dr. john hoffmire director, saïd business school venture fund saïd business school university of...
TRANSCRIPT
Dr. John Hoffmire
Director,
Saïd Business School Venture Fund
Saïd Business School
University of Oxford
Associate,
Oxford Centre for Mutual and Employee-owned Business
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Crowdfunding
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Crowdfunding is……
Raising small amounts from many contributors
Using the internet & social media
Often offering a reward or incentive
A fast growing alternative to traditional funding
Projects are more varied (cultural, political, charity, etc.)
Many raise relatively small amounts for short-term or
one-off projects (such as an event)
Investors may be directly connected and involved
Lending is less costly and returns are higher
Contrast to Traditional Fundraising
3(Image: lumosforbusiness.com)
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Four Types of Crowdfunding
(Source: Massolution)
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Impact of Social Media
(Data source: Ethan Mollick, “The dynamics of crowdfunding: determinants of success and failure.” (working paper); (Graphic source: Appsblogger)
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Margins of Success and Overachievers
(Data source: Ethan Mollick, “The dynamics of crowdfunding: determinants of success and failure.” (working paper); (Graphic source: Appsblogger)
Projects generally have narrow margins of success and large margins of failure.
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Campaign Length and Funds Raised
For fully funded campaigns - funds raised as % of goal by % of campaign length.
(Source: Indiegogo)
Avg commissions -N America and Europe 7%Rest of World 8%
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Funds Paid Out Per Project forDonation and Reward-Based Projects
Source: Massolution
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Funds Paid Out Per Project for Equity-Based Projects
Source: Massolution
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Growth in Worldwide Funding Volume
Source: Massolution
Number of Global Campaigns
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Global Crowdfunding Platforms
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Funds Raised by Type for 2011
Percentage, 100% = $575 million
Source: Massolution
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Growth in Number of CFP’s by Category
Rewards-based is largest
category and growth is 79%
CAGR.
Equity-based is the
fastest growing at 114%
CAGR.
Source: Massolution
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Global Economy
Source: databank.worldbank.org
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Global Economy by Economic Group
(Source: IMF WEO Update, Jan 2012))
Global GDP Growth (Percentage change over previous year)
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UK Small Business Funding Gap
Bank lending down 25% from 2008 levels
Business loan rates up .16 percentage points to 3.12% since June, 2011
“Funding gap” left by banks may be as high as £191 billion in the UK for 2012
(Source: The Economist, 04 Aug 2012))
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USA Small Business Funding Gap
Source: localstake.com
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How Crowdfunding Could Fill the Funding Gap
Source: localstake.com
• Eliminates accredited investor requirements
• Requires activity through ‘funding portals’
• Allows direct, paid promotion of securities
• Substantially limits disclosure and oversight requirements
• SEC must create new rules
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USA: CROWDFUND Act
(Image: lumosforbusiness.com)
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Benefits to Business
…perhaps not “just like angel investors”Source: localstake.com
A healthy crowdfunding marketplace will create:
10% increase in new businesses
170,000 new jobs over the next five years
(from RocketHub Whitepaper prepared for SEC)
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USA Job Growth
(Image: lumosforbusiness.com)
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India
GDP Growth (%)
>6.5% growth projected for 2012/13 by Prime Minister Manmohan Singh Moodys predicts 5.5% for same period (Reuters 14Aug12)
Source: databank.worldbank.org
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India
CFP Situation
• Grow VC launched in July 2010; after a very slow start others followed, including
wishberry.com, interactor.com, and fundmypitch.com
Legal Framework
• Investment CF is legal; rules are unclear and require CFP’s to proceed with caution
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of doing business ranking – 132
• Ease of starting a business ranking - 166
Technology Adoption
• Online spending – estimated to rise to $12.6mm by 2015 from $3.6mm in 2012
• Internet access – ~121mm users (2012), up 25% annually; ~12% penetration
• Social media - 52mm Facebook users; 20% growth over past six months
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Singapore
GDP Growth (%)
1.5% - 2.5% growth projected for 2012
Source: databank.worldbank.org
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Singapore
CFP Situation
• ToGather.Asia launched March 2012, claims to be first ‘Kickstarter’ CFP in
region; others include 8squirrels, Firecracker, Pozible and Spark Facility
Legal Framework
• Investment CF is not legal; very strong consumer protection laws
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 4
• Ease of doing business ranking – 1
Technology Adoption
• Online spending – $1.4 billion for 2011, a 30% rise from 2010; expected to hit
$3.5 billion by 2015
• Internet access – estimated 3.7mm users to start 2012; ~ 77% penetration
• Social media – approximately 2.8mm Facebook users; ~ 59% penetration
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Brazil
2012 3% forecasted
GDP Growth (%)
Source: databank.worldbank.org
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Brazil
CFP Situation
• Jan 2011 launch of first ‘Kickstarter model’ CFP
• Now >40 CFP’s, including Catarse, the world’s first open source platform
Legal Framework
• Investment crowdfunding is not legal
Technological Adoption
• Online spending - $11billion total consumer spending, 26% rise over 2010
• Internet access - estimated 79mm internet users at beginning of 2012, 39%
penetration (total population estimated at 204mm)
• Social media - >55 million Facebook users, a 46% rise in 6 months
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 120
• Ease of doing business ranking – 126
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USA
GDP Growth (%)
2012 2% forecasted
Source: databank.worldbank.org
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USA
CFP Situation• Nearly 200 platforms and 523,000 successful campaigns in 2011
Legal Framework
• CROWDFUND Act makes investment crowdfunding legal
• SEC must now create rules.
