Sustainable Tucson economic development through entrepreneurship

1. Crowdfunding Driving Entrepreneurship
and Economic Growth
WYNTK * (what you need to know)
Sustainable Tucson , 11 February 2013 CJ Cornell

2. „Serial/Parallel Entrepreneur”
10+ companies
$250M Funding 4 Exits (great !)
$3B Revenues 4 Failures (awful !)
Lots of lessons. Chaos, Pain and Joy.
Investor/Venture Capitalist
EIR, Venture Partner
Angel Investor
5 Companies 9 Boards
3,000 Tylenol Caplets. Ego and Brain Atrophy.
CJ Cornell
University Professor
@cjcornell Professor of Digital Media & Entrepreneurship
Arizona State University, SJSU, Stanford (Lecturer)
New York Institute of Technology
cj@cjcornell.com Knight Center for Digital Media Entrepreneurship
Research in digital media, behavior, entrepreneurship
Advisor/Mentor, Author etc.
ASU – Skysong, Venture Catalyst, RSS etc
Arizona Commerce Authority / Venture ready
Arizona Innovation Challenge
Book: Age of Metapreneurship. Blog/Articles

3. www.propelarizona.com
Crowdfunding
Entrepreneurship & Innovation
Arizona Economic Growth

4. WYNTK(what you need to know)
Crowdfunding
Soliciting & Collecting relatively small amounts
of money (“funding”) from a large number of
people (“crowd”)

5. “
Crowdfunding is a term used to describe individuals
coming together to support – and directly fund
projects by other individual and organizations.
“
http://blog.intuit.com/trends/crowd-power-what-is-crowdfunding-infographic

6. Entrepreneurship
&
Economic Growth

7. *Fast Facts:
* from the US Bureau of Labor Statistics the Kauffman Foundation, and others

8. Companies < 5 years old
=
2/3 of all Job Creation in US

9. Only 1/2 Survive.
but
80% of the jobs survive.

10. capital = new companies ?
capital = survival ?
capital = growth ?

11. The Kauffman Index of Entrepreneurial
Activity is a leading indicator of new
business creation in the United States.
In 2012 - The state with the HIGHEST level of
Entrepreneurial Growth was …
Arizona.

12. # 1 in Entrepreneurial Growth
# 46th in Venture Capital $

13. Source: http://theyec.org/making-sense-of-the-jobs-act-and-crowdfunding-infographic/

14. The Funding Gap

15. Concept to Product to Growth

16. Concept to Product to Growth
$ $ $ $

17. Concept to Product to Growth
Entrepreneur IPO
$

18. Concept to Product to Growth
Entrepreneur IPO
$
Venture
Entrepreneur Capital IPO
$ $

19. Concept to Product to Growth
Entrepreneur IPO
$
Venture
Entrepreneur Capital IPO
$ $
Angels, Venture
Entrepreneur accel & incub Capital IPO
$ $ $

20. Concept to Product to Growth
Angels, Venture
Entrepreneur accel & incub Capital IPO
$ $ $ $
$
Crowdfunding

21. Concept to Product to Growth
Angels, Venture
Entrepreneur accel & incub Capital IPO
$ $ $ $
$ $ Crowdfunding
Crowdfunding

22. Concept to Product to Growth
Angels, Venture
Entrepreneur accel & incub Capital IPO
$ $ $ $
$ $Crowdfunding $
Crowdfunding Crowdfunding

23. Concept to Product to Growth
Angels, Venture
Entrepreneur accel & incub Capital IPO
$ $ $ $
$ $Crowdfunding $
Crowdfunding Crowdfunding Crowdfunding
$

24. What is Crowdfunding

25. What is Crowdfunding

26. What is Crowdfunding

27. What is Crowdfunding

28. • Source – http;//crowdfunder.com

31. Jumpstart Our Business Startup
ACT, Title III (JOBS Act).
5 APRIL, 2012 (AND … AUGUST 2012, DECEMBER 2012 …)

32. Equity Crowdfunding - JOBS
• Eliminates ban on general solicitation and general advertising in connection with
private offerings to accredited investors under Regulation D (Rule 506) and to qualified
institutional buyers under Rule 144A.
• Exemption from Securities Act registration “crowdfunding” transactions (involving
access to small amounts of capital through the internet).
• Exemption to allow issuance of up to $50 million of securities in any 12-month
period, up from the current $5 million threshold
• An increase in the number of shareholders a company may have before being required
to register its common stock with the SEC and become a public reporting company
from 500 to 2,000 total shareholders, including up to 500 “unaccredited” shareholders
• Amount each person may invest in offerings of this type, tiered by the person's net
worth or yearly income.

