Crowdfunding and Crowdsourcing
Drew Tulchin
July 13, 2016 Training Objec ves
• Understand possibili es, limita ons of crowdfunding & crowdsourcing • Explore different types of crowdfunding models; when each appropriate • Gain familiarity with some online pla orms • Learn best prac ces • Check out case studies
Have fun! Please ask ques ons at any me About UpSpring www.upspringassociates.com
Network of seasoned consultants for impact investment and development to help businesses, organizations, foundations and governments "Do well by doing good"
• Certified HubZone Small Business • ‘B Corporation’ since 2010, the first in New Mexico • Honors: 2015, ‘14 & ‘11 “One of the Best for the World” One of 119 companies from 20 countries
2012 Honoree NM Sustainable Business of the Year Drew Tulchin, MBA, Managing Partner
16 years experience building start-ups and growing organiza ons. Specializing in the 'triple bo om line,’ focus is market driven business success that generates social, community, and environmental value
Consul ng experience with numerous Na ve American Tribes and in 40+ countries from A (Afghanistan) to Z (Zambia) Recent capital raises: Ohkay Owingeh Housing Authority in NM, US MFI from the U.S. Dept. of Treasury, Koolkids in Vietnam, Solar and Energy Loan Fund (SELF) in Florida, and Sea2Table in NY
100+ publica ons and presenta ons on these topics 100+ strategic and business plans Efforts >$100 mil in socially mo vated capital
Biz plan winner, Global Social Venture Comp; Prisma Microfinance raised venture $1.2 mil
Helped raise $2.7 mil for launch of Meow Wolf Art Complex Consul ng Examples
Meow Wolf Art Northern Pueblos Complex, Santa Fe Housing Authority, New Mexico New Mexico
Sea to Table, Brooklyn, MoGro, Santa Fe, New York New Mexico Poll Ques on #2:
What is one ques on you have? What is one thing you want to learn today? Topics Overview
• Introduction to Crowdfunding • Types of Crowdfunding • Donation Crowdfunding in Detail • Activity for Success • JOBS Act, Title III Introduction to Crowdfunding & Crowdsourcing Crowdfunding defined
Crowdfunding involves raising money for a project from a large number of people in small amounts, typically via the internet Who has done Crowdfunding?
Are you planning to do it?
Kickstarter: Housing Other Notable
The Future: Airtightness Art Community: Meow Wolf Art Complex
Regional: Bay Area Planner Education: Dawnland Documentary
Families in need: Give Shelter Art: Repellent Fence Border installation Tradi onal forms of Capital Poll Ques on #3:
What purposes do you see for crowdfunding? Crowdfunding
1. Small biz seeking small amounts of capital, lacking Who for? easy access 2. Early stage organizations & individuals with specific project or product 3. Opportunity to conduct product pre-sales to finance manufacturing/creation
• Capital Raising Why do it? • Media Exposure • Partnership Recruitment • Mindshare, Thought Leadership Benefits of Crowdfunding
1. Expands capital raising universe 2. PR / exposure 3. Engage new partnerships / opportunities 4. Opportunity to pre-sell, test the market Crowdfunding Leverages the Power of Social Networks Types of Crowdfunding Types of Crowdfunding
1. Dona ons 2. Equity 3. Peer to Peer Lending 4. Crowdsourcing
From Seedinvest.com Dona on Based
• 4+ million people pledged $734 • Better for smaller raises, successful million since launch in 2009 campaigns take average of 40 days • Focus on creative projects and • Two-tiered pricing system & non- high tech profit discounts, only major platform to offer “partner pages”
• Personal fundraisers, non-profits • Art, business, science and social projects, and social impact fundraising partnered with A & E, Ovation TV • Most raises are between $1-10 K, • Numerous raises between $1-20 K, the limited number reach $100 K largest reach $500 K Dona on Based
If people back your project, acknowledge them • Prize levels, typically 3-5 • Memorabilia – special, can’t get elsewhere
Example: Meow Wolf - Raised more than their $100K goal
$5 Original animated gif $10 Meow Wolf sticker and gif $15+ Exhibit admissions $30+ Meow Wolf shirts and merchandise $500+ Annual Family Passes
Kickstarter: Project link Dona on Based
Example: Repellent Fence - Raised more than their $10K goal
$10 Limited Edition Postcard of land art installation $10 Download of new album $30+ Signed CD/mini-book $150+ Signed vinyl LP of album $500+ Signed limited edition photo print of Repellent Fence installation
Kickstarter: Project link Equity Crowdfunding
YESTERDAY
ACCREDITED Web Portal Investee INVESTOR
Charge % of $$ raised Equity stake to investor
TODAY “2.0” – May 16
Investee as a EVERYONE Web Portal Group Equity Crowdfunding Crowdfunding for Social Impact
• Secure investment pla orm with opportunity for sustainability, educa on, job crea on, healthcare • Purpose-driven investors • Launched 2016
• Searchable online database matching money and partners for community development, social projects • Robust capability and trusted network Peer-to-Peer Lending
• Borrowers request loans, amounts vary by site, range $2 K - $25 K • Lenders invest as li le as $25 • Facilitated by website for fees
This is DEBT, must be paid back Peer-to-Peer Lending
Intermediaries Lender & Trustees Borrowers
• Set interest rates • Reverse auction model • Choose borrowers • Unsecured loans Trustees ensure borrowers are credible Crowdsourcing
Online Online Web Portal Community Community
Get Answers From the Universe Crowdsourcing
Example: Live and Tell www.liveandtell.com • User-generated content site to share and learn native languages • Users create audio-tags for pictures, like Facebook tagging Crowdsourcing Success:
In 2007, Oil Spill Recovery Institute partnered with InnoCentive, leader in prize- based open innovation sourcing, to solve environmental issues
John Davis, a ‘solver’ in US, awarded $20,000 for winning idea
Innocen ve Link: www.innocen ve.com Dona on Crowdfunding in Detail Which site is the right fit?
