The Crowd Funding Ebook

By Michael R. Courtois

The Crowd Funding Ebook Download

UNDER CONSTRUCTION

 

(these are just my notes for now)

Crowd Funding: The Infant Industry

 

The Real Birth Of Crowdfunding

In the summer of 1885, crowdfunding solved a crisis that threatened the completion of the Statue of Liberty. The City of New York refused to pay for the completion of the base foundation. The "World" donated, supported and saved the Statue of Liberty. This action gave birth to crowdfunding in American politics. More than 100 years after the construction of the Statue Of Liberty, micro-financing became popular in the Political realm. Politicians and interest groups caught on to the amazing potential crowdfunding had to offer and are still using it to further their causes.

 

The Rise Of Crowdfunding

In the 2008 Presidential Election, Barack Obama made Political history by becoming the first African-American president while revolutionizing campaign financing through a crowdfunding "platform". Four years later, Obama used the same strategy to defeat Mitt Romney. Another name for crowdfunding in Politics that you may recognize is "RALLY" (campaign rally).

Obama had put together and signed the crowdfunding JOBS Act into law that has legally opened the door to crowdfunding for the "mom and pop" (the public) investors to support investments for Startups, Charities, Foundations and Personal "Causes". Crowdfunding donation and support programs became legal for everyone and not just for politicians.

The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. Title III, also known as the Crowdfund Act, has drawn the most public attention because it creates a way for companies to use crowdfunding to issue securities, something that was not previously permitted. Title II went into effect on September 23, 2013. On October 30, 2015, the SEC adopted final rules allowing Title III equity crowdfunding. These rules went into effect on May 16, 2016. Other titles of the Act had previously become effective in the years since the Act’s passage.

The idea of crowdfunding isn’t a new one. Back in the 18th and 19th centuries, writers and philosophers would frequently secure investment, or the pledge of investment, for their next work. In time, the concept was applied well beyond the arts; the pedestal for the Statue of Liberty was only completed after a public appeal and over 160,000 individual donations after government funding failed to come through. But it wasn’t until the rise of the internet that projects in the creative and entertainment industries were widely funded through direct grassroots campaigns.

 

Why Crowdfunding Works

The success of crowdfunding goes beyond the ability to raise large amounts of money in a short amount of time. The real power lays in the way it combines fundraising and campaigning into a single activity.

 

What Is Crowd Funding

Crowdfunding is the funding of a project or venture by raising many small amounts of money from a large number of people, typically by the magic of the Internet. Crowdfunding is a form of crowdsourcing and of alternative finance. In 2015, it was estimated that worldwide over $34 billion was raised this way. But this is basically, very little in the world of finance and business since this is a new concept (only a few years new) and far from the standard business and multi-level-marketing business.

Although similar concepts can also be executed through mail-order subscriptions, benefit events, and other methods, the term crowdfunding refers to Internet-mediated registries. This modern crowdfunding model is generally based on three types of actors: the project initiator who proposes the idea and/or project to be funded, individuals or groups who support the idea, and a moderating organization (the "platform") that brings the parties together to launch the idea, then it is promoted and not sold.

Crowdfunding has been used to fund a wide range of for-profit and non-profit, entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, or community-oriented social entrepreneurship projects. Some requests, such as those to pay for optional expenses such as vacations, weddings, or cosmetic surgery, are widely described as internet begging or cyberbegging (asking for support).

It’s taken a long time for crowdfunding to reach the level of popularity that it now experiences since $2.7 billion dollars raised through crowdfunding in 2012 alone and exponentially since. The popularity that crowdfunding has experienced has led to some campaigns seeing phenomenal amounts donated for support to their projects and huge numbers of people flocking to sites to get involved and donate.

 

Who uses crowdfunding sites?

Individuals: Those who want to raise money for a special event, like a honeymoon, or need financial assistance with an unexpected expense, such as a pet's surgery, can do so on several crowdfunding platforms. Friends and family can also set up projects that help a loved one with medical expenses or accomplish a goal.

Non-profits/community activists: Those looking to raise money for a good cause can use crowdfunding sites to solicit funds from like-minded individuals. This group might include teachers raising money for their classrooms, individuals and groups seeking donations for volunteer trips and charities seeking new revenue streams. Some platforms allow groups to have a permanent presence to continually generate revenue.

Entrepreneurs: Startups and/or existing businesses can use crowdfunding to get consumer validation before they commit big money. No matter the size of the company, crowdfunding is frequently used as an alternative avenue to replace traditional venture capital money or unattainable bank loans.

Creative's: The original early adopters of crowdfunding, artists such as writers, gamers, and filmmakers, continue to capitalize on this new source of revenue. They are more likely to get support on certain crowdfunding platforms than on others.

In 1997, the British rock group Marillion, gathered $60,000 to finance their US tour using an Internet campaign, the “Tour Fund.”(crowdfunding)

2010-2011 Equity based crowdfunding: GrowVC and CrowdCube

In 2010, the creators of the "Kickstarter" project, tapped into these elements to successfully crowdfund their TikTok+LunaTik Multi-Touch Watch Kits. In less than one month, between November and December 2010, 13,512 “backers” pledged $942,578 of their $15,000 goal, setting the world record for the largest amount of money raised using crowdfunding to date.

On the 3rd of November 2011, the US House of Representatives passed the crowdfunding bill H.R. 2930 (known as the “Entrepreneur Access to Capital Act”) that could allow startups to offer and sell securities through crowdfunding sites and social networks.

