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Is Equity Crowdfunding a Viable Financing Vehicle for Life Science Companies?

Is Equity Crowdfunding a Viable Financing Vehicle for Life Science Companies?

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October 21st, 2012

Is Equity Crowdfunding a Viable Financing Vehicle for Life Science Companies?

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Table of Contents
Table of Contents ................................................................................................................................................ 2 S. Jordan Associates .......................................................................................................................................... 3 Executive Summary ............................................................................................................................................ 5 Global Healthcare Overview ............................................................................................................................... 7 Life Science Market Observations ..................................................................................................................... 9 Building Capital Alongside Capital ................................................................................................................. 14 S. Jordan Associates – Capital Formation/Liquidity Pathways ................................................................... 15 Capital Formation .............................................................................................................................................. 16 Liquidity Pathways ............................................................................................................................................ 17 Direct Listing/Form 10 ....................................................................................................................................... 18 After Market Support ......................................................................................................................................... 21 S. Jordan Associates – Deal Flow ................................................................................................................... 23 S. Jordan Associates – Crowdfunding ........................................................................................................... 24 Equity Crowdfunding ........................................................................................................................................ 25 VC Activity – Crowdfunding ............................................................................................................................. 33 Case Study: Ex-U.S. Equity Crowdfunding (Australia) ................................................................................. 35 Case Study: US Equity Crowdfunding .............................................................................................................. 36 Life Sciences Private Placements - Is Equity Crowdfunding a Viable Financing Vehicle? ....................... 37 Facilitating Crowdfunding in the Life Sciences Industry .............................................................................. 39 Crowdfunding Q&A ........................................................................................................................................... 40 Investment Banking .......................................................................................................................................... 47 Further Discussion (~SEC) ............................................................................................................................... 49 Addendum A – Crowdfunding Data ................................................................................................................. 50 Addendum B – Equity Crowdfunding Investment Data .................................................................................. 56 Addendum C – Kickstarter ............................................................................................................................... 57 Addendum D – Service Providers, Investors/Entrepreneurs ........................................................................ 58 Addendum E – Case Study: Life Sciences Crowdfunding .............................................................................. 60 Addendum F – SJAConnect ............................................................................................................................... 61

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S. Jordan Associates (SJA)

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S. Jordan Associates (SJA)

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Executive Summary “Is Equity Crowdfunding a Viable Financing Vehicle for Life Science Companies?”
The past five years has been one of the more challenging periods for raising capital in the biotechnology industry especially for early-stage companies. Numerous factors have contributed to Venture Capitalist’s dim view of the sector’s prospects. Recent surveys have not been optimistic of future venture activity:   In a survey from Deloitte and the National Venture Capital Association, respondents expressed a lack of faith in the future of the biopharm industry According the 2012 Global Venture Capital Confidence Survey o Biotech fetched a modest 3.08 on a 1 to 5 scale of confidence (5 being the high end) landing biopharm among the four industries with the lowest levels of investor confidence o In the U.S., investors painted a particularly bleak outlook for biotech, with 81% of respondents expecting either no change or a decrease in overall capital invested over the next 5 years in drug research companies o While U.S. and European countries' investors were lukewarm about biotech, respondents from China, India and Brazil expect strong growth in biotech investing

Industry perception is being influenced by the following:       Venture investors are facing a capital crunch that has prompted many of them to steer away from risky and expensive bets in biotech The IPO market remains unavailable to many young drug developers, hurting one of the traditional routes to exit from investments in biotech companies Drug development is a binomial event and majority of drugs fail in the clinic Challenging FDA environment Drug Development is capital intensive with long timelines to approval (~capital efficiency) More attractive industries like social media with favorable risk profiles and exit strategies

Given these realities emerging growth biotechnology companies are increasingly pursuing alternative financing vehicles, including Equity Crowdfunding, to advance their drug development programs. The “JOBS Act” On April 5 , 2012, the JOBS Act (Jumpstart Our Business Startups Act) was signed into law including a provision for Equity Crowdfunding allowing companies to raise capital in small amounts from large groups of people using the Internet and social media. The JOBS Act leaves many of the details of Crowdfunding and private offerings in the hands of the Securities and Exchange Commission (SEC) which has 270 days to conduct rulemaking, at which time Crowdfunding should become available for issuers. Prior to the JOBS Act, money raised through Crowdfunding in the U.S. was relegated to micro investments or donations to causes and ventures within a framework of providing rewards including sponsorships, loans (microfinance), and gifts. The growth in worldwide Crowdfunding volume has been astounding. In 2011, over $1.4 billion was raised through Crowdfunding with projections of $2.8 billion in 2012 (91% growth rate). Two leading U.S. 5
th

based “Donation/Gift” based Crowdfunding platforms, Kickstarter and Indiegogo, have experienced exponential growth as measured by funding volume and # of deals/participants. According to a “State of the Industry” report from Crowdsource.org:     The number of Crowdfunding platforms worldwide is expected to grow from 452 to 536 in 2012 The Equity-based Crowdfunding category is expected to grow at 114%, the fastest rate of all platforms Over 21% of Ex-U.S. Crowdfunding projects currently raise between $100,000 - $250,000 On average, Equity Crowdfunding campaign timeframes are 10.2 weeks to close

Our complementary White Paper provides crucial fundraising information for life sciences investors and emerging growth biotech executives, including:        What would need to change about Equity Crowdfunding, as it is conceived today, to make it a truly viable and complementary component of the startup capital markets? How Equity Crowdfunders and Angels/Venture Capitalists can work together? Can Equity Crowdfunding augment the traditional lifeblood of startups, Friends and Family and Angel seed rounds? When should life sciences’ companies raise Equity Crowdfunding Capital? What are the benefits of diversifying the investor base through Equity Crowdfunding? Why is $300,000 – $500,000 projected to be the most common Equity Crowdfunding range for life science companies? Why are investors with philanthropic/compassionate use goals ideal Crowdfunding investors?

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Global Healthcare Overview - $3 Trillion Global Industry Growing 16% Annually
Healthcare Generates Superior Returns Versus the S&P500
RELATIVE RETURN: S&P 500 vs. S&P 500 Healthcare 700 600 500 400 300 200 100 0 100

S&P 500 Index (^SPX) - Index Value

S&P 500 versus S&P Midcap 400 Healthcare

450 400 350 300 250 200 150 100 50 0 -50

S&P 500 Index (^SPX) - Index Value

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Performance of the Biopharmaceutical Sector has Significantly Outpaced the S&P 500 Healthcare Index Since 2009
NBI versus S&P 500 Healthcare Sector Index - HCX

50.00 40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 -30.00 -40.00

NASDAQ Biotechnology Index (^NBI) - Index Value

PIPES – For the Majority of Healthcare Companies which are Publicly Traded, Private Placements have become the Most Prominent Form of Achieving Their Financing Objectives

250

200

Number of Deals

150

100

50

-

# of deals

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Life Science Market Observations – “Innovation Gap”
Raising Capital Continues to be Difficult for Early-Stage Biotech Companies –  Liqud investments are highly valued post the “Great Recession” (2007-2009) o BTK and NBI Indexes out-performed in 2011 versus difficult market environment for raising early-stage capital o Capital moved to companies that were already public, had a strong balance sheet, committed to improving trading liquidity, and had exchange listings In 2010, 70% of Venture Capital investments (~23.4 billion) were in expansion and later-stage rounds avoiding the risks associated with earlier-stage Investments o Regulatory/reimbursement unpredictability o Long development timelines/exits o High attrition rates o High costs of drug development Over the last 5 years, the number of Venture Capital firms declined from 1,200 to 400 2011 Survey from the National Venture Capital Association (NVCA) found nearly 40% of firms planned on decreasing life science investments over the next three years o While bio/pharma R&D continues at high levels, the number of new drugs approved has steadily declined, and many experts observe that the drugs that are approved are often of only incremental benefit to patients Traditional public financing routes including IPOs/Follow-Ons continue to be closed for early-stage biotech companies

 

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Venture Capital
For the past couple of decades, Venture Capitalist’s held most of the power in the startup ecosystem. However, many investors including a Partner from a major Venture Capital firm, Fred Wilson - Union Square Ventures, believes the balance of power is shifting and Venture Capitalist’s are rethinking their roles.

“As an asset class, Venture Capital has not beat the public markets since the mid1990’s” – Fred Wilson, Union Square Ventures
Wilson commented that since the mid-1990’s, institutional investors frequently poured $30 billion annually into Venture Capital but have only been able to figure out how to generate good returns on half of it. “There’s two times as much capital in the Venture Capital business today than we, the professional investors who make up the venture business, can actually put to work intelligently.”

Fundraising by Venture Funds Years/Quarter # of Funds Venture Capital ($M) 2007 237 31,061.1 2008 212 25,932.9 2009 161 16,406.8 2010 169 13,777.8 2011 169 18,166.0 1Q'09 58 4,945.9 2Q'09 42 5,008.1 3Q'09 36 2,345.4 4Q'09 49 4,107.4 1Q'10 47 4,270.7 2Q'10 48 2,099.9 3Q'10 55 3,677.6 4Q'10 48 3,729.6 1Q'11 45 7,604.2 2Q'11 46 2,814.4 3Q'11 64 2,139.8 4Q'11 38 5,606.0
Source: Thomason Reuters and National Venture Capital Association (NVCA)

“Level and breadth of venture investment is starting to recalibrate to reflect a concentration of capital in the hands of fewer investors” - NVCA
 38 U.S. Venture Capital funds raised $5.6 billion in the fourth quarter of 2011, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 162% increase by dollar commitments but a 41% decline by number of funds compared to the third quarter of 2011, which saw 64 funds raise $2.1 billion during the period.