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 4
• Ease of doing business ranking – 1
Technology Adoption
• Online spending - >$200bn for 2011
• Internet access - >245 million users; 90% penetration
• Social media – Nearly 161 million registered on Facebook; ~ 52% penetration
Eurozone
GDP Growth (%)
Source: Eurostat31
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Eurozone
CFP Situation
• 44 in the UK; 100+ in rest of Europe
• Nearly 15% focus of equity-based activity; €10 million funded in 2011
Legal Framework
• Investment CF is legal, but rules protecting investors are highly restrictive
• Tax incentives in the UK for investment crowdfunding
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – UK 19; ND 79; FR 25; DE 98; ES 133
• Ease of doing business ranking – UK 7; ND 31; FR 29; DE 19; ES 44
Technology Adoption
• Online spending – estimated €232 bn this year, up 16% from €200 bn in 2011
• Internet access – estimated 360 mil users at start of 2012; 73% penetration
• Social media – approximately 171 million Facebook users
• Increased capital to bridge the ‘funding gap’
• Increased job growth
• Democratisation of fundraising
• Empowerment of investors
• Potential unintended consequences
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Consequences
(Image: lumosforbusiness.com)
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Low Investment Returns
(Source: http://www.industryintel.com/i2blog/economy/05/2012/n/1/)
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Financial Literacy
Q: Suppose you owe $1,000 on your credit card and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
• 2 years
• Under 5 years
• 5 to 10 years
• More than 10 years
• Do not know
• Prefer not to answer
A. Lusardi and P. Turfano, “Debt literacy, financial experiences and indebtedness.” (working paper)
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One group sticks out…
A. Lusardi and P. Turfano, “Debt literacy, financial experiences and indebtedness.” (working paper)
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Other Examples of Crowdfunding
You have £1,000 and four options (choose one):
Company Project Option
The Rushmore Group Member Bars and Clubs Investment
Amanda Palmer Music Album Reward
Kiva Micro-loans Lending
Doctors Without Borders Medical Charity Donation
www.polleverywhere.com/crowdfunding
• Owner and operator of three successful London establishments• Seeking funds for a “low-cost, higher return expansion”• Funds raised will create a new location in the heart of Soho
The Rushmore Group
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Investment target: £1 million Equity offered: 10%
• First studio album since leaving major label• Funds required to manufacture and promote album
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Amanda Palmer and The Grand Theft Orchestra
Goal: $100,000
Reward: Pre-show VIP pass to have donuts with the band, plus signed, special editions of the album on vinyl and CD.
• World’s largest micro-lending platform• Loan recipients in 64 developing countries• You get to choose a borrower
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Kiva
Terms: Loans do not pay interest. Lenders are updated on borrower’s successes.
Your donation is needed to:• Provide emergency medical care wherever it is needed• Assist millions of people caught in crisis in more than 60 countries• Care for those discriminated against and neglected populations
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Doctors Without Borders
Goal: $200,000
Gift: You will receive a thank you letter highlighting recent global aid initiatives.
Pledge and Results
Company Project Option
The Rushmore Group Member Bars and Clubs Investment
Amanda Palmer Music Album Reward
Kiva Micro-loans Lending
Doctors Without Borders Medical Charity Donation
Choose one at: www.polleverywhere.com/crowdfunding
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Real World Results
£1,000,000
143 investors
$1,000,000 goal
(30 days,
Crowdcube)
$1,192,793
24,883 backers
$100,000 goal
(31 days,
Kickstarter)
>$346mm loaned
>812k backers
>850k borrowers
99% repayment
rate
(~6 yrs, Kiva)
$213,017 raised
$200,000 goal
(~12 months,
Justgiving)
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Funds Raised by Type for 2011
Percentage, 100% = $575 million
Source: Massolution
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Growth in Number of CFP’s by Category
Equity-based is the
fastest growing at 114%
CAGR.
Source: Massolution
Crowdfunding Opportunities
CF may have the most opportunity in areas that “traditional financiers have traditionally found unattractive.”
–Clayton Christensen
Source: NVCA Yearbook 2012 46
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(Image: lumosforbusiness.com)
• Dave did most of the work on this presentation!
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Special Thanks To Dave Bowman
John Hoffmire, Director
Saïd Business School Venture Fund
and
Associate of the Oxford Centre for Mutual and Employee-owned Business
University of Oxford
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Thank You!