Crowdfunding101

CROWDFUNDING 101[& a bit more]

crowdfunding

the collection of $$$ from backers—the "crowd"—to fund an initiative, typically via Internet platforms

crowdfunding

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Reward-basedentrepreneurs pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares

Equity-basedthe backer receives unlisted shares of a company, usually in its early stages, in exchange for the money pledged. The company's success is determined by how successfully it can demonstrate its viability

Identified by The Crowdfunding Centre's May 2014 Report

$2.12 billion$1.34 billion $1.43 billion $0.17 billion[SEC rules pending]

LENDINGREWARD EQUITYDONATION&

$2.77 billion

Market Size, 2013

peer-to-peer lending for borrowers

donation in exchange for

rewards

giving for nothing in return

owning part of the project

Model

Source: Massolution 2013 Crowdfunding Industry Research Report

Source: Massolution 2015 Crowdfunding Industry Research Report

From just 2013 to 2014,the crowdfunding economy nearly tripled

REWARD-BASED CROWDFUNDING

Curated No review

All-or-Nothing Keep-it-All [option]

DIFFERENCES BETWEEN PLATFORMS

5% 4% | 9%if goal

reachedif goal

reachedif goal

NOT reached

Source: Fund All Be All

● Keep your campaign under 30 days

● Make a budget and include it on your campaign page ● Offer a lot of small rewards

● Reach out to people you know before the launch

● Send out tailored messages

● Follow up individually

6 Tips for a Successful Rewards Crowdfunding

Campaign

Source: Entrepreneur via Kickstarter

Create a Top-Notch Crowdfunding Video

Oculus Rift’s reward-based backers would receive no

benefits from the company’s future $2 BILLION Facebook acquisition

EQUITY-BASED CROWDFUNDING

No limit to # of non-accredited investors

EQUITY Title III of the JOBS Act Regulations:

The Old Rules The New Rules

Limited to 35 non-accredited investors maximum

Investors with LESS than $100,000 in income, can invest 5% of income or net worth, up to $2,000

Investors with MORE than $100,000 in income, can invest 10% of income or net worth, up to $100,000.

Anyone making less than $200,000 a year (or less than $1 million in assets) was considered a non-accredited investor

Source: Entrepreneur

Addresses concerns of non-accredited investors

General solicitation is allowed

Legalizes crowdfunding for unregistered offerings

Company cap of $1 million max through crowdfunding offerings in a 12-month period

Investments cannot be resold for at least a year

EQUITY Title III of the JOBS Act Regulations:

5 Things to Know Before Starting an Equity Crowdfund

● Equity Crowdfunding is Great, If You’re Ready

● General Solicitation Empowers Entrepreneurs

● You’ll Need a Good Lawyer and Accountant*

● All Crowdfunding (Including Equity) is Social

● You’re Closer to Accredited Investors Than You Think

Source: Forbes

LENDING-BASED CROWDFUNDING

Peer-to-Peer lending became

prominent in 2012 as banks increased rates & reduced lending activity

Microcredit lending has been in the media for a while, focused on

funding philanthropic causes

Typically, does not check for creditworthiness

Checks for creditworthiness

Potential borrowers must apply and are given rates

Investors invest through platform account, receiving monthly payments of principal & interest

INVESTMENT CROWDFUNDING OPTION WITHOUT GIVING UP COMPANY OWNERSHIP

● annual income of at least $70,000 and a net worth of at least $70,000 or a net worth of at least $250,000 ● only allowed to purchase notes up to 10% of net worth

Source: Prosper Funding LLC

REWARDS & DONATIONS

EQUITY & LENDINGVS.

The “Crowd”

Startup’s Stage

needs validation on idea & trying to build initial

prototypes

already has successful history of traction,

needs capital to scale up

the entire public those with enough income & long-term

involvement

Avg Contribution

$25 $2,000

Source: the National Crowdfunding Association

$300 billion

$40 billion

$50 billion

$2.77billion

$0.17billion

$2.12 billion

reward & donation-based

equity-based

lending-based

Crowdfunding Traditional Funding

charitable giving[for non-profits]

venture capital

loan market

Source: Massolution 2013 Crowdfunding Industry Research Report

50%

91% 40-50%

refinancing projects | companies2

of crowdfunding campaigns succeed

global average

other(reward | donation | equity -based)

lending-based

The success rate of the lending-based model is higher, but the primary funding purpose may effect why. Sources:

1 Massolution 2013 Crowdfunding Industry Research Report2 the Lending Club Statistics

Success Rate

Primary Purpose

1

Complementary [not substitutive]

mechanisms

Crowdfunding

Traditional Funding

Presented by

Diana [email protected]

Presentation and further resources are available by email