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U.S. Venture Capital fundraising for all of 2011 totaled $18.17 billion from 169 funds, a 32% increase by dollars compared to 2010 and with the same number of funds

Over the last 10 years the number of active Venture Capital firms (invested at least $5 million annually) has declined from 1,022 to 462 (National Venture Capital Association)
The contraction of VC capital appears set to get worse. Some groups estimate that over 50% of Venture Capitalists may go out of business in the near/mid term driven by the further contraction of returns due to 1) the illiquid market, 2) the limited realizations of contingency payments, 3) LPs near term requirement for distributions to meet their capital outlays and 4) the rebound of other asset classes. Recent reports from the Kauffman Foundation and the ILPA are putting venture captial returns under the spotlight with a number of LPs already stating their intent to drastically cut their venture allocation.

Kauffman Foundation Report Analysis/Recommendations
The most significant misalignment occurs because LPs don’t pay Venture Capitalist’s to do what they say they will – generate returns that exceed the public market. Instead, Venture Capitalist’s typically are paid a 2% management fee on committed capital and a 20% profit-sharing structure (known as “2 and 20”); pays Venture Capitalist’s more for raising bigger funds, and in many cases allows them to lock in high levels of fee-based personal income even when the GP fails to return investor capital.

Kauffman Report Recommendations – “A Smaller Industry is Needed”
   Change the compensation structure Investments in smaller funds Partners commit at least 5% of their own capital, investing directly in startups or alongside funds at later stages

Kauffman Report - Does Less Venture Money Mean Fewer Startups? Not Necessarily
 Pool of Venture Capitalists will shrink while the pool of startups will remain the same o Angels already picking up some of the Venture Capital slack and will likely continue to do so going forward o JOBS Act/Crowdfunding also likely to fill the “funding gap”

New Roles – Venture Capital

Fred Wilson – Union Square Ventures
“Going forward, Venture Capitalists have options on the table including becoming more selective, shrinking, halting investments of institutional capital or taking more equity for the governance and advisory services they provide” “If these Crowdfunding markets really do develop into these vibrant markets, maybe the answer is to leverage that capital and do something interesting there as opposed to going out and raising money from the institutions”
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Angels Filling the “Funding Gap”

Angel Funding – Case Study
Gemnus Pharmaceuticals – 6/29/2012: Flu treatment developer Gemmus Pharma Inc. raised about $1.5 million in a Series A funding led by a syndicate of angel investor groups including Tech Coast Angels, Life Science Angels, and The Angels Forum

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Non-Traditional Financing Platforms Gaining Traction for Early-Stage Private/Public Biotechs
Reverse Mergers and Direct Listing volume increased given traditional public financing routes, such as IPOs and publicly marketed follow-on’s (Secondary Market), continue to be closed for early-stage biotech.

Secondary Offerring Total Deal Value and Average Deal Size ($M)
200,000 180,000 160,000 1,000 900 800
700

Total Deal Value ($M)

140,000

120,000 100,000
80,000

600 500
400

60,000 40,000 20,000
-

300 200 100
-

Total Transaction Value

Avg Deal Size

Leaner R&D Structures and Patent Cliff Burdens Increasing M&A Activity M&A has become the preferred avenue for achieving BOTH growth financing and liquidity objectives throughout the global healthcare industry Strategic partnerships with innovative early-stage companies should increase as large biopharma relies on innovation from the outside, however; Strategic partners remain selective; investing in companies with late/commercial-stage products

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Avg Deal Size ($M)

Building Capital Alongside Confidence

Funding EarlyStage Life Science Companies
Crowdfunding Portals

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S. Jordan Associates – Capital Formation/Liquidity Pathways
Funding Portals CrowdCube Crowdfunder Motaavi SJA/LifeTech Capital Kickstarter Life Science Angels

Partners, TBD

Angels/Portals

Angel Capital Assoc. AngelList Gust

Capital Formation

Investors/Distribution

Liquidity Pathways

Start-Up Capital Angel Rounds Growth Capital Bridge Financing PIPES

Non-Accredited Accredited Venture Capital Corporate VC

Direct Listing/Form 10

After Market Support “Strategic” Exits Licensing/Partnering

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Capital Formation

Accredited Angels/HNW

Venture Capital

Crowdfunding

Syndication
Corporate Investors Merchant Banks

Insiders

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Liquidity Pathways

The IPO market is limping, especially for small companies. According to a report from the IPO Task Force (a group of Venture Capitalists, bankers, lawyers and other interested parties), nearly 2,000 venture-backed, emerging growth companies went public from 1991-2000. From 2001 to 2010, only 477 did.

‘New Normal” - Pathway to Liquidity

Stage 1: Funding
• Friends/Family • Crowdfunding - Donation/Reward; Philanthropic

Seed

Start-Up

• Angels • Accredited Investors

Co-Inv.

• Equity Crowdfunding, "Side Car" Funds, Bridge Financing • Venture Capital

Stage 2: Liqudity
• Direct Listing - File S-1 Stage 1 • OTC.BB • After Market Support - Micro Cap Research Stage 2 • PIPES • NASDAQ Listing Stage 3 • Acquisition by Large Pharma/Biotech

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Direct Listing/Form 10

Direct Listing - Structural Register Company for Public Reporting Purposes Not a Direct Funding Option - Private Financing, PIPE, or Public Offering Needed to Raise New Capital Potentially Faster Liquidity for Shareholders - no IPO Lockup or 144 Holding Periods Cheaper Alternative than IPO or Reverse Merger Avoids Reverse Merger Scrutiny and Shareholder Issues Automatic Effectiveness of Form 10 Reduces Market Risk Direct Listing - Environmental Success Not Dependent on IPO Market "Window," but Still Needs to Attract Public Investors No Underwriter Backstop - Initial Stock Price Set by Market Demand Increased Popularity after Heightened SEC Scrutiny of Reverse Merger

Direct Listing, through Form 10, usually in conjunction with an S-1, offers an alternative method to an IPO or Reverse Merger for taking a company public Typical Direct Listing involves a multi-step process for an initial OTC Listing (i) (ii) (iii) (iv) Complete a Reg D Private Placement to ensure sufficient shareholder base File a Form 10 with the SEC to subject a company to the SEC’s Public Reporting Requirements under the Exchange Act Subsequent to effectiveness of Form 10, File a S-1 Registration Statement with the SEC to Register Shares for sale Upon filing of the S-1, file contemporaneous application with FINRA for Listing/Ticker Symbol

Keys to success for Direct Listing - development of successful trading market for shares dependent on (i) (ii) (iii) (iv) (v) Quality of management Asset and “Story” Research analyst coverage Execution of post-registration marketing Investor relations plan

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David Feldman, March 7, 2012 “In November of 2011, the SEC put up a Giant “Slow” sign in front of Reverse Mergers with reporting shell companies by requiring that they trade over-thecounter for at least one full fiscal year before they can up-list to a major exchange. The Slow sign is removed if there is an underwritten public offering for at least $40 million. Early-stage biotechnology companies may benefit with a year to two of trading on a platform that has fewer governance and oversight requirements (OTC.BB) through a Self/Direct Listing Pathway.” “In a Self Filing, the Company makes its own filing with the SEC not to raise Direct Listing/OTC.BB Case Study: Genspera, Inc.

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Genspera Near-Term Milestones Continued enrollment and dose-escalation in G-202 Phase I Study Initiate Phase Ib post-chemotherapy prostate cancer study Initiate Phase II castrate-resistant chemotherapy-naïve prostate cancer study in US and UK Plan to start two other Phase II studies in 2012 and early 2013

Genspera – Raised $16.55 Million from “Retail”/Accredited Investors Since 2006

Genspera's Investor Keys to Success - Upside, Timeliness, and Liquidity Reasonable Entry Price/Valuation Likelihood of Steadily Increasing Valuations - Low Burn Rate/Meet Milestone Targets and Dates Liquidity vis Public Listing on OTC.BB - Investors Sell 25% of Position, Recoup Initial Investment After Market Support, Micro-Cap Research Coverage - Increase Trading Volume Follow-on PIPE with Simultaneous Uplisting to NASDAQ Value Inflection Point/Proof of Concept (POC) - Fund Phase 2 Randomized, Controlled Study Projected $1 billion valuation with estimated 40 million shares @ $25/share (i.e. Plexxikon) Sale to Strategic - Possible 80-100x Return on Investment (ROI) with 5-6 years (i.e. Janssen/Cougar)
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After Market Support

“So Who Needs Wall Street, Barry Silbert of Secondmarket is Innovating Around America’s Broken Public Capital Markets” WSJ, October 29, 2011

Secondary Market Trading of Privately Owned Stock has Skyrocketed Fueled by:

  

The 2002 Sarbanes-Oxley law made it more expensive to be a public company mainly by imposing millions of dollars of compliance costs Changes in Rule 144 governing private “secondary” stock sales have fueled the growth of private exchanges because the “lockup period” in which investors must hold stock has fallen from three years down to one IPO market is limping especially for smaller companies

The Leader in Secondary Trading of Altenative Investments, SecondMarket, Traded $10 Billion in Assets in 2010, up from $2.5 Billion in 2009 and $1 Billion in 2008

    

160 employees Registered with the Securities and Exchange Commission (SEC) as an alternative trading system Requires companies to provide audited financials and risk factors to potential investors Currently marketed to “Accredited” investors having a net worth of more than $1 million, excluding the investor’s home. SecondMarket is now offering opportunities to invest as little as $5K in companies with AngelList, the platform for startups. Read more on this development, and comment on it yourself, by clicking here.

Secondmarket Vision “Connect all the World’s Buyers and Sellers – Disintermediating anyone on Wall Street that does not Add Value” Secondmarket Value Proposition for Life Science Investors Active Secondary Market Crucial for Investors Utilizing Equity Crowdfunding Platforms – “Don’t Get Stuck with Stakes they cannot Easily Sell”

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Secondmarket Partners with AngelList, October 16th, 2012

SecondMarket is now offering investment opportunities in companies from AngelList, the platform for startups. SecondMarket users can invest as little as $5K and begin building a diversified portfolio of some of the country’s most interesting technology startups.

