Crowdfunding
Dr. John Hoffmire
Director,
Saïd Business School Venture Fund
Saïd Business School
University of Oxford
Associate,
Oxford Centre for Mutual and Employee-owned Business
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Crowdfunding is……
 Raising small amounts from many contributors
 Using the internet & social media
 Often offering a reward or incentive
 A fast growing alternative to traditional funding
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Contrast to Traditional Fundraising
 Projects are more varied (cultural, political, charity, etc.)
 Many raise relatively small amounts for short-term or
one-off projects (such as an event)
 Investors may be directly connected and involved
 Lending is less costly and returns are higher
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(Image: lumosforbusiness.com)
Four Types of Crowdfunding
(Source: Massolution)
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Impact of Social Media
(Data source: Ethan Mollick, “The dynamics of crowdfunding: determinants of success and failure.” (working paper); (Graphic source: Appsblogger)
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Margins of Success and Overachievers
Projects generally have narrow margins of success and large margins of
failure.
(Data source: Ethan Mollick, “The dynamics of crowdfunding: determinants of success and failure.” (working paper); (Graphic source: Appsblogger)
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Campaign Length and Funds Raised
For fully funded
campaigns - funds
raised as % of goal by
% of campaign length.
Avg commissions N America and Europe 7%
Rest of World 8%
(Source: Indiegogo)
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Funds Paid Out Per Project for
Donation and Reward-Based Projects
Source: Massolution
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Funds Paid Out Per Project for
Equity-Based Projects
Source: Massolution
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Growth in Worldwide Funding Volume
Source: Massolution
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Number of Global Campaigns
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Global Crowdfunding Platforms
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Funds Raised by Type for 2011
Source: Massolution
Percentage, 100% = $575 million
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Growth in Number of CFP’s by
Category
Rewards-based is largest
category and growth is 79%
CAGR.
Equity-based is the
fastest growing at 114%
CAGR.
Source: Massolution
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Global Economy
Source: databank.worldbank.org
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Global Economy by Economic Group
Global GDP Growth (Percentage change over previous year)
(Source: IMF WEO Update, Jan 2012))
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UK Small Business Funding Gap
Bank lending down 25% from
2008 levels
Business loan rates up .16
percentage points to 3.12% since
June, 2011
“Funding gap” left by banks may
be as high as £191 billion in the
UK for 2012
(Source: The Economist, 04 Aug 2012))
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USA Small Business Funding Gap
Source: localstake.com
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How Crowdfunding Could Fill the
Funding Gap
Source: localstake.com
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USA: CROWDFUND Act
• Eliminates accredited investor requirements
• Requires activity through ‘funding portals’
• Allows direct, paid promotion of securities
• Substantially limits disclosure and oversight requirements
• SEC must create new rules
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(Image: lumosforbusiness.com)
Benefits to Business
…perhaps not “just like angel investors”
Source: localstake.com
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USA Job Growth
A healthy crowdfunding marketplace will create:
 10% increase in new businesses
 170,000 new jobs over the next five years
(from RocketHub Whitepaper prepared for SEC)
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(Image: lumosforbusiness.com)
India
GDP Growth (%)
Source: databank.worldbank.org
>6.5% growth projected for 2012/13 by Prime Minister Manmohan Singh
Moodys predicts 5.5% for same period (Reuters 14Aug12)
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India
CFP Situation
• Grow VC launched in July 2010; after a very slow start others followed, including
wishberry.com, interactor.com, and fundmypitch.com
Legal Framework
• Investment CF is legal; rules are unclear and require CFP’s to proceed with caution
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of doing business ranking – 132
• Ease of starting a business ranking - 166
Technology Adoption
• Online spending – estimated to rise to $12.6mm by 2015 from $3.6mm in 2012
• Internet access – ~121mm users (2012), up 25% annually; ~12% penetration
• Social media - 52mm Facebook users; 20% growth over past six months
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Singapore
GDP Growth (%)
Source: databank.worldbank.org
1.5% - 2.5% growth projected for 2012
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Singapore
CFP Situation
• ToGather.Asia launched March 2012, claims to be first ‘Kickstarter’ CFP in
region; others include 8squirrels, Firecracker, Pozible and Spark Facility
Legal Framework
• Investment CF is not legal; very strong consumer protection laws
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 4
• Ease of doing business ranking – 1
Technology Adoption
• Online spending – $1.4 billion for 2011, a 30% rise from 2010; expected to hit
$3.5 billion by 2015
• Internet access – estimated 3.7mm users to start 2012; ~ 77% penetration
• Social media – approximately 2.8mm Facebook users; ~ 59% penetration
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Brazil
GDP Growth (%)
Source: databank.worldbank.org
2012
3% forecasted
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Brazil
CFP Situation
• Jan 2011 launch of first ‘Kickstarter model’ CFP
• Now >40 CFP’s, including Catarse, the world’s first open source platform
Legal Framework
• Investment crowdfunding is not legal
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 120
• Ease of doing business ranking – 126
Technological Adoption
• Online spending - $11billion total consumer spending, 26% rise over 2010
• Internet access - estimated 79mm internet users at beginning of 2012, 39%
penetration (total population estimated at 204mm)
• Social media - >55 million Facebook users, a 46% rise in 6 months
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USA
GDP Growth (%)
Source: databank.worldbank.org
2012 2% forecasted
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USA
CFP Situation
• Nearly 200 platforms and 523,000 successful campaigns in 2011
Legal Framework
• CROWDFUND Act makes investment crowdfunding legal
• SEC must now create rules.
