Drawing a Crowd: The Crowdfunding Phenomenon Heats Up

DRAWING A CROWD THE CROWDFUNDING PHENOMENON HEATS UP In a down economy, it's difficult for entrepreneurs to access the capital needed to build their venture from the ground up. Luckily, projects can now be funded by a powerful combination of the social Internet and generous networks of friends, colleagues, and communities. This model is called “crowdfunding" and is sweeping the startup nation by storm. It seems to be an entrepreneur's dream, but are there problems in the way? THE CURRENT LANDSCAPE The Growth of Crowdfunding Platforms According to Gartner Research: $6.2 billion Forecasted value of money generated by $1.6 billion Estimated value of money generated by crowdfunding platforms (2009) crowdfunding platforms (2013) Notable Crowdfunding Sites Going out and canvassing networks can be laborious. These sites make it easy for entrepreneurs and those with personal projects to connect with interested investors. KICK STARTER .COM WHY KICKSTARTER IS UNIQUE: Claims no ownership over the projects and the work produced, but operates on an "all-or-nothing" model where the project's goals must be reached in order to receive full funding. PERFECT FOR: 5% $53m' RAISED 20,371' Projects with a FEE STARTED creative purpose 2009 PROJECTS FUNDED 1 As of April 2011 2 Only collected if the project is successfully funded. WHY INDIEGOGO IS UNIQUE: Is open to anyone and any type of project. Plus, those seeking donations get to keep all of the money pledged, even if they don't reach their funding goal. INDIE GOGO PERFECT FOR: 4% $ Millions 40,000+ Creative, entrepreneurial STARTED FEE or cause-related E endeavors RAISED 2008 PROJECTS FUNDED WHY PROFOUNDER IS UNIQUE: profounder Specifically geared toward entrepreneurial projects. Gives entrepreneurs free tools to grow a business by reaching out to their social network. PERFECT FOR: 5% 250+ Traditional $350,000+ RAISED STARTED FEE Entrepreneurs 2009 PROJECTS FUNDED WHY FIRSTGIVING IS UNIQUE: FirstGiving Provides nonprofits and individual supporters with the tools to fundraise for their cause of choice. Fundraisers create their own pages where they can direct donors. 7.5% PERFECT FOR: 8,000+ $1 BILLION RAISED STARTED Nonprofits and FEE PROJECTS 2003 FUNDED Individual Fundraisers CROWDFUNDING GOES TO WASHINGTON Brewhaha: The Story of How A Case Became A Hearing In an attempt to buy the Pabst Blue Ribbon brewery, marketing executives Michael Migliozzi Il and Brian Flatow created a site, BuyaBeerCompany.com, to solicit pledges from the public. Pabst Blue Ribbon BUYABEERCOMPANY.COM They promised investors a stake in the Their goal was to get: How much was pledged after company and beer valued at the amount just 7 months? equal to how much was invested. $300 MILLION? from public investors $200 MILLION By nearly 5 MILLION fans. On June 2011, the Securities and Exchange Commission Inspired by the case, Rep. Patrick McHenry introduced legislation ordered Migliozzi Il and Flatow to cease and to allow private companies to use crowdfunding. desist for failing to register their offering. Rep. McHenry's Proposed Measure An unlimited number of people are allowed to con- Individual contributions are capped at $10,000 tribute a total of $5 million to a crowfunded start-up. each or 10% of annual income. UP TO UP TO $10,000 ea. 10% $5 MILLION INCOME 3499 is currently the maximum number of shareholders the SEC currently allows for privately traded companies. Both Sides of the Crowdfunding Coin Low risk for Less expensive option to raise money Promotes crowd POSITIVES investors feedback Openness of the business plan allows for potential idea stealing Investors not May be difficult to NEGATIVES raise desired protected against fraud and scams amount of funds in a short time WHAT DOES THE FUTURE HOLD? With the goal of helping small firms access capital and grow, part of President Obama's "America Jobs Act" will try to cut the red tape by reducing the regulatory limits set on how small businesses get their capital. Startups hope that this will mean an expansion in crowdfunding options and mini-offerings. G+ G+ is a community for professionals, academics & SOURCES: entrepreneurs to learn from each other. Gplus.com | www.twitter.com/gplus | www.facebook.com/gplus © 2011 Gerson Lehrman Group, Inc. All rights reserved VENTUREBEAT.COM | SOCIALBRITE.COM | SOCIALMEDIAEXAMINER.COM | SMALLBIZTRENDS.COM | CRUNCHBASE.COM INDIEGOGO.COM | WSJ.COM KICKSTARTER.COM | PROFOUNDER.COM| WHITEHOUSE.GOV | GARTNER.COM |CROWDSOURCING.ORG