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S. Jordan Associates – Deal Flow

Funding Portals Investors/”Eyeballs” Payment Infrastructure

Partners

Angels/Portals Networking Social Recommendation Search

SJA/LifeTech Capital

Deal Flow Vetted by Angel/VCs

Reg A & D/Distribution Broker/Dealer Channels

Micro Cap Research Increased Visibility

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S. Jordan Associates – Crowdfunding
Crowdfunding

Philanthropic Investors

SJA - Intermediary Broker/Dealer

Co-Investment Structures Sole Purpose LLC Option Pool

Family Office

Investor Due Diligence

Issuer Due Diligence

Legislation

Background checks Protect Issuer IP

Scalability Path to Market Competitive Adv. Financials/Valuation Board/Management Use of Funds Dev. Milestones

TBD: SEC Escrow Set-Up Term Enforcement Investor Privacy Investor Education

SJA – Overcoming Equity Crowdfunding Challenges

Challenge #1: Liquidity Pathways/After Market Support Challenge #2: “Deal Bombardment” Challenge #3: Perception of “Dumb $” Challenge #4: Protecting Intellectual Property
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Equity Crowdfunding

Michael Greeley, of the Boston Venture Capital Firm, Flybridge Partner
“This is the logical extension of the marriage of crowd determination around either ecommerce or content or entertainment. We’ve watched every other industry become democratized by the Internet, so there’s no reason that finance can’t be, too.”

Definition - Crowdfunding Crowdfunding is a method of raising capital in small amounts from a large group of people using the Internet and social media. Unlike funds from Venture Capitalists or angel investors, the money raised through Crowdfunding doesn’t necessarily buy the lender a share, and there is no guarantee that it will be repaid if the venture is successful. Instead, individuals are asked to make micro investments or donations to causes and ventures within a framework of providing rewards including sponsorships, offer to make a loan (microfinance), and gifts.

History – Equity Crowdfunding In February 2011, a group of entrepreneurs banded together and formed, “The Startup Exemption” with the goal to lobby Washington, DC to update the Federal Security Laws to make it legal for entrepreneurs to use Crowdfunding for a limited amount of earlystage equity-based financing. With the assistance of the Small Business and Entrepreneurship Council (SBEC) they partook in two hearings on Capitol Hill. Their framework was the basis for the Entrepreneur Access to Capital Act (H.R. 2930) introduced by Rep. Patrick McHenry (R-NC). In November of 2011, the U.S. Representatives passed H.R 2930 in a vote of 407-17. It reduced restrictions on smallscale Crowdfunding of for-profit businesses currently present in state and securities law. The “Jumpstart our Business Startups Act,” H.R. 3606 (the “JOBS Act”, was passed by the House of Representatives on March 8, 2012) On March 22, 2012, the Senate passed H.R. 3606 with an amendment to Title III (Crowdfunding exemption) On April 5, 2012, President Obama signed the JOBS Act The JOBS Act was the culmination of a year-long bipartisan effort in both the House and Senate to address concerns about capital formation and unduly burdensome SEC regulations

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Crowdfunding Benefits
Entrepreneur More Accessible Source of Funding Cost Effective Marketing Effect Crowd Feedback – Track Analytics Test Marketing/Promotion – Gauge Demand Investor Opportunity to Invest in High-Potential Businesses Financial Return Lower/Spread Risk Simple to Invest

Funding Paradigm
New Funding Paradigm Social Platforms Relationship Do-it-with-Others (DIWO) Power of One Dollar Old Funding Paradigm Not Broadcast Not Transaction Do-it-Yourself (DIY) Not Millions

Implications - Crowdfunding Crowdfunding is a big advantage for the Crowdfunders since it allows them to participate in angel investing, whose returns have outperformed over the past decade If Americans diverted 1% of their long-term savings to Crowdfunding (Americans have $30 trillion dollars in long-term savings and investments), that sum would be 10x the total annual Venture Capital investment in the U.S.

Collectively, Donation/Reward-based Crowdfunding sites including Kickstarter, IndieGoGo, and sites aimed at Accredited Investors (~AngelList) raised 1.5 billion dollar in 2011

State of the Industry, Crowdsource.org
See “Addendum A”

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JOBS Act – Crowdfunding
  President Barack Obama signed the “JOBS Act” (Jumpstart Our Business Startups Act) on April th 5 , 2012 JOBS Act leaves many of the details of Crowdfunding and private offerings in the hands of the Securities and Exchange Commission (SEC); has 270 days to conduct rulemaking, at which time Crowdfunding should become available for issuers. An area yet to be vetted is application of Rule 144 o Rule 144 (shares pursuant to a registration exemption have restrictions on transferability) may not govern equity sales o SEC expected to provide a safe harbor for Crowdfunding securities; Congressional intent is to make transferability as inexpensive as possible (opinion letters not required to remove restricted “legend” The Capital Raising Online While Deterring Fraud and Unethical non-Disclosure Act of 2012, or the “CROWDFUNDING ACT” allows issuers to raise $1 million in a 12-month period from investors over the Internet Fraud protection provisions include limiting the amount investors can risk and requiring that Crowdfunding equity sales take place through an intermediary platform Investors are limited to investing: (i) the greater of $2,000 or 5% of the investor’s annual income or net worth, if the investors income or net worth is under $100,000; or (ii) the lesser of $100,000 or 10% of the investor’s income or net worth, if the investor’s annual income or net worth is $100,000 or greater over a 12 month period Investors can fund one company or several companies as long as they remain within these annual limits An investor must wait 12 months before selling her/his securities unless the sale is to a family member, the issuing company, or an accredited investor Offers must be made through a Broker-Dealer or a “funding portal” that is registered with the SEC Intermediaries would have to obtain a "background and securities enforcement regulatory history check" on an equity-issuing company's officers, directors and investors holding stakes of at least 20% Prohibits issuers and intermediaries from paying promoters, finders, or lead generators to obtain information on prospective investors The current version augments the previous with disclosure requirements for companies raising capital. The requirements, which tend to lack the stringency of Sarbanes-Oxley requirements, depend on the amount of the offering. Those seeking to raise $100,000 or less will need to provide tax returns and financial statements certified to be true by the company's principal For offerings of more than $500,000, companies would have to provide financials reviewed by an independent accountant In terms of state law, the current version of the bill was also amended to add funding portals to the entities state regulators can oversee. The previous version limited the states' purview to broker-dealers.

  

     

 

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JOBS Act - Intermediaries   
Register with the SEC as a broker, or a funding portal and join a “Self Regulatory Organization,” or SRO Register with any applicable self-regulatory organization (i.e. FINRA) Ensure that each investor o Review education information o Positively affirm that the investor understands that he/she is risking the loss of the entire investment o Can bear such loss Obtain background and a securities enforcement regulatory history check on each officer, director, and person holding more than 20% of the outstanding equity Provide the SEC and investors with any information provided by the issuer within 21 days prior to the first day of sales Ensure that the issuer cannot access offering proceeds until the target offering amount is raised and allow all investors to cancel commitments Ensure that investors do not exceed the 12-month investing limitations on securities purchased under Section 4(6) of the Securities Act Protect the privacy of information collected from investors Refrain from compensating promoters, finders, or lead generators forpersonal identifying information of any potential investor Prohibit directors, officers, or partners from having any financial interest in the issuer using its services

      

Regulatory Environment

Broker Dealer Well-Established SEC and FINRA Rules Regarding Registration and Ongoing Obligations Handling Customer Funds and Securities, Making Recommendations, Compensating for Sales of Securities Significant Registration Costs, as well as Ongoing Compliance Costs Available for Issuers Using Broker-Dealer’s Platform

Conduct of Business

Funding Portal To be-established SEC and FINRA Rules Regarding Registration and Ongoing Obligations Restrictions on Activities Traditionally Considered to be those of a Broker-Dealer

Costs

Availability of Crowdfunding Exemption

Expected to be Less Ongoing Obligations, thus less Costs Involved Available for Issuers Using Funding Portal’s Platform

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JOBS Act - Issuers JOBS Act has created a set of regulations that will necessitate substantial legal and financial help to help navigate offerings    
The name, legal status, address, and website of the issuer Names of directors, officers and investors owning more than 20% of the outstanding equity in the company A description of the issuer’s business and a business plan A description of the financial condition of the company, including: o If the target offering amount is $100,000 or less, then the most recent year’s income tax returns as well as financial statements of the issuer certified by the principal executive officer of the issuer as being true and complete in all material respects o If the target offering amount is over $100,000, but not more than $500,000, the issuer must provide financial statements reviewed by an independent public accountant o If the target offering amount is over $500,000, the issuer must provide audited financial statements A description of the offering sought by the issuer regarding the targeted offering amount, the deadline of the offerings, and regular updates regarding process in meeting the target offering amount Determination of the price of the securities, including a written disclosure of the final price of the securities with a reasonable opportunity to rescind the commitment A description of ownership and capital structure, including the terms and conditions of the offering and the risks to purchasers regarding minority ownership in the company

  

“Compassionate Use”
Slava Rubin, founder of IndieGoGo.com
“To date people are really Crowdfunding for one of three reasons: (1) because they care about the cause, the idea or the person, (2) because they want the perks, or the products and service that is offered in return, or 3) to be part of the community. Those things have been happening dynamically over the past four years we've been open.” “Healthcare is rooted in moral tenants and is one of the few industries wherein an investor can impact direct quality of life improvements through financial pledges. Individuals have other motivations other than financing gain when making investments including meeting philanthropic goals. Individuals making a $1,000 - $5,000 investment may see it as a “glorified” donation furthering a good cause. Other industries including entertainment have proven success marketing to aficionados and hobbyists interested in “Gift” based Crowdfunding initiatives (capital for screenplays or free movie tickets for example).”

