Lending, Crowdfunding, and Modern Investing

Start Date: 08/18/2019

Course Type: Common Course

Course Link: https://www.coursera.org/learn/wharton-crowdfunding-marketplace-lending-modern-investing

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Course Syllabus

Module 1: Robo-Advising
Module 2: Crowdfunding
Module 3: Marketplace Lending
Module 4: Case Studies

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Course Introduction

In this course, you’ll learn the foundational theories behind robo-advising, crowdfunding, and marketplace lending, and how to apply these theories to

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Related Wiki Topic

Article Example
Equity crowdfunding Selling investments via crowdfunding has been called crowdfund investing, hyperfunding, crowdinvesting, or even simply crowdfunding, as in "legalize crowdfunding". Some have called for standardization of the terminology in a way that distinguishes the practice from other forms of crowdfunding.
Crowdfunding On crowdfunding platforms, the problem of information asymmetry is exacerbated due to the reduced ability of the investor to conduct due diligence. Early stage investing is typically localized, as the costs of conducting due diligence before making investment decisions and the costs of monitoring after investing both rise with distance. However, this trend is not observed on crowdfunding platforms - these platforms are not geographically constrained and bring in investors from near and far. On non-equity or reward-based platforms, investors try to mitigate this risk by using the amount of capital raised as a signal of performance or quality. On equity-based platforms, crowdfunding syndicates reduce information asymmetry through dual channels – through portfolio diversification and better due diligence as in the case of offline early-stage investing, but also by allowing "lead investors" with more information and better networks to lead "crowds" of backers to make investment decisions.
Direct lending Peer-to-peer lending networks such as crowdfunding are sometimes considered part of the direct lending market and lend to very small companies. However, most asset managers involved in direct lending will consider loans only above a certain size, typically €5 million or more. Aside from peer-to-peer networks, direct lending is therefore mainly focused on middle market borrowers.
Crowdfunding Debt-based crowdfunding (also known as "peer to peer", "P2P", "marketplace lending", or "crowdlending") arose with the founding of Zopa in the UK in 2005 and in the US in 2006, with the launches of Lending Club and Prosper.com. Borrowers apply online, generally for free, and their application is reviewed and verified by an automated system, which also determines the borrower's credit risk and interest rate. Investors buy securities in a fund which makes the loans to individual borrowers or bundles of borrowers. Investors make money from interest on the unsecured loans; the system operators make money by taking a percentage of the loan and a loan servicing fee. In 2009, institutional investors entered the P2P lending arena; for example in 2013, Google invested $125 million in Lending Club. In 2014 in the US, P2P lending totalled about $5 billion. In 2014 in the UK, P2P platforms lent businesses £749 million, a growth of 250% from 2012 to 2014, and lent retail customers £547 million, a growth of 108% from 2012 to 2014. In both countries in 2014, about 75% of all the money transferred through crowdfunding went through P2P platforms. Lending Club went public in December 2014 at a valuation around $9 billion.
Crowdfunding For crowdfunding of equity stock purchases, there is some research in social psychology that indicates that, like in all investments, people don't always do their due diligence to determine if it's a sound investment before investing, which leads to making investment decisions based on emotion rather than financial logic. By using crowdfunding, creators also forgo potential support and value that a single angel investor or venture capitalist might offer. Likewise, crowdfunding requires that creators manage their investors. This can be time-consuming and financially burdensome as the number of investors in the crowd rises. Crowdfunding draws a crowd: investors and other interested observers who follow the progress, or lack of progress, of a project. Sometimes it proves easier to raise the money for a project than to make the project a success. Managing communications with a large number of possibly disappointed investors and supporters can be a substantial, and potentially diverting, task.
Equity crowdfunding However, there are a number of websites that offer various types of crowdfunding services. For example, "Linked Finance" is a crowd lending site for small and medium enterprises (SMEs).
Equity crowdfunding Debt crowdfunding allows a group of lenders to lend funds to individuals or businesses in return for interest payment on top of capital repayments. Also known as Peer to peer lending or Peer to business lending. Borrowers must demonstrate creditworthiness and the capability to repay the debt, making it unsuitable for NINA or startups.
Crowdfunding Charity donation-based crowdfunding is the collective effort of individuals to help charitable causes. A form of charity crowdfunding is civic crowdfunding, in which funds are raised to enhance public life and space.
Crowdfunding A variety of crowdfunding platforms have emerged to allow ordinary web users to support specific philanthropic projects without the need for large amounts of money. GlobalGiving allows individuals to browse through a selection of small projects proposed by nonprofit organizations worldwide, donating funds to projects of their choice. Microcredit crowdfunding platforms such as Kiva (organization) and Wokai facilitate crowdfunding of loans managed by microcredit organizations in developing countries. The US-based nonprofit Zidisha offers a new twist on these themes, applying a direct person-to-person lending model to microcredit lending for low-income small business owners in developing countries. Zidisha borrowers who pass a background check may post microloan applications directly on the Zidisha website, specifying proposed credit terms and interest rates. Individual web users in the US and Europe can lend as little as one US dollar, and Zidisha's crowdfunding platform allows lenders and borrowers to engage in direct dialogue. Repaid principal and interest is returned to the lenders, who may withdraw the cash or use it to fund new loans.
