Crowdfunding

WYNTK * (what you need to know)

Hands-on For Entrepreneurs

ASU Skysong, 8 March 2013 CJ Cornell – Propel Arizona

10+ companies$250M Funding 4 Exits (great !)$3B Revenues 4 Failures (awful !)

Lots of lessons. Chaos, Pain and Joy.

‘Serial/Parallel Entrepreneur”

EIR, Venture PartnerAngel Investor

5 Companies 9 Boards3,000 Tylenol Caplets. Ego and Brain Atrophy.

Investor/Venture Capitalist

Professor of Digital Media & EntrepreneurshipArizona State University, SJSU, Stanford (Lecturer)New York Institute of Technology Knight Center for Digital Media EntrepreneurshipResearch in digital media, behavior, entrepreneurship

University Professor

Advisor/Mentor, Author etc.

ASU – Skysong, Venture Catalyst, RSS etcArizona Commerce Authority / Venture readyArizona Innovation ChallengeBook: Age of Metapreneurship. Blog/Articles

CJ Cornell

@cjcornell

cj@cjcornell.com

CrowdfundingWorkshop

Agenda1. Crowdfunding overview2. Crafting the Idea and Campaign3. Preparing the Visuals4. Perks and rewards5. Running the campaign6. Success factors

www.propelarizona.com

What is Crowdfunding?

… and why should you care?

1.

The Funding Gap

Concept to Product to Growth

Concept to Product to Growth

$ $ $$

Concept to Product to Growth

$Entrepreneur IPO

Concept to Product to Growth

$Entrepreneur IPO

$Entrepreneur IPO

$

Venture Capital

The Kauffman Index of Entrepreneurial Activity is a leading indicator of new

business creation in the United States.

In 2012 - The state with the HIGHEST level of Entrepreneurial Growth was …

Arizona.

# 1 in Entrepreneurial Growth

# 46th in Venture Capital $

Concept to Product to Growth

$Entrepreneur IPO

$Entrepreneur IPO

$

Venture Capital

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

The Series-A Crunch

The Series-A CrunchSource: Pitchbook

The Series-A Crunch

The Series-A Crunch

Source: http://theyec.org/making-sense-of-the-jobs-act-and-crowdfunding-infographic/

Concept to Product to Growth

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

Crowdfunding

$$

Concept to Product to Growth

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

Crowdfunding

$$

Crowdfunding$

Concept to Product to Growth

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

Crowdfunding

$$

Crowdfunding$

Crowdfunding$

Concept to Product to Growth

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

Crowdfunding

$$

Crowdfunding$

Crowdfunding$

Crowdfunding$

Crowdfunding

Soliciting & Collecting relatively small amounts of money (“funding”) from a large number of people (“crowd”)

WYNTK(what you need to know)

http://blog.intuit.com/trends/crowd-power-what-is-crowdfunding-infographic

“Crowdfunding is a term used to describe individuals

coming together to support – and directly fund

projects by other individual and organizations.

“

• Source – http;//crowdfunder.com

• Source – http;//crowdfunder.com

Equity Crowdfunding(aka Investment)

5 APRIL, 2012 (AND … AUGUST 2012, DECEMBER 2012 …)

Jumpstart Our Business Startup ACT, Title III (JOBS Act).

Equity Crowdfunding - JOBS• Eliminates ban on general solicitation and general advertising in connection

with private offerings to accredited investors under Regulation D (Rule 506) and to qualified institutional buyers under Rule 144A.

• Exemption from Securities Act registration “crowdfunding” transactions (involving access to small amounts of capital through the internet).