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Crowdfunding Platforms
Equity Australian Small Scale CircleUp CrowdCube Crowdfunder Groupvesting GrowVC Motaavi Seedups Reward-Based BuyaCredit Catwalk Genius Fundbreak Gofundme Indiegoggo Kickstarter Microryza RocketHub Microcredit Babyloan Citizen Effect Good Return MicroPlace OptINow Rang De Wokai Zafen Peer-2-Peer Lending Bigcarrots FriendsClear Froobie LendFolio LendingClub Money Auction Peer Lending Network Prosper

Leading Funding Portals to Watch, Equity Crowdfunding – “Ebay’s of Ideas”
AngelList, http://angel.co/
AngelList connects startups with a roster of high-profile investors and entrepreneures. Over 1000 companies have raised significant capital rounds through Angellist. Advantages of the platform: Outreach to emerging entrepreneurs through a very credible and far-reaching channel of venture hacks, getting participation of top angels including former entrepreneurs through the principals' personal network and credibility in the valley, high quality vetting, starting with the principals' own domain expertise in consumer internet. AngelList constantly upgrades the vetting process by allowing more veteran angels with excellent track records to send in deals.

CircleUp, http://www.circleup.com
CircleUp is a platform to help accredited investors find nonpublic companies to invest in; “Crowdfunding for the 1%.” CircleUp taps into the social networks including Linked-In (identify contacts who have made investments in companies of interest) and Facebook (who has “Liked” a company).

CrowdCube, http://www.crowdcube.com/
Provides a web-based central hum for entrepreneurs to meet micro-investors. It uses the power of Crowdfunding to provide a unique service to two types of people: (1) for entrepreneurs to source funding more accessibly than conventional rountes (2) for smaller investors to have the opportunity to invest in exciting highpotential businesses. CrowdCube investors seek to utilize Crowdfunding platforms to attract capital, gauge demand and mitigate risk of launch (track analytics), test marketing, extra promotion, fulfill perks, and secure customer data. Crowdcube is limited to startups in the U.K. seeking to raise a minimum of £10,000 with no maximum limit within 180 days, otherwise funders keep their money.

Crowdfunder, http://www.crowdfunder.com/
Establishing a Equity crowdfunding portal allowing investors to receive a return prior to company exit/sale or dividends. Backers can choose to invest for more than just equity, a cut of revenues based on time or percentage return (~5% of a company’s revenue for three years or 10% of revenue capped at a 200% return on investment). 30

Crowdtilt, https://www.crowdtilt.com/
Crowdtilt focuses on “Groupfunding” – private projects among people who already know each other. Friends can raise money for a common goal, like a week at a beach house, wedding gift, or a community garden. Crowdtilt plans to begin licensing its API so other Crowdfunding sites will not have to worry about the technical details of building a back-end platform.

GrowVC, http://www.growvc.com/main/
GrowVC enables great ideas and great teams to get visibility with the right investing audience, funding and supporting early-stage companies. Grow VC is more than Crowdfunding, it’s a nurturing ecosystem where entrepreneurs can connect with experts, funders, team members, new customers and partners to realize their ideas. GrowVC can help startups companies secure initial funding of up to $1 million USD.

Kickstarter, http://www.kickstarter.com/
Kickstarter is the world's largest funding platform for creative projects. Investors pledge capital to projects from the worlds of music, film, art, technology, design, food, publishing and other creative fields. A new form of commerce and patronage, Kickstarter is not about investment or lending. Project creators keep 100% ownership and control over their work. Instead, they offer products and experiences that are unique to each project or called “Gift-Based” Crowdfunding. A project must reach its funding goal before time runs out or no money changes hands; process protects all constituents. Creators are not expected to develop their project without necessary funds, and it allows anyone to test concepts without risk. Patrons who back Kickstarter campaigns are often rewarded with insider access to the projects they finance, and in most cases, a tangible reward for their money.

Microryza, https://www.microryza.com/
Crowd-based fundraising model dedicated to funding scientific research. Microyza relies on “Compassionate Use” or indivduals interested in funding something they feel is worthwhile including diagnosing and curing diseases.

MicroVentures, http://www.microventures.com/
MicroVentures is an investment bank for startups and online peer-to-peer investment marketplace assisting Accredited Investors (~Angels) with pooling their cash together and gaining access to startup funding opportunities not usually available outside of traditional Venture Capital networks. MicroVentures is a registered broker-dealer meaning the firm performs due diligence.

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Motaavi, http://www.motaavi.com/
Motaavi’s platform began as a technology to creat efficient markets for illiquid securities. Given Crowdfunding shares are inherently illiquid, Motaavi’s platform will create a secondary market for these securities assisting sellers with getting the best prices with no paperwork or delay. Motaavi also provides listing preparation services (disclosure reporting) including a network of service providers for customers to access who will charge flat fees at discounted rates. Motaavi provides listing preparation (comply with disclosure and reporting), investor interaction (identify and build investor interest), unified market (announce milestones and access liquidity on secondary market), and initial offerings (secure funding as investors partipate).

Rally, https://www.rally.org/
Rally.org’s 1.5 million users focus on nonprofits and charity fundraising and has distinguished itself with its own payment system; leading to smaller fees (4.5% per transaction) as well as simple analytics to measure campaign efficacy.

SoKap, https://www.sokap.com/
SoKap offers entrepreneurs and other “smart people with big ideas” two ways to fund their projects. Funders can use “perks” to pre-order a product or service, though they are not changed if the project can’t raise enough money to get going. Or funders can buy a license advanced rights to a portion of the startup’s future earnings from the product or service for a limited time. Only one person is allowed to own the license for each city for each project listed.

Other Funding Portals: Indiegogo, Profounder, Rock The Post, Seedrs, WeFunder Liquidity, Avoiding the “Zombie” Company
Many of the Crowdfunded companies will have no clear path to liquidity-generating exits. This could create a scenario of a mismatch of goals and failed expectations given it may be unclear how companies will repay their investors. Will convenants allow them to pay a dividend or buy out a shareholder? Solution: See “Liquidity Pathways – Direct Listings”

Protecting Intellectual Property (IP)
“Kickstarter “Bug” Exposed Projects – WSJ, May 14, 2012

“A security lapse at the popoular website Kickstarter.com exposed more than 70,000 project ideas that weren’t ready to be viewed….The bug made accesible the project description, goal, duration, rewards, video, image, location, category, and user name for unlaunched projects.” Protecting intellectual property is a priority for entrepreneurs especially in the life science industry where patent protection is critical to ensuring ROI given inherent risks associated with drug development (~capital intensity, FDA, attrition rates). 32

VC Activity - Crowdfunding
Crowdfunding has drawn the attention of Seed investors who recognize the economic upside associated with the platform. Below is a summary of recent funding activity. The companies represented below secured Seed Capital as a result of market leadership/first-to-market and/or competitive differentiation.

    

Crowdtilt  Focus on “Groupfunding” – raising money from “friends and family” to reach a common goal FundersClub  Works with private companies seeking to give long-term employees liquidity; purchase stock from employees and allow outside investors to buy rights to those shares Indiegogo & Kickstarter  Market Leaders by volume (# of deals) and capital raised Rally  Focus on non-profits and charity fundraising and has proprietary payment system undercutting fees charged by competitors Seedrs  A separate 7.5% fee levied on returns that investors make above their orignial investment, whether through the proceeds of a sale, dividends or “other payments from the startup to the investor”

Donation/Reward/Charity Crowdfunding Portals Crowdtilt

Financing Source(s) Crunchfund DCM Felicis Ventures SV Angel Y Combinator Relay Ventures Y Combinator ff Venture Capital Insight Partners Khosla Partners Metamorphic Capital MHS Capital Betaworks Union Square Ventures Floodgate Fund Relay Ventures Angel Investors

$ $2.1

Date 5/17/2012

FundersClub Indiegogo

$0.5 $15.0

6/26/2012 6/6/2012

Kickstarter Rally Rock the Post

$10.0 $7.9 $0.8

3/17/2011 6/26/2012

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Equity Crowdfunding Portals CircleUp Early Shares FundersClub

Financing Source(s) Rose Park Advisors Maveron Relay Ventures First Round Capital Y Combinator/Affiliated Andreessen Horowitz Start Fund, SV Angel General Catalyst Partners
Draper Associates

$ $1.5 $1.2 $0.5 $6.0

Date 5/1/2012 7/13/2012 6/26/2012 10/19/2012

Seedrs

Felicis Ventures Spark Capital Digital Garage Intel Capital Investmon Sàrl NetPrice Global Venture Alliance (GVA) Plug and Play Tech Center DFJ Esprit Digital Prophets

$1.0

7/5/2012

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Case Study: Ex-US Equity Crowdfunding (Australia)
Austrailian Small Scale Offerings Board (ASSOB)

ASSOB is a low cost, interactive platform that connects quality, private, unlisted and pre-IPO companies with investors, and provides the information, tools and assistance that companies need to support their capital raising campaigns Since establishment in 2005, ASSOB has facilitated $122 million in funding for small and medium sized businesses evidenced by the following statistics recorded over the past five years:          Total number of individual investments in ASSOB companies: 2328 Total number of individual investors: 2005 Average investment per investor: $38,023 176 Companies received investment 152 are still operational Average invested per Company: $503,305 Highest individual Company raised: $3,540,000 On average, 11 investors per Company Main investment segments of companies receiving funding o Food & Beverage: 8% o Mining/Oil: 8% o Technology: 6% o Software: 6% o Green Technology: 5% o Health & Beauty: 5% o Media/Entertainment o Health: 5% o Web Based: 5% o Biotechnology 5% o Environmental: 3% Executive Equity – designed to be a matching service wherein professional executives or seasoned entrepreneurs who advertise their services are willing to receive most of their salaries or fees in equity or other non-cash payment Offers facility for “secondary” sales of unlisted issued securities

ASSOB has facilitated $129,205,578 in investments – from both Accredited/NonAccredited investors. Of the 176 companies that have received investment, 152 are still operational (86%). 63% of investments have been made by Non-Accredited investors. Since inception, not a single incidence of fraud.
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Case Study: US Equity Crowdfunding (Accredited Investors)
FundersClub

FundersClub lets its members invest in startup opportunities online with investment sizes ranging from $1K to $250K. Investors can screen companies, sign legal, documents with e-signature, and make payments all directly through FundersClub website.

