Crowdfunding Your Project or Business

Transcription

1 Crowdfunding Your Project or Business Presented by Marcia Kaplan Kaplan & Associates April 29, 2014 Kaplan & Associates 2014 No distribution without permission

2 What is Crowdfunding? (1) Crowdfunding is a form of financing in which many individuals invest in a single company or project via the Internet. The individual investments are typically small. 2

3 What is Crowdfunding? (2) Don t confuse crowdfunding with crowdsourcing, the practice of gathering information, input, and ideas from a large group of people, and putting them in charge of the decision-making process for whatever the project happens to be. 3

4 Crowdfunding Business Models (1) Donation Model Donors get no financial return. They receive rewards or some type of recognition. With charitable contributions there may be no reward. Donors have no control over how the money is spent. Equity Model People invest with the expectation of getting a financial return. They have input into how the company operates. Basically they are stockholders. 4

5 Crowdfunding Business Models (2) The donation model is for one-time projects that have a finite timeframe. Examples: music CD production, film, art installation, book publishing, specific charitable cause. Equity Model For entrepreneurs and start-up businesses that will hopefully operate on a long-term basis. Not operational yet 5

6 Choosing a Crowdfunding Portal Just because a site exists, does not mean it is funding projects Several have gone out of business or are inactive Look for active campaigns on the site and fully funded projects 6

7 Is Crowdfunding a Passing Fad? Kickstarter, which opened in 2009 reached $1 billion in total donations earlier this year. More money for the arts has been funded by Kickstarter donations than by the NEA for the past two years. 7

8 Who Participates in Funding? Donation model Art patrons, film buffs, and people with a particular interest or hobby. Equity Model People with disposable income who are interested in helping start-ups in a particular area. Angel investors who want a more streamlined or an additional investment process. 8

9 Equity Crowdfunding Enables entrepreneurs to raise money in relatively small amounts from a large number of interested investors. They may be angel investors or individuals with an interest in a technology or market. 9

10 Downside to Equity Crowdfunding If you want to eventually raise funds from VCs, crowdfunding may not be the best way to go. It will be difficult to attract sophisticated investors if your company has hundreds of unsophisticated stockholders. VCs want control, not diluted equity Greater risk of lawsuits. 10

11 Downside from Investor Point of View Limited means of selling stock. Investment is illiquid. Company would have to be acquired or go public for investors to get a return. Investors may not get as much information as they would from a company that gets funding in more traditional ways. 11

12 Roadblock to Equity Crowdfunding A requirement that any intermediaries (including websites) must be registered with the SEC as a brokerdealer in order to legally accept any transaction-based compensation in connection with the sale of securities. Currently in the U.S. only accredited investors can invest in risky ventures. For an individual to be considered an accredited investor,he or she must have a net worth of at least $1 million, not including the value of a primary residence, or have made at least $200K each year for the past two years. 12

13 New Equity Crowdfunding Legislation (1) Passed as part of the Jobs Act in 2012 An entrepreneur can raise up to $1 million per year through an SEC-registered crowdfunding intermediary. Does not allow individual crowdfunding via social media Intermediaries seeking to help companies raise money through crowdfunding must register with the S.E.C., make sure investors are advised of the risks they are taking, and take measures to prevent fraud. 13

14 New Equity Crowdfunding Legislation (2) Individuals with an income of less than $100,000 per year are allowed to invest the greater of $2,000 or 5 percent of their income. Individuals with an income of more than $100,000, can invest up to 10% of income, with a maximum of$100,000. Companies will be able to offer up to $50 million in stock to the public without registering with the SEC, up from the previous threshold of $5 million. 14

15 New Equity Crowdfunding Legislation (3) Companies that use crowdfunding must provide financial statements to investors. Companies seeking to raise $100,000 or less must also provide tax returns and a financial statement certified by a company principal. Companies seeking between $100,000 and $500,000 in capital would have to get independent accountants to review these statements. Audited financial statements would be required for companies seeking more than $500,000 in capital. Companies can avoid registering with the S.E.C. until they have 2,000 shareholders, up from

16 New Equity Crowdfunding Legislation (4) SEC had nine months to write and implement new regulations. Did not meet the deadline Implementation now not expected until late