• Exemption to allow issuance of up to $50 million of securities in any 12-month period, up from the current $5 million threshold

• An increase in the number of shareholders a company may have before being required to register its common stock with the SEC and become a public reporting company from 500 to 2,000 total shareholders (including up to 500 “unaccredited” shareholders)

• Amount each person may invest in offerings of this type, tiered by the person's net worth or yearly income.

http://www.pepperlaw.com

www.propelarizona.com

WYNTK(what you need to know)

BEFORE - (SEC “Reg D” Rule 504, 505, 506, 144a) … Since 1933– 35 Unaccredited Investors (max), Unlimited Accredited– 500 Shareholders (max)– $1M max per 12 months, or $5M+ w/Reporting & restrictions – No “General Solicitations”

AFTER - (JOBS Act) … 2012/2013, maybe– General Solicitations – to accredited investors– 35 Unaccredited Investors (max), Unlimited Accredited– 500 Shareholders (max)– $1M max per 12 months, or $5M+ w/Reporting & restrictions – No “General Solicitations”

But, if you think the JOBS act moves the SEC into the 21st century …

SAN FRANCISCO, Dec 6 (Reuters) - Netflix Inc said on Thursday securities regulators warned they may bring civil action against the company and its chief executive for violating public disclosure rules with a Facebook post …

Fraud, Deceit, Scamming Widows, Retirees and Helpless Babies.

Fraud?• Case One: Australia – Equity Crowdfunding • The Australian Small Scale Offerings Board (www.ASSOB.com.au), founded in 2007, is the largest investment crowdfunding

platform in Australia and one of the largest in the world. It is an equity crowdfunding platform that has successfully served both accredited and non-accredited investors since its inception over 5 years ago, raising $130,409,669 since 2007. 132 companies have been funded to date and not a single case of fraud has been reported. ASSOB operates within the current securities structure in Austral

• Case Two: UK – Equity Crowdfunding• Crowdcube (www.crowdcube.com) is the largest equity-based crowdfunding platform in the UK has been operating since

February 15, 2011 with no reported fraud. Crowdcube operates within the current securities framework within the UK and allows issuers to raise equity capital using an online portal.

• 29 pitches have been funded with £4.25M. Average raise is £146,552. Average equity given up is 16%. Average numbers of investors is 63. Average days to fund are 51. Average age of entrepreneur is 40 and total number of registered investors is 24,023. No fraud has been reported.

• UK based, Funding Circle (www.fundingcircle.com) was founded in 2010. It is an online marketplace enabling savers and investors to sidestep banks and directly lend to small businesses. Funding Circle differs from other lending platforms in that it facilitates loans to businesses, rather than consumers while also proving easy access to investors’ money at any time. It provides low cost finance for small, UK firms frustrated by the loan terms offered by the

http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

Fraud? • Case Four: US - Fraud Derailed• An example of fraud that was derailed on a portal is a campaign on Kickstarter called Mythic. From

Techdirt.com:• “A recent video game project on Kickstarter that turned out to be fake. As BetaBeat reports, the

crowdsourcing scam was exposed by a crowdsourced investigation:• ... a campaign for an action video game, MYTHIC: The Story Of Gods and Men, has just been busted by

forum users at Reddit, SomethingAwful and Rock, Paper, Shotgun. The creators claimed to be an independent studio, “Little Monster Productions,” of 12 industry veterans in Hollywood. “Our team has done a significant amount of work on the World of Warcraft series as well as Diablo 2 and the original Starcraft,” says the project page.

Bull____, said the Internet. Turns out the art was cribbed, the text for backer rewards was copied and pasted from another Kickstarter project, and even the office photos were from another game studio, Burton Design Group.

• When people brought their accusations to the Kickstarter comments, the developers made a few weak attempts at deflection then quietly shut down having raised just under $5,000 (far short of their goal, so that money won't actually be released). With Kickstarter gaining more attention every day, we're sure to see more attempts at scams—and maybe even some successes—but with a savvy community that polices itself like this, the scammers face an uphill battle.”

http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

Bull____, said the Internet. Turns out the art was cribbed, the text for backer rewards was copied and pasted from another Kickstarter project, and even the office photos were from another game studio, Burton Design Group.

http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

• Equity Crowdfunding - not in the USA (yet)

• JOBS act (April 2012) technically enables CF – but has not yet been approved by SEC.

• No documented fraud in USA or other areas.

• Equity CF is for “high growth companies” seeking significant funding from experienced investors

• Will dramatically change in 3-5 years (CJ prediction)

www.propelarizona.com

WYNTK(what you need to know)

Real Crowdfunding – that works.

