Sustainable Tucson - Crowdfunding Panel - Feb 11th 2013

Crowdfunding

WYNTK * (what you need to know)

Driving Entrepreneurship and Economic Growth

Sustainable Tucson , 11 February 2013 CJ Cornell

CJ Cornell

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

@cjcornell

cj@cjcornell.com

www.propelarizona.com

Crowdfunding

Entrepreneurship & Innovation

Arizona Economic Growth

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.

“

Entrepreneurship & Economic Growth

1.

*Fast Facts:

* from the US Bureau of Labor Statistics the Kauffman Foundation, and others

Companies < 5 years old =2/3 of all Job Creation in US

Only 1/2 Survive.but80% of the jobs survive.

capital = new companies ?

capital = survival ?

capital = growth ?

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 $

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

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

Concept to Product to Growth

$Entrepreneur IPO

$Entrepreneur IPO

$

Venture Capital

$Entrepreneur IPO

$

Venture Capital

$

Angels,accel & incub

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$

What is Crowdfunding

What is Crowdfunding

What is Crowdfunding

What is Crowdfunding

• Source – http;//crowdfunder.com

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) … 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” to unaccredited investors

• Source – SEC.Gov

any offers or sales of securities purporting to rely onthe crowdfunding exemption would be unlawful under federal securities laws.

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, ScamsagainstWidows, Retirees and Helpless Babies.

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.

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.

Fraud?

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

not a single case of fraud has been reported.

No fraud has been reported.

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

FromTechdirt.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

the crowdsourcing scam was exposed by a crowdsourced investigation

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

FromTechdirt.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

the crowdsourcing scam was exposed by a crowdsourced investigation

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

FromTechdirt.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

the crowdsourcing scam was exposed by a crowdsourced investigation

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.

• Source – http;//crowdfunder.com

WYNTK(what you need to know)

• 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)

Real Crowdfunding – that works.

Today

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

ALL OR NOTHING

Perks &Rewards

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

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.

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/hop/elevation-dock-the-best-dock-for-iphone

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

• Yesterday a video game project called Ouya became the eighth project in Kickstarter history to raise more than a million dollars, and the fastest ever to do so. Ouya hit the total in just over eight hours, shattering the previous record. Here’s how long it took each million-dollar project to cross the threshold:

• OUYA — 8 hours and 22 minutes• Double Fine Adventure — 17 hours and 30 minutes• Pebble — 27 hours• Wasteland 2 — 41 hours• Shadowrun Returns — 7 days• The Order of the Stick — 27 days, 5 hours• Amanda Palmer — 27 days, 12 hours• Elevation Dock — 57 days• As you might expect, Ouya also has the biggest single-day total in Kickstarter history. It received more than $2.5 million in pledges from its launch

on Tuesday at 8:44am to Wednesday at 8:44am. Here are the ten biggest 24-hour tallies on Kickstarter so far:• OUYA — $2,589,687.77• Double Fine Adventure — $1,064,652.05• Pebble — $863,132.92• Wasteland 2 — $555,407.84• Shadowrun Returns — $378,008.28• Amanda Palmer — $223,348.50• The Icarus Deception — $178,194.00• Elevation Dock — $161,507.00• Penny Arcade Sells Out — $151,221.17• gTar — $138,891.00• Ouya’s big day lead to another Kickstarter record: dollars pledged in a single day. On February 9th Kickstarter saw more than $1 million in

pledges in a day for the first time. Until yesterday, Kickstarter’s biggest day was on April 12th, when nearly $1.9 million was pledged. The amount pledged yesterday, July 10th? $3,174,820.

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

Perks

and 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 $$

Crowdfunding

economic growth

In Arizona

www.propelarizona.com

@PropelArizona

Slides available at

https://www.slideshare.net/cornell2/