Through online systems like "Kickstarter" and "Indiegogo", stars are campaigning and asking fans to make donations toward their personal creative projects through the Internet. LeVar Burton's Reading Rainbow revamp has raised nearly $3.5 million on "Kickstarter" while Don Cheadle was well on his way to reaching the "Indiegogo" goal for his Miles Davis biopic. The guys join the ranks of other celebrities who have turned to such crowdfunding donation platforms, including James Franco and Kristen Bell, who raked in a record-breaking $5.7 million for her "Kickstarter" campaign for the Veronica Mars movie. Zach Braff has also followed suit, crediting Kristen's success for his decision to utilize the site for his latest film project, "Wish I Was Here". Many more stars have taken to online campaigning!

Then in 2013, around the time that the peer-to-peer online currency bitcoin was first gaining mainstream attention, the idea of crowdfunding was fused with the new technology of blockchain. The result was the ICO or Initial Coin Offering: a turbocharged way to raise money in the era of the Internet. An ICO is a blockchain-powered crowdfunding campaign. It has much in common with conventional crowdfunding, but also key differences.

As with traditional crowdfunding, an ICO seeks to secure investment for a new project from an interested community. In this instance, funding is most likely to come in the form of bitcoin or other crypto currencies. The nature of these digital currencies means that they can be sent from all over the world, quickly and with almost zero cost, outside of the legacy banking system. Anyone who has tried moving money abroad will recognize the benefits of this.

Since then, 1000's of crowdfunding platforms had joined the movement for financing an abundance of projects such as: Kickstarter, Indiegogo, RocketHub, GoFundMe, Razoo, Crowdrise, PledgeMusic, AppBackr, Sellaband, Crowdfunder, DonorsChoice, Fundable, Circleup, MicroVentures, YouCaring, Kiva, Plumfund, fundmycause, CryptoElevation, Zarfund, etc. etc. etc.

 

The Future of Sports Funding - Crowdfunding is a Serious Player - 2015

 
The concept of crowdfunding gathering small amounts of investments or donations from a large number of people to fund support for a specific business or objective was seen as a slightly wacky way to raise money. Much as many football clubs would have loved their fans to donate to a fund to buy Lionel Messi. However, since the financial crash in 2008, crowdfunding has moved from the alternative to the mainstream as a route to funding businesses. As a result, many sports clubs, governing bodies and sports people have seriously begun to consider and use crowdfunding as a platform to generate commercial funding.

From high-profile examples such as the Caterham F1 team, to clubs and fan-groups attempting to generate funds to pay sportspeople, the growth in this innovation is set to continue and offer Sports Governing Bodies (SGBs) an alternative method of revenue generation

The crowdfunding platforms used for sport's are "reward and donation" based crowdfunding. Athletes are coming up with alternative ideas as to how to reward people, e.g. a swimming lesson with them or being able to get the gear in which they competed. Funding of sport's, particularly those in which the athletes are not professionals, can be tough. For many athletes and teams, the difficulty is that in order to qualify for the funding you need to be at a very high level. However, being able to dedicate enough time to reach that level requires support.

Crowdfunding is a way for less mainstream sport's to raise money, as in situations where UK and Scottish level funding isn't there to the extent required to allow the athletes to train? Crowdfunding platforms have been established solely for the purpose of funding athletes. One example is Rallyme, a US-based platform for individual athletes, teams or organizations to raise funding for their sporting goals.

A number of crowdfunding campaigns started to gain pace on the run up to the Sochi 2014 Winter Olympics. The British Nordic ski team raised £7705 to assist them with their training and competitions in the run up to the Games while the Jamaican bobsled team also managed to raise over £100,000 in just two days to help them get to the Sochi Games.

In the run up to the Glasgow Commonwealth Games in 2014 there were a number of crowdfunding campaigns to help get athletes, not only to the Games themselves but also to fund warm weather training camps and expenses. One girl from Jersey managed to raise £1490 to attend a warm weather training camp with the GB team. Although these are small amounts, athletes are managing to appeal to their fan base and fellow sports fans to allow them to better themselves as athletes.

Another example from October 2014 was a Scottish surfing team raising £4605 on the "Crowdfunder" platform, after seeking only £3000. Surfing only managed to obtain formal governing body recognition in summer 2014 therefore the sport is still quite new and looking for ways to fund athletes. The money was to assist with the team's accommodation and contribute towards flight costs for the team to go to Peru for the International Surfing Association World Games.

Equity crowdfunding is the more serious side of the industry, where investors get a share of the business they are funding. One area of sport where equity crowdfunding has already been used is in relation to football clubs, particularly those which have found themselves in financial distress.

Fans and supporters are willing to get behind their failed club to assist them in getting back on their feet. Darlington Football Club successfully raised 110.1% of their initial target of £50,000 with "Squareknot" in order to secure financial stability. This is an example of equity crowdfunding being used as they were offering up to 14% equity in the club depending on the amount invested.

Another recent example of a sports team crowdfunding their way out of financial difficulty is the Caterham F1 team, which entered administration in October 2014 and commenced a crowdfunding campaign with "Crowdcube". They managed to raise more than £2.35 million.

To diversify slightly from team/athlete funding, there are other ways in which crowdfunding can apply to sport. "Crowdracing" is a new crowdfunding donation platform which allows investors to purchase shares in race horses. The return for investors is based upon any winnings and any proceeds from a sale of the horse.