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – 4
• Ease of doing business ranking – 1
Technology Adoption
• Online spending - >$200bn for 2011
• Internet access - >245 million users; 90% penetration
• Social media – Nearly 161 million registered on Facebook; ~ 52% penetration
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Eurozone
GDP Growth (%)
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Source: Eurostat
Eurozone
CFP Situation
• 44 in the UK; 100+ in rest of Europe
• Nearly 15% focus of equity-based activity; €10 million funded in 2011
Legal Framework
• Investment CF is legal, but rules protecting investors are highly restrictive
• Tax incentives in the UK for investment crowdfunding
Start-up Environment (relative to 183 national economies, 1 = top ranking)
• Ease of starting a business ranking – UK 19; ND 79; FR 25; DE 98; ES 133
• Ease of doing business ranking – UK 7; ND 31; FR 29; DE 19; ES 44
Technology Adoption
• Online spending – estimated €232 bn this year, up 16% from €200 bn in 2011
• Internet access – estimated 360 mil users at start of 2012; 73% penetration
• Social media – approximately 171 million Facebook users
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Consequences
• Increased capital to bridge the ‘funding gap’
• Increased job growth
• Democratisation of fundraising
• Empowerment of investors
• Potential unintended consequences
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(Image: lumosforbusiness.com)
Low Investment Returns
(Source: http://www.industryintel.com/i2blog/economy/05/2012/n/1/)
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Financial Literacy
Q: Suppose you owe $1,000 on your credit card and the interest rate
you are charged is 20% per year compounded annually. If you didn’t
pay anything off, at this interest rate, how many years would it take for
the amount you owe to double?
• 2 years
• Under 5 years
• 5 to 10 years
• More than 10 years
• Do not know
• Prefer not to answer
A. Lusardi and P. Turfano, “Debt literacy, financial experiences and indebtedness.” (working paper)
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One group sticks out…
A. Lusardi and P. Turfano, “Debt literacy, financial experiences and indebtedness.” (working paper)
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Other Examples of Crowdfunding
You have £1,000 and four options (choose one):
Company
Project
Option
The Rushmore Group
Member Bars and Clubs
Investment
Amanda Palmer
Music Album
Reward
Kiva
Micro-loans
Lending
Doctors Without Borders
Medical Charity
Donation
www.polleverywhere.com/crowdfunding
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The Rushmore Group
• Owner and operator of three successful London establishments
• Seeking funds for a “low-cost, higher return expansion”
• Funds raised will create a new location in the heart of Soho
Investment target: £1 million
Equity offered:
10%
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Amanda Palmer and
The Grand Theft Orchestra
• First studio album since leaving major label
• Funds required to manufacture and promote album
Goal: $100,000
Reward: Pre-show VIP pass to
have donuts with the band,
plus signed, special editions of
the album on vinyl and CD.
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Kiva
• World’s largest micro-lending platform
• Loan recipients in 64 developing countries
• You get to choose a borrower
Terms: Loans do not pay
interest. Lenders are
updated on borrower’s
successes.
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Doctors Without Borders
Your donation is needed to:
• Provide emergency medical care wherever it is needed
• Assist millions of people caught in crisis in more than 60 countries
• Care for those discriminated against and neglected populations
Goal: $200,000
Gift: You will receive a
thank you letter
highlighting recent global
aid initiatives.
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Pledge and Results
Company
Project
Option
The Rushmore Group
Member Bars and Clubs
Investment
Amanda Palmer
Music Album
Reward
Kiva
Micro-loans
Lending
Doctors Without Borders
Medical Charity
Donation
Choose one at: www.polleverywhere.com/crowdfunding
Real World Results
£1,000,000
$1,192,793
>$346mm loaned
$213,017 raised
143 investors
24,883 backers
>812k backers
$200,000 goal
$1,000,000 goal
$100,000 goal
>850k borrowers
(~12 months,
(30 days,
(31 days,
99% repayment
Justgiving)
Crowdcube)
Kickstarter)
rate
(~6 yrs, Kiva)
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Funds Raised by Type for 2011
Source: Massolution
Percentage, 100% = $575 million
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Growth in Number of CFP’s by
Category
Equity-based is the
fastest growing at 114%
CAGR.
Source: Massolution
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Crowdfunding Opportunities
CF may have the most
opportunity in areas that
“traditional financiers
have traditionally found
unattractive.”
–Clayton Christensen
Source: NVCA Yearbook 2012
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Special Thanks To Dave Bowman
• Dave did most of the work on this presentation!
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Thank You!
John Hoffmire, Director
Saïd Business School Venture Fund
and
Associate of the Oxford Centre for Mutual and Employeeowned Business
University of Oxford
John.hoffmire@sbs.ox.ac.uk
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