33. http://www.pepperlaw.com

34. WYNTK (what you need to know)
BEFORE - (SEC “Reg D” Rule 504, 505, 506, 144a) … Since 1933
– 35 Unaccredited Investors (max), Unlimited Accredited
– 500 Shareholders (max)
– $1M max per 12 months, or $5M+ w/Reporting & restrictions
– No “General Solicitations”
AFTER - (JOBS Act) … 2013, maybe
– General Solicitations – to accredited investors
– 35 Unaccredited Investors (max), Unlimited Accredited
– 500 Shareholders (max)
– $1M max per 12 months, or $5M+ w/Reporting & restrictions
– No “General Solicitations” to unaccredited investors
www.propelarizona.com

35. any offers or sales of securities purporting to rely on
the crowdfunding exemption would be unlawful under federal securities
laws.
• Source – SEC.Gov

36. But,
if you think the JOBS act
moves the SEC into
the 21st century …

37. SAN FRANCISCO, Dec 6 (Reuters) - Netflix Inc said on Thursday
securities regulators warned they may bring civil action against the
company and its chief executive for violating public disclosure rules with
a Facebook post …

38. Fraud, Deceit, Scams
against
Widows, Retirees
and
Helpless Babies.

39. Fraud?
Case One: Australia – Equity Crowdfunding
The Australian Small Scale Offerings Board (www.ASSOB.com.au), founded in 2007, is the largest
investment crowdfunding platform in Australia and one of the largest in the world. It is an equity
crowdfunding platform that has successfully served both accredited and non-accredited investors since its
inception over 5 years ago, raising $130,409,669 since 2007. 132 companies have been funded to date and
not a single casecase of fraud reported. reported.
not a single of fraud has been has been
Case Two: UK – Equity Crowdfunding
Crowdcube (www.crowdcube.com) is the largest equity-based crowdfunding platform in the UK has been
operating since February 15, 2011 with no reported fraud. Crowdcube operates within the current
securities framework within the UK and allows issuers to raise equity capital using an online portal.
29 pitches have been funded with £4.25M. Average raise is £146,552. Average equity given up is
16%. Average numbers of investors is 63. Average days to fund are 51. Average age of entrepreneur is 40
and total number of registered investors is 24,023. No fraud has been reported.reported.
No fraud has been
http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

40. Fraud?
Case Four: US - Fraud Derailed
An example of fraud that was derailed on a portal is a campaign on Kickstarter called
Mythic. FromTechdirt.com: “A recent video game project on Kickstarter that turned out to be fake. As
the crowdsourcing scam was exposed by a crowdsourced investigation
BetaBeat reports, the crowdsourcing scam was exposed by a crowdsourced investigation:
... a campaign for an action video game, MYTHIC: The Story Of Gods and Men, has just been busted by
forum users at Reddit, SomethingAwful and Rock, Paper, Shotgun. The creators claimed to be an
independent studio, “Little Monster Productions,” of 12 industry veterans in Hollywood. “Our team has
done a significant amount of work on the World of Warcraft series as well as Diablo 2 and the original
Starcraft,” says the project page.
Bull____, said the Internet. Turns out the art was cribbed, the text for backer rewards was copied and
pasted from another Kickstarter project, and even the office photos were from another game
studio, Burton Design Group.
When people brought their accusations to the Kickstarter comments, the developers made a few weak
attempts at deflection then quietly shut down having raised just under $5,000 (far short of their goal, so
that money won't actually be released). With Kickstarter gaining more attention every day, we're sure to
see more attempts at scams—and maybe even some successes—but with a savvy community that polices
itself like this, the scammers face an uphill battle.”
http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