In 2013, "Freedom to Ride" organized a crowdfunding campaign which sought funding to create a Bristol Cycling Manifesto and Cycling strategy which was used to influence decision makers in creating a comprehensive cycling network for Bristol. Crowdfunding is being used for funding sporting events locally, nationally and even internationally. A crowdfunding campaign helped fund Merseyside's own darts tournament. In all sectors, including sport, crowdfunding is filling a hole where funding has not been available in the past.

Crowdfunding is certainly gaining popularity as a way to obtain funding as a new business start-up, which is reflected in the number of crowdfunding platforms being established. Many of these are choosing to have a particular presence in Scotland including Crowdcube - which has opened in Scotland - and Scottish platforms ShareIn and Squareknot.

 

 

 

Building A Community Around A Story

The Obama campaign united their donors around the message of Hope and Change in 2008. The American economy crashed, and the fresh-faced African American Senator from Illinois represented a new kind of politician and a new brand of politics. In 2012, the campaign continued that story with the message “Moving Forward.”

Bryan Parker developed a similar message for his mayoral campaign, adopting the hashtag #OaklandForward. Steve Hansen built a community around his story as the underdog. Rep Joe Wilson used the power of controversy to unite Obama-haters and compel them to donate.

The story a campaign tells is the hook that compels people to donate. Posters, billboards, and campaign literature are limited in their ability to communicate that story. But crowdfunding allows campaigns to combine all of those mediums into one platform and update their supporters regularly. This feature turns a campaign into a constantly evolving story that people can take part in.


 

Large Groups Of Small Donors

Financing a campaign with a large group of small donors presents many advantages.

A donation is akin to an investment in the success of a campaign. People who donate, small or large, will go to greater lengths to see a return on their investment than those who don’t. As a result, they are more likely to show up to the polls on election day.

But small donors are also more likely than large donors to do crucial volunteer work, like making phone calls and handing out literature. More small donors means more likely volunteers and more people spreading the message of a campaign.

Small donors also provide a renewable resource of donations. By September 2012, 51% of Mitt Romney’s contributors had donated the legal maximum amount of $2,500, compared with just 16% of Obama’s supporters. This allowed the campaign to go back to them for more money multiple times.

 

Convenience

Campaigning is expensive. Delivering messages to voters eats up about 80% of a campaigns budget, which is why money matters in politics. Crowdfunding makes fundraising more convenient than ever before.

The primary reason crowdfunding sites are so convenient is because of the connectivity they provide. People are no longer required to travel to a fundraiser in order to donate to their candidate or cause. Nor must they rely on sending cash and checks in the mail. Candidates can link a crowdfunding campaign to their website and social platforms, which puts potential donors just one click away from contribution.

This connectivity also makes it infinitely easier for supporters to spread the message of a campaign. Supporters can share pictures, videos, and updates with their social networks. Candidates can also use these social networks to reach people directly, giving their campaign greater access to elusive, tech-savvy younger voters.

Like any business, crowdfunding sites have to make money. Rally takes 4.5% of each donation, which seems small but can eventually add up to a great deal of money. Still, the reduction in overhead expenses, like renting rooms for fundraisers and the traditional costs of financial transactions, make it well worthwhile. According to Hansen, “There are more fees for processing online donations, but the benefits outweigh the costs.”

Chapter 1: Nature of the industries
The evolution of the industry
Modern peer-to-peer lending and equity crowd-funding are relatively young; they started in the UK in 2006,10spread to the US in 2007andtookoff in China in 2009.11They are also still small, amounting to around $6 billion in capital origination. Nevertheless, these industries are growing rapidly. There are two main factors contributing to the rapid rise of FR crowd-funding: 1) technological innovation; and 2) the financial crisis of2008.
 

Technological advancement makes crowd-funding viable

FR crowd-funding has been on the fringe of economic activity for many years in various forms predicated on convenience.12However, FR crowd-funding platforms only started to grow substantively in 2006 in the UK after the technological innovation of so-called Web 2.0 applications on the internet made it viable. Web 2.0 refers to a change in technology that allowed users of the internet to participate in the creation of content hosted on stable websites. It emphasizes the “wisdom of the crowds” in website design13and the development of software to enable participation. Two examples of this type of technology are Wikipedia and EBay, both of which allow multiple individuals to contribute to the overall architecture of the website. This technological leap provided the means to create peer-to-peer lending and equity crowd-funding websites15making FR crowd-funding viable through reducing the cost of transactions associated with providing these services. This style of website architecture promotes user participation by allowing borrowers to set up a profile; add pictures and describe how they will use the loan or investment.16This provides the online platforms with a social-networking aspect, with borrower/issuers voluntarily providing information to potential investor/lenders. The online aspect cuts cost and is convenient for both the borrower/issuer and lender/investor, in addition to increasing the potential reach of this form of investment opportunity or capital raising facilities.
 

... Financial crisis and reduced business lending by banks have left a gap in funding

The second factor explaining the evolution of FR crowd-funding platforms is the financial crisis. The 2008 financial crisis resulted in a number of bank failures and, consequently, the
implementation of new capital adequacy regulations for banks, such as Basel III. As a result, credit providers have become increasingly constrained in their ability to lend money to the real economy. Figure 2 shows how the amount of bank loans made in Western Europe and the USA dropped significantly at the beginning of the crisis. While there have been some signs of recovery in the US (although the growth rate is still below pre-crisis levels), in Western Europe the growth rate in loans to the non-financial corporate sector has been negative, especially to SMEs in the EU.

