Crowdfunding Your Project or Business Presented by Marcia Kaplan Kaplan & Associates April 29, 2014 © Kaplan & Associates 2014 No distribution without permission
Crowdfunding Your Project or Business
Presented by Marcia Kaplan,
Kaplan & Associates
May 17, 2012
Presented by Marcia Kaplan
Kaplan & Associates
April 29, 2014
© Kaplan & Associates 2014
No distribution without permission
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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.
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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.
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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.
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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
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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
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.
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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.
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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.
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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.
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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.
Roadblock to Equity Crowdfunding
A requirement that any intermediaries (including
websites) must be registered with the SEC as a “broker-
dealer” 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.
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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.
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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.
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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 500.
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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 2014.
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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.
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Easing of Existing Rules for Accredited
Investors (2)
Rule 506(C) allows general solicitation via websites,
social media, newspapers, e-mail.
All investors must be accredited.
The issuer must take “reasonable steps” to verify status
of investor.
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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.
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Online Sites that Work with Accredited
Investors
Circle Up
Funding Post
Go4Funding
Microventures
FundersClub
Wefunder
Healthfundr
Early Shares
EquityNet
CrowdFunder
AngelList
Fundable
RockthePost
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Where is the Money Going?
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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.
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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.
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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
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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.
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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
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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.
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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 e-mail.
Reach out to bloggers who write about the topic area. Blog yourself
Keep people updated on your progress in fund-raising.
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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.
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
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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.
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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 2012.
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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.
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Perks/Rewards
If possible, make sure the perk reflects the project
The perks that work best are products.
Update Frequently
Keep people informed of what’s going on.
Include update videos.
Answer questions.
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Crowdfunding Sites by Market/Interest (1)
Creative projects
Kickstarter www.kickstarter.com
Indiegogo www.Indiegogo.com
RocketHub www.rockethub.com
Film
Film Passerby https://passer.by
SeedandSpark www.seedandspark.com
• Crowdfunding combined with movie release
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Crowdfunding Sites by Market/Interest (2)
Community funded journalism: http://spot.us
Book writers www.authr.com
Photojournalism
Emphas.is www.emphas.is
Art
www.usaprojects.org
• Provides matching fund, takes no fee
• Invitation only
Green www.greenfunder.com
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Crowdfunding Sites by Market/Interest (3)
Social Causes/Non-profits/Charities
Indiegogo www.Indiegogo.com
Causes www.causes.com
Crowdrise www.crowdrise.com
StartSomeGood www.startsomegood.com
• For social entrepreneurs
Network for Good www1.networkforgood.org
• Also provides a platform for events, e-mail mgmt.
Firstgiving www.firstgiving.com
Razoo www.razoo.com
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Crowdfunding Sites by Market/Interest (4)
Inventors, gadget creators: Quirky www.quirky.com
Community decides if idea can be made into a product prior to
fundraising
Science:
Petridish www.petridish.org
www.experiment.com (formerly Microryza)
Healthcare
www.Medstartr.com (rewards)
www.healthfundr.com (equity)
www.venturehealth.com (equity)
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Crowdfunding Sites by Market/Interest (5)
Musicians:
Feed the muse www.feedthemuse.net
PledgeMusic www.pledgemusic.com
ArtistShare www.artistshare.com
Sports www.sportfunder.com
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Crowdfunding Sites by Market/Interest (6)
For-profit, non-profit, any category
Pledgie www.pledgie.com
GoGetFunding www.gogetfunding.com
Rally www.rally.org
Start-ups and existing businesses (Donation only)
Angel Funder www.angelfunder.com (not yet operational)
Peerbackers www.peerbackers.com
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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.
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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
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Most Successful Kickstarter campaign
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Well Executed Non-Tech Product Campaign
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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
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Indiegogo (2)
Provides help with social media integration
Fixed funding campaigns with a pitch video raised
239% more funds than those without a video.
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Most Successful Indiegogo Project
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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.
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Kickstarter vs Indiegogo – Unique Visitors
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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.
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Indiegogo’s Largest Unfunded Project
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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.
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Support Tools (2)
www.karma411.com — provides social fundraising
solutions for causes including automating social media
campaigns.
www.launcht.com — 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.
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Support Tools (3)
www.towema.com — hosted crowdfunding site builder
www.causevox.com — fundraising platform
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 www.firstgiving.com — for non-profits
SocialWish www.socialwish.com — for 501(c) (3)s
Causevox www.causevox.com
Fundly www.fundly.com
ProHatch www.prohatch.com
Kimbia www.kimbia.com
Non-profits pay a monthly or annual fee Good for continuous fundraising
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Online Tools to Help Build A Campaign
Pitch videos
www.animoto.com — free and paid versions
http://studio.stupeflix.com/en/
Video hosting – link to your crowdfund page
www.youtube.com
www.vimeo.com
Social media management
www.hootsuite.com
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Online Crowdfunding Resources
LinkedIn Group:
Crowdfunding the Dream With Kickstarter
http://crowdfundinghelp.com
http://dailycrowdsource.com
http://www.youtube.com/watch?v=lMcC4ikB-UE
Excellent video on creating a campaign Facebook page
www.crowdFundingSoftLaunch.com ( pre launch sand
box - beta version)
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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?
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