41. Fraud?
Case Four: US - Fraud Derailed
An example of fraud that was derailed on a portal is a campaign on Kickstarter called
Mythic. FromTechdirt.com: “A recent video game project on Kickstarter that turned out to be fake. As
the crowdsourcing scam was exposed by a crowdsourced investigation
BetaBeat reports, the crowdsourcing scam was exposed by a crowdsourced investigation:
... a campaign for an action video game, MYTHIC: The Story Of Gods and Men, has just been busted by
forum users at Reddit, SomethingAwful and Rock, Paper, Shotgun. The creators claimed to be an
independent studio, “Little Monster Productions,” of 12 industry veterans in Hollywood. “Our team has
done a significant amount of work on the World of Warcraft series as well as Diablo 2 and the original
Starcraft,” says the project page.
Bull____, said the Internet. Turns out the art was cribbed, the text for backer rewards was copied and
pasted from another Kickstarter project, and even the office photos were from another game
studio, Burton Design Group.
When people brought their accusations to the Kickstarter comments, the developers made a few weak
attempts at deflection then quietly shut down having raised just under $5,000 (far short of their goal, so
that money won't actually be released). With Kickstarter gaining more attention every day, we're sure to
see more attempts at scams—and maybe even some successes—but with a savvy community that polices
itself like this, the scammers face an uphill battle.”
http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

43. Fraud?
Case Four: US - Fraud Derailed
An example of fraud that was derailed on a portal is a campaign on Kickstarter called
Mythic. FromTechdirt.com: “A recent video game project on Kickstarter that turned out to be fake. As
the crowdsourcing scam was exposed by a crowdsourced investigation
BetaBeat reports, the crowdsourcing scam was exposed by a crowdsourced investigation:
... a campaign for an action video game, MYTHIC: The Story Of Gods and Men, has just been busted by
forum users at Reddit, SomethingAwful and Rock, Paper, Shotgun. The creators claimed to be an
independent studio, “Little Monster Productions,” of 12 industry veterans in Hollywood. “Our team has
Bull____, said the Internet. Turns out the art was
done a significant amount of work on the World of Warcraft series as well as Diablo 2 and the original
Starcraft,” says the project page.
cribbed, the text for backer rewards was copied and
Bull____, said the Internet. Turns out the art was cribbed, the text for backer rewards was copied and
pasted from another Kickstarter project, and even the
pasted from another Kickstarter project, and even the office photos were from another game
studio, Burton Design Group. were from another game studio, Burton
office photos
When people brought their accusations to the Kickstarter comments, the developers made a few weak
Design Group.
attempts at deflection then quietly shut down having raised just under $5,000 (far short of their goal, so
that money won't actually be released). With Kickstarter gaining more attention every day, we're sure to
see more attempts at scams—and maybe even some successes—but with a savvy community that polices
itself like this, the scammers face an uphill battle.”
http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html

45. • Source – http;//crowdfunder.com

46. WYNTK (what you need to know)
• Equity Crowdfunding - not in the USA (yet)
• JOBS act (April 2012) technically enables CF – but has
not yet been approved by SEC.
• No documented fraud in USA or other areas.
• Equity CF is for “high growth companies” seeking
significant funding from experienced investors
• Will dramatically change in 3-5 years (CJ prediction)

47. Real Crowdfunding –
that works.
Today

48. Rewards-based, Donation Crowdfunding:
“THE KICKSTARTER MODEL”

52. ALL OR NOTHING

53. Perks &
Rewards

54. Updates (and Blogging)

55. Comments & Engagement

56. Kickstarter (2012)
2.2 million people pledged a total of
$319,786,629
(up 221% from 2011)
Backers pledged $606.76 per minute
People in 177 countries backed a project in 2012
(That's 90% of the countries in the world)

57. Source: http://KickstartersHQ.com

58. WHY …
Do people Crowdfund?

60. Lessons from Ethan Mollick’s “The Dynamics of Crowdfunding: Determinants of Success and Failure”

61. 3 Why’s: 1. They connect to the greater
purpose of the campaign
three main reasons why
people unconnected to a 2. They connect to a physical
project or business would aspect of the campaign like the
support it:
rewards
3. They connect to the creative
display of the campaign’s
presentation
What Is Crowdfunding And How Does It Benefit The Economy - Forbes
http://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy

62. • Passion
– For the technology
– For the industry
The Real – For the cause
(Crowdfunding)
– For the product
Why’s • Affinity
– For the Entrepreneur
– For the region, industry etc
• Connection
• Every reason BUT R.O.I. …

63. WYNTK (what you need to know)
Crowdfunding is about …
emotional ROI.
Not financial ROI

64. WYNTK
(what you need to know)
(when crowdfunding …)
“its not what you
do, but why you do it,”

65. http://www.kickstarter.com/projects/1104350651/tiktok-lunatik-
multi-touch-watch-kits

67. “Consumers who want products before they are
developed”
Pre-orders
Early adopters
Supporters
http://trendwatching.com/trends/infographics/presumers/

68. WYNTK(what you need to know)
1. Crowdfunding = New “1st Money” for ventures
($10k - $50k average– but wild exceptions)
2. Equity Crowdfunding is Still Far away
3. Rewards based Model IS Crowdfunding today
4. All or Nothing Crowdfunding – Standard
5. Perks and Rewards: Pre-order Crowdfunding
6. Social Media & Content Intensive
www.propelarizona.com

69. What does success
look like?

70. • The iPhone-friendly Pebble watch earned $7.6
million more than its $100,000 goal.
• And the Galileo iPhone platform closed its
Kickstarter campaign at $702,000, far
surpassing its $100,000 goal.

71. • Ouya raised $2 million in one day for a new Android gaming
console (it’s raised more than $5 million to date),
• the Nifty MiniDrive, external memory for Apple MacBooks.
The tiny storage company is more than 2,000% above its
$11,000 goal with 15 days left in the campaign.

72. http://www.kickstarter.com/projects/mikebond/ti2-sentinel-titanium-cache?ref=home_popular

73. http://www.kickstarter.com/projects/poots/kingdom-death-
monster?ref=home_popular

74. http://www.kickstarter.com/projects/hop/ele
vation-dock-the-best-dock-for-iphone

75. http://www.kickstarter.com/projects/smartthings/smartthings-make-your-
world-smarter?ref=category

76. • Yesterday a video game project called Ouya became the eighth project in Kickstarter history to raise more than a million dollars, and the
fastest ever to do so. Ouya hit the total in just over eight hours, shattering the previous record. Here’s how long it took each million-
dollar project to cross the threshold:
• OUYA — 8 hours and 22 minutes
• Double Fine Adventure — 17 hours and 30 minutes
• Pebble — 27 hours
• Wasteland 2 — 41 hours
• Shadowrun Returns — 7 days
• The Order of the Stick — 27 days, 5 hours
• Amanda Palmer — 27 days, 12 hours
• Elevation Dock — 57 days
• As you might expect, Ouya also has the biggest single-day total in Kickstarter history. It received more than $2.5 million in pledges from
its launch on Tuesday at 8:44am to Wednesday at 8:44am. Here are the ten biggest 24-hour tallies on Kickstarter so far:
• OUYA — $2,589,687.77
• Double Fine Adventure — $1,064,652.05
• Pebble — $863,132.92
• Wasteland 2 — $555,407.84
• Shadowrun Returns — $378,008.28
• Amanda Palmer — $223,348.50
• The Icarus Deception — $178,194.00
• Elevation Dock — $161,507.00
• Penny Arcade Sells Out — $151,221.17
• gTar — $138,891.00
• Ouya’s big day lead to another Kickstarter record: dollars pledged in a single day. On February 9th Kickstarter saw more than $1 million
in pledges in a day for the first time. Until yesterday, Kickstarter’s biggest day was on April 12th, when nearly $1.9 million was pledged.
The amount pledged yesterday, July 10th? $3,174,820.

77. http://trendwatching.com/trends/infographics/presumers/

78. Perks
and rewards

80. American Grandmaster
a Patrick Million FILM
Directed by
Patrick Million
Executive Producer
CJ Cornell

81. Rewards Crowdfunding
• Incentives & perks
• Pre-Orders
• Pre-Sumers
• Market Validation

83. Rewards don’t have to worth $$

85. Crowdfunding
economic growth
In Arizona

86. www.propelarizona.com
@PropelArizona

87. Slides available at
https://www.slideshare.net/cornell2/