In this funding vacuum, peer-to-peer lending is growing in popularity as bank liquidity is reduced and new regulatory requirements make obtaining loans for small and medium enterprises and individuals difficult.17Lending to SMEs, as well as the financing of personal loans fell during the crisis,18leaving a gap in the market in loans to SMEs and personal loans. Additionally, as highlighted in IOSCO’s Risk Outlook 2013-2014,19quantitative easing in many jurisdictions has driven interest rates close to their zero lower bound (see Figure 3). This in turn has driven a “search for yield” pushing investors towards alternative forms of income generation. In this climate, peer-to-peer lending has developed as a vehicle for borrowers to obtain a loan at a lower interest rate than through using traditional avenues of credit provision such as banks. Additionally, peer-to-peer lending offers a higher rate of return than through traditional investments, such as a savings account or government bonds. Further, many savers have inflation adjusted deposit rates that are often negative, impelling them to search for better returns on their savings. Consequently, growth in the peer-to-peer lending market has been exponential, particularly after 2010 when the industry self-imposed restrictions on borrower creditworthiness in order to tackle high default rates, e.g. when Prosper saw default rates of 30

% in 2009.20Figures obtained through data gathering and market intelligence suggest a 100% year-on-year growth rate since 2010. This is discussed further later in this paper.
 
The rise of Financial Return crowd-funding
Since its inception in the UK and USA in 2006, peer-to-peer lending has emerged in many other jurisdictions, spreading to China and South East Asia in 2009.22However, most of the peer-to-peer platforms have only been set up in the last three years, with very small fledgling platforms in Argentina, Italy, Estonia and India, amongst others. Figure 4 shows the percentage of the overall amount of loans originated through FR crowd-funding platforms by country. Collectively, the US, UK and China make up 96% of the overall FR crowd-funding market: the US market accounts for51% of the global market, with China
making up just over a quarter at 28%, and the UK just behind at 17%. The size of the US and UK market makes up 68% of the FR crowd-funding market, which amounts to just over $4.3 billion. They are also the oldest markets, as these types of platforms were first established in these jurisdictions. Figure 5 also shows that the size of the FR crowd-funding market in South East Asia is quite large, making up 28% of the overall global market, according to the market data available. The lowest estimated market value for China, based on data available at the platform level, is half that of the US, at $1.8billion, though market intelligence suggests this figure is much higher than the data available. Current data shows that China and South Korea make up 95% of the total Asian market
 

The regulation of equity crowd-funding

Three regulatory regimes can be identified in equity crowd-funding. The first regime is where regulation bans equity crowd-funding.In the second case, equity crowd-funding is legal but regulation creates high barriers to entry; in these jurisdictions there is no equity crowd-funding market. Under the last regime, regulation imposes strict limits on who can invest in this form of equity, usually limiting it to sophisticated investors, the number of investors allowed to invest, the size of the company issuing the equity and other similar regulatory requirements. As such, equity crowd-funding is a very small market. Recent changes in legislation have been aimed at encouraging the equity crowd-funding market to grow, as is the case, for example, with the JOBS Act in the US. Equity crowd-funding has started to develop, boosted by the introduction of the JOBS Act. It is currently limited to sophisticated investors, as defined by US law. Platforms are required to check that investors comply with SEC rules. These rules could include a limit of $2,000 or 5% of annual income on the amount an investor can invest, if his annual income and net worth are less than $100,000,. This limit increases to10% if the investor ́s annual income is over $100,000. However, the higher threshold may be extended to retail investors after the SEC has finalized the rules for the equity crowd-funding platforms and the issuers of the equity
 

Current regulatory trends

Many jurisdictions now consider peer-to-peer lending and equity crowd-funding platforms as an efficient vehicle for funding start-ups as well as small and medium enterprises. But many are seeking to encourage the practice without compromising investor protection through specific, targeted regulation of the industry. Given that the industry is relatively young (or non-existent) in many countries, a number of consultation papers have been issued on this topic balancing encouraging FR crowd-funding and investor protection (see Box 3). None of the changes proposed under these consultations have yet come into force.

 

Crowdfunding asks innumerable individuals to contribute small amounts of money in support of a goal, project or new organization—even if the ”funding applicants” are unincorporated, experimental or short-term. Crowdfunding decreases the time required to identify and vet solutions, helps mobilize donors and project backers outside the network of the initiating organization, generates richer sources of data from stakeholders, and allows for incremental program building while funds are being collected.

Crowdfunding augments the annual donor campaign model and facilitates deeper engagement between financial backers, the network, and the targets of the program. while the concept of crowdfunding may give securities and tax regulators pause, it presents a considerable opportunity for global solution networks to overcome the limitations and challenges of obtaining funding through traditional channels.

idea in Brief
Crowdfunding, the use of online platforms to gather small amounts of money from a large and distributed network of individuals, has become a multi-billion dollar industry since its inception less than a decade ago. Entities ranging from start-ups to non-profits and individuals to large multinational corporations, have utilized crowdfunding to underwrite the development of products and services, support artistic endeavors and finance a variety of non-profit initiatives. Among the early adopters of crowdfunding are global solution networks (GSNs), which can be defined as digitally-enabled multi-stakeholder networks that have self-organized to address a global problem. Numerous GSNs are using crowdfunding to diversify their capital base and develop innovative products, services, and programs aimed at addressing issues ranging from climate change to vaccination. Crowdfunding can enable GSNs to overcome the obstacles posed by traditional funding sources, including the reduction in available capital post-financial crisis, the slow decision making cycles of traditional funders, and the inability or unwillingness of major donors to fund risky or newly established and unincorporated entities. Successful crowdfunding requires considerable skill, resources, knowledge about regulatory constraints, and integrity on behalf of participants. despite these potential obstacles, a growing number of success cases demonstrate that GSNs can leverage the power of the crowd to create, sustain, and fund networks organized around shared interest with shared investment in the outcomes.

