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Crowdfunding - Sweden and Trends

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Presentation made for Finansinspektionen on Crowdfunding in Sweden in March 2014 providing an overview of and trends in crowdfunding.

Presentation made for Finansinspektionen on Crowdfunding in Sweden in March 2014 providing an overview of and trends in crowdfunding.

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  • Entrepreneurs need funding – we give them the chance to test, iterate and grow. Fast.Everyone wants to be part of the next big thing in business – without having to spend millions. Ownership is the best form of participation. Millions of ordinary citizens are a massive force.
  • Snabbutveckling, 600% på 3 årMassolution: Four established types of crowdfunding exist: donation-based, reward-based, equity-based, and lending or debt-based. In May 2013, there were around 800 crowdfunding platforms worldwide, and crowdfunding initiatives raised an estimated 2.6 billion USD in 2012, including about 945 million USD in Europe through 470 000 campaigns. Furthermore, Massolution predicts that in 2013 crowdfunding will reach volumes of 5.1 billion USD worldwide, with about 1.3 billion USD in European markets. To date, business and entrepreneurial activity comprises 16.9% of all crowdfunding activity while Information and Communication Technology projects comprise a mere 4.8% of activity. According to 2010 market data, Sweden’s venture capital firms made the highest value of investments relative to GDP in Europe and had the sixth highest investment value in the world (EVCA, 2012).There are no public statistics for crowdfunding for Sweden as a whole but, as of May 2013, and based on the publicly available numbers, we have estimated the amount raised in Sweden to be around USD 4 million, with 1 million of this through reward-based crowdfunding and 3 million through equity-based crowdfunding. The primary platform that deals with entrepreneurs, FundedByMe, raised around USD 3.8 million of that across 744 successful projects. Excluding FundedByMe itself, 25 of these successes were Technology or Internet related (by the platform’s definition), but only three have been entrepreneurial ICT projects as opposed to the more common social projects. Two raised USD 38 000 through reward-based crowdfunding while the third raised USD 150 000 through equity crowdfunding.Who are Sweden’s crowdfunders (Skoglund & Stiernblad 2013). The survey was sent out by email to 2931 traditionalcrowdfunders (ie not equity) who visited FundedByMe between June 2012 and March 2013 to fund projects. 390 completed the survey - response rate was 13.3 %. The majority of the survey respondents were males with an average age of 38 years.Educated experts?85 % of respondents have university degree42% had knowledge in same field as project they funded49 % reported to have been better at judging project quality based on previous experienceBut first time investors who see themselves as risk lovers77 % never bought shares in unlisted company before 47 % of “the crowd” classified themselves as entrepreneurs – compared to only 7 % of Swedish population (2012)41 % risk lovers
  • https://www.kickstarter.com/projects/kungfury/kung-furyKung Fury is a visually spectacular action comedy that has its foundation in 80s cop movies.
  • Neuro-endocrine cancer (NET)virus that destroys this cancer in lab experiments – here in Uppsala – not a cure, but a treatmentSwedish government funding andSwedish Cancer Society funding. The grants cover the research to develop viruses for therapy but they are not big enough to run clinical trials with an advanced medicinal product where special rules apply (viruses falls under this category in Europe).The Swedish research team placed much of their research in to the public domain- no patents
  • 85 % of respondents have university degree (vs 16% of women and 22% of men42% had knowledge in same field 49 % reported previous experience47 % of “the crowd” classified themselves as entrepreneurs – compared to only 7 % of Swedish population (2012)41 % risk loversWho are Sweden’s crowdfunders (Skoglund & Stiernblad 2013). The survey was sent out by email to 2931 traditionalcrowdfunders (ie not equity) who visited FundedByMe between June 2012 and March 2013 to fund projects. 390 completed the survey - response rate was 13.3 %. The majority of the survey respondents were males with an average age of 38 years.
  • 85 % of respondents have university degree (vs 16% of women and 22% of men42% had knowledge in same field 49 % reported previous experience47 % of “the crowd” classified themselves as entrepreneurs – compared to only 7 % of Swedish population (2012)41 % risk loversWho are Sweden’s crowdfunders (Skoglund & Stiernblad 2013). The survey was sent out by email to 2931 traditionalcrowdfunders (ie not equity) who visited FundedByMe between June 2012 and March 2013 to fund projects. 390 completed the survey - response rate was 13.3 %. The majority of the survey respondents were males with an average age of 38 years.