FundersClub has created a unique online marketplace that allows accredited investors to become equity holders in FundersClub-managed venture funds designed to pre-screened private companies.
   Easy-to-use web-platform allowing FundersClub members to browse and screen investment opportunities, view investment profiles, and sign legal documents – all directly through the site Low minimum investment sizes allowing investors to more easily build a diversified investment portfolio; range between $1,000 and $5,000 If one of the startups gets acquired or IPOs, the investors can cash out their stake and FundersClub collects a percentage; strong incentive to pick the right companies (no annual membership fees and funds don’t take carry/commission) FundersClub is designed to let founders raise capital from a group of investors (up to 95 for each fund) through a managed fund vehicle; each of the venture funds is a single-purpose vehicle for delivering money to a specific company FundersClub is seeking to secure relationships that could bring in large new sources of investment for the companies it hosts including banks, hedge funds, and private equity firms eager to add startups as an asset class to their portfolios FundersClub Wants to offer a new form of structured liquidity to late-stage startups; FundersClub would buy up packages of shares from long-term employees and investors that want to cash out before an exit (Acquisition/IPO) and sell rights to its crowd investors FundersClub does not conduct company valuations Prior to investment, investors can ask questions via a moderated Q&A forum on each company’s page on the FundersClub website FundersClub – “Weight of the Crowd with the Wisdom of Veteran VCs”

 

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Life Sciences Private Placements – Is Crowdfunding a Viable Financing Vehicle?
“Gift/Reward” Based Crowdfunding Platforms – Life Sciences Vertical A Kickstarter-funded venture, Hypothes.is, a non-profit open-source platform for collaborative evaluation of information including potential applications in peer review of scientific articles. Hypothes.is raised $105,000 from Kickstarter as part of a $230,000 first fundraiser phase that drew 791 donors.

Rare Genomics Institute, a nonprofit that connects rare disease patients with researchers and clinicians from 13 institutions worldwide, offers genomic sequencing and interpretation services at lower cost than commercially equivalent solutions. The Institute also raises funds by presenting the stories of each of its patients online.

Equity Crowdfunding – Life Sciences
The biggest question that remains is whether life sciences companies see opportunities for small scale financing within a model that requires drastically high operating costs and expectations of significant returns. The innovation period, the time a biotechnology company needs to develop a product, can be up to a decade or more. During this time virtually all small biotech firms have not product revenue, so all product development costs must come from investors.

Successfully Launching a Life Sciences Crowdfunding Campaign 1. Work on business plan - Long-term goals related to how to manage finances, marketing, time to
2. 3. launch a campaign, e-mail blasting, and how much money to be raised (reason for 30-40% funding success rate is entrepreneurs set funding threshold to high – capital is returned if target not met) Target audience – Crowdfunding is about inspiring an audience to take action. Key questions include who will be targeted and how to affect/relate with them? Turn Crowdfunding into an actual marketing campaign via Social Media (Facebook, Twitter), inbound email marketing, and blogs – Lower probability of success if relying solely on passive placement of a campaign on a Crowdfunding portal Evangelists - Take full advantage of their connections – From network and through research, identify Evangelists who will help spread the campaign to other influencers Attract the capital via gifts/promotions - Offer interesting and fun gifts for people who donate that will increase traffic. Separate gifts in different categories based on the amount pledged Be strategic – Identify people on e-mail lists who would be interested in the project and will pledge. These “key supporters” play an important role in raising capital during the first few decisive days (90-100% chance of successfully reaching funding target if 30% raised in first few days of the project) and later in the campaign - pledges at specific milestones. Update constantly – Update page several times during the campaign, adding new records and changing video several times

4. 5. 6.

7.

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Capital Raise/Marketing Campaigns – Keys to Success  “Prior to” Listing On Crowdfunding Platform o Raise 10-20% of Funding Target via Friends and Family (FOF) and Accredited Investors  “Simultaneous to” Listing on Crowdfunding Platform o Aggressive “Inbound” Marketing Campaign to Raise Capital (Proactive not Reactive) by
Driving Traffic to Crowdfunding Portal

Barriers/Opportunities – Life Sciences Equity Crowdfunding
Equity Crowdfunding Platform Weaknesses Life Sciences High Attrition Rates/Highly Regulated Unforgiving Timelines Capital Intensity - Small Scale Financings Investor Sustainability Arduous Legal/Financial Obstacles for Investors Securing Angel/VC Funding Follow-On Rounds Implications - Equity Crowdfunding Inability to Provide a Guaranteed Return Inability to Provide a Return Within a Reasonable Time Period Maximum Capital Thresholds ($1-$2MM) Not Meaningful BioPharm Start-ups Contemplating a Decade of Pre/Clinical Research Uncertainty Whether Investors Will Provide Follow-On Investments Tax Return Disclosure My be Required - Crowdfunders Fragmented Capital Structure Could Scare off Institutional Investors Stockholder Approval for Subsequent Rounds - Complicated/Unpredictable Valuation Differences between Crowdfunding & Institutional Investors

Equity Crowdfunding Platform Strengths Life Sciences Co-Investment Vehicle Liquidity - Large Number of Shareholders Capital Utilized to Reach Value Inflection Points Utilize Platform in Late-Stage Financings Compassionate Use Rise of Secondary Trading Markets Implications - Equity Crowdfunding Angels Seeking Additional Capital Sources Given Funding Gap (~VCs) Meet Minimum Shareholder Thresholds - Listed Exchanges Diverse Investor Base - Historical Influence on Trading/Liquidity Bargaining Position for Follow-On Financing Rounds Bridge Financings to Complete Clinical Trials/File Patents etc. Meet Investors' Philanthropic Goals Trading Market for Illiquid Stocks - Private Placements

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Facilitating Crowdfunding in the Life Sciences Industry

Non-Dilutive Financing

Series A Financing

Bridge Financing/“Side Car”

Donation/Reward Crowdfunding (Kickstarter.com)

Angels, Angel Portals, VCs (AngelList.com)

Equity Crowdfunding (Crowdcube.com)

Crowdfunding – Life Sciences
 Equity Crowdfunding =/> Angel/Institutional Capital: Angels reluctant to follow Equity Crowdfunding investors (loss of control, fear of litigation), would be interested in funding companies receiving Non-Equity Crowdfunding (analogous to “Grants”) o Encourage Angel/VC Participation: Angel/VC sets implied valuation, liquidation preferences, minority protections, antidilution, reverse vesting information rights, first refusal rights, and tagalong provisions in Series A Rounds o Angel/VC not dissuaded by Fragmented Capital Structure/Threat of Litigation by Retail Investors Equity Crowdfunding < Angel/Institutional Capital = Bridge Financing: Utilize Equity Crowdfunding to “Top Off” funding rounds; proceeds utilized to reach inflection milestones (e.g. toxicology study) important to financial sponsors and potential pharma/biotech partners Non-Equity, Donation/Reward-Based Crowdfunding Platforms: o Barometer of investor demand o Non-Equity Crowdfunding/Microloans: Secure capital from investors with “Compassionate Use”/philanthropic goals interested in finding cures for diseases with limited treatment options (~Alzheimer’s) o Leverage the Community: “Groupfunding” or Social Fundraising is a viable platform for raising capital from the “Community” friends and family (FOF) o Non-Dilutive Capital: Minimize dilution by raising capital via Non-Equity Crowdfunding platforms

Charity Crowdfunding (Rally.org)

Groupfunding (Crowdtilt.com)

Microloans (Kiva.com)
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Crowdfunding Q&A

 Building Capital Alongside Confidence
How can Crowdfunders and Angels work together? Why can’t Crowdfunders “go it alone?” The primary challenge for Equity Crowdfunders will be the assessment of the technical, commercial and operational viability of pre-revenue companies that may still have significant capital needs prior to positive cash flow or a strategic exit. This is a difficult task even for venture and strategic investors. Equity Crowdfunders will need the expertise provided by Angels/Venture Capitalists when making life science investments given the complexities associated with the sector including high attrition rates, FDA regulation, and capital requirements. Angels/Venture Capital investors understand how to conduct due diligence, protect intellectual property, and value companies in the sector, and have the experience and connections to help the new venture make the most of the investment. All of these elements are critical for successful life science investing. Due diligence can also be costly if performed independently of Angels. Many Venture Capitalists spend $50,000 for each investment in legal fees, and hundreds of hours studying the ventures’ markets, talking to prospective customers, engaging in business model discussions, interviewing industry experts, studying the technology and intellectual property, and speaking with each founder’s references. This process and cost would be painful for Equity Crowdfunding investors who cannot justify the huge expenses given they are not investing millions of dollars, and Crowdfunder’s ability to commit to a longterm working relationships is limited versus Angels/Venture Capitalists. In addition, Angels/Venture Capitalists will have continued access to the best small-business investment opportunities given their track record and liquidity to make investments. Angel/Venture Capitalists rigorously select companies based on innovation, scalability, and management teams that can execute; facets hard to find in most businesses. Equity Crowdfunders want to avoid funding companies that have been passed over by Angels/Venture Capitalists since they, most likely, will be suboptimal candidates for equity investment. Beta sites like Gust and AngelCrowds (Equity Crowdfunding/Crowd-Angel site) are recognizing the importance of building relationships between Angles and Crowdfunders.