Today

“THE KICKSTARTER MODEL”Rewards-based, Donation Crowdfunding:

ALL OR NOTHING

Perks &Rewards

Updates (and Blogging)

Updates (and Blogging)

Comments & Engagement

Kickstarter (2012)

2.2 million people pledged a total of

$319,786,629

(up 221% from 2011)

Backers pledged $606.76 per minute

People in 177 countries backed a project in 2012

(That's 90% of the countries in the world)

Source: http://KickstartersHQ.com

WHY …Do people Crowdfund?

Lessons from Ethan Mollick’s “The Dynamics of Crowdfunding: Determinants of Success and Failure”

3 Why’s: 1. They connect to the greater purpose of the campaign

2. They connect to a physical aspect of the campaign like the rewards

3. They connect to the creative display of the campaign’s presentation

three main reasons why people unconnected to a

project or business would support it:

What Is Crowdfunding And How Does It Benefit The Economy - Forbeshttp://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy

The Real(Crowdfunding)

Why’s

• Passion– For the technology– For the industry– For the cause– For the product

• Affinity– For the Entrepreneur– For the region, industry etc

• Connection

• Every reason BUT R.O.I. …

emotional ROI.Not financial ROI

WYNTK(what you need to know)

Crowdfunding is about …

(when crowdfunding …)

“its not what you do, but why you do it,”

WYNTK(what you need to know)

http://www.kickstarter.com/projects/1104350651/tiktok-lunatik-multi-touch-watch-kits

http://trendwatching.com/trends/infographics/presumers/

“Consumers who want products before they are developed”

Pre-ordersEarly adopters

Supporters

UH OH …The Kickstart Model..

1. Crowdfunding = New “1st Money” for ventures($10k - $50k average– but wild exceptions)

2. Equity Crowdfunding is Still Far away3. Rewards based Model IS Crowdfunding today4. All or Nothing Crowdfunding – Standard5. Perks and Rewards: Pre-order Crowdfunding6. Social Media & Content Intensive

www.propelarizona.com

WYNTK(what you need to know)

What does success look like?

• The iPhone-friendly Pebble watch earned $7.6 million more than its $100,000 goal.

• And the Galileo iPhone platform closed its Kickstarter campaign at $702,000, far surpassing its $100,000 goal.

• Ouya raised $2 million in one day for a new Android gaming console (it’s raised more than $5 million to date),

• the Nifty MiniDrive, external memory for Apple MacBooks. The tiny storage company is more than 2,000% above its $11,000 goal with 15 days left in the campaign.

What do successful campaigns have in common?

http://www.kickstarter.com/projects/hop/elevation-dock-the-best-dock-for-iphone

Projectio

http://www.kickstarter.com/projects/1209578799/projecteo-the-tiny-instagram-projector

http://www.kickstarter.com/projects/mikebond/ti2-sentinel-titanium-cache?ref=home_popular

http://www.kickstarter.com/projects/poots/kingdom-death-monster?ref=home_popular

http://www.kickstarter.com/projects/smartthings/smartthings-make-your-world-smarter?ref=category

http://www.kickstarter.com/projects/thejumpshot/jumpshot-a-new-weapon-to-battle-pc-frustration?ref=category

http://trendwatching.com/trends/infographics/presumers/

Successful campaigns took an average 11 days preparing for their launch.

http://blog.indiegogo.com/2013/01/12-insights-for-2012.html

Campaigns ran an average 49 days in 2012, as opposed to 60 in 2011.

Successful campaigns fundraised for 39 days.

http://blog.indiegogo.com/2013/01/12-insights-for-2012.html

Crowdfunding Myths & Mistakes

• Myth #1: If You Build It, They Will Come• Myth #2: Cash is Free• Making it about you• Unrealistic Expectations• Lack of clarity• No call to action• Expecting to be found: (No Marketing)• Ignoring Small Donations/Donors

http://kickstartershq.com/articles/5-project-crushing-kickstarter-mistakes-how-to-avoid-themhttp://www.crowdsourcing.org/document/3-big-crowdfunding-myths-via-funderhut/23804

www.propelarizona.com

WYNTK(what you need to know)

Successful Crowdfunding Campaigns Focus on

The new 4 P’s …

PEOPLEthe

1. PITCH

the

2. PROMOthe

4. PERKSthe

3.

focus on “them” – not your company

WHO are they?What motivates them?Interests, Values … PEOPLE

the

1.The new 4 P’s of Crowdfunding ..

www.propelarizona.com

PITCHthe

2.You are pitching to “them”

TELL A STORY !!

