Entrepreneurs and technology challenging the Banks?

-------Crowdfunding

ROBIN TEIGLAND & CLAIRE INGRAMSTOCKHOLM SCHOOL OF ECONOMICS

OCTOBER 2014ROBIN.TEIGLAND@HHS.SECLAIRE.INGRAM@HHS.SE

WWW.SLIDESHARE.NET/ETEIGLAND

In just a few years in Sweden alone…Company Founded BusinessKlarna 2005 E-commerce payment servicesMyLoan 2006 Loan brokerTrustly 2008 Online paymentsTrustBuddy 2009 P2P lendingiZettle 2010 Mobile paymentsFundedByMe 2011 Crowdfunding, crowd equityTink 2012 Personal financeSafello 2013 Cryptocurrency exchangeKnC Miner 2013 Cryptocurrency mining

equipment

Local Stockholm success story:

Flippin’ Burgers

Money raised: SEK 36,502 / €4,000

Number of investors: 186

Date funded: September 2011

Sector: Food

Enabling local, small-scale solutions

Top 5 Best American Restaurants in Europe

http://travel.cnn.com/best-americana-restaurants-europe-023346

What is crowdfunding?

Accumulation of small investments in individual projects by large number of individuals (the

“crowd”) via or with help of Internet and social networks (De Buysere et al., 2012)

Picture: FundedByMe

Four forms of crowdfunding

Form Benefits for funders

Donation-based Donation Intangible benefits.

Reward-based Donation or pre-purchase

Rewards in addition to intangible benefits.

Equity-based InvestmentReturn on investment if company

does well. Rewards sometimes also offered and intangible benefits may

motivate too.

Debt-based LoanRepayment of loan with interest. Alternatively intangible benefits if

loan given interest-free.

Ingram & Teigland 2013

Investment Role and Type Investment Value 2012

Angel Investors

Invest large amounts, make few investments, take equity share.

3.3-3.9 billion SEK p.a. (approximation based on 2008

data)

Soft LoansState loans at high interest rates

that can be written off if enterprise dissolution.

2.4 billion SEK p.a. (ALMI alone)

Venture Capitalists

Invest large amounts, make few investments, take equity share. 1.8 billion SEK p.a. (2010 data)

CrowdfundingDonation, pre-purchase/reward, or equity, depending on platform and

entrepreneur’s preferences.Estimated 37 million SEK p.a.

Ingram & Teigland 2013

How big is crowdfunding?Global crowdfunding almost doubled 2012 to 2013 to USD 5.1 bln March 2014 Kickstarter passed USD 1 bln in total pledgesFundedByMe raised USD 10.5 mln to dateSwedish market to be SEK 100 mln in 2014By 2025 global crowdfunding could reach USD 90 to 96 bln (1.8 times today’s global VC industry)Growth potential greatest in emerging markets?USD 50 bln in China by 2025?

Some Swedish platforms

P2P lending in the US and UK…

•>USD 3.8 bln in personal loans since 2007

• USD 750 mln growth each quarter

•Now offering business loans

•Strategic alliance with Union Bank

Toborrow.se

Ingram & Teigland 2013

Why crowdfund?Difficulty in raising funds from traditional sourcesTest market or establish user baseMarketing & publicity for your product or serviceFaster time to marketFunding (may not be large amount of money though)Screening device for investorsAccess greater pool of investors: further afield or

people without right “connections”Skills, connections, and other resources?

Measuring demand in advance

One step in the financing chain

Nesta

Democratizing innovation through access to capital?

Women in USA<30% of business owners <15% of angel investors<10% of venture capitalists

But…Women on Kickstarter 35% of project leaders44% of investors on platform>40% of projects women invested in had female

project leaders

Marom, Robb and Sade 2014

“Made in Africa” 3D printer (Togo)

Winner of International Space Apps Challenge

http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/5712/E-Waste-3D-Printer-to-Mars.aspx

Crowdfunding challenges?Skills: How to ensure knowledge/awareness and necessary skills?

Lack of support and strategic advice for funders/investors, entrepreneurs, public sector?

How to deal with many small investors in equity crowdfunding?

Regulation: How to protect investors without stifling innovation?Risk assessment?Cross-border investments?Secondary markets for crowd equity shares?Taxation issues for investors and entrepreneurs?

Local market: How to protect/ensure local markets against foreign competition?Local platforms vs global platforms?Significant/sufficient level of funding from local market?How to better leverage “crowd” for resources?

Source: Own research, Nesta

http://www.slideshare.net/eteigland/crowdfunding-in-sweden

Robin Teiglandrobin.teigland@hhs.se

www.knowledgenetworking.org

www.slideshare.net/eteigland

@RobinTeigland

If you love knowledge, set it

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If you like this presentation and would like to contribute to our research, we accept bitcoins: 14hs4JbnQLXE87GGzu84uXGaspmxmnLpwC.Thank you!!!!!

Appendix

Crowdfunding 2012

Massolution 2013

Worldwide $2.7 bln

470k projects 800+ platforms

Est. 5.5 mln (Oct 2013)

Most popular crowdfunding activities

Massolution 2013

Sold 400,000 watches already

Who are the funders?Educated experts(?)University degree Knowledge and previous experience in same field

“In-crowd”“Entrepreneurs”Risk lovers

Skoglund & Stiernblad 2013

Who are the funders?Educated experts(?)85% respondents have university degree (vs 16%

women/22% men in general population, 2013)42% had knowledge in same field as project they

funded49% reported to have been better at judging project

quality due to previous experience“In-crowd”47% of “the crowd” classified themselves as

entrepreneurs – compared to only 7% of Swedish population (2012)

77% never bought shares in unlisted company before 41% risk loversSkoglund & Stiernblad 2013

Crowd equity raising its head…

• Politicians generally positive -> entrepreneurs + job creation

• But regulation is lagging in most countries

• US, Italy, Denmark changing regulations enabling equity

Massolution 2013

Millions of dollars

http://www.fundable.com/blog/crowdfunding-infographic---the-jobs-act-explained

How to succeed?Choose right platform– and crowdfunding form

Going global or local?What do you give in return (thank you, reward, pre-

purchase, shares)?Keep in mind platform fees

Define the concept Make it easily understoodMake it personal?

Feed the crowdEnsure initial critical mass (social media, newspapers)Keep followers up to date

MAGIC

Going global? Going local?Reward-based? l Niche product or

service?l Global appeal?l What are rewards?l How do you reach

international audience – and stand out?

l Community-specific product or service?

l Local appeal?l What are rewards?l Does community know

about you – can you reach them?

l Local benefits

Equity-based? l Looking to scale up?l How much equity?l How to value your

project?

l Looking to establish foothold?

l How much equity?l How to value your

project?l Local benefits –

experience, connections etc?

Lots to think about....

Trends in crowdfundingPeer to peer lendingNicheCommunityHybrid platformsEnterprise sponsoredInternal corporate crowdfundingLIVE!Economic developmentCelebrities…

Crowdfunding for research

Strategic partnership

+

Celebrities entering the scene

Executive Producer Robert RedfordNarrated by Jodie Foster

Donald Trump’s crowdfunding siteOpen to anyone

Internal corporate crowdfunding

iFundIT

More than 300 participantsEntry-level workers to VPs

Given $2,000 to invest over 8 week period Choose internal projects in which to invest

Enabling entrepreneurs anywhere

Ushahidi of Kenya

Kenya

Venture capitalists are the travel agents of yesterday – here today, gone tomorrow.

Venture capitalist in Silicon Valley –

June 2013

What’s next?