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 Equity Crowdfunding prior to Angel/Venture Investments
If a start-up attempts to raise money with Crowdfunding and fails to get support, will it hurt the company’s chances with Angels? Alternatively, if a company is successful in raising Crowdfunding capital, will this indicate to Angels there is demand for the offering? Angels are cautious about “follow-on” investments with Equity Crowdfunders due to the following: (1) if failure rates of start-ups rise dramatically as the result of unsophisticated Equity Crowdfunding, it will negatively impact their reputations (2) loss of control if Equity Crowdfunder’s “lead” investments including implied valuation, liquidation preferences, minority protections, anti-dilution, reverse vesting information rights, first refusal rights, and tagalong provisions (3) question resilence of Equity Crowdfunders to provide follow-on investments when “going gets rough” (4) ability to execute with large number of Equity Crowdfunders and their advisors (5) safeguarding intellectual property and (6) threat of litigation. Angels reluctant to follow Equity Crowdfunding investors for these reasons may be interested in funding companies receiving non-equity based Crowdfunding. “Donation-based” Crowdfunders give capital to companies with no expectation of return whereas investors in “Reward-Based” platforms receive “gifts” based on funding levels contributed. Donation based platforms are analogous to receiving “Grants,” currently a valuable source of non-dilutive financing for emerging growth biotechnology companies. Another argument for/against Equity Crowdfunding is the financing vehicle will cover a wider range of projects (more risk). Whereas the price of a mistake is lower for Crowdfunders given the relatively low capital thresholds, the same cannot be said for Angels who rely on strong track records to attract capital (~Reputational Risk). Equity Crowdfunding could also benefit Angels in assessing the demand for a medical device, diagnostic and/or therapeutic. Major funding portals such as IndieGoGo believe Crowdfunding is an barometer of future demand for a product and provides valuable information to investors. What steps can be taken by Companies funded by Equity Crowdfunders to attract Venture Capitalists? Venture Capitalists have many of the same concerns as Angels when funding companies with Crowdfunding investors including “Signaling.” Signaling refers to companies meriting Venture Capital funding shouldn’t have any reason to Crowdfund. The thinking goes, companies pursuing Equity Crowdfunding either failed on the basis of merit, or because they did not know any better, neither of which is attractive for Venture Capitalists. Venture Capitalists would most likely welcome funds from “Donation-based” Crowdfunding platforms since the platform mimics scientific “Grants.” Bruce Booth, Parrtner - Atlas Ventures, an early-stage life sciences Venture Capitalist, mentioned in Forbes (March 27, 2012); ”2x the amount of equity invested via non-dilutive partnerships is a good aspiration over the first 3-5 years of a start-up.” Alternatively, some industry insiders have obseved if Venture Capitalists turn down good investment opportunities because of a shareholder base that can easily be siloed and has no governance rights, then they are not doing their job. In addition, if Equity Crowdfunders came in at 2x the valuation and didn’t cost a board seat, why would Venture Capitalists turn that down? 41

What are the factors that could limit investor demand and/or impair future financings as a result of Equity Crowdfunding? Equity Crowdfunding is a paradigm shift in the way early-stage companies raise capital and it will impact Angels, Venture Capitalists and bankers worldwide. There needs to be a fully vetted process wherein all parties can work together from inception to maximize company value. Equity Crowdfunders and their advisers have the responsibility to advance their platform while not blocking or impairing future funding needs. That withstanding, Angel’s appetite to follow-on, or in some cases, co-invest with Equity Crowdfunders seems to be limited. In a poll taken during the ACA (Angel Capital Association) National Meeting in Austin, Texas in 2012, Angels expressed more confidence in tax credits and capital gains exemptions (SB256 – American Opportunities Act, SB2050 – Small Business Tax Extenders Act of 2012) to positively impact the future growth of the industry than Equity Crowdfunding. Will a fragmented “Cap” structure (Crowdfunders each with an advisor/lawyer) be prohibitive in attracting Angel/Venture Capital? Are there financing solutions for simplifying Crowdfunded “Cap” Structures?” The process of securing stockholder approval for subsequent rounds could be complicated and unpredictable if hundreds of Equity Crowdfunder investors are involved persuading Angels/Venture Capitalists not to collaborate with Crowdfunders. Minority investors (Equity Crowdfunders) could destroy shareholder value for Majority investors by blocking or holding up key votes or decisions because they don’t understand/not educated on the process, become disgruntled, or impatient. SJA/Lifetech Capital has developed financing solutions/structures for pooling Equity Crowdfunding investors within syndicates (~Special Purpose Entities) including SolePurpose LLCs and Option Pools to simplify “Cap” structures increasing the financing platform’s appeal to Angels and Venture Capitalists. Describe other challenges associated with a fragmented “Cap” structures? Crowdfunded companies might get the startup capital needed, but must then create the infrastructure and devote resources necessary to deal with a large number of potentially unsophisticated individual investors. Communicating with hundreds of investors requires significant amounts of time and effort for startups taking them away from running businesses, making sales, and executing on strategy.

 Equity Crowdfunding following Angel/Venture Capital Investments
What are the Benefits of Angels/Venture Capitalists “leading” investing rounds? Angels/Venture Capitalists have access to and fund more quality deals than what would be available to Equity Crowdfunders. Angels/Venture Capitalists “leading” funding rounds would help Equity Crowdfunders avoid the “Series B Crunch” scenario wherein companies that would have failed at the first funding round (“Series A”) for lack of attracting initial seed capital from Angels/Venture Capitalists, would simply fail at the second round for failure of follow-on seed or early-stage growth capital. The benefit to Angels/Venture Capitalists of participating with Equity Crowdfunders is they would have the ability to quickly line up co-investments (“Side Car” Funds) for new portfolio companies; like becoming a “Super Angel” without all the messy fundraising.

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 Co-Investment Vehicle
How does Equity Crowdfunding promote the sharing of risks with professional investors? One of the reasons Angels and Venture Capitalists have turned away from early-stage life science companies is due to the high level of risk versus other sectors (i.e. Social Media). Equity Crowdfunding could be a way to bring these institutional players back into the field by sharing the risks among a larger investor base. In recent years, Venture financing for early-stage life science companies has been in decline due to the tough economic environment, investor preference for liquidity, tough regulatory climate (FDA), and high attrition rates/capital requirements associated with drug development. Equity Crowdfunding could help plug this “Innovation Gap.” Another turnoff for Angels/Venture Capital is the inability to cash out of their investments like in the past. For years, an initial public offering (IPO) provided a clear return for investors. However, the life sciences IPO landscape has become anemic. In 2011 there were eight IPOs of Venture-backed biotech companies, raising $517 million; that was down from 19 IPOs in 2007 raising more than $1.2 billion (Source: MoneyTree Report). Venture Capitalists are allocating a greater percentage of funds into the information and web technology industries (i.e. Facebook) given they are cheaper to fund and are less dependent on unpredictable regulatory scrutiny, benefit from a robust secondary trading market (SecondMarket), and have a functioning primary market (IPOs). When life science companies do go forward with an IPO, the offering does not allow Venture Capitalists to exit. To get outside investors interested in participating in the space, Venture Capitalists can no longer rely on IPO’s to cash out but must invest even more capital by buying shares. In 2011, life science company insiders bought on average 28% of offered shares, almost double the 14.5% average four years earlier (Source: Needham). In effect, IPO’s in the life sciences sector have turned into financing vehicles versus exit opportunities. Given Venture Capital inactivity and the lack of IPOs, Angels are “carrying” investments longer. Equity Crowdfunding could “top off” funds empowering portfolio companies to reach critical value inflection points (i.e. Tox package, IND submissions); proof of concept milestones required by Large Pharma/Biotech to engage in licensing/acquisition discussions.

 Bridge Capital/Short-Term Financing
When should life sciences’ companies raise Equity Crowdfunding Capital? Equity Crowdfunding may be ideal for companies seeking bridge financing after Seed (friends/family/Grants) and Angel investments. Bridge financings are ideally suited to Equity Crowdfunding given this financing vehicle raises smaller tranches of capital (per limitations set by SEC). Bridge capital could be utilized to complete a funded clinical trial, and further patent protection initiatives for example. Investors may have the opportunity to commit to companies with an established presence or reputation that may simply need to “close the gap.”

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Raising smaller amounts of Crowdfunding capital may also keep companies’ management more accountable. The JOBS Act allows companies to raise $1 million every year through Crowdfunding, giving companies enough time to better align their funds with their research before looking for a second round of Crowd money (maybe from the same investors of the year before) to advance projects.

 Facilitating Liquidity Pathway(s)
What are the benefits of diversifying the investor base through Crowdfunding? Direct Listing? With most individual investors pledging smaller amounts, raising up to $1 million through Equity Crowdfunding would likely require pledges from hundreds if not thousands of investors. The diverse/broad investor base from Equity Crowdfunding enables life science companies to meet investor thresholds required by Over-the-Counter “Direct Listings” (40-50+ unaffiliated round-lot shareholders and 1,500,000+ shares in float) and listed exchanges (Nasdaq).

 “Sweet” Spot: $300,000 - $500,000
Why is $300,000 – $500,000 projected to be the ideal funding range for life science companies? The regulatory requirements are a sliding scale based on funding size. For up to $100,000 in capital the company has to submit financial statements signed by the Directors as well as a tax return; between $100,000 and $500,000 the financials must be reviewed by a CPA; and for between $500,000 and $1 million the financials must be audited. Equity Crowdfunding utilization may be limited for smaller offerings (<$100,000) given costs associated with due diligence; hire lawyers to vet financial statements and disclosure requirements. As with any other private or public offering the issuer has to perform due-diligence examinations to ensure there are no material misstatements or omissions in its investor disclosures. Under the JOBS statute, Shareholders can sue for fraud enabling investors who can prove there was a material misstatement or omission to sue for the return of investment proceeds. As for the ceiling of $500,000, providing audited financials will add considerable costs potentially disuading companies from raising capital over this threshold.

