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Crowdfunding A “new” way to raise
financing
Don Minges
SCORE Charlotte - January 27, 2014 Copyright 2014, NumbersGuyCFO, LLC
All rights reserved. 1
Objectives • To review how crowdfunding may be an appropriate method to raise financing. • This session is a high level overview of the alternative methods to crowdfund. • Discuss the differences between the types of crowdfunding, along with the differences between buying and selling.
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Outline • Types of crowdfunding. • Raising money by crowdfunding. • Risks, advantages, disadvantages and costs of using crowdfunding. • Analysis of crowdfunding websites. • Good candidates for crowdfunding. • The process – what works.
Copyright 2014, NumbersGuyCFO, LLC. All rights reserved.
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What is Crowdfunding?
Asking the public for money, typically via the internet.
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How to finance any Organization?
Donations, gifts or charity
Bootstrapping, pre-selling, advance sales, rewards, etc.
Debt
Equity
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Types of crowdfunding 1. Donations 2. Pre-selling 3. Debt 4. Equity
(Legal today) (Legal today) (Legal today) (Legal today for “accredited” investors and pending JOBS Act regulations * )
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Caution is required • Caveat emptor. • The Entrepreneur and SCAM ARTIST Access to Capital Act. • Crooks will “sell” anything; see eBay and CraigsList for examples.
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Caution is required (cont’d)
• Some projects do not deliver on time – if ever. • Kickstarter’s rules. • Conduct due diligence • Most new firms fail. • Credit card chargebacks.
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JOBS Act overview
1. Limits on capital raised per year. 2. Closing is all or nothing. 3. Significant, mandatory disclosures. 4. Must use a qualified crowdfunding
website. 5. Company must file documents with the
SEC.
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JOBS Act overview (cont’d)
6. Background checks on the sponsors. 7. Personal liability. 8. Resale of the stock. 9. Revised limits on the number of investors,
accredited or unaccredited. 10. Limited investment per investor.
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Crowdfunding advantages • You can test the market.
• Limited financial risk.
• May keep your equity.
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Crowdfunding pros • You control the process. • Empirical proof of your business model or product. • Mitigates risk. • Attracts advocates. • Reduces the burden of some regulations.
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Crowdfunding pros (cont’d)
• May make much more than intended. • If you fail to meet your goal….. • You can market to a larger, more diverse base of investors/backers via the Internet. • Possibly not as complicated as typical equity raises.
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Crowdfunding cons • Once started, the process is completely out of your hands. • Demands a different preparation than traditional fundraising. • Requires finance, some marketing and social media skills. • Cannot operate in stealth mode. • Hard to stand out.
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Crowdfunding cons (cont’d)
• It doesn’t always work. • Unsophisticated backers or investors. • Regulatory risk – again, the regulations are not final and likely will change.
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Crowdfunding cons (cont’d)
• May be more complicated than current methods to raise equity. • Regulatory burden may be onerous.
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Success stories • Pebble iPhone Watch • Boosted Boards • Solo Eyewear • Bear Love Good. Cancer Bad.
• Lockitron
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Well known crowdfunding websites (donations and pre-selling) Kickstarter, RocketHub, IndieGoGo, StartupAddict, BelieversFund, CoFolio, PeerBackers, 33Needs, ProFounder, GetFunded, RelayFund, RockThePost, Pozible, FundAGeek, etc.
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Details on select crowdfunding websites Kickstarter, IndieGoGo, RocketHub (D & P/S) Quirky (neither D nor P/S) Launcht.org, StartSomeGood (D) 33Needs (pay a % of Revenue) * (D=Donations, P/S=Pre-Sales)
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Details on select crowdfunding websites cont’d
appbackr (P/S Pay a % of Revenue) GetFunded (D & P/S) ioby.org (D) Choice depends on your specific niche, cost, rules, etc.
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Veronica Mars -
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Geek Pulse -
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What is The World's Best Deck Screw? The Best Screw You'll Ever Experience.
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Equity crowdfunding USA - AngelList (angel.co), CircleUp, CrowdFunder, Fundable, WeFunder, MicroVentures, TheFundersClub, FundedByMe, FundRoom, EarlyShares, GrowVC, EquityNet, etc. Foreign – Seedrs (UK), CrowdFund (UK), CrowdCube (UK), ASSOB (Australia), Symbid (Holland), etc. 24
Equity AngelList Angel.Co
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Equity crowdfunding – State laws Approved – Georgia, Kansas and Michigan. www.SparkMarket.com - GA www.SterlingFunder.com - GA www.CrowdfundingKC.com - KS
Pending – North Carolina, Washington and Alabama. www.FundNC.com - NC (pending)
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Equity crowdfunding Bohemian Guitars www.bohemianguitars.com
February 2013 on Kickstarter, raised $54k ($32k goal) from 297 backers October 2013 www.SparkMarket.com $100k equity Currently raising equity on Fundable - Jan. 2014
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Debt crowdfunding • LendingClub, SoMoLend, Prosper, Kabbage, etc. • FundingCircle (UK), RateSetter (UK), Zopa (UK)
• Kiva, MicroPlace (Micro Lending) • GreenNote (College Tuition)
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Good candidates • Have a good story to tell • Unable to raise funding from other sources • Limited capital needs (equity) • Willing to test the market for acceptance • Willing to work within the SEC (and other) guidelines (debt & equity) • Have proven financial history (debt) • Understand that investors demand a $ return
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Poor candidates • Companies in "stealth mode" • Capital intensive (equity) • Not willing to commit the time • Copycats • Not willing to accept "unaccredited" investors (equity)
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What works • Plan, plan and plan • Communicate • Use all your social networks • Use professional videos • Be clear and direct
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Recommended process • Decide if crowdfunding is right for your business and for you • Protect your intellectual property • Select the most appropriate platform • Learn from others, research, analyze comparables • Plan all the details, step-by-step (Project management) • Assemble a qualified team
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Review • What is crowdfunding • Raising financing via various methods or types of crowdfunding • Risks, pros, cons and costs • Example crowdfunding web sites • Good candidates • Process overview
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Who was that? Don Minges
[email protected] 704 942 0413 (m)
Copyright 2014, NumbersGuyCFO, LLC.
All rights reserved. 34
