.
Participation follow-up is a critical challenge. The future leader will need to excel in this task, with limited resources and a maximum of interactivity. Crowdfunders want to live the entrepreneurship.
European regulation will not be sorted out until there is a new MIFID (Markets in Financial Instruments Directive) in two or three years, so we still have some time to earn market share before the arrival of U.S. equity-based platforms. The latter will need an aligned regulation for European countries to penetrate the market. In two or three years we need to be big enough to compete or be acquired.
As with any investment activity, the key is the deal-flow. The more deal-flow you have, the more chances you have to get the “Diamond.”
David: Finally, what do you think is your firm’s edge in equity crowdfunding compared to other firms in Europe?
Souleymane: The factors that give us an edge are:
Our selection process. WiSEED targets innovative start-ups that do not have enough financing but do have big potential. They need above all to please the crowd. To that end, WiSEED has a voting process before a fundraising campaign begins. Pre-selected start-ups go live and are subject to the vote of the community, which can chose either “I like” or “I don’t like,” based on 11 key criteria. If a community member “likes” a start-up, it also indicates how much it could invest. The voting system makes it possible for the platform to only select start-ups that really interest investors, and acts as a quick market study that indicates how much the crowd is willing to invest in.
Our back-office is developed completely internally and is flexible enough to be deployed in other countries or business areas, to follow the verticalization of crowdfunding.
The success of our first exit with Antabio, which delivered 45% of IRR after 18 months.
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft, a global event-driven financial media company helping firms and funds advertise for investors. He is running the Real Estate Investing and Leading Crowdfunding Conference in NYC on Nov 14, 2013. Listen to him speak together with Keynotes Dennis Irvin of Rockefeller Group and Barry Sternlicht of Starwood Capital. Details of the event can be found at: https://thesoholoft-real-