• Fees • Campaign Timeframe • Site fit for YOUR effort • Requirements? • Customer Support • Promotion How it works
Dona ons used to fund specific projects or campaigns, usually in exchange for a perk: a gi , memento or product
Crea vity in how you cra solicita on or campaign; connect with a specific audience (target market) is key
Compe on with lots of campaigns – you need to stand out Ac vity for Success Ac vity
Read: The Crowdfunding Bible www.crowdfundingguides.com Honest Answers: How good is your idea? What value does it offer? How is it different? Have you done the calculations so you know how much money you need – really? Ac vity
Dig deeper - Reach further 1. What is the hook for your story? 2. Who is your ‘target market’ (your peeps) 3. Leverage your Network? What social media sites? Successful Crowdfunding: 7 Steps
1. Cost it out 2. Do your research: what differentiates successful & NOT? 3. Marketing: get your campaign covered! 4. Set fundraising goal 5. Figure out prizes & levels 6. Be sincere. Find your audience Connect (get commitments b/f launch) 7. More than money – it’s about creating true fans & a market More on Success
Stand out Tell a Story Campaigns with videos raised 114% more Get commitments before launch
Share lists of backers Cul vate Donors 14% of Indiegogo campaigns had single contributor refer more people to the campaign than campaign owner
It’s Called Accessing the Crowd CROWDfunding Most give small $$: 85% give less than $50 Successes have ‘angel’ who gives lots Organize ‘raisers’ who hustle for you to their peeps JOBS Act Title III JOBS Act Title III Equity Crowdfunding or Accredited Investor Crowdfunding i How to Decide
by Marcia Kaplan © Kaplan & Associates 2016 Used with permission
Rules for Title III Crowdfunding Investors
In a 12 month period an unaccredited investor can invest:
•$2K or 5% of annual inc/net worth (whichever greater) if inc/net worth < $100,000 •10% of annual inc/net worth (whichever greater) if annual inc/net worth > $100,000 •$100,000 max investment any 12 mo period •No resale of investment for 1 year by Marcia Kaplan © Kaplan & Associates 2016 Used with permission Rules for Companies Raising Money
<100K 100K-500K >500K Provide ✔ ︎ ✔ ✔ Financial Statements Have Business ✔ ✔ ✔ Plan Independent ✔ ✔ Accountants Audited ✔ Financials Limited to $1 mil ✔ ✔ ✔ In 12 months Regula ons for Intermediaries
The regula ons for portals are intricate. The full downloadable list is included in our “Resources” at the end of the presenta on
From www.crowdfundinga y.com Decision: Title III Equity Crowdfunding
• Can you a ract sophis cated investors if you have hundreds of unsophis cated stockholders? (VCs want control, not diluted equity) • Some VCs interested in start-ups that have raised money before; view it as successful seed funding • SEC Compliance costs can be high • Investment is illiquid • O en limited investor data
by Marcia Kaplan © Kaplan & Associates 2016 Used with permission
Advantages: Reward vs. Title III Equity
Reward Equity • You can raise as much $$ as you • Limit $1 million a year want • Stakeholders expect monetary return; may want input in business • You maintain total control and do decisions not need to pay anyone back • Manage hundreds of investors • Compliance costs can run ~20% of • No compliance costs raise • Limited liquidity for investors to sell
by Marcia Kaplan © Kaplan & Associates 2016 Used with permission Case Study: Equity Crowdfunding Oakland Community Market
Problem: • West Oakland residents spend > $58 mil a yr on groceries with no full-service groc stores • 70% of groc spending going outside Solu on: • Community Advisory Council, residents choose products, services • Community Center • Nutri on workshops • Investors social impact + ROI
peoplescommunitymarket.com/learn-more/ Want to Raise More Money?
Title II of JOBs Act NO $$$ limit, accredited investors only with one excep on Regula on D Sec on 506 (b) and (c) exemp ons Enacted in September, 2013
With Regula on D Rule 506 (b) offering (private fundraising) up to 35 non-accredited investors can par cipate as long you have a pre-exis ng rela onship
With public fundraising 506 (c) only verified accredited investors can invest in businesses that are generally solici ng
Online Portals Working with Accredited Investors (General Solicita on)
• Funding Post • FundersClub • Wefunder • EquityNet • CrowdFunder • AngelList Online Portals that Work with Real Estate Investors
• Fundrise • GroundBreaker • Realty Mogul • CrowdBaron • RealtyShares • iFunding • CrowdStreet • Prodigy Network • Collaperty • Patch of Land
From CrowdCrux blog: h p://www.crowdcrux.com/top-real-estate-crowdfunding-websites/
Resources
The Crowdfunding Bible, by Sco Steinberg, free download
UpSpring Ar cle “Surfing the Crowdfunding Wave”
Na onal Law Review: “SEC Adopts Rules to Allow Crowdfunding Beginning May 16, 2016”
Title III Regula ons for Portals: “Title III Chart” (from www.crowdfundinga y.com)
CrowdCrux blog: www.crowdcrux.com Thank you! Ques ons? Answers?
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