Crowd-Funding new Paths to $$$
A talk by Ralph Patterson, BAE Workshop at Entrepreneur Meetup 08 May 14
• On-line CFs: Angel.com (Angel List) & Caplinked [Both are loose communities of accredited investors & entrepreneurs] + Funders Club & Equity Net
• Super Angels / Micro VCs: Mainly ex-entrepreneurs, who got bought out & Invest as individual angels & in small groups.
• New Models: Y-Combinator [Incubator], BAE Workshop [Help write Biz Plan & Find Funding]
• Large VC Firms: Set up small funds ($100M) to invest in Seed stage – even pre-revenue
What is Crowd-Funding
• Essentially donations (exceptions discussed later)
People send in $ because they like what they see/hear
– Exchanged for Mdse, T-shirts, coffee mugs, etc.
– Sometimes money is deposited on a gadget that may/not be created
– You might get your money back if the company fails to meet its target or you might not
– Most likely little difference in CF with legislation (JOBS Bill)
Impact of the JOBS Bill
1) Implemented 05 April 12, 2) JOBS Stands for Jumpstart Our Business Startups,
3) Securities & Exchange Commission (SEC) has published prelim-inary regulations on the implementation of the law,
4) it’s charged with protecting Widows &Orphans,
5) to ensure there are protections against Get-rich-quick & Too-good-to-be-true schemes,
6) otherwise, it’s just a Crooks & Shysters full employment law LoL,
7) SEC proposed no significant change in the rules. [Only people with either $1M net worth or $200k revenue for previous two years (Accredited Investors) can invest for equity.
What the JOBS Bill did Modified Securities Law:
1) Increased the number of investors a private Startup can have from 500 to 2,000,
2) Lifted the prohibition on “general solicitation,” allowing Startups to solicit Investors on their website, for instance. But they have to be “Accredited Investors.”
3) The “Funding” is limited to $1M, 4) Another provision (yet to take effect), will allow companies to raise funds from average investors through a process known as “Equity Crowd-funding” & ups the amount to $5M.
What’s New?
• Some Crowd-funding sites are setting up sections for Accredited Investors:
1) This allows Investors to buy equity,
2) The entrepreneur would set Terms & Valuation, (as with traditional angel groups),
3) Then they hope Investors would be attracted.
4) Disadvantages: Not much opportunity for Due Diligence, therefore a very risky Investment.
• Cross section of Entrepreneurial Ecosystem:
1) 50% are unfundable by anybody at any time,
2) Other 49.9% have one problem or another
3) Hard to separate the wheat from the chaff
What Else is New?• Some Start-ups are using CF as Sales channels:
1) a Market-entry strategy, 2) Charge full or partial price for a future delivery, 3) Another way to get Bridge financing by showing sales (ie, LumenLED, Gogi)
Crowdfunding Sites, Site Web address, Comments
33needs ready.33needs.com Social entrepreneurs
Appbacker www.appbacker.com Wholesale mkt. for mobile apps
Chipin www.chipin.com Agnostic – Creative projects
Cofondos www.cofundos.com Open-source SW
FansNextdoor en.fansnextdoor.com Creative projects
IndieGoGo www.indiegogo.com Agnostic – Creative projects [BAE*]
Kickstarter www.kickstarter.com Creative projects [#1]
MicroVentures www.microventrues.com Tech, products &services
Peerbackers www.peerbackers.com Business owners, peer focus
Pozible www.pozible.com.au Novelty merchandise
Quirky www.quirky.com To get “a share of the Revenue”
RockectHub www.rockethup.com Agnostic – Creative projects
VimFunding www.vimfunding.com
* BAE recommended
Your approach to Crowd-Funding
1) Google to find new sites [they spring up like weeds all the time],
2) Read the fine print: a) Some crowdfunding sites charge only $10 to list and take only 8% of the gross money raised, if you meet your goal and b) Others charge $100 to list, take 10% of the total, & charge PayPal fees [Most are somewhere in between], c) Some offer extensive Marketing tools, d) Widgets on your website, blog, etc, e) Links to FB, Twitter, etc. (Some don’t), f) Investigate thoroughly before you sign up
Kickstarter: Launched in ’09, is the biggest of them all & Has raised $1B for over 100,000 projects
Kickstarter Project Categories
Category, Total $$ Pledged, # of Projects Average, $$
Film/Video $60M 7,135 $6,236
Music $38M 7,545 $5,140
Design $29M 854 $29,409
Games $20M 857 $26,910
Publishing $11M 2,128 $5,482
Art $11M 2,426 $4,312
Technology $10M 356 $27,673
Theater $8M 1,867 $4,085
Food $7M 751 $9,009
Comics $5M 647 $8,382
Other $8M 1,799 $4,637
So If You Are Interested in CF:
1) Investigate the Sites carefully, 2) Make sure you know what it will cost if you succeed & if you don’t, 3) Pick one that has appeal to people in your market, 4) Make a Video (there are many Pros on the Internet), who will do it for you). Good Luck!
Contact Speaker – Ralph Patterson (CEO Bay Area Entrepreneurs Workshop) @ www.BAEworkshop.com Apply@BAEworkshop.com