 

introduction
in 2012, a small team of passionate journalists and development professionals hatched a new idea for empowering isolated and disadvantaged communities in Africa and Asia to send out urgent news alerts to the global media.1After serving as independent reporters in some of the world’s toughest environments, Alice Klein and Libby Powell conceded that even the most principled and persistent journalists could not make up for the fact that the voices of women, minority groups, and people without access to the internet or computers are largely excluded from mainstream news reporting. in the search for solutions, the pair realized that the growing ubiquity of mobile phones offered new opportunities for direct engagement and could empower communities to share their own news and perspectives via text messaging. However, individuals in these communities would need access to the right tools and the right training, so together the two women founded radar, a network of journalists dedicated to advancing citizen journalism in communities that are too often neglected by global media conglomerates.
 

The network has since provided training workshops in Kenya, Sierra Leone, and india—supporting over 250 citizen mobile reporters who have shared more than 2,000 mobile reports.3As the network grew, so too did the scope of radar’s reporting. with increasingly sensitive subject matter—including corruption, gender violence, and slavery—security became a concern, both for their data and for their reporters. Klein and Powell decided to develop a new digital platform that could better connect their reporters, protect their data, and allow radar to work with a greater number of reporters simultaneously. However, building a platform required money and expertise that neither Klein nor Powell possessed. in August 2013, radar launched a campaign to raise the funds they required. But rather than turning to traditional funding sources such as the uK’s department for international development, the world Bank, or the uN, radar turned to indiegogo, a crowdfunding platform used by capital-seeking start-ups around the world. At the time, Klein described crowdfunding as “a new and innovative way to raise funds swiftly.”4i n deed, the campaign was ultimately successful, raising £1000 in 24 hours and over £5000 in total. This was enough funding for radar to complete development of a prototype and initiate testing. Klein says that when the new platform will enable radar to “set up new networks and ensure those we’ve trained elsewhere have the tools they need to continue their great work. it will also allow us to receive, verify and edit stories on the go via a bespoke web app.”

 

Models of Crowdfunding
Crowdfunding has emerged globally in recent years, as major platforms such as indiegogo and Kickstarter launched in 2008 and 2009 respectively. As a model of fundraising, crowdfunding has evolved quickly from an unregulated form of donating or sponsoring a project (popular with artists and basement entrepreneurs) to a well-recognized source for start-up and growth capital—even encouraged by law as a solution to the global recession and now promoted by formal associations of crowdfunding advocates. Kickstarter alone has been used to raise over $1 billion uSd for 75,000 projects initiated by more than 7.6 million people.12i n 2013, the 3 million people who backed projects on Kickstarter that year came from 214 countries and territories on all seven continents, including Antarctica.13Crowdfunding has skyrocketed in popularity since 2008 and this success is largely attributed to its democratic nature, its ability to foster engaging relationships between producer and consumer, and the desire of all participants to become part of a mutually supportive community for new ideas.14This popularity is translating into accelerated growth for the industry, which crowdfunding pioneer ruth Hedges predicts will be worth $3.2 trillion by 2020, creating 20 million jobs during that time.

 

when used to test and launch new solutions, crowdfunding may be a perfect test case for global problem solving. Crowdfunding can be thought of as a petri dish that combines focus groups, testing of marketing messaging, donor recruiting, partner recruiting, social media outreach, and fundraising. Crowdfunding is a social process, driven by the feedback and interaction from the crowd that has the potential to make capital allocation more efficient and effective. in the case of GSNs and other fund-seekers, crowdfunding makes it possible to see traction without the need for large scale capital. Today, there are several models of crowdfunding that allow varying levels of financial engagement and collaboration in everything from non-profit projects to the financing of for-profit firms. depending on their focus and organizational set-up, GSNs have the potential to use different types and models of crowdfunding to support their goals and engage their stakeholders and constituents in constructive new ways. Crowdfunding is available to GSNs in three broad types: donation and rewards crowdfunding; “pre-sale” crowdfunding; and debit and equity crowdfunding. donation and rewards Crowdfunding donation crowdfunding is the oldest and easiest form of crowdfunding to understand. in many ways, it is identical to the donation drives that charities and non-profits have long used to raise funds via special events (e.g., charity marathons and telethons). However, with the rise of the internet and social networks, this process of fundraising is moving from offline pools to online funding platforms. in a typical donation crowdfunding effort, an individual or group solicits donations for a project that a person wants to launch—a creative endeavor, a community project, or a new product. in donation crowdfunding, the crowd donates money to support the project with no expectation of a financial return. we see donation crowdfunding being used by schools seeking to purchase supplies, friends looking to raise funds for an injured family member, and even non-profits seeking to host a regional peace conference in the Middle East. The donation model quickly evolved into rewards crowdfunding—where project backers or donors receive rewards tied to their level of contribution. Some of these rewards are tangible objects; some of the rewards allow and encourage the donor to participate in some way. Game mechanics, in the form of “scarcity,” are usually an important part of rewards crowdfunding. By making certain rewards scarce there is more of a desire for backers to grab that reward before it is gone. However, the goal with this type of crowdfunding is to both reward the donor for participating and encourage further involvement in the project. There is a moral obligation to provide the promised reward, but no contractual obligations are established. for a variety of reasons, rewards crowdfunding is most likely to suit the needs of GSNs. To begin with, rewards crowdfunding is highly flexible and allows the campaign originator to create a series of rewards that appeal to different donor demographics and income levels. Since campaigns are organic, the sponsor can add new rewards, change messaging, or change the videos during the campaign, a practice that is usually illegal in equity transactions as explained below. By creating unique rewards, the organization can align its mission with unique products or experiences that appeal to targeted donor groups while reinforcing its brand messaging. donation and rewards crowdfunding also avoids the steep compliance costs and legal risks associated with equity-based crowdfunding.
 