17 Easing of Existing Rules for Accredited Investors (1) Until September 2013 there was a ban on general solicitation (advertising) to potential accredited investors with no pre-existing relationship. This meant that these offerings had to operate through word of mouth or through a network of financial advisors. Now SEC Rule 506, Regulation D allows general advertising for private security placements to accredited investors and up to 35 non-accredited investors who meet certain requirements. 17

18 Easing of Existing Rules for Accredited Investors (2) Rule 506(C) allows general solicitation via websites, social media, newspapers, . All investors must be accredited. The issuer must take reasonable steps to verify status of investor. 18

19 506(c) Funding Since September 23, 2013 Through Feb. 28 3,240 PIPRs (private issuers publicly raising) have secured funding; over 600 closed. One platform, AngelList has raised $24 million. The western region, has raised the most $$$, mostly in California. 19

20 Online Sites that Work with Accredited Investors Circle Up Funding Post Go4Funding Microventures FundersClub Wefunder Healthfundr Early Shares EquityNet CrowdFunder AngelList Fundable RockthePost 20

21 Where is the Money Going? 21

22 How Does The Reward Model Work? (1) Sites have differing methods of handling proposals Some review them for feasibility; others post all requests Crowdfunding websites take a percentage of money raised, usually between 4 and 5 percent. You also have to pay a payment processing fee, usually 3 to 5 percent. 22

23 How Does It Work? (2) With some sites, you have to raise all the money you requested by the deadline or you get nothing. Others will let you get funding if you reach a certain amount. However, they take a larger fee if you don t reach your goal. If you raise more money than you requested, all sites let you keep the excess. 23

24 What You Need To Do Prepare a description of your project or business Have a PayPal or Amazon Payments account Have a Facebook page and Twitter account 24

25 Honing your pitch (1) Your pitch should be concise and compelling Identify your target audience Plan ahead you have a limited amount of time to raise money Show enthusiasm if you re not excited, potential funders will not be either Create a clear project description Give a detailed explanation of how you intend to spend money, including stretch goals. 25

26 Honing your pitch (2) Tell a great story you have to sell your project and you are competing for funds Offer reward/perks that will appeal to your funders This is a campaign and you have to get to the finish line 26

27 Marketing Your Idea (1) Is your idea viable? Create an engaging video that explains the project and the perks. Projects with video receive more funding than campaigns based on just text. Use social media: Twitter, Facebook, LinkedIn, Pinterest to bring your message to the world. 27

28 Marketing Your Idea (2) Don t go it alone have a team That expands the reach of social media because of increased connections Personally share with the people you know via . Reach out to bloggers who write about the topic area. Blog yourself Keep people updated on your progress in fund-raising. 28

29 Marketing Your Idea (3) Don t use the maximum timeframe if possible. Those campaigns that generate the most buzz are highlighted on the landing page of crowdfunding websites, further increasing visibility. 29

30 Avoid These Mistakes Asking for too little money People will doubt your capabilities Remember there are fees and costs for rewards Asking for a large amount of money and not having a detailed budget Unappealing perks No video, or an uninspiring video No promotion 30

31 Creating A Good Pitch Video Keep it short Trend is for shorter videos under 3 minutes. Include: Who you are, what the project is, where will it happen, what s the timeframe for completion, humor if appropriate. Good quality audio. End the video with a clear call to action. 31

32 Indiegogo Video Statistics Indiegogo campaigns with videos raise 114% more money than those without. Campaigns with videos less than five minutes long were 25% more likely to reach their goal than those with longer videos. The average length for a campaign video was three minutes and 27 seconds in

33 Key Crowdfunding Statistics Average successful crowdfunding campaign is around $7,000. Average campaign lasts around 9 weeks. Campaigns that can gain 30% of their goal within the first week are more likely to succeed. 33

34 Perks/Rewards If possible, make sure the perk reflects the project The perks that work best are products. 34

35 Update Frequently Keep people informed of what s going on. Include update videos. Answer questions. 35

36 Crowdfunding Sites by Market/Interest (1) Creative projects Kickstarter Indiegogo RocketHub Film Film Passerby SeedandSpark Crowdfunding combined with movie release 36

37 Crowdfunding Sites by Market/Interest (2) Community funded journalism: Book writers Photojournalism Art Emphas.is Provides matching fund, takes no fee Invitation only Green 37

38 Crowdfunding Sites by Market/Interest (3) Social Causes/Non-profits/Charities Indiegogo Causes Crowdrise StartSomeGood For social entrepreneurs Network for Good www1.networkforgood.org Also provides a platform for events, mgmt. Firstgiving Razoo 38