  • 49%: “because I liked the project and I wanted to support the idea”25%: “because I like, know or have heard of the project initiator”
  • Equity < 10% of total crowdfunding Politicians generally positive -> entrepreneurs + job creationBut regulation is lagging in most countriesUSA passed JOBS Acts ”Jumpstart Our Business Startup Act”Title II for accredited investors this fallTitle III for non-accredited investors later in fall9 mln accredited investors in USA3% invested USD 23 bln in 2012 in startups and growth companies8.8 times more than total global crowdfunding marketNon-accredited investors even larger groupJobs actRobert redford movie – maturing of platformKickstarter as platform for gadgetsEquity vs donation/reward-based?Travel agents Only a complementBitcoin crowdfunding, equityParticipation – but how to leverage resources of crowd in better way?Secondary market for crowd equity?Legislation changes – regulations -, tax..Impact on business – entrepreneurs, new product – donation, , new service… perhaps equity?Africa Togo example of 3d printerBrck –Crowd it – music festival But how to get resources other than financial?
  • Jumpstart Our Business Startups Act or JOBS Act in april 2012
  • Crowdfunding research
  • Jerusalem, Israel November 4, 2013: OurCrowd, Israel’s leading equity crowdfunding platform for accredited investors, announced today that it has closed a strategic co-investment partnership with GE Ventures, the corporate venture capital unit of GE.Under the agreement, GE Ventures will have the right to co-invest with OurCrowd in select early stage companies in the areas of energy, healthcare, software and advanced manufacturing.OurCrowd’s CEO Jon Medved said, “We are thrilled to partner with GE Ventures on co-investments via our equity crowdfunding platform.  GE brings unequalled expertise and experience in a broad range of technologies and businesses that will add real value to our portfolio companies and to our investor community. To partner with a company of GE’s size and stature will allow OurCrowd to help break new ground in innovation finance”.GE Venture’s CEO Sue Siegel said, “OurCrowd has created a unique platform for dynamic early stage origination and funding. They offer a quality investment environment and the partnership will give GE increased access to early innovation.”OurCrowd recently announced that it has successfully raised over $22 million for its 28 portfolio companies, including eight financings in excess of $1 million. It has already launched eight follow-on rounds for its companies to support expansion of its operation.Jon Medved, concluded, “We believe we have reached a real milestone and transformative moment in the world of high tech finance. We are looking forward to driving innovation forward with GE Ventures, faster and harder than ever before.”http://blog.ourcrowd.com/index.php/co-investment-ge-ventures/About OurCrowdOurCrowd is an equity crowdfunding platform for accredited investors only who wish to invest in Israeli and global early stage companies. Managed by a team of well-known investment professionals and led by serial entrepreneur Jon Medved, OurCrowd selects opportunities, invests its own capital and brings these startups to its accredited membership. Members choose those deals they invest in via OurCrowd-managed partnerships. OurCrowd investors must meet stringent accreditation criteria and invest a minimum of $10,000 per deal. OurCrowd provides post investment support to its portfolio companies, assigning industry experts as mentors and taking board seats.About GE VenturesGE Ventures is an international corporate venture capital unit, based in Silicon Valley, which enables startups, partners and GE to accelerate growth and commercialize innovative ideas that will help make the world work better – to build, power, move and cure. The unique combination of capital, technical and commercial expertise, infrastructure, and the GE global network of businesses and partners, helps our partners to advance industries and improve lives. For more information visit www.geventures.com or follow us on Tumblr.
  • http://www.kickstarter.com/projects/benatural/be-natural-the-untold-story-of-alice-guy-blachehttp://www.prweb.com/releases/FundAnything/DonaldTrump/prweb10700690.htmExec producer robertredford, narrated by jodie foster
  • http://www.bbc.com/capital/story/20131125-sparking-innovation-from-bottom
  • Foldit - Comp Sci at University of Washington in Seattle, researcher in Seattle - use the cursor fold the proteininto its optimum shape. The only rules are based on physics—opposite charges attract, atomic bonds have limited angles of rotation, and the parts of the molecule that stick to water tend to point outward. The closer your model's properties adhere to those rules, the more points you get. Brainflight – Max Planck Institute -  map the way brains are wired up.