“Pre-sale” Crowdfunding Models

A variation of rewards crowdfunding is a model in which an organization or entrepreneur offers a product for sale, before its manufacture, through a pre-sale crowdfunding campaign. The entrepreneur tests the market—“if i build it, will you buy it?”—without committing the upfront marketing, production, and distribution costs required to fully commercialize a new product. Some of the most successful pre-sale projects use campaigns to solicit not only capital but also feedback from the contributors that can be incorporated into product design and marketing. Some recent campaigns, like the “pebble smartwatch,” raised millions of dollars, essentially funding the process of taking a prototype into production.16Entrepreneurs running successful pre-sales campaigns gain a stronger hand when negotiating with investors, while investors can lower their risks by making investments in products that have been validated by customers. Pre-sale models can be leveraged by GSNs in two ways. first, GSNs with a technology focus could use the equivalent of a pre-sale model to turn novel technological prototypes into solutions that can implemented at scale. for example, a GSN could partner with a university or business accelerator to develop a viable prototype and then rally constituents to support the individual or group creating the solution through a coordinated crowdfunding campaign. in this way, the GSN can validate the concept before funds are spent on production, while the actual cost of moving the technology from prototype to production is financed by outside supporters and end users. Second, GSN models focusing on job creation or the economic empowerment of local entrepreneurs and business owners could adopt pre-sale crowdfunding for access to non-diluted capital—actual revenue from sales before initiating production. Manufacturing and distribution can then be scaled to meet the demonstrated demand and, if the GSN has larger stakeholders involved, then they may be able to contribute iT resources, shipping, financial clearing, and other business infrastructure that a start-up may otherwise lack. debt and Equity Crowdfund investing while many GSNs may adopt a non-profit structure due to their multi-stakeholder nature, the growing importance of social enterprises in global problem solving makes it worth a brief look at two additional forms of crowdfunding: debt and equity crowdfund investing. These are distinct from donation/rewards/pre-sale models in that entities are legally allowed to issue shares or debt instruments, while participants have the opportunity to profit from their investments rather than simply provide financial support for the project, organization and firm seeking funding.Equity Crowdfunding with the collapse of the global markets in 2008 and the tightening of the bank lending and early stage finance, crowdfund investing has emerged as a robust alternative to other forms of traditional finance for start-ups and small enterprises. Now allowed by law in both the uS and Canada, this model involves the sale of a securities instrument (stock) in a company through a regulated, online platform. whether financing an individual company, or financing a larger mediating organization, crowdfund investing can rapidly raise millions of dollars from a distributed base of investors. unlike donation or rewards crowdfunding, the purchaser of the security is expecting some kind of financial gain from the transaction. for early stage ventures, equity crowdfunding is the equivalent of moving the “friends and family” round of financing online and including not just friends and family, but also “followers
and fans.” it can also be a substitute or complement to angel investing. for entrepreneurs and small enterprises, crowdfunding platforms lower the barriers required to offer equity shares in their companies and thereby enhance their access to capital. Taking the process of raising funds online increases the pool of investors, encourages the use of common platforms and standardized disclosures, speeds the funding lifecycle, and creates shared repositories of information that can be accessed at any time by investors or entrepreneurs. for GSNs, equity crowdfunding raises the prospect that aspects of their global problem solving work could be accomplished through social enterprises that access capital from crowdfunding platforms. There are specific crowdfunding platforms that have been created for this purpose. recently established sites such as Seedups Canada and return on Change specifically connect entrepreneurs to investors for equity crowdsourcing within securities regulations.17Therefore, for-profit spin-offs could be created by GSNs to generate new revenue streams that support the networks’ non-profit activities. Equity-based crowdfunding also has an important role to play in supporting entrepreneurship and employment creation in developing countries. A 2013
report on crowdfunding by the world Bank acknowledges this idea: Crowdfunding is still largely a developed-world phenomenon but its potential to stimulate innovation and create jobs in the developing world has not gone unnoticed. Substantial reservoirs of entrepreneurial talent, activity, and capital lay dormant in many emerging economies, even as traditional attitudes toward risk, entrepreneurship, and finance stifle potential economic growth and innovation. developing economies have the potential to drive growth by employing crowdfunding to leapfrog the traditional capital market structures and financial regulatory regimes of the developed world.18data collected by Crowdfund Capital Advisors shows that crowdfunding by microenterprises leads to rapid increases in revenue and creates employment—an average of 2.2 new employees the year following a successful campaign.19Early data also shows that women and men are equally effective at meeting their goals on crowdfunding projects.20This suggests that crowdfunding by and for women can be a key mechanism for channeling funds to women-run/owned enterprises—especially in areas of the world where women may be locked out of capital markets. GSNs fostering entrepreneurship or focusing on economic opportunity should be aware that these new models may allow them to attract investors from outside their country/region, recruit those investors to promote the opportunity, and help recruit new investors. This social financing was either not possible or even illegal until recent regulatory changes opened the door to equity-based crowdfunding in many countries around the world.
 

