creating a business plan · who uses crowdfunding crowdfunding has a wide variety of uses and users...

Crowdfunding

An alternative financing concept

A primer on the potential applications for funding growing small businesses

Peter G. Mintz

Fleetwood Associates Inc., / SCORE Counselor

Copyright: Fleetwood Associates Inc.

What is Crowdfunding

Crowdfunding – “The use of small amounts of capitalfrom a large number of individuals to finance a newbusiness venture.”

Investopedia http://www.investopedia.com/terms/c/crowdfunding.asp

The basic concept is to expand the pool of potentialinvestors/funders beyond the traditional circle ofowners, relatives, banks, angels and venturecapitalists.


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http://www.investopedia.com/terms/c/crowdfunding.asp

The Inception of Crowdfunding

When money for the Statue ofLiberty's pedestal ran short,publisher Joseph Pulitzerlaunched a call for donationsin his New York newspaper.

Through the paper, more than$100,000 was raised in sixmonths.

About 125,000 peoplecontributed $1 or less.


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First Crowdfunding campaign - 1884

The Inception of Modern Crowdfunding

Many trace the inception to 1997when British Rock Band Marillionraised $60,000 for a U.S. tourutilizing their e-mail fan list.(http://www.youtube.com/watch?v=AJZvJ2lqZnU).


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Modern roots are in funding projects in the Arts.

http://www.youtube.com/watch?v=AJZvJ2lqZnU

Largest donation from any Marillion fan - £800pounds. Any fan who donated £10 pounds or moregot a free CD.

Not only was this the first modern Crowdfundingcampaign, they also created the concept of a“Rewards” based campaign (the CD).

It also introduced the concept that the crowdfundersneed to be people who have a passion for theconcept that they are funding.


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The Inception of Modern Crowdfunding.

Who uses Crowdfunding

Crowdfunding has a wide variety of uses and usersfrom individual artists to small businesses.

Crowdfunding is not limited to any particular typeof art, entertainment platform, industry or project.

Crowdfunding campaigns have ranged from just afew thousand dollars to more than $40 million for asingle campaign.


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Who uses Crowdfunding

Largest campaign to date:

Star Citizen (Video Game) – a “space trading andcombat simulator video game for MicrosoftWindows, OS X and GNU/Linux.

$43.2 million has been raised since October 2012.

Through Kickstarter - 34,397 “backers” raised $2.1million of the funds in October and November of2012.


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Crowdfunding Models

Four Core Models:

Donation – Supporters give and get nothing in return.

Reward – Supporters get some type of rewardfor their donation. Usually the underlying product orservice free or at a discount and marketing typemerchandise.

Equity – The JOBS ACT – A stake in the venture.

Lending –Backer/investor gets a loan.Copyright: Fleetwood Associates Inc.

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Crowdfunding Models

Donation:

Funds are collected from a community for a publiclydisclosed initiative but there is no financial return tothe people putting in the money.

For instance - the Crowdfunding done for the 2008Obama Presidential election campaign generatedover $137 million dollars.


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Crowdfunding Models

Donation:

The donation model is a means for charities, to gathera community online and to enable them to donate to aproject.

Crowdfunding platforms can be useful for smallerorganizations and people raising money for personal orspecific charitable causes.


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Crowdfunding Models

Donation:

Funding Platform examples:

GoFundMe (http://www.gofundme.com) - “#1 crowdfunding website in the world for personal causes and life-events.”

“Most people use GoFundMe to raise money for themselves, a friend or loved one during life's important moments. This includes things like medical expenses, education costs, volunteer programs, youth sports, funerals & memorials - even animals & pets.”

Launched May 2010

Over $280 million raised

5% fee for each donation Copyright: Fleetwood Associates Inc.

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http://www.gofundme.com/

Crowdfunding Models

Donation:


GiveForwad (http://www.giveforward.com/) – “the #1 platform to start a medical fundraiser…”

GiveForward specializes in and is the premier online platform for medical fundraising…….we have helped thousands of people raise millions of dollars online for things like general medical expenses, cancer treatment, transplants, funeral costs and disaster-relief.

Launched August 2008

Over $99 million raised for more than 100,000 people

0.5% fee for each donation Copyright: Fleetwood Associates Inc.

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http://www.giveforward.com/

Crowdfunding Models

Reward:

The current most popular form of Crowdfunding.

Initial focus on funding of a creative, social andentrepreneurial projects.

Contributors receive non–financial rewards.

Campaigns usually operate with a tiered rewardstructure - The more you donate the better the reward.

For instance: Funding the production of a new Play.

$10 contribution gets a Tee Shirt.

$100 gets a Tee Shirt and two tickets to the play.


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Crowdfunding Models

Reward:

For many projects the model is similar to a presale agreement.