  • Polstjärnaär en insamlingsstiftelsevarsmålärattmotverkautanförskap bland barn ochungdomariSverige. Härpåwebbplatsenhar du en unik möjlighetattskänkapengardirekt till små men viktigalokalaprojekt. Genom demkan barn ochungdomarfåframtidstro, kännadelaktighetochfåförebildersomblirledstjärnorpåvägen mot vuxenlivet. Förnärvarandeärfokuspåprojektistor-Stockholm. Polstjärnahar 90-konto ochärgodkändavSvenskinsamlingskontroll. - See more at: http://polstjarna.se/#sthash.CzyCoesf.dpuf
  • Transcript

    • 1. Crowdfunding ROBIN TEIGLAND & CLAIRE INGRAM STOCKHOLM SCHOOL OF ECONOMICS MARCH 2014 ROBIN.TEIGLAND@HHS.SE CLAIRE INGRAM@HHS.SE
    • 2. Crowdfunding in Sweden Dr. Robin Teigland Associate Professor Stockholm School of Economics robin.teigland@hhs.se @robinteigland Claire Ingram PhD Student Stockholm School of Economics claire.ingram@hhs.se @Claire_EBI
    • 3. Today’s presentation What is crowdfunding? From crowdfunding to crowd equity Why and how to crowdfund? Trends in crowdfunding Q&A
    • 4. What is Crowdfunding? Accumulation of small investments in individual projects by large number of individuals (the “crowd”) via or with help of Internet and social networks (De Buysere et al., 2012) Picture: FundedByMe
    • 5. Local Stockholm success story: Flippin’ Burgers Money raised: SEK 36,502 / €4,000 Number of investors: 186 Date funded: September 2011 Sector: Food
    • 6. Enabling local, small-scale solutions http://travel.cnn.com/best-americana-restaurants-europe-023346
    • 7. Crowdfunding 2012 Massolution 2013 Worldwide $2.7 bln 470k projects 800+ platforms Est. 5.5 mln (Oct 2013)
    • 8. A true story That made GBP 2 million for cancer research at Uppsala University
    • 9. Most popular crowdfunding activities Massolution 2013
    • 10. Who are the funders? Educated experts(?) University degree Knowledge and previous experience in same field “In-crowd” “Entrepreneurs” Risk lovers Skoglund & Stiernblad 2013
    • 11. Who are the funders? Educated experts(?) 85% respondents have university degree (vs 16% women/22% men in general population, 2013) 42% had knowledge in same field as project they funded 49% reported to have been better at judging project quality due to previous experience “In-crowd” 47% of “the crowd” classified themselves as entrepreneurs – compared to only 7% of Swedish population (2012) 77% never bought shares in unlisted company before 41% risk loversSkoglund & Stiernblad 2013
    • 12. Four forms of crowdfunding Form Benefits for funders Donation- based Donation Intangible benefits. Reward-based Donation or pre- purchase Rewards in addition to intangible benefits. Equity-based Investment Return on investment if company does well. Rewards sometimes also offered and intangible benefits may motivate too. Debt-based Loan Repayment of loan with interest. Alternatively intangible benefits if loan given interest-free. Ingram & Teigland 2013
    • 13. Skoglund & Stiernblad 2013
    • 14. Investment Role and Type Investment Value 2012 Angel Investors Invest large amounts, make few investments, take equity share. 3.3-3.9 billion SEK p.a. (approximation based on 2008 data) Soft Loans State loans at high interest rates that can be written off if enterprise dissolution. 2.4 billion SEK p.a. (ALMI alone) Venture Capitalists Invest large amounts, make few investments, take equity share. 1.8 billion SEK p.a. (2010 data) Crowdfunding Donation, pre-purchase/reward, or equity, depending on platform and entrepreneur’s preferences. Estimated 37 million SEK p.a. Ingram & Teigland 2013
    • 15. Crowd equity raising its head… • Politicians generally positive -> entrepreneurs + job creation • But regulation is lagging in most countries • US, Italy, Denmark changing regulations enabling equity Massolution 2013 Millions of dollars
    • 16. Increasing focus on Crowd Equity in Sweden UK 2010 To Sweden 2013 Equity only Finland 2011 To Sweden 2013 Equity only Sweden 2011 Equity Reward
    • 17. Crowd Equity in Sweden SEK 28 mln (Nov 2012)
