Crowdfunding: Markets, Revenue and Job Creation

8/13/2019 Crowdfunding: Markets, Revenue and Job Creation

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A Crowdfunding SnapshotDr Richard Swart

UC Berkeley, CCA Group


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@richardswart


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Alternative Finance represents:

A growing and viable international market for

institutional investments, allocation of capital indebt instruments, and relatively low risk equitytransactions into microenterprises

A proven means of accelerating capital infusion

into microenterprises resulting in job creation,increased revenues, and follow-on investment

activity/loans


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A new channel for product validation, markettesting, and customer engagement for brands

A possible disintermediation of charitable giving A mechanism to activate communities of interest

and increase long-term brand/cause engagement

Deal sourcing for Angel and VCs rise of hybrid

models

An organizing tool for Diaspora / Foreign Direct

Investment into developing economies


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Econometric Modeling of CrowdfundingMarket Size and Growth Sectors

Review of Existing Literature/Report In-depth analysis of UK market CCA report on Outcomes of Crowdfunding Recent similar work by Prof. Mollick Discussions with Regulatory Bodies


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Consumer Crowdfund Investing Globally by2025 93B

If you account for institutional infusions of

capital, approximately 300B by 2025 China has outsized market potential and is

accelerating P2P and P2B while crushing equity UK, Israel, Western Europe, US, Canada will

rapidly grow Next wave will be South America, MENA region Asia is sleeping tiger 100M in equity CF in Korea

last year


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CCA group study focused on all forms of CFactivity with inclusion of Europe, UK, US and

a couple from Africa Mollicksrecent study analyzed Kickstarter

data only so does not reflect CF equity anddebt

Universal constants of CF: 2.2 and 39%


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95% had some college education 84% male

Nearly 50/50 self-employed and working 35 years old Average firm size is 2 employees Largest reported firm size was 20 Women set lower goals, but are more

successful than men at reaching those goals


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Average Kickstarter campaign had 440backers

Average equity (UK, EU) campaign had 96backers Average raised across all methods was

$107,810 mean of $40,300 Average equity raise - $178,790 Firms sold between 5% and 50% of their

companies, with an average of 15%.


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CCA Report:

Average quarterly growth in revenues 24%

Average growth in revenue for companies raisingequity?

351%


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Revenue Bands Pre-Campaign Post-Campaign

Not launched 44%

0-25,000 31% 38.5%

25,0000 to 100,000 13% 24.5%

100,000+ 11% 32%


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Over 90% of groups raising more than $5,000in successful CF projects turned into viable

ongoing ventures Greater than 70% of ASSOB backed firms still

in business after 5 years Evidence suggests CF associated with

selection of more viable firms challenges70% failure rate


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CCA data (mostly non-US)

28% of firms had closed funding round (Angel, VC)

43% in talks with investors, funders More than 10% received bank loans


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Mollick

8% another crowdfunding campaign

3% VC 15% Angels

5% Bank Loans

18% Friends and Family

21% Self


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Average Equity US equivalent $1,050 Average Non-equity US - $3,790 Average Non-Equity Europe - $490

Average hours per successful project = 136 hourspost launch (no data on preparation) Top reasons for failure: Marketing not well designed

Target audience not well identified Contrary to beliefs, for successful raises, 70% offounders say friends and family contribute littleto success of project


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Better understand customers Connect to customers

Connect to community Increased self-confidence of founders/team 60% of failed campaigns continue with

product development Find/Hire employees Generate Publicity


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39% of firms quickly hire 2.2 employees However, about 6% hired 10 new employees

Without more evidence, we suspect: Campaigns were run by larger firms, or as market

experiments monetary goals were secondary to

market intelligence

Interns may post projects rather than usingcorporate brand

Product validationhire a team to launch


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Lack of integration of media, marketing andcampaign promotion

Need syndication across regions/cities Many issuers/campaigners need support for

projects Create network effects leveraging media Best in class example is bit.ly/BNNFunding


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Peer-to-Peer and Peer-to-Business Platforms willgrow 10X over equity platforms with 100-200%ACGR for next 2-3 years

Title II Crowdfunding will grow tied to verticalindustries or affiliations (OurCrowd, HealthIOSExchange)

Real Estate Crowdfunding will gain significant

traction Significant experimentation continues in

technology commercialization


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Government and Economic Developmentauthorities will syndicate

Title III will start slowly and many platformsare undercapitalized and will fail We know major brands are using CF

mechanisms 2014 is the year MadisonAvenue and Wall Street engage crowdfunding

First round of acquisitions and mergers


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[email protected]

[email protected]

@richardswart
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Crowdfunding: Markets, Revenue and Job Creation