debt Crowdfunding

where does a small manufacturer or entrepreneur in a developing or emerging nation turn for debt finance after exhausting micro-enterprise lending facilities? in most cases, banks and other institutions will not loan to microenterprises until they have a multiple-year track record of positive earnings—in other words, after the need for growth capital is over. debt crowdfunding is emerging as a mechanism for small enterprises to receive debt capital for growth, inventory, or cash reserves and could evolve as an important part of the funding cycle for innovation in emerging markets. in debt-based crowdfunding, individuals loan money to other individuals (peer-to-peer or P2P) or to small businesses (peer-to-business or P2B) funding. The debt platforms screen the applicants, underwrite the loans, assign an interest rate, and then essentially create an auction market where individuals are able to see available opportunities and loan parts of the total loan amount to the individuals or businesses. one example of these types of platforms, Lending Club, has coordinated over $6 billion uSd in loans and paid over $590 million uSd in interest to investors since 2007.21 According to Charles Muldow of foundation Capital, this could be a $1 trillion market within 10 years.22The takeaway for GSNs is that projects which may once have required a banking partner or grant from a large foundation may now be able to use crowdfunding and social networks to raise similar amounts of capital in a shorter period of time. Although grants are obviously preferable to loans, debt crowdfunding could play a role in funding more speculative investments or projects that would not be entertained by more conservative donors in foundations and government agencies.
The use of Crowdfunding with in the four Pillars of Society
Crowdfunding has gained momentum within the four pillars of society: government, business, civil society, and individuals. Each of these uses and interacts with crowdfunding in a variety of interesting ways, providing insight and opportunity for GSNs.
Public Sector
Elected officials throughout the world are studying how to leverage crowdfunding and crowdfund investing to help their small and medium enterprise sector, spur innovation, and fill funding gaps in their early stage capital markets. Crowdfund investing, whether via debt or equity, while nascent, exists in some form on every continent. while developed economies are currently leading, models in Africa and South America are emerging that allow diaspora investing in local enterprises. Several nations have passed enabling legislation and more than a dozen others are considering legalization of equity or debt crowdfunding. The European Commission released a report in April 2014 strongly endorsing the potential of crowdfunding citing its “high potential benefits for innovation, research and development, and [its potential to] contribute to growth, community development and job creation.”23The world Bank is also experimenting with the concept. it has recently partnered with local stakeholders in developing countries to explore the role of crowdfunding to support a network of business accelerators with the capacity to transform local development of climate change mitigation technologies. The first of these centers—The Kenya Climate innovation Center (KCiC)—recently launched in Nairobi, Kenya. The KCiC and its sponsors are promoting the use of crowdfunding by its member companies to secure reliable funding by providing training, engaging the Nairobi community, engaging donors and investors from the Kenyan diaspora, and working with regulatory stakeholders to create the necessary legal framework.
Private Sector

Social entrepreneurs and new enterprises have been using crowdfunding to gain start-up capital and project financing since its formal inception in 2008. However, large and well established businesses have also recognized the potential of crowdfunding to build their brand amongst new demographics. Crowdfunding is not just a funding mechanism—even for smaller companies. The money is oftentimes the least important benefit and in any case less important than increasing social reach with the opportunity to listen to conversations about your brand or products in ways that are almost unimaginable using a traditional facebook or Twitter campaign.25Examples of companies using crowdfunding to amplify their “social good” messaging are increasing. in 2013, dodge partnered with rocketHub to launch the “dodge dart registry” which allowed individuals and community groups to raise funds to purchase a new car that would help solve a community problem or meet a community need. in the end, 50 cars were financed through crowdfunding and the campaign generated over one million social media impressions.

Civil Society

Numerous foundations and non-profit organizations are also adopting crowdfunding to reshape the way they raise and disperse funds. According to the “2013 Crowdfunding industry report” by Crowdsourcing.org, “social causes” raised more money via crowdfunding than any other sector.

one example, the uK’s royal Society for the encouragement of Arts, Manufacturers and Commerce (rSA) is more than 250 years old and now operates as a think-tank addressing human fulfillment and social progress. until 2013, the rSA awarded cash grants to fellows through a competitive program called “Catalyst.” At this time, the organization changed to place crowdfunding via Kickstarter at the heart of its effort to support social innovators in the uK.28To support its Catalyst fellows, the rSA now provides a combination of crowdfunding training, mentorship, and a small initial donation (£1,000-2,000) to signal its institutional commitment to the broader community.29Leveraging crowdfunding allows the rSA to spread its funding over a larger number of projects. This means more fellows and more projects get support and there is now less internal frustration over the large number of worthy projects the rSA was routinely turning down. individuals Crowdfunding has been called “the democratization of philanthropy.”30According to ritu Sharma, CEo of Social Media for Nonprofits: once upon a time, fundraising was a pastime of the wealthy. Buttoned-up men and women in pearls hosted elaborate galas, aimed at honoring just the right person in order to boost attendance and support for their cause. Anyone who was anyone was invited, expected to attend, and donate generously—because they could afford to.... The dawn of social fundraising has democratized fundraising so that deep pockets are no longer required. Anyone with five dollars and a smartphone can be a philanthropist. welcome, to the age of social media—the great equalizer.31Crowdfunding offers a sense of community to otherwise unconnected individuals, by leveraging existing communities and/or creating entirely new ones. observations of successful projects around the world show a similar pattern—a community forms around the project/initiative, with strong social ties and sense of shared purpose. Social cohesion starts to form around the project and the company or organization. Sara Bannerman goes further, saying, “To the extent that crowdfunding creates a sense of community and connectedness, it may also be generative of a sense of public responsibility toward the project and the creators involved for funders, and a sense of responsibility toward investors on the part of creators.”32No other model of fundraising can be so effective in creating an ad-hoc community around a project or program that can then become part of the broader GSN.

