Crowdfunding: Changing the World for Good

Devin D. ThorpeAugust 29, 2014

@devindthorpe

How big will crowdfundingbe in 2014?

$100 billion

A littleabout me

Teton Dam

Crowdfunding will…

• Empower women and minorities• Level the playing field for ordinary investors• Facilitate growth in the developing world– Enabling the developed world to invest in high

growth opportunities in emerging markets– Allow impoverished individuals to raise small

amounts of capital for microenterprises

U.S. Securities Law

Securities Act of 1933 Securities Act of 1934 JOBS Act (2012)

Securities Laws Before 2012

No advertising or public announcementsNo “General Solicitation”

Private securities typically offered only to rich investorsMost private securities transactions require

accreditationAccredited investors have one of the following

$1 million net worth excluding a primary residence$200,000 per year of personal annual income$300,000 per year of household annual income

Ordinary (non-accredited) investors are largely excluded

The JOBS Act

• Title II: General Solicitation• Title III: Crowdfunding• Title IV: Regulation A+ (Mini IPO)

SEC Rulemaking

General Solicitation RulesEffective September 23, 2013$35 billion in transactions completed in the first

seven months Crowdfunding Rules (Title III)

As of today, final rules have not been issuedDraft rules released in the fall of 2013 Rules viewed as challenging for small businesses

and startups

State Laws

Many states are acting Texas among them Rules are less

restrictive than JOBS Act Title III

States pressure congress and SEC

Catch

Reg D 506C Filings

• September 2013 through March 2014• Filed: $98 Billion• Funded: $35 Billion

Source: Offerboard

Lots of Platforms

Source:

Angel Investors

How Angels Invest

Angels typically invest in groups Some groups create pools or funds of money Some groups allow members to invest directly

What Angels Invest In

Angel groups often specialize Most invest exclusively in early-stage

startups, often before sales begin Invest in the sorts of things that made them

rich Popular investments: internet, hi-tech, clean-

tech, scalable Things that typically don’t work: retail

Accredited

Investors

All Angels Are Rich

Angel Investors

Estimating the Cost of Investment Crowdfunding

Cost of Audits/Reviews

The cost of audits varies enormously A brand new startup with virtually no history and

no revenue could cost less than $10,000 to audit Fortune 500 companies spend millions on audits Geography matters: An audit in New York City costs

more than one in Houston A review includes an opinion of the auditors much

like an audit and still requires work and risk Expect to pay 50 percent as much for a review as for

an audit

Cost of Legal Work

Cost of legal work varies widely Big, “expensive” firms don’t necessarily cost more—

they’ve done this before Some will fix fees, but most work by the hour “Ball park” estimate of your fees:

$5,000 + 2 % of money you hope to raise Note that investors may require you to pay their

fees, too

Platform Fees

Investor Carry ModelUp to 20 percent of the investment gain

Percentage of RaiseExpect to pay 5 to 10 percent

Listing FeesExpect to pay $100 per month or more if you pay no other

fees Some portals may charge a combination of fees

Other Fees

Investor accreditation fees Escrow fees Document signing fees Due diligence fees Travel costs Printing costs Like staying at a five-star resort—you’ll get

charged for everything

When Fees Are Paid

Accountants typically collect after but may require a deposit

Lawyers typically collect monthly Platform’s carry is collected when sold Platform’s success fee is paid at closing out of

proceeds Platform’s listing fees are paid monthly Other fees generally paid as incurred

Hybrid Approach

Friends and Family

If you are approaching only Accredited investors, make no exceptions among family and friends

Reach through your family and friends to their Accredited investor network

Pitch individually over coffee or lunch Direct prospects to your online

offering on the platform

Angel Investors

To raise a round over $100,000 you’ll likely need to recruit angel investors

Work your network for introductions Apply on angel network websites Pitch angel networks according to their rules Invite them to lead the round on your online

offeringThis really means that they get to price the round

Other investors will be more likely to follow

Start Before You Start

No one wants to be the first to invest Get at least 10 percent of your goal

committed from family and friendsIf you can’t get 10 percent, you certainly

can’t raise 100 percentDon’t jump the gun—get your 10 percent

Build Your Audience Reach out to customers Use your real world networks to

build your online networks Leverage your investors as each

one commits

Email is the King of Online Communication

Before you start using social media, be sure you reach out to your network by email

Carefully, thoughtfully personalized email gets answered

Using your email newsletter isn’t nearly as effective as personal, one-on-one communications

Use email to schedule even more personal communications like phone calls, video chats and face-to-face meetings

Build Social Media LinkedIn, Twitter, Facebook and Google+ are

required LinkedIn is great for reaching your network of

professionals Twitter is the best for shared interests Facebook is pay-to-play model for business Google+ is helpful for search results Be active where you are

Tell the Story Everywhere

Connect with your LinkedIn network Post regularly on your personal Facebook

page as well as your company page Tweet at least daily about the business and

regularly about the campaign Post at Google+, too Use a tool like HootSuite or BufferApp

Prepare a Cool Video

You will give investors a lot to read Give them a video that tells the whole story Summarize the business plan Create a clear sense that you will solve a problem Note that without investment you can’t solve it Promise that with the money you will solve it Be cautious about making projections Review your script with counsel before shooting

Leverage Your Platform

Platforms will vary in their tools and their investor audiences

Use whatever tools they offer Build a relationship with the platform The

platform will likely reciprocateThey’ll give you training, support and insightsThey may introduce you to their proprietary

network

Small Group Meetings

Pitch new investors everyday at lunch

Have a presentation ready on your iPad

Help people understand the problem you solve and your solution

Guide them through your projections

Explain the offering process Explain the offering and

valuation Qualify and close

Large Group Meetings

Hold one or two large group meetings Do it after you have commitments for 1/3 Invite all interested investors to participate Include remote participants via Google Hangouts Use the same script you use at lunch Use paper forms to qualify and commit everyone Use online forms to qualify and commit online

Follow Up As a general rule, even the most excited investors

will need your help Follow up with every candidate investor personally Answer questions Ask, “What additional information do you need

before you are ready to commit?” Follow up with the requested information and ask

again until they commit

Collecting the Money

An online escrow account is likely to be used Money collects there until a threshold

defined in the agreements is collected Money is then dispersed according to the

agreementsMost money goes to youAny platform related or other fees charged to you

will be deducted

Before we Conclude/Q&A

Visit devinthorpe.com/kickercon to download these slides and get a free download of my book Your Mark on the World.