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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