 Streamlined Disclosure and Reporting Provisions
What would need to change about Crowdfunding, as it is conceived today, to make it a truly viable and complimentary component of the startup capital markets? The liability, disclosure, and reporting provisions would need to be streamlined and become less onerous to persuade companies with access to other sources of capital to select Crowdfunding. If the regulations are tough, only desperate companies will particpate further strengthening the Signaling argument made by Venture Capitalists.

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 Investor Protections
How can Crowdfunding Investors be Protected? Elements suggested to protect investors include: funding portal register similar to Broker-Check (easy checking for register status), whistleblower program, third-party escrow, and due diligence requirements (background/history check, education of potential investors, survey investors to verify understanding of risk).

 “Compassionate Use” – Donation Based Crowdfunding Platforms

Adam Chapnick, Principal - IndieGoGo
“Whether Raising funding for IVF Treatment or to Restart a New Website, the Key is do Something that Triggers an Emotional Reaction.”
Why are investors with philanthropic/compassionate use goals ideal Crowdfunding investors? In many cases individuals may not come to expect their financial investment to solely yield monetary gains. Startups wanting to explore Crowdfunding might attain success through “medical interest networks” such as patient advocacy groups, foundations or clinical societies that are dedicated to a certain condition or diseases. The entertainment industry has demonstrated success in appealing to hobbyists and aficionados (often offering nothing more than free movie tickets or screenplays), and a similar case may be made for healthcare companies attracting those with philanthropic goals. Investors at the lower end of the spectrum ($1,000 - $5,000) may see investments as glorified donations; a way to further a good cause. Healthcare is one of the few spaces where an investor can see a direct quality of life improvement through a financial pledge. It is also one of the few spaces so obviously rooted in moral tenets; the power and interests of patients and their families. This will be important especially for those companies looking for effective treatments in fields where there are no therapies available (i.e., Alzheimer’s disease, Huntington’s disease). A recent “Compassionate Use” success story of raising capital through “Donation/Reward” based Crowdfunding platforms (IndieGoGo) was the story of Jessica Haley. After trying to conceive a child naturally for three years and being informed by her doctor of only having a 1% chance of success, the coupled turned to the Internet for help to raise money for IVF treatment as their insurance would not cover the cost of the procedure. Jessica and her husband set a goal of raising $5,000 but ultimately secured $8,050 in funding. IndieGoGo is developing an algorithm called, “GoGoFactor” which uses a data-driven methodology to rank projects based on meaningfulness to potential donors.

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 Disrupting the Startup Fundraising Ecosystem
Can Crowdfunding augment/replace the traditional lifeblood of startups, Friends and Family seed rounds? According to the Angel Capital Foundation, startups annually raise $60 billion through friends and family. Compared to Venture Capital investing per year (~20 billion), and professional angels (~20 billion), Friends and Family is the largest single source of capital but also the hardest to fund given friction of raising capital from large groups of people. Crowdfunding could mechanize the process of collecting money from large groups of people. It is much easier to seek capital through emails versus face-to-face interactions and phone calls, giving potential investors a friendly way to pass. Transitioning funding activity to a public forum also creates visibility on reaching milestones critical for generating support from the Crowd. Funding portals provide data/information on funding activity valued by potential contributors seeking to invest in companies with momentum.

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Investment Banking
LifeTech Capital

LifeTech Capital, a division of Aurora Capital LLC, is a multi-disciplinary team of investment professionals specializing in serving the unique needs of the Biotech, MedTech, and High-Tech industries and investor community. LifeTech’s institutional research team provides industry insights into the analysis of determining the future value of drugs, devices and companies as well as access to leading key opinion leaders. LifeTech Capital’s investment banking team and capital markets team is knowledgeable in both the industry and Wall Street and develops appropriate funding strategies and structures. LifeTech’s capital market’s team has access to over 400 institutional investors plus a broad base of accredited retail investors through both Aurora Capital and investor syndicates.

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LifeTech Capital

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Futher Discussion (~SEC)
 Can Issuers disseminate micro-cap research simultaneous to Equity Crowdfunding marketing campaigns? Current Equity Crowdfunding legislation establishes liberal remedies for investors to sue issuers for fraud including management, financial partners, and potentially funding portals (a deterrent to Angel participation). Will the SEC maintain or redefine the allowable remedies to encourage and promote Angel participation? RocketHub, a leading Donation/Gift-based Crowdfunding portal partnered with a non-profit organization, Fractured Atlas, to capture pass through tax benefits 501(c) 3 for investors on “Donation/Reward” Crowdfunding proceeds. Can Equity Crowdfunders with “Compassionate Use” motivations capture similar tax benefits? Broker/Dealer Responsibilities under the JOBS Act? o o Provision of investor education materials Proof that the investor has answered questions to show they understand the risks involved Background checks – Entrepreneurs and Issuers Monitor the 21 day period before investment is accepted and shares issued Monitoring investment targets so money is not released too soon Managing trust accounts and ensuring shares are issued Managing the return of funds if an investment doesn't reach its target Handling refunds for investors that pull out Ensuring no investor passes their personal investment limit Make sure the privacy of investors, subscribers and entrepreneurs are protected

o o o o o o o o 

Ground rules for permissible general solicitations under Rule 506 that the SEC might impose?

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Addendum A – Crowdfunding Data, Crowdsource.org
State of the Industry – Source Crowdfunding.org, May 2012

Number of Crowdfunding Platforms (CFP’s) Worldwide

536

Estimated Number of CFP’s (12/2012)

452

Number of CFP’s (04/2012)

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Growth in Worldwide Funding Volume

$1,470 million

Estimated Total Funding Volume for 2011

$2,806 million

Estimated Total Funding Volume for 2012  Overall Growth Rate (2011-2012) of 91% 300% Growth in Equity-Based and Reward-Based Crowdfunding 50% Growth in Donation-Based Crowdfunding 75% Growth in Lending- Based

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Growth in Number of CFPs by Category

Reward-Based Crowdfunding Equity-Based Growing Reward-Based 

is the Largest Category, While is the Fastest

79% CAGR (2010-2011)

Donation/Lending-Based  Growing at a Lower Rate than Reward-Based Category, 41% CAGR (2010-2011)

Equity-Based Category (Ex-U.S.)  Fastest Growth Rate at 114% CAGR (2010-2011)

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Funds Paid Out Per Equity Based Project

Equity Crowdfunding Raises the Largest Amount of Funds per Project  Funds Raised for Projects Drawing $50,001-$100,000 of Funding in total: 26% of Funds Raised Funds Raised For Projects Drawing $100,001-$250,000 in Funding comprises 21% of Funds Raised

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Funds Paid Out per Project

Donation-Based and Reward-Based Crowdfunding Draw Lower Levels of Funding per Project than Lending-Based and Equity-Based Projects  63% of Funds Raised on Donation-Based and RewardBased Platforms Draw Less than $5,000 in Funding Only 10% are Paid Out to Projects that Draw More than $10,000 in Funding Remaining 27% of All Funds Raised are Paid Out to Projects that Raise Between $5,000 and $10,000

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Average Crowdfunding Campaign Timeframes

Launch to Completion Time of Lending Campaigns is on Average Half that of Equity-Based and Donation Based Campaigns  The First 25% Milestone and the Last 25% Milestone Usually takes a Similar Amount of Time for all Types of Platforms Campaigns on Average do not Accelerate after Certain Milestones

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Addendum B – Equity Crowdfunding Investment Data, Crowdcafe.com
Investment Crowdfunding: Data Australian Small Business Funding Circle Crowdcube www.assob.com.au www.fundingcircle.com www.crowdcube.com Last Updated 10/7/2012 Last Updated 10/7/2012 Last Updated 10/3/2012 Total Crowdfunding Raises 176 Total Crowdfunding Raises 1,093 Total Crowdfunding Raises 19 Total Funds Raised $129,205,578 Total Funds Raised $83,464,096 Total Funds Raised $5,367,920 Avg. Company Fundraise $734,123 Avg. Company Fundraise $76,362 Avg. Company Fundraise $120,000 Avg. Individual Investment N/A Avg. Individual Investment N/A Avg. Individual Investment N/A Incidence of Fraud 0 Incidence of Fraud 0 Incidence of Fraud 0 www.seedrs.com Last Updated Total Crowdfunding Raises Total Funds Raised Avg. Company Fundraise Avg. Individual Investment Incidence of Fraud www.sybid.com 10/3/2012 Last Updated 5 Total Crowdfunding Raises $284,000 Total Funds Raised $48,000 Avg. Company Fundraise N/A Avg. Individual Investment Incidence of Fraud

10/3/2012 8 $619,200 $70,950 N/A 0

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Addendum C – Kickstarter, New York Times, April 30th, 2012

Kickstarter Statistics
http://www.kickstarter.com/help/stats?ref=footer

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Addendum D – Service Providers, Investors/Entrepreneurs
CrowdCheck, http://www.crowdcheck.biz/
CrowdCheck offers three levels of due diligence “checks.” These checks include:
BlueCheck: CrowdCheck will check that the founders are who they say they are, and run background checks on them and their claimed qualifications, the same way a bank establishes the identity of its customers and employment agencies run checks on prospective employees. CrowdCheck will check that the corporation exists and is in "good standing" with the state it is organized in. CrowdCheck will establish the nature of the project the entrepreneur wishes to fund. CrowdCheck will establish what the nature of the investment is, that the terms of the investment are described clearly and whether any legal advice has been given with respect to the investment. CrowdCheck will confirm that the financial statements comply with statutory requirements. CrowdCheck’s website will summarize these findings where appropriate, and provide links to relevant documents. A BlueCheck’s focus is on “who, what, where?” YellowCheck: In addition to the checks made in the Bluecheck, CrowdCheck will check whether the entrepreneur has taken more extensive steps to establish her business. CrowdCheck will enquire as to the existence of leases, product or process patents, and in appropriate circumstances, verify the location of the operation. CrowdCheck will ask about the tools, materials and permits necessary for the entrepreneur to carry out the business that she describes, and record her responses, linking to available documents or filings. A YellowCheck’s focus is on “process.” PurpleCheck: In addition to the steps outlined above, CrowdCheck will check the steps the entrepreneur has taken to put her business on the path to meet her objectives. CrowdCheck will check whether she has a business plan, talk to some of her customers, talk to her suppliers, check whether she has the employees she says and whether they have the experience she claims, if any. CrowdCheck will check to see if she has the contracts or relationships that she claims. A PurpleCheck’s focus is on “progression.”