WHY is more important than $$

VIDEO(s) & VISUAL(s)

Tell the story in small ‘chapters’

VIDEO(s) & VISUAL(s)

And even smaller “sound bites”

Give them a Story they can tell to others.

PERKSthe

3.$$ Value is a negative driver !

UNIQUE

It’s about THEM

EXCLUSIVE

And what is important to “Them”

FIRST

Make sure it is …

BUZZWORTHY

PROMOthe

4.It’s a daily/hourly effort …

SOCIAL MEDIA

It’s a conversation …

UPDATES, BLOGS, NEWS

Provide Value, and Talking PointsRE-POST, TWEETable

It’s about … for their network

VALIDATION & EVIDENCE

Crafting a

Successful

Crowdfunding Campaign

2.

Some initial rules ….

1. Crowdfunding takes work, new skills.2. It takes a strategy, and preparation. 3. The rules are different.4. You can’t just post and run …5. It’s a public success or failure – that “stays on

your resume”

www.propelarizona.com

WYNTK(what you need to know)

Components

of a

Crowdfunding Campaign

Title & Short Description • (repeatable & compelling)

Long Description (“The Pitch”)• Make it a story … about “them”

Visuals: Video, Photos, Images Team, Deliverables, Details Perks & rewards Funding Goals: Amount and Timeframe Updates & SOCIAL MEDIA CAMPAIGN

• Repeatable Messages• Daily “routine”• Traditional marketing too

Crafting the “Pitch”

First: Who What Why When …

• The 3 Who’s:– Who are the donors? (affinity & passion)– Who is benefits? (the market)– Who are you?

• The 3 Why’s– Why would your donors care?– Why does the market care?– Why are you the right team to do it?

First: Who What Why When …

• What is your project & goal?– Understandable & Simple– Compelling & Intriguing– Repeatable & Memorable

• How and When– How will you achieve your goal? Realistic?– When, after funding? When will I get my perks?

Other Tips

• Tell a story• Make it about them• The History of the idea is intriguing• What is the Impact? – why is this important?• Try a FAQ• Call to action – get them involved!

Exercise –

Craft the Pitch

Crafting your Pitch Title & Short Description

• (repeatable & compelling) Long Description (“The Pitch”)

• Make it a story … about “them” Visuals: Video, Photos, Images Team, Deliverables, Details Perks & rewards Funding Goals: Amount and Timeframe Updates & SOCIAL MEDIA CAMPAIGN

• Repeatable Messages• Daily “routine”• Traditional marketing too

Tell a storyMake it about themThe History of the idea is intriguingWhat is the Impact? Why is this important?Try a FAQCall to action – get them involved!

The 3 Who’s:Who are the donors? (affinity & passion)Who is benefits? (the market)Who are you?

The 3 Why’sWhy would your donors care?Why does the market care?Why are you the right team to do it?

What is your project & goal?Understandable & SimpleCompelling & IntriguingRepeatable & Memorable

How and WhenHow will you achieve your goal? Realistic?When, after funding? When will I get my perks?

Pitch Notes - 1• Who (donors, market)• “Why” – the story

• Impact (on the market)• Impact (on the donors)

Pitch Notes - 2• Story, and History …• FAQ

• Perk Ideas (what’s important to donors)• Calls to Action

Visuals 3.

The Importance of Visual Media• 64% of successful campaigns in had pitch videos.

• Campaigns with videos under 5 minutes were 25% more likely to reach their goal than those with videos that were longer.

• Average campaign video length for campaigns was 3 min, 27 seconds. Campaigns that reach their goal are 16 seconds shorter.

• On average, successful campaigns uploaded 6 media to their gallery.

• http://blog.indiegogo.com/2013/01/12-insights-for-2012.html

Perks & Rewards 4.

