Crowdfunding

ROBIN TEIGLAND & CLAIRE INGRAM

STOCKHOLM SCHOOL OF ECONOMICS

SEPTEMBER 2014

ROBIN.TEIGLAND@HHS.SE

CLAIRE.INGRAM@HHS.SE

Today’s presentation

What is crowdfunding?Why crowdfund?Crowdfunding challenges?Q&A

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

Market sizeGlobal crowdfunding almost doubled 2012 to 2013 to USD 5.1 bln March 2014 Kickstarter passes USD 1 bln in total pledgesFundedByMe raised USD 10.5 mln to dateBy 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

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

Crowd equity taking off

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

P2P lending in Sweden

P2B lending in Sweden

Ingram &Teigland, 2013

Why crowdfund?Test 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?

  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

“It’s not just about the money.”

685 people talking about product on

social media

Australia’s “Major Disaster Department”World’s largest telecom

Measuring demand in advance

One step in the financing chain

Nesta

Democratizing innovation through access to capital

Kickstarter• Women 13% more likely to to meet

crowdfunding goals than men• 67% of women-led technology ventures

reached goals vs 30% of male-led ventures

Indiegogo• Women 61% more likely than men to

meet goals • Women account for 41% of projects

that meet goals

http://online.wsj.com/articles/kickstarter-closes-the-funding-gap-for-women-1407949759

Toborrow.se

For all ages - including teenagers

http://www.indiegogo.com/projects/afripreneurs-and-the-leapfrog-effect

“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 for crowdfunding?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?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

Thank you!

Questions?

Image via NewYorker.com

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

Equity crowdfundingEU/EEANo country can require a prospectus to be prepared

for rounds of <EUR 100 000For rounds of >EUR 5 million, EU prospectus always

required

SwedenFor rounds of >EUR 2.5 million, EU prospectus

always required<150 ‘non-qualified’ investors without prospectus

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?