    • 18. Equity crowdfunding EU/EEA No country can require a prospectus to be prepared for rounds of <EUR 100 000 For rounds of >EUR 5 million, EU prospectus always required Sweden For rounds of >EUR 2.5 million, EU prospectus always required <150 ‘non-qualified’ investors without prospectus
    • 19. http://www.fundable.com/blog/crowdfunding-infographic---the-jobs-act-explained
    • 20. Ingram &Teigland, 2013 Why Crowdfund? Test market or establish user base Marketing & publicity for your product or service Faster time to market Funding (may not be large amount of money though) Screening device for investors Access greater pool of investors: further afield or people without right “connections” Skills, connections, and other resources
    • 21. “It’s not just about the money.” 685 people talking about product on social media Australia’s “Major Disaster Department” World’s largest telecom
    • 22. International expansion
    • 23. How to succeed? Choose right platform– and crowdfunding form Going global or local? What do you give in return (thank you, reward, pre- purchase, shares)? Keep in mind platform fees Define the concept Make it easily understood Make it personal? Feed the crowd Ensure initial critical mass (social media, newspapers) Keep followers up to date MAGIC
    • 24. Going global? Going local? Reward-based? l Niche product or service? l Global appeal? l What are rewards? l How do you reach international audience – and stand out? l Community-specific product or service? l Local appeal? l What are rewards? l Does community know about you – can you reach them? l Local benefits Equity-based? l Looking to scale up? l How much equity? l How to value your project? l Looking to establish foothold? l How much equity? l How to value your project? l Local benefits – experience, connections etc? Lots to think about....
    • 25. But potential downsides… Project may not be understood by crowd Not significant amounts of money • More about publicity • But changing with crowd equity Other skills/resource may not be forthcoming Lots of small investors problem in equity crowdfunding?
    • 26. Trends in Crowdfunding Peer to peer lending Niche Community Hybrid platforms Enterprise sponsored Internal corporate crowdfunding LIVE! Economic development Celebrities …
    • 27. Peer to peer lending
    • 28. Crowdfunding for research
    • 29. Strategic partnership +
    • 30. Celebrities entering the scene Executive Producer Robert Redford Narrated by Jodie Foster Donald Trump’s crowdfunding site Open to anyone
    • 31. Internal corporate crowdfunding iFundIT More than 300 participants Entry-level workers to VPs Given $2,000 to invest over 8 week period Choose internal projects in which to invest
    • 32. Enabling entrepreneurs anywhere Ushahidi of Kenya Kenya
    • 33. “Made in Africa” 3D printer (Togo) Winner of International Space Apps Challenge http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/5712/E-Waste-3D-Printer-to-Mars.aspx
    • 34. For all ages - including teenagers http://www.indiegogo.com/projects/afripreneurs-and-the-leapfrog-effect
    • 35. Many unanswered questions Cross border investments? Secondary markets for crowd equity shares? Taxation issues for investors and entrepreneurs? Lack of support and strategic advice for both investors and entrepreneurs? How to better leverage “crowd” for resources?
    • 36. Venture capitalists are the travel agents of yesterday – here today, gone tomorrow. Venture capitalist in Silicon Valley – June 2013
    • 37. http://www.slideshare.net/eteigland/crowdfunding-in-sweden
    • 38. Thank you! Questions ? Image via NewYorker.com
    • 39. Robin Teigland robin.teigland@hhs.se Stockholm School of Economics www.knowledgenetworking.org www.slideshare.net/eteigland www.opencrowds.org RobinTeigland Photo: Lindholm, Metro Photo: Nordenskiöld If you love knowledge, set it free… För mer information: •Research article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263965 •Industry report: http://blog.fundedbyme.com/robin-teigland/
    • 40. What’s next?

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