39 Crowdfunding Sites by Market/Interest (4) Inventors, gadget creators: Quirky Community decides if idea can be made into a product prior to fundraising Science: Petridish (formerly Microryza) Healthcare (rewards) (equity) (equity) 39

40 Crowdfunding Sites by Market/Interest (5) Musicians: Feed the muse PledgeMusic ArtistShare Sports 40

41 Crowdfunding Sites by Market/Interest (6) For-profit, non-profit, any category Pledgie GoGetFunding Rally Start-ups and existing businesses (Donation only) Angel Funder (not yet operational) Peerbackers 41

42 Kickstarter More than 38,000 successful campaigns - $444 M Accepts only 60% of applicants/ 43.5% successful Projects must be fully funded to get $$$. Kickstarter takes 5%. Amazon (payment processor) takes 3 to 5%. No charity or cause funding. Average raised is $5,000. In 2013, 3 million people pledged $480M, $913 a minute. 42

43 Top 8 Reward-Based Crowdfunding Campaigns Design Pebble: E-Paper Watch For iphone and Android $10,266,845 5/18/2012 Games OUYA: A New Kind of Video Game Console $8,596,474 8/9/2012 Film & Video The Veronica Mars Movie Project $5,702,153 4/12/2013 Games Torment: Tides of Numenera $4,188,927 4/5/2013 Games Project Eternity $3,986,929 10/16/2012 Games Reaper Miniatures Bones: An Evolution Of Gaming Miniatures $3,429,235 8/25/2012 Games Double Fine Adventure $3,336,371 3/13/2012 Film & Video WISH I WAS HERE $3,105,473 5/24/2013 All on Kickstarter 43

44 Most Successful Kickstarter campaign 44

45 Well Executed Non-Tech Product Campaign 45

46 Indiegogo (1) Largest crowdfunding site in terms of number of campaigns (70,000) unfiltered, accepts everybody Largest variety of acceptable projects arts, charities, technology Has two funding choices: Fixed funding reach goal or receive nothing; fee is 4% Flexible funding if you don t reach your goal you keep the money raised; fee is 9% Credit card processing fee of 3% Offers help with social media integration 46

47 Indiegogo (2) Provides help with social media integration Fixed funding campaigns with a pitch video raised 239% more funds than those without a video. 47

48 Most Successful Indiegogo Project 48

49 New Indiegogo Option Indiegogo let s people run campaigns concurrently on their own sites with Outpost. Still in beta mode and being used only by a select few, the process seems pretty simple to master. Indiegogo provides a HTML and JavaScript code snippet to be inserted into your site. 49

50 Kickstarter vs Indiegogo Unique Visitors 50

51 Tangential Crowdfunding Benefits Crowdfunding is a great tool for proof of concept, market research, and market validation. You can get excellent free input on product features. You can get publicity and attract investors if the campaign is successful. 51

52 Indiegogo s Largest Unfunded Project 52

53 Support Tools (1) Don t have an internal IT support person? Social media not your thing? Companies that provide crowdfunding platforms (so you can launch a campaign from your own site) and software tools. 53

54 Support Tools (2) provides social fundraising solutions for causes including automating social media campaigns. enables universities, foundations, and businesses to create their own platform. Partners with other crowdfunding portals as their technology partner, offering plug and play crowdfunding solutions. 54

55 Support Tools (3) hosted crowdfunding site builder fundraising platform 55

56 Software Platforms for DIY Crowdfunding Sites that allow non-profits to set up their own crowdfunding page; they offer technology solutions: payments, reporting, social media links. First Giving for non-profits SocialWish for 501(c) (3)s Causevox Fundly ProHatch Kimbia Non-profits pay a monthly or annual fee Good for continuous fundraising 56

57 Online Tools to Help Build A Campaign Pitch videos free and paid versions Video hosting link to your crowdfund page Social media management 57

58 Online Crowdfunding Resources LinkedIn Group: Crowdfunding the Dream With Kickstarter Excellent video on creating a campaign Facebook page ( pre launch sand box - beta version) 58

59 What Model Should a Start-up Choose? Trendy consumer tech devices can go with the reward model No stockholders to answer to, no equity Non-tech will likely have to take the equity approach Accredited or unaccredited? 59