Last week on October 9th I took part in a roundtable discussion panel on Alternative Financing at the Invest in Photonics event in Bordeaux, France. The event is the primary European conference looking at investment across the photonics industry including applications in environment and energy efficiency, life sciences, consumer electronics, aerospace and transport, 3D printing and advanced manufacturing. I was joined by a sector-specialist serial entrepreneur and angel investor, a partner at a VC firm, B-to-V, with a focus on photonics, and a director of the French growth-stage SME stock exchange, Alternativa.
Previous panels represented both companies looking to raise capital and investors, including Venture Capital and corporate R&D funds. Both sides of the capital raising equation made the process in Europe sound challenging. The role of a photonics company’s CEO is now, according to several panelists, a full-time fundraiser. Meanwhile, the number of specialist funds in this area is decreasing and there was little evidence to suggest that Private Equity or larger development funds would support by taking an interest at lower fundraising levels. The average funding goal for the twenty photonics companies pitching at the event was €2.5m.
Those CEOs who had gone through the fundraising process successfully talked about their “fortune” in meeting an interested Family Office, a significant source of capital in Europe whose constituents seem so difficult to find.
From this background there was a surprising level of skepticism from the audience to alternative financing, our discussion that debated crowdfunding (both equity-based and non-securities models), peer-to-peer lending, and alternative exchanges. Although one entrepreneur in the room admitted to attempting a Kickstarter campaign for his photonics-based consumer electronics product, there was not much enthusiasm for looking to equity crowdfunding platforms to resolve the photonics sector’s capital raising requirements. There are several established equity platforms in France and other European countries from which the fundraising companies had come.
The concerns could be broadly categorized into three points: (1) the investors who invest through crowdfunding platforms will not understand my technology, and therefore not appreciate its value; (2) photonics companies have a large upfront capital requirement before commercialization, therefore crowdfunding investors will either not be a sufficient source of capital or we will need to take on so many investors that my cap table will become bloated and unmanageable.
My main point in response to these concerns is that crowdfunding in particular and the alternative funding industry in general are still developing. The most successful funding platforms around the world have focused on certain combinations of sector and funding model: rewards crowdfunding for artistic projects; equity crowdfunding for tech startups; peer-to-peer lending for established retail and hospitality companies; and so on. In those cases the fundraisers and the investors are well matched.
In photonics, since the company’s value is created through development of technology that is not understandable to the everyday ‘crowd’, there is not such a great match with those investors who invest on the generalist crowdfunding platforms.
However, that does not mean that there could not be a specialist photonics funding platform in the future, which is built with these constraints in mind. It would accept investors who understand the industry, who can make an informed decision about a company’s value, and who can provide the right level of capital to support their requirements, which may include institutional investors and family offices. We have seen from Crowd Valley’s other customers’ platforms that these actors are increasingly comfortable with participating in online funding marketplaces.
This sector-specific platform does not seem to exist in Europe yet, and it is difficult to know whether it will exist in the future. The promise of online funding marketplaces is that they can provide greater transparency and efficiency in the capital raising process, in order to avoid the current situation of CEOs spending all their time fundraising.
If there are genuinely valuable and interesting companies in this sector, which certainly seemed to be the case judging from the companies pitching at Invest in Photonics, and if there are investors who understand the sector and its capital requirements, then surely bringing some of that capital raising process online would benefit the sector.
Those CEOs who had gone through the fundraising process successfully talked about their “fortune” in meeting an interested Family Office, a significant source of capital in Europe whose constituents seem so difficult to find.
From this background there was a surprising level of skepticism from the audience to alternative financing, our discussion that debated crowdfunding (both equity-based and non-securities models), peer-to-peer lending, and alternative exchanges. Although one entrepreneur in the room admitted to attempting a Kickstarter campaign for his photonics-based consumer electronics product, there was not much enthusiasm for looking to equity crowdfunding platforms to resolve the photonics sector’s capital raising requirements. There are several established equity platforms in France and other European countries from which the fundraising companies had come.
The concerns could be broadly categorized into three points: (1) the investors who invest through crowdfunding platforms will not understand my technology, and therefore not appreciate its value; (2) photonics companies have a large upfront capital requirement before commercialization, therefore crowdfunding investors will either not be a sufficient source of capital or we will need to take on so many investors that my cap table will become bloated and unmanageable.
My main point in response to these concerns is that crowdfunding in particular and the alternative funding industry in general are still developing. The most successful funding platforms around the world have focused on certain combinations of sector and funding model: rewards crowdfunding for artistic projects; equity crowdfunding for tech startups; peer-to-peer lending for established retail and hospitality companies; and so on. In those cases the fundraisers and the investors are well matched.
In photonics, since the company’s value is created through development of technology that is not understandable to the everyday ‘crowd’, there is not such a great match with those investors who invest on the generalist crowdfunding platforms.
However, that does not mean that there could not be a specialist photonics funding platform in the future, which is built with these constraints in mind. It would accept investors who understand the industry, who can make an informed decision about a company’s value, and who can provide the right level of capital to support their requirements, which may include institutional investors and family offices. We have seen from Crowd Valley’s other customers’ platforms that these actors are increasingly comfortable with participating in online funding marketplaces.
This sector-specific platform does not seem to exist in Europe yet, and it is difficult to know whether it will exist in the future. The promise of online funding marketplaces is that they can provide greater transparency and efficiency in the capital raising process, in order to avoid the current situation of CEOs spending all their time fundraising.
If there are genuinely valuable and interesting companies in this sector, which certainly seemed to be the case judging from the companies pitching at Invest in Photonics, and if there are investors who understand the sector and its capital requirements, then surely bringing some of that capital raising process online would benefit the sector.
About the author - Paul Higgins
Serial entrepreneur with an operational background in finance and technology companies. Paul was previously responsible for the development of the Crowd Valley product suite as part of the Grow VC Group. Paul is a regular speaker on new financial models and crowdfunding and has been involved in working with Crowd Valley's pioneering customers across the financial services sector, as well as advising global institutions such as the World Bank and national regulators such as Italy's CONSOB.
Paul has over a decade's experience working in various operational, sales, marketing, and product roles within technology companies, including two B2B startups that have achieved eight-figure exits following 100% year-on-year growth. He started his career in product development and testing roles at IBM's Hursley Research Lab in the UK before going on to eBay, UBS, and Barclays. Paul holds an M.A. (Hons) in Computer Science and Philosophy from Churchill College, Cambridge University. He has lived and worked in Texas in the US and Portugal, and speaks fluent Portuguese and French.
Serial entrepreneur with an operational background in finance and technology companies. Paul was previously responsible for the development of the Crowd Valley product suite as part of the Grow VC Group. Paul is a regular speaker on new financial models and crowdfunding and has been involved in working with Crowd Valley's pioneering customers across the financial services sector, as well as advising global institutions such as the World Bank and national regulators such as Italy's CONSOB.
Paul has over a decade's experience working in various operational, sales, marketing, and product roles within technology companies, including two B2B startups that have achieved eight-figure exits following 100% year-on-year growth. He started his career in product development and testing roles at IBM's Hursley Research Lab in the UK before going on to eBay, UBS, and Barclays. Paul holds an M.A. (Hons) in Computer Science and Philosophy from Churchill College, Cambridge University. He has lived and worked in Texas in the US and Portugal, and speaks fluent Portuguese and French.
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