Directed by

Patrick Million

Executive Producer

CJ Cornell

a Patrick Million FILM

American Grandmaster

Rewards Crowdfunding

• Incentives & perks• Pre-Orders• Pre-Sumers

• Market Validation

Rewards don’t have to worth $$

• $25 perk is the single most claimed perk, representing nearly 25% of all perks that are selected.

• While the $25 dollar perk is only responsible for raising 11% of total funds.

• $100 perks raise more money than any other perk price and make up nearly 30% of total funds. A $100 perk combined with the next three perk price points: $50, $500, and $1000 makes up about 70% of total money raised by perks

some

Rules for Rewards

1. Make perks unique & exclusive

Avoid T-shirts, Mugs & Hugs

2. Target them

3. Give them a connection

“The Cocktail Party Effect”

“The Restaurant Effect”

“The Carey School Effect”

The less tangible the perk,

the more public (visible) & EXCLUSIVE it needs to be.

The Campaign 5.

How much $$ ?

How long?

Discussion

• How much should we raise?– Have you raised money before? Return?– Do you/did you work at a highly visible position?– *** Your social network? Large? Followers? – Idea - big market? How unique?– How much (marketing) work will you do?

HOW to Crowdfund?

PUSH - Running the campaign• Social Media• Comments & Updates• Networking• Personal Pitches

Your mission: To get them talking about your project

Now that you’ve launched …

Continue the story

Social Engagement

– Transparency & Trust– Social Proof & Viral FX

– Engagement & “The Fundamentals”– Twitter– Facebook– Blogging

most successful projects receive about 25-40% of their revenue from their first, second and third degree of connections.

This could include friends, family, work acquaintances, or anyone that the owner is connected to.

• http://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy/

1. Create: (of course)

- A Facebook Account- A Twitter Account

(for your campaign)

2. Tweet & Post –Frequently–Uniquely–Personally

3. Post Updates & Blog•About your progress•About the subject•About the industry•About the People

4. Go 1-1•Reply to comments•Retweet/Repost

Your fans and donors are your most powerful advocates!

5. Target, Measure & Adjust•Different Messages for different groups

•Google, Hootsuite, others•Learn and Adjust focus

Metrics

http://www.perlsteinlab.com/blog/anatomy-of-a-crowdfund-week-3-slow-and-steady

Metrics

http://www.perlsteinlab.com/blog/anatomy-of-a-crowdfund-week-3-slow-and-steady

the importance of google analytics to track and improve performance

• + perks from fivvr

• http://www.perlsteinlab.com/blog/anatomy-of-a-crowdfund-week-3-slow-and-steady

Campaign CheckistSocial Media Create a schedule 2-5x / week Use an automated tool Eg HootsuitePost interesting info – Not just pleas for moneyNot just updatesVary your targetsCall to action 1/3-1/2 time

Use analytics and other metrics

Traditional Marketing

Pitch Events Press Releases Demos Testamonials Use an automated tool

What to Communicate:1. Your Progress2. Successes, Evidence of success3. Ammunition for your supporters4. Industry Info, Factoids5. People Info

Plan, Schedule & Update

Your Social Network is a Force Multiplier – but you have to give them help.

Success Factors 6.

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http://www.indiegogo.com/blog/2012/05/indiegogo-insight-campaigns-that-take-these-six-actions-raise-8-times-more-money-than-campaigns-that-dont.html

http://www.indiegogo.com/blog/2012/05/indiegogo-insight-campaigns-that-take-these-six-actions-raise-8-times-more-money-than-campaigns-that-dont.html

http://www.indiegogo.com/blog/2012/07/indiegogo-insight-winning-the-middle-game.html

successful campaigns raise, on average, 49% percent of their goals during the first and

last 10% of the campaign length.

The most important secret is …

Showing Momentum

(the perception of momentum)

The most obvious secret is …

Credibility

= trust, competence & follow-through

www.propelarizona.com

Crowdfunding

Entrepreneurship & Innovation

Arizona Economic Growth

Practical Crowdfunding

Workshop

www.propelarizona.com

@PropelArizona

Slideshare/PropelArizona