The entrepreneurs or artists crowdfund the production cost oftheir record, movie, game or product and allow the donors tobe the first recipients once the production is complete.


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Crowdfunding Models

Reward:


KickStarter (http://www.kickstarter.com) - The largest and most well known of all Crowdfunding sites.

“Kickstarter is a funding platform for creative projects. Everything from films, games, and music to art, design, and technology.”

Launched April, 2009

Over $1.0 billion raised (6.1 million contributors, 110,000+ projects)

5% fee of funds collected


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Crowdfunding Models

Reward:


Indiegogo (http://www.indiegogo.com) - Also claims to be the largest of all Crowdfunding sites.

“Indiegogo is a way for people all over the world to join forces to make ideas happen.

Launched January, 2008

Over $150 million raised (Over 44,000 projects)

3 - 9% fee of funds collected


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http://www.indiegogo.com/

Crowdfunding Models

Equity:

Potential to raise equity capital outside of the traditionalequity models.

Driving Force - The JOBS ACT (signed April 5, 2012)–Jumpstart Our Business Startups Act – A lawintended to encourage funding of United States smallbusinesses by easing various securities regulations.

Fastest growing sector.


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Crowdfunding Models

Equity:

Key JOBS Act provisions:

Shareholder requirements - Increase in the numberof shareholders a company may have before beingrequired to register with the SEC.

Old Rules – Company must become public with assets of$10 million and 500 shareholders.

New Rules - 2,000 shareholders, both accredited andunaccredited.

Public Soliciation – Companies can advertise to the public that they are seeking funding.


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Crowdfunding Models

Equity:

Smallest of the four key sectors – about 4% of thecurrent Crowdfunding Market.

Fastest growing sector – Grew 300% in 2013 vs. 91%for entire Crowdfunding Market.

Currently represents about 10% of the Venture Capital(VC) Market. Many believe it will eclipse the VC marketwithin the next few years.


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Crowdfunding Models

Equity:


Equitynet (http://www.equitynet.com) - One of the earliest Equity Crowdfunding sites.

“..prepares entrepreneurs to access the capital markets and enables investors to research, compare, and benchmark private companies.”

Launched 2005

Over $230 million in raised(20,000 contributors, 18,200 companies) $69 - per month and up. Some functions are free.


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http://www.equitynet.com/

Crowdfunding Models

Equity:


Crowdfunder (http://www.crowdfunder.com) - One of the most active Equity Crowdfunding sites.

“Connecting entrepreneurs with investors around the world to help fund their business and fuel economic growth.”

Launched 2011

Over $66 million in deal flow(45,000 contributors, 8,800 companies) $99 - $999 per month


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Crowdfunding Models

Equity:

Key Issues:

Fraud – Concern that the loosening of investmentprotections would expose small and inexperiencedinvestors to fraud.”

Wrong Path for many - May encourage small businessesto seek equity when it might not be the most appropriateroute.


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Crowdfunding Models

Equity:

Key Issues:

Follow up – Unlike Donation or Reward there is anongoing obligation to provide information.

Exit Strategy – Both the Issuer/Company and theinvestors need to have an exit strategy.

Alternative methods – Angel, VC and Investment Banking funding may be viable alternatives.


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Crowdfunding Models

Lending:

Loans from the crowd.

Also known as Peer to Peer (P2P) Lending.

Crowd lenders take small chunks of the overall loan.

Many platforms use standard credit scoring systems (i.e., FICO) so lenders can choose an appropriate interest rate to charge.

Borrowers generally look for loans between $2,000 and $35,000.


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Crowdfunding Models

Lending:


LendingClub (http://www.lendingclub.com) - One of the earliest Lending Crowdfunding sites.

“.. create a more efficient, transparent and customer-friendly alternative to the traditional banking system .”

Launched August, 2007

Over $4 billion loans funded to nearly 250,000 individuals.Loans up to $35,000. Rates dependent on Credit Score.


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http://www.lendingclub.com/

Crowdfunding Models

Lending:


Prosper (http://www.prosper.com) - America’s first peer-to-peer lending platform.

The Prosper platform connects people who want to invest money with people who want to borrow money.”

Launched February, 2006

Over $1 billion loans funded to over 2 million members.Loans from $2,000 to $35,000.Interest rate dependent on Credit Score.


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http://www.prosper.com/

How big is the market

World Bank Report: Crowdfunding’s Potential for theDeveloping World (October 2013)

“Campaigns across the globe raised nearly US $2.7 billion in 2012.”