Peer to peer investing Peer-to-peer investing (P2PI) is the practice of investing money in notes issued by borrowers who are requesting a loan without going through a traditional financial intermediary and who are unknown to the investor. P2PI is not to be confused with Peer-to-peer lending (P2PL) which deals with the borrower’s part. Investing takes place online via a peer-to-peer lending/investing company. There is an individual investor and an individual borrower. The notes can be sold as a security and so investors can exit the investment before the borrower repays the debt.
Crowdfunding DonorsChoose.org, founded in 2000, allows public school teachers in the United States to request materials for their classrooms. Individuals can lend money to teacher-proposed projects, and the organization fulfills and delivers supplies to schools. There are also a number of own-branded university crowdfunding websites, which enable students and staff to create projects and receive funding from alumni of the university or the general public. Several dedicated civic crowdfunding platforms have emerged in the US and the UK, some of which have led to the first direct involvement of governments in crowdfunding. In the UK, Spacehive is used by the Mayor of London and Manchester City Council to co-fund civic projects created by citizens. Similarly, dedicated Humanitarian Crowdfunding initiatives are emerging, involving humanitarian organizations, volunteers and supports in solving and modeling how to build innovative crowdfunding solutions for the humanitarian community. One crowdfunding project, iCancer, was used to support a Phase 1 trial of AdVince an anti-cancer drug in 2016.
Crowdfunding The Crowdfunding Centre's May 2014 report identified two primary types of crowdfunding:
Crowdfunding Crowdfunding also comes with a number of potential risks or barriers. For the creator, as well as the investor, studies show that crowdfunding contains "high levels of risk, uncertainty, and information asymmetry."
Equity crowdfunding Crowdfunding remains unregulated in Ireland. The law with regard to crowdfunding, and in particular equity based crowdfunding is complex.
Equity crowdfunding Investment crowdfunding can be debt-based or equity-based, or can follow other models, including profit-sharing and hybrid models. The term equity crowdfunding is often used to describe crowd investing into both debt and equity based instruments when they are offered on an equity crowdfunding platform. The first known equity based crowdfunding platform for startups was launched as a private beta in June, 2009 by Grow VC Group followed by full commercial launch in February 2010 The first US. based company ProFounder launched model for startups to raise investments directly on the site in May 2011, but deciding later to shut down its business due regulatory reasons preventing them from continuing, having launched their model prior to JOBS Act. One of the first operational equity crowdfunding platforms in the USA was EquityNet, and other early platforms include CrowdCube and Seedrs in the UK.
Crowdfunding Crowdfunding gained traction after the launch of ArtistShare, in 2003. Following ArtistShare, more crowdfunding sites started to appear on the web such as IndieGoGo (2008), Kickstarter (2009), and Microventures (2010). However, Sellaband, started in 2006 as a music-focused platform, initially controlled the crowdfunding market. This can be contributed to creators and funders, who perceive the platform to be more valuable with more members. Later, Kickstarter gained popularity for its wide-ranging focus. Both platforms prohibit equity funding. However, Sellaband offered revenue sharing, a type of equity crowdfunding, for three years after the platform’s founding. It was later controlled by a German company and heightened security restrictions. The phenomenon of crowdfunding is older than the term "crowdfunding". According to wordspy.com, the earliest recorded use of the word was in August 2006.
Crowdfunding In 2012, more than one million individual campaigns were established globally and the industry was projected to grow to US$5.1 billion in 2013. and to reach US$1 trillion in 2025. A May 2014 report, released by the United Kingdom-based The Crowdfunding Centre and titled "The State of the Crowdfunding Nation", presented data showing that during March 2014, more than US$60,000 were raised on an hourly basis via global crowdfunding initiatives. Also during this period, 442 crowdfunding campaigns were launched globally on a daily basis.
Crowdfunding Proponents also identify a potential outcome of crowdfunding as an exponential increase in available venture capital. One report claims that If every American family gave one percent of their investable assets to crowdfunding, $300 billion (a 10X increase) would come into venture capital. Proponents also cite that a benefit for companies receiving crowdfunding support is that they retain control of their operations, as voting rights are not conveyed along with ownership when crowdfunding. As part of his response to the Amanda Palmer Kickstarter controversy, Albini expressed his supportive views of crowdfunding for musicians, explaining: "I've said many times that I think they're part of the new way bands and their audience interact and they can be a fantastic resource, enabling bands to do things essentially in cooperation with their audience." Albini described the concept of crowdfunding as "pretty amazing."
Impact investing Impact investing is distinguished from crowdfunding sites, such as Indiegogo or Kickstarter, because impact investments are typically debt or equity investments over US$1,000—with longer-than-traditional venture capital payment times—and an "exit strategy" (traditionally an initial public offering (IPO) or buyout in the for-profit startup sector) may be non-existent. Although some social enterprises are nonprofits, impact investing typically involves for-profit, social- or environmental-mission-driven businesses.
Equity crowdfunding Crowdfunding portals have also launched in Scandinavia supporting both local language crowdfunding and English language crowdfunding. The oldest active crowdfunding platform in Sweden today is crowdculture launched in 2010. The system works with a unique hybrid mechanism where crowdfunding works as abase to crowdsource public investment decisions. The donation-based CrowdFunding portal FundedByMe has been active in Sweden and Norway since 2011, and Swedish crowdfunding activity is evolving in parallel to Crowdfunding in the USA with Equity-Based CrowdFunding becoming active in Sweden late in 2012. Invesdor also started operating in Sweden in February 2013.