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Case study: Shyp, USA ultimately borrow the money. In the UK, the
rules also applied core consumer-protection Chapter 1
This case study was chosen because the company requirements to firms operating in this market.
used equity crowdfunding, which is gaining in For example, client money must be protected
popularity and is subject to financial regulation. and firms must meet minimum capital standards.
Finally, firms running these platforms must have
Shyp provides logistic services using a smartphone resolution plans in place so that if the platform
app. Shyp is available to download in iOS or collapses, loan repayments will continue to be
Android formats but the service is only available to collected and lenders will not lose out.
customers in San Francisco, New York City, Miami
and Los Angeles. Shyp has been experiencing 20
per cent month-over-month growth, with online 1.6.2 Pension funding
returns representing 15 per cent of its business.
A large part of Shyp’s business depends on the This financing approach allows entrepreneurs to
growth of the e-commerce industry, e.g. delivering use their own pension funds to secure a loan. The
packages for online shops and easing online pension manager acts as the "investor" by granting
returns for consumers. a loan secured by the pension funds or the
entrepreneur’s business assets. Alternatively, the
As a start-up, Shyp did not have the funding pension fund manager can also buy an asset from
required to launch its business. The entrepreneurs the business and lease it back.
behind Shyp wanted their business to be featured
on AngelList, a crowdfunding platform, so they The amount that entrepreneurs can raise depends
could raise their visibility to potential investors. on their loan collateral and the fund manager’s
Shyp succeeded in being featured and raised USD risk aversion. For the pension fund managers,
2.1 million from two syndicated investors. The this approach allows them to generate additional
investment risk for investors was high, as Shyp revenue from existing assets. Businesses use
was a start-up when it initially received funding pension funding at different stages of maturity.
support, and funding was sought at an early seed Some entrepreneurs use it to fund start-ups, while
stage. others use it to fund business expansion.
Financial regulators have an important role to People dissatisfied with their pension fund’s
play in making equity crowdfunding an attractive performance and unwilling to give up any
alternative funding source. The requirements ownership shares in their business to outside
enforced upon crowdfunding platforms protect the investors may find this approach appealing. As a
consumer and the market’s growth as a result. In preliminary step, entrepreneurs need to transfer
February 2015, the Financial Conduct Authority, part or all their pension savings into a self-invested
the UK’s financial services regulator, introduced personal pension or a small, self-administered
rules to regulate equity-based crowdfunding. scheme. These pensions give their owners
These rules were designed to allow investors investment powers such as the ability to invest
to assess the risk and to understand who will in their own businesses. Only then can the fund
Box 1.15: Key lessons: Pebble
• Pebble used crowdfunding to finance the product development of its smart watch. The
funds raised met the company’s target, allowing it to proceed with the development of
the new version of the smart watch.
• Using a crowdfunding platform allowed Pebble to target the people most interested
in its products. These investors are likely to be “early adopter” consumers that follow
the industry closely and are keen to have possession of the latest “must-have” gadget.
Attracting early adopters is essential to any start-up company’s business, as they wil be
the most honest critics and will provide essential product improvement feedback.
Trends in Telecommunication Reform 2016 33