Crowdfunding developments by Daryl Montgomery

Latest Developments in the World of Crowdfunding

Daryl Montgomery

Organizer, New York Investing Meetup (5000+ Members)

Author of 4 Investing Books and 700 ArticlesUpcoming book on Crowdfunding, out early 2014

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Copyright 2013, All Right ReservedFor educational purposes only. There is no intention to recommend the purchase or sale of any

investment or provide legal opinions or advice.

Midwest Crowdfunding Conference November 15, 2013

Crowdfunding Definition

Financing a company, project, campaign or charity:

1.From a large number of small investors or donors

2. During a specific period of time

3. Done through a general online solicitation

4. Involving a social media component –and-

5. Offering some immaterial, product/service or financial reward.

Four/Five Types of Crowdfunding

• Donation – charity in all forms• Reward – creative projects or inexpensive

consumer items• Debt (the Western view)

- Microfinance- Peer-to-Peer (P2P)- Peer-to-Business (P2B)

• Equity - stock• Revenue Sharing – split the profits

Crowdfunding History

• First Platforms:- Donation: JustGiving/FirstGiving,UK in 2001 - Rewards: ArtistShare, U.S. in 2003 - Debt: ZOPA, UK in 2005- Equity: ASSOB*, Australia in 2006.

• Leading Countries:- Donation: U.S. and UK- Rewards: U.S.- Debt: China, UK, U.S. - Equity: UK, France

Rapid Growth

• Kickstarter (U.S in 2009) currently the largest,has most of the mega campaigns.

• By end of 2012:- 536 platforms- $2.8 billion raised ($5.1 predicted 2013)

• Growth Rates between 2009-2011:- Donation 43%- Reward 524%- Debt 78%- Equity114%

Key Events and Trends

• SEC implements rules for 2012 JOBS Act.- General Solicitation ban lifted on Sept 23rd

- Proposed Rules for non-accredited Oct 23rd.

• First failure of equity funded company (in UK).

• The big campaigns are becoming bigger and faster.

• Platforms becoming multinational.

• Big growth in P2P lending. Niche areasreal estate and medical.

• Revenue sharing emerging 5th category.

Old U.S. Rules for Equity Funding

• U.S: Securities Act of 1933 allows raising money only from accredited investors (millionaires) with whom you have a pre-existing, substantive relationship. General solicitation banned.

• Some exceptions through Regulations A & D.

• States add another level of regulation. Standard disclosure document accepted in only 45 states.

• Underlying assumption is the entrepreneur is a swindler and the investor is a rube.

New Regulations in U.S.

• JOBS Act (passed April 2012)SEC had to implement rules for it to function.

• Non-accredited investors allowed into system, but only allowed to invest small amounts.

• Title II of JOBS Act – general solicitationrule implemented on Sept 23rd (proposed July)

• Title III of JOBS Act – non-accredited investors proposed rules on Oct 23rd.

Biggest Campaigns

• Donation:- $2.5 mil combined on Fundly for Hurricane Sandy relief in Nov 2012

• Reward (tech gadgets, games, and celebrity)- Gadgets: Ubuntu Edge, $12.8 mil Aug 2013 Pebble Watch $10.3 mil May 2012 - Games: Star Citizen* $19 mil as of Sept 2013 Ouya Console $8.6 mill Aug 2012 - Celebrity: Veronica Mars $5.7 mil April 2013

Zach Braff $3.1 mil May2013

Biggest Campaigns

• Debt:- BD Bacatá skyscaper, $171.8 mil, 2010-12 Prodigy Networks - Ribbon, $1.6 mil (convertible note), Nov 2012 Microventures

• Equity:- Preshafood, $A3.45 mil, ASSOB 2009/10- Smarty Pants, $2.5 mil Circle Up Sept 2013- Hab Housing, £1,9 mil Crowdcube Sept 2013

Multinational Expansion

• ZOPA entered U.S market in Dec 2007 and left a year later.

• Kickstarter entered UK market in fall 2012.

• Crowdcube in the UK has created a “franchise” model and is trying to aggressively expand globally.

• WiSEED in France has announced global ambitions.

• Symbid raising money in New York.

Going Forward

• Take off for Equity crowdfunding in U.S., but expect SEC to continue to try to restrain it (equity has actually existed in U.S. since 2010).

• Look to Europe for ideas on how equity crowdfunding will develop in U.S.

• Continued big growth in P2P lending.

• Increased globalization and platform consolidation along with expansion.

Final Thoughts

Ultimately, the only limitations to using crowdfunding is your imagination and government restrictions.