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CrowdFundingRoadmap, http://www.crowdfundingroadmap.com/

SEC Reporting & Registration Requirements for Entrepreneurs
The JOBS Act imposes certain requirements for companies seeking to utilize the Crowdfunding exemption. Companies must file with the SEC, the Intermediary, and all potential investors a complete and accurate disclosure document that will include at a minimum the following information: 1. Registration & Incorporation in the U.S. Name, legal status, address, website, etc. 2. Names of directors, officers, and 20% stockholders 3. A description of the business and the anticipated business plan of the issuer 4. Prior year tax returns 5. Financial statements. Learn more here 6. Description of intended use of raised capital & proceeds 7. Target offering amount, deadline, and regular progress updates through the life of the offering 8. Share price and methodology for determining the price 9. A description of the ownership and capital structure of the issuer, including a lot of detail about the terms of the securities being sold, 10. The terms of any other outstanding securities of the company, including a summary of the differences between them 11. And such other information as the Commission may, by rule, prescribe, for the protection of investors and in the public interest

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Addendum E – Case Study: Life Sciences Crowdfunding
ANTABIO and WiSEED announce the completion of the first successful round of crowdfunding applied to biotech start-up financing Labège, France, October 1st, 2012. ANTABIO, the biopharmaceutical antibacterial drug discovery company, and WiSEED, the French crowdfunding platform dedicated to innovative & technologic startups, announce the successful completion of their seed round of financing with a profitable exit of the initial small investors, a world premiere in the field of crowdfunding applied to biotech start-up financing. "It is the very first complete virtuous circle for crowdfunding applied to biotech start-ups" explain Nicolas Seres and Thierry Merquiol, founders of WiSEED. Initially funded by more than 200 small investors, ANTABIO's seed funding round allowed the company to finance a key step in the validation of its drug candidate molecules. "WiSEED's innovative crowdfunding process allowed us to complete ANTABIO's seed financing in a record time. The success of this first round had a rapid leveraging effect: a second investment from a business angel further funded the development of our drug candidates, which in turn aroused the interest of a major industrial player in the drug discovery arena. Today, WiSEED's exit with a significant return is a fair reward of the risk taken by being our initial investors" stresses Marc Lemonnier, CEO and founder of ANTABIO. "This is a world-premiere encouraging the emergence of a new seed funding model for innovative biopharmaceutical startup companies". "Beyond the return on investment, this deal is emblematic of the relevance of crowdfunding. It allowed setting the wheels in motion at a time when most financial actors decline the opportunity because of the high risk and relatively small amounts at stake. It fosters a cascade of wealth-creation that allows entrepreneurs to focus on their business and core expertise. However, it is important to quickly reward small investors and keep them focused on this seed phase so that they can reinvest in another project, to reinitiate a novel entrepreneurial adventure" states Nicolas Seres, managing director of WiSEED. "Based on this success-story applied to start-up seed funding, the path is open for a genuine revolution in the investment landscape: venture-capital 2.0 is underway!" concludes Thierry Merquiol, CEO of WiSEED, proud of this world premiere.

About ANTABIO: ANTABIO is a Labège, France-based start-up biopharmaceutical company dedicated to the discovery of novel drugs to treat and prevent antibiotic-resistant bacterial infections. Based on its patented technology and unique know-how, ANTABIO develops first-in-class small molecule compounds that will offer a synergistic solution to the shortfall of antibiotics to treat severe nosocomial infections as well as community-acquired conditions like urinary tract infections. The company is currently engaged in developing novel anti-resistance compounds that will partner antibiotics for them to regain their activity against multi- or pan-drug resistant Gram-negative pathogens such as Escherichia coli (E. coli) NDM-1 bacteria. ANTABIO also owns a proprietary antivirulence technology to characterize compounds that can treat and prevent infections caused by virulent and multi-drug resistant bacteria. www.antabio.com

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Addendum F – SJAConnect

SJAConnect
Crowdfunding/Inbound Marketing Platform

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Raising Capital Continues to be Difficult for Early-Stage Companies
Liqud investments are highly valued post the “Great Recession” (2007-2009)  Capital moving to companies that are already public, have a strong balance sheet, committed to improving trading liquidity, and have exchange listings Over the last 5 years, the number of Venture Capital firms declined from 1,200 to 400 Traditional public financing routes including IPOs/Follow-Ons continue to be closed for early-stage companies

S. Jordan Associates (SJA) – Raise Capital Via Social Media/Inbound Marketing & Crowdfunding Platforms, SJAConnect Summary
Inbound Marketing is based on the concept of earning the attention of prospects, making it easy to be found, and drawing customers to websites by producing content customers value including Blogs, podcasts, video, eBooks, newsletters, whitepapers, SEO, and social media marketing. The platform is increasingly being utilized to raise capital from Accredited Investors The “Jumpstart our Business Startups Act,” H.R. 3606 (the “JOBS Act”, was passed by the House of Representatives on March 8, 2012). The Capital Raising Online While Deterring Fraud and Unethical non-Disclosure Act of 2012, or the “CROWDFUNDING ACT” allows issuers to raise $1 million in a 12-month period from investors over the Internet

Key to Success: Social Media/Inbound Marketing + Crowdfunding
Social Media/Inbound Marketing
Leverage Social Media (~Inbound Marketing) to Raise Capital from Friends and Family (FOF)/Accredited Investors   Raise Capital Prior to Crowdfunding – Signaling Effect; Recognized as One of the Primary Keys to Success Inbound Marketing Drives Traffic to Funding Portal

Crowdfunding
Raise Funding From 1 /2 Generation Contacts Including FOF via Crowdfunding  
st nd

~80% of Crowdfunding Comes From st nd 1 /2 Generation Contacts Utilize Social Networking Sites (~Linked-In) to Identify and Market to Prospective Investors

SJAConnect
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SJAConnect Platform
Lead Generation/Inbound Marketing Services
SJAConnect: Inbound Marketing Platform Lead Generation Lead Management Blogging & Social Media Email & Automation Search Optimization Marketing Analytics/Track Inbound Links Organic Search Referrals Paid Search Direct Traffic Email Marketing SJA: Features/Benefits Interoperable: Compatible with CRM Platforms Analytics: Store, Retrieve, Analyze Data Scalability: High Volume Email Campaigns SEO Integration: Website/Landing Pages Reporting: Monitor Leads/Sales

Crowdfunding/Consulting Services
Business Planning (~Donation, Reward, Equity) Funding Timeframe Target Audience Evangelists Gifts/Promotions Portal Selection/Placement “White” Label Platforms (i.e. IgnitionDeck) SJA – Broker/Funding Portal (~Equity) Compliance Documents/Legal Investor/Issuer Background Checks Term Enforcement/12-Month $ Limitation Access to Capital > Target Amount Raised Investor Privacy Investor Education Disclosures Financial Statements Private Placement Memorandums Ownership/Capital Structure Intellectual Property (IP) Protection

The SJAConnect Advantage

Inbound Marketing/Internet Marketing

U.S. Firms Spent $1.51 Billion on Email Marketing in 2011

Search Engine Optimization (SEO) Tools
  Keyword Analysis – Find and Track Most Effective Keywords Link Tracking – Track Inbound Links and the Leads Generated o Organic o Referrals o Paid o Direct o Email o Social Media Page Level SEO – Diagnose and Fix Poorly Ranking Sites

 63

Blogging and Social Media
   Blogging Software and Analytics – Create and Measure Blog Social Media Monitoring and Publishing – Track Mentions/Schedule Posts o Send Post to All Sites Via One central Portal Social Media Analytics – Evaluate Social Media Efforts

Lead Generation

Hubspot’s, 2011 State of Inbound Marketing Report – Inbound Marketing has a 62% Less Cost per Lead Compared to Outbound, or Traditional Marketing

Landing Pages – Quickly and Easily Build Landing Pages to Capture Lead Information o Calls to Action (CTAs) Generating Transactional Emails  Content Management System – Optimize Website to Attract Leads and Drive Conversions  A/B Testing – Try Different Versions of Web Pages to See Which Convert SJAConnect (Con’t) Better

Lead Management
  f 

Anonymous Company Tracking – Automatically Review which Companies are Viewing Website Lead Intelligence – Provide Sales a Full Lead History, Including Page Views, Form Submissions and Emails CRM Integration – Sync with CRM System – Closed Loop Reporting

Email Marketing Automation

2009 Forrester Research Study – Companies that Excel at Lead Nurturing are able to Generate 50% more sales

 

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 

Email Management – Segment Lists and Target Emails o Improve Deliverability – Redefined Opt-in Process Lead Nurturing – Automated/Targeted Emails that Pre-Qualify Leads and Progress them through Sales Funnel o Customized Emails/Thank You Pages o Auto Response Email Marketing Automation – Trigger Personalized Emails based on your Leads Behavior Online Optimize Email Marketing via Mobile Phones

Marketing Analytics

 

Closed-Loop Reporting – Tie Leads Back to a Specific Marketing Initiative and Calculate Marketing ROI o Follow a Contact from the Point of Visiting Website through getting Further Engaged Website Analytics – Analyze Web Traffic and Which Sources are Generating Leads Competitor Tracking – Analyze Competitors’ Online Metrics

Crowdfunding & Lead Generation Capital Source Targets

Accredited Angels/HNW

Venture Capital

Crowdfunding

Inbound Marketing
Corporate Investors Private Equity

Insiders

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