crowdfunding - sweden and trends

Crowdfunding

ROBIN TEIGLAND & CLAIRE INGRAM

STOCKHOLM SCHOOL OF ECONOMICS

MARCH 2014

ROBIN.TEIGLAND@HHS.SE

CLAIRE INGRAM@HHS.SE

Crowdfunding in Sweden

Dr. Robin TeiglandAssociate Professor

Stockholm School of Economics robin.teigland@hhs.se

@robinteigland

Claire IngramPhD StudentStockholm School of Economicsclaire.ingram@hhs.se @Claire_EBI

Today’s presentation

What is crowdfunding?From crowdfunding to crowd equityWhy and how to crowdfund?Trends in crowdfunding Q&A

What is Crowdfunding?

Accumulation of small investments in individual projects by large number of individuals (the

“crowd”) via or with help of Internet and social networks (De Buysere et al., 2012)

Picture: FundedByMe

Local Stockholm success story:

Flippin’ Burgers

Money raised: SEK 36,502 / €4,000

Number of investors: 186

Date funded: September 2011

Sector: Food

Enabling local, small-scale solutions

Top 5 Best American Restaurants in Europe

http://travel.cnn.com/best-americana-restaurants-europe-023346

Crowdfunding 2012

Massolution 2013

Worldwide $2.7 bln

470k projects 800+ platforms

Est. 5.5 mln (Oct 2013)

A true story

That made GBP 2 million for cancer research at Uppsala University

Most popular crowdfunding activities

Massolution 2013

Who are the funders?Educated experts(?)University degree Knowledge and previous experience in same field

“In-crowd”“Entrepreneurs”Risk lovers

Skoglund & Stiernblad 2013

Who are the funders?Educated experts(?)85% respondents have university degree (vs 16%

women/22% men in general population, 2013)42% had knowledge in same field as project they

funded49% reported to have been better at judging project

quality due to previous experience“In-crowd”47% of “the crowd” classified themselves as

entrepreneurs – compared to only 7% of Swedish population (2012)

77% never bought shares in unlisted company before 41% risk loversSkoglund & Stiernblad 2013

Four forms of crowdfunding

Form Benefits for funders

Donation-based Donation Intangible benefits.

Reward-based Donation or pre-purchase

Rewards in addition to intangible benefits.

Equity-based InvestmentReturn on investment if company

does well. Rewards sometimes also offered and intangible benefits may

motivate too.

Debt-based LoanRepayment of loan with interest. Alternatively intangible benefits if

loan given interest-free.

Ingram & Teigland 2013

Skoglund & Stiernblad 2013

Investment Role and Type Investment Value 2012

Angel Investors

Invest large amounts, make few investments, take equity share.

3.3-3.9 billion SEK p.a. (approximation based on 2008

data)

Soft LoansState loans at high interest rates

that can be written off if enterprise dissolution.

2.4 billion SEK p.a. (ALMI alone)

Venture Capitalists

Invest large amounts, make few investments, take equity share. 1.8 billion SEK p.a. (2010 data)

CrowdfundingDonation, pre-purchase/reward, or equity, depending on platform and

entrepreneur’s preferences.Estimated 37 million SEK p.a.

Ingram & Teigland 2013

Crowd equity raising its head…

• Politicians generally positive -> entrepreneurs + job creation

• But regulation is lagging in most countries

• US, Italy, Denmark changing regulations enabling equity

Massolution 2013

Millions of dollars

Increasing focus on Crowd Equity in Sweden

UK 2010

To Sweden 2013

Equity only

Finland 2011

To Sweden 2013

Equity only

Sweden 2011

Equity

Reward

Crowd Equity in Sweden

SEK 28 mln(Nov 2012)

Equity crowdfundingEU/EEANo country can require a prospectus to be prepared

for rounds of <EUR 100 000For rounds of >EUR 5 million, EU prospectus always

required

SwedenFor rounds of >EUR 2.5 million, EU prospectus

always required<150 ‘non-qualified’ investors without prospectus

http://www.fundable.com/blog/crowdfunding-infographic---the-jobs-act-explained

Ingram &Teigland, 2013

Why Crowdfund?Test market or establish user baseMarketing & publicity for your product or serviceFaster time to marketFunding (may not be large amount of money

though)Screening device for investorsAccess greater pool of investors: further afield or

people without right “connections”Skills, connections, and other resources

“It’s not just about the money.”

685 people talking about product on

social media

Australia’s “Major Disaster Department”World’s largest telecom

International expansion

How to succeed?Choose right platform– and crowdfunding form

Going global or local?What do you give in return (thank you, reward, pre-

purchase, shares)?Keep in mind platform fees

Define the concept Make it easily understoodMake it personal?

Feed the crowdEnsure initial critical mass (social media, newspapers)Keep followers up to date

MAGIC

Going global? Going local?Reward-based? l Niche product or

service?l Global appeal?l What are rewards?l How do you reach

international audience – and stand out?

l Community-specific product or service?

l Local appeal?l What are rewards?l Does community know

about you – can you reach them?

l Local benefits

Equity-based? l Looking to scale up?l How much equity?l How to value your

project?

l Looking to establish foothold?

l How much equity?l How to value your

project?l Local benefits –

experience, connections etc?

Lots to think about....

But potential downsides…

Project may not be understood by crowdNot significant amounts of money• More about publicity• But changing with crowd equity

Other skills/resource may not be forthcomingLots of small investors problem in equity crowdfunding?

Trends in CrowdfundingPeer to peer lendingNicheCommunityHybrid platformsEnterprise sponsoredInternal corporate crowdfundingLIVE!Economic developmentCelebrities…

Peer to peer lending

Crowdfunding for research

Strategic partnership

+

Celebrities entering the scene

Executive Producer Robert RedfordNarrated by Jodie Foster

Donald Trump’s crowdfunding siteOpen to anyone

Internal corporate crowdfunding

iFundIT

More than 300 participantsEntry-level workers to VPs

Given $2,000 to invest over 8 week period Choose internal projects in which to invest

Enabling entrepreneurs anywhere

Ushahidi of Kenya

Kenya

“Made in Africa” 3D printer (Togo)

Winner of International Space Apps Challenge

http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/5712/E-Waste-3D-Printer-to-Mars.aspx

For all ages - including teenagers

http://www.indiegogo.com/projects/afripreneurs-and-the-leapfrog-effect

Many unanswered questions

Cross border investments?Secondary markets for crowd equity shares?Taxation issues for investors and entrepreneurs?Lack of support and strategic advice for both investors and entrepreneurs? How to better leverage “crowd” for resources?

Venture capitalists are the travel agents of yesterday – here today, gone tomorrow.

Venture capitalist in Silicon Valley –

June 2013

http://www.slideshare.net/eteigland/crowdfunding-in-sweden

Thank you!

Questions?

Image via NewYorker.com

Robin Teiglandrobin.teigland@hhs.seStockholm School of

Economicswww.knowledgenetworking.o

rgwww.slideshare.net/

eteiglandwww.opencrowds.org

RobinTeigland

Photo: Lindholm, Metro

Photo: Nordenskiöld

If you love knowledge, set it free…

För mer information:• Research article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263965• Industry report: http://blog.fundedbyme.com/robin-teigland/

What’s next?