 

Looking at the participation by and opportunities for women in Crowdfunding.

By Amy Dunn Moscoso –

Take a look at the world of high tech entrepreneurs. Only about 10% of startup founders are women, according to Compass, a startup research firm. Furthermore, only 5% of IT investment goes to firms founded by women, according to PitchBook, another research firm.

Recently though, women have rattled the old boys’ club and smashed through some significant glass ceilings.

These are significant strides, yes. But what about the future?

Millennial women are pessimistic. In spite of Marissa Mayer, young women fear the effects that motherhood will have on their earnings. With 54% of millennials wanting to start a business, where will the money for women come from?

Crowdfunding: A viable fundraising platform for women?

In June 2012, musician and artist Amanda Palmer went on Kickstarter, a website that helps people raise money for creative projects. Amanda asked for $100,000 to fund an album and a tour. Instead, she raised 1.2 million with pledges from 24, 883 people. This money empowered Amanda and her band, The Grand Theft Orchestra, to do a book, an album and a world tour.

Amanda Palmer Kickstarter

Kickstarter is one of the most well-known crowdfunding sites. Crowdfunding involves using a platform to raise funds for a project, business or cause. Instead of asking for a large amount of money from a bank or investors, founders ask for small amounts of money from a large pool of investors or donors on the Internet.

Currently, there are hundreds of crowdfunding sites. New niche platforms are popping up everywhere to raise funds for movies, start-ups and causes.

Several of these sites are led by women.

 

Top crowdfunding sites with female leaders

Crowdfunding has several women leaders who are founders, executives or both.

While other crowdfunding sites have women at the helm, a look through executive teams of several top sites, including Kickstarter, shows that many are still 100% founded, led and managed by men.

 

Best and worst crowdfunding categories for women:

In what crowdfunding categories do women do well? Kickstarter stats shed some insight.

With 13 categories, $958 million dollars raised and 55,486 funded projects, the category breakdowns still show that men and companies dominate both raising the greatest amount of money and in popularity.

Women perform differently, however, across categories.

For all campaigns, companies dominate the top 10 projects for funding, along with two men. Only one women led campaign appears in the top 10 for popularity. Hello Ruby is led by Linda Liukas and falls under the publishing category.

Female Factors in Crowdfunding Success

While women might not be raising the greatest amounts of money, or be leading the most popular campaigns, they are experiencing greater success than men on Indiegogo.

Indiegogo’s blog documents female success. Women led campaigns:

What kinds of advantages and skills equal success for women crowdfunders?

  1. Social Media Skills. Amanda Palmer’s savvy command of social media and her extremely loyal following helped drive mass support. With 74% of women active on social media, according to The Pew Research Center, women can reach a vast audience.
  2. Team Work. Indiegogo states on their website that those with “teams raise 80% more funds than those run by an individual”. Creative projects benefit from a team that works collaboratively, a style employed by women [http://www.magazine.utoronto.ca/leading-edge/teamwork-men-vs-women-jennifer-berdahl-cameron-anderson/], according to a study from the University of Toronto.
  3. Networking. Women are good at forming relationships. A forthcoming book called Business Networking and Sex [http://www.amazon.com/Business-Networking-Sex-Ivan-Misner/dp/1599184249] states that women use networking to build relationships. That tends to translate on crowdfunding sites.

“Get started as early as you can, and don’t try to boil the entire ocean at once. Many people get paralysis from analysis, where they design their perfect business plan, or their perfect non-profit, or their perfect album, and when this analysis keeps you from taking action, that’s no good.” – Danae Ringlemann, Founder, Indiegogo (Source: Financial Post – Indiegogo founder advises startups not to wait for perfect)

What holds women back from raising funds?

While there are many reasons that women tend not to make as much money as men, it’s often touted that women negotiate less than men do. In crowdfunding, not asking for large amounts of money, or for enough funding, may lead women to raise fewer funds than men.

Is crowdfunding a democratizing force in funding for women?

Perhaps.

What it may democratize is who gets to invest.

That may be the truly democratizing force. When women invest in women, money equality may follow.

What do you think? Share your opinion. Is crowdfunding the best way for women to raise money?

“Most ideas in the world are funded because they have the ability to make someone else’s money. That’s what investment is, what lending is,” the co-founder of Kickstarter, Yancey Strickler said. “Ninety-nine percent of ideas have no ambition to create money whatsoever. The extent of the dream is, ‘I wanna make this.’ ”
– Yancey Strickler, Kickstarter  (Source:  The Wrap – Kickstarter Co-Founder Yancey Strickler: ‘We Don’t Care About Money’)

UNDER CONSTRUCTION