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North

America

($1,600)

Europe

($945)

ROW

($110)

$2.7 billion Market (2012)


World Bank Report: Crowdfunding’s Potential for theDeveloping World (October 2013)

Donation and Rewards based platforms represented more than half of the campaigns in 2012


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Donation

and

Rewards

(51.5%)

Lending

(44.2%)

Equity

(4.3%)


2012 Market:

Massolution (a “crowdsourcing” research and advisoryfirm) forecasted an increase in global crowdfundingvolumes in 2013, to $5.1 billion.

Some estimates have that market as over $6 billion.

Crowdfunding investment market expected to grow to$13 billion this year and to $93 billion by 2025.


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Crowdfunding Statistics and Demographics

Most campaigns are relatively small and short lived:

Average successful crowdfunding campaign is around $7,000.

Average campaign lasts around 9 weeks


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Source: www.fundable.com

How can Small businesses use it

Smallest businesses andstartups are probablybest served using aRewards basedplatform, or possibly aLending platform.

Companies at the VCfunding stage shouldconsider the Equitybased platform.


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Crowdfunding Benefits

Better understanding of market demand – Particularlyon Rewards based platform.

Helps drive highly focused concise and high energyfunding campaign.

Creates Media Buzz.

Can help find potential partners, distributors andinvestors.

Becoming an alternative to VC investment (EquityPlatform) – less invasive for owners.


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Crowdfunding disadvantages

60% of all current campaignsfail.

Campaigns are usually brief.May not be enough time forsome companies.

Rules and expectations are stilldeveloping.

Communicating with Investorsand backers – New concept forsmall companies.


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Keys to success

Preparation – The campaign should be done before itstarts.

Backers/Investors already identified. Expect to “work” the campaign at least several hours each day.

Presentation – Good title, story, photos, video. Keep itsimple and compelling.


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Keys to success

Documentation – Well prepared support materialsappropriate to the project:

Corporate Information (Dependent on campaign)

Company Description Product / Service Description Mission Statement Executive Summary Business Plan Projections


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Keys to success

Campaign Duration - Less than 60 days isrecommended. Actually, those under 30 days are themost successful.

Video - Simple, personal and informative– Projects witha video attract 125% more dollars (predominantlyRewards based campaigns).


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Keys to success

Identify those with a “passion” for the project or company.

Offer compelling and realistic rewards- Rewards platform.

Oversubscription – Have a plan.

Delivery – MUST deliver as promised. Reputation is key.


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Keys to success

Communications is key:

Thank funders/supporters, make them feel good about supporting you – personalize!

Be prepared to continue communication. Most critical for Equity campaigns but valuable for all.

Remember – The supporters can be valuable to you even beyond the campaign.


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Crowdfunding Platforms Summary


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Crowdfunding Platforms

Select Sites

Donation Rewards Equity Lending

Catapult

Crowdrise

Fundly

Giveforward

Gofundme

Qgive

Quirky

Artistshare

Indiegogo

Kickstarter

Peerbackers

Rockethub

AngelList

Crowdfunder

EarlyShares

Equitynet

Fundersclub

Microventures

RockThePost

Seedinvest

Biz2credit

Dealstruck

Fundingcircle

Kiva

Lendingclub

Prosper

Somolend

There are over 500 different Crowdfunding sites.

Many sitesdo morethan oneplatform.

For instance,Lendingclubdoes equityand debt.

Crowdfunding Support

Crowdsourcing.org – “…the largest online repository of news, articles,

videos, and site information on the topic of crowdsourcing and crowdfunding.”

CrowdundingAcademy.com – Helps create, host and manage civic

and entrepreneurial projects around the world.

Fleetwood Associates (www.fleetwoodresearch.com) – Helps

companies with corporate documentation such as Business Plans, MissionStatements, Industry Research, etc.


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Crowdfunding Support

LinkedInCrowdfunding

CrowdFunding USA CrowdSourcing & CrowdFunding

Meetup Groups: CrowdFunding For Entrepreneurs

NYC CrowdFunding CROWDFUNDx Crowdfunding Meetup: NYC Division

Radio - http://crowdfundingradiolive.com/

Book – Cash From The Crowd - Sally Outlaw (peerbackers.com)


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http://crowdfundingradiolive.com/

Crowdfunding – Takeaways

Rapidly growing worldwide financing market for smallcompanies (and others) with multiple channels/platforms.

$13 billion (currently) to $93 billion in a decade.

Dual benefit of funding and market awareness.

Equity platform - fastest growing sector. Alternativeto VC.

Current use - predominantly pre-sale andfocused/intense marketing campaigns.

Capitalizes on and leverages the power of the Internet.Copyright: Fleetwood Associates Inc.

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Crowdfunding

An alternative financing concept

A primer on the potential applications for funding growing small businesses

Peter G. Mintz

Fleetwood Associates Inc., / SCORE Counselor

www.fleetwoodresearch.com(914) 663-9510


Thank You

http://www.fleetwoodresearch.com/

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