Startupfest 2012 - Crowdfunding, Is there safety in numbers?

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  • 1. Crowdfunding Is there Safety in Numbers? Randy Smerik Founder/CEO, Osunatech, Inc. randy@osunatech.comMontreal Startup Festival Randy Smerik 1July 11-13, 2012
  • 2. It’s all about the Movement of Money Entrepreneurs want to use it Investors want to see it “do something”Montreal Startup Festival Randy Smerik 2July 11-13, 2012
  • 3. Typical Funding Sources Today Traditional VC’s Super Angels Convertible Debt $$$ Angels Seed & Incubator Note: there is lots of overlap Friends & between these categories in the Family real world Desire for Control/InformationMontreal Startup Festival Randy Smerik 3July 11-13, 2012
  • 4. Enter: Crowdsourcing & Social Networks Traditional Super VC’s Angels Convertible Debt Angels Seed & $$$ Incubator Social Graph and Viral Friends & Family Desire for Control/InformationMontreal Startup Festival Randy Smerik 4July 11-13, 2012
  • 5. People with Money: What do they Want? Equity $ $ Interest (%) $ $ Philanthropy – “Give Back” $ $Entrepreneur Product and Goods Be part of something $ Fun, Passion, Status $Montreal Startup Festival Randy Smerik 5July 11-13, 2012
  • 6. Crowdsourcing Money Equity • How it works today with Crowdsourcing: Interest (%) – Pledge and Donation Platforms – ArtistShare - RocketHub Philanthropy – “Give Back” – Oldest form of crowdsourcing money Product and Goods Be part of something Fun, Passion, StatusMontreal Startup Festival Randy Smerik 6July 11-13, 2012
  • 7. Crowdsourcing Money Equity • How it works today with Crowdsourcing: Interest (%) – Pledge and Donation Platforms – Kickstarter - Indiegogo Philanthropy – “Give Back” – Most Popular Today Product and Goods Be part of something Fun, Passion, StatusMontreal Startup Festival Randy Smerik 7July 11-13, 2012
  • 8. Crowdsourcing Money Equity • How it works today with Crowdsourcing: Interest (%) – Micro-Lending Platforms – Kiva – FirstGiving Philanthropy – “Give Back” – Typically very small amounts ($25-$100) Product and Goods Be part of something Fun, Passion, StatusMontreal Startup Festival Randy Smerik 8July 11-13, 2012
  • 9. Crowdsourcing Money Equity • How it works today with Crowdsourcing: Interest (%) – Pee-to-Peer Lending – Prosper - LendingClub – Typical limits of $25K to Philanthropy – “Give Back” $35K Product and Goods Be part of something Fun, Passion, StatusMontreal Startup Festival Randy Smerik 9July 11-13, 2012
  • 10. Crowdsourcing Money Equity Two Key Options: • Accredited Investors Interest (%) – Capital Marketplaces – LocalStake - AngelList Philanthropy – “Give Back” • Non-accredited Investors – Crowdfunding (future) Product and Goods – Seedrs (UK), 400+ getting ready in the US Be part of something Fun, Passion, StatusMontreal Startup Festival Randy Smerik 10July 11-13, 2012
  • 11. The Crowdfunding Dream Equity General Non-accredited Offering Solicitation investors • provide real • Make the • not limited to ownership in equity high net the company available to a worth large group of individuals folks This has been illegal in the United States since the Securities Act of 1933Montreal Startup Festival Randy Smerik 11July 11-13, 2012
  • 12. The Dream is now (almost!) a Reality • JOBS Act was approved by the US Congress and Senate and signed into law in April 2012 – JOBS = Jumpstart of Business Startups • The intent is to legalize Crowdfunding • It is revolutionary – and a big surprise that it happened so quickly – but also filled with elements you need to be aware ofMontreal Startup Festival Randy Smerik 12July 11-13, 2012
  • 13. And, What helped make this Dream come true? The latest chapter in this story started in November 2009 …Montreal Startup Festival Randy Smerik 13July 11-13, 2012
  • 14. Michael Migliozzi had a Great Idea • He read in Nov 2009 that Pabst Brewing Company was for sale for $300 million • 5 days later he launched BuyABeerCompany.com • He started a crowdsource campaign, and in 60 days he had $210M in pledgesMontreal Startup Festival Randy Smerik 14July 11-13, 2012
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  • 16. Reality Swoops In … • In March 2010, the SEC contacted Michael • He was violating the Securities Act of 1933 by offering a unregistered security through a general solicitation to the public – Serious Stuff for the SEC! • A cease and desist order was issued, and the site was shut down in June 2010 • Note: Michael did get $300M in Pledges first! Montreal Startup Festival Randy Smerik 16July 11-13, 2012
  • 17. … But the Dream Prevails! • Patrick McHenry (US Congressman) and others watched what happened to Michael and used it as a Rallying Cry for change • In Feb 2011, legislative language was underway • The Bill passed Congress in November 2011 – the Senate in March 2012 – and President Obama signed it into law in April • 12 months from draft to law – very rare! • The Jumpstart our Business Startups (JOBS) Act was bornMontreal Startup Festival Randy Smerik 17July 11-13, 2012
  • 18. JOBS Act of 2012 IPO On-Ramp CrowdfundingMontreal Startup Festival Randy Smerik 18July 11-13, 2012
  • 19. JOBS Act of 2012 IPO On-Ramp For Emerging Growth companies (<$1B sales) • Confidential pre-review of registration filings • Quiet period relaxed: research reports allowed • 2 years of financials instead of 5 • Extended compliance time for new accounting rulesMontreal Startup Festival Randy Smerik 19July 11-13, 2012
  • 20. JOBS Act – Crowdfunding! • Creates a special exemption so companies can sell securities (equity) by way of crowdfunding • Can raise up to $1M in a 12-month period • Must use an intermediary funding portal/platform • Individual unaccredited investors have limits on their investment – If your income/net worth is less than $100K, then $2,000 or 5% per year – If greater than $100K, then 10% up to $100K/year • The SEC has until Dec 2012 to write the rules on how companies can use Crowdfunding and how Intermediaries must function – There are already 400+ Intermediaries engaged in the processMontreal Startup Festival Randy Smerik 20July 11-13, 2012
  • 21. The Good: (equity-based) Crowdfunding • Entrepreneurs need access to money, and here is another way to get up to $1M • Investors gain visibility to lots of opportunities • Good for companies not traditionally targeted by VCs • Good for folks in geographies without willing investors • Could be better capitalization structure than having lots of “custom” friends & family and Angel deals • Potential “pipeline” for VCsMontreal Startup Festival Randy Smerik 21July 11-13, 2012
  • 22. The (potentially*) Ugly: (equity-based) Crowdfunding • Disclosure and Communication – imagine having to share plans and status with 1,000 people • Anyone can invest – your top competitor can invest $100 and get all your info • Financial & legal – need audited financials and a potentially long list of legal docs • Can only communicate on the Intermediary – no use of Facebook or Twitter to solicit interest • Scare off VCs –VCs may balk at 1,000 co-investors • Exits – need to understand voting and other rights *language still being writtenMontreal Startup Festival Randy Smerik 22July 11-13, 2012
  • 23. Crowdsourcing Money - Prioritize What People with Money How it Happens Today Example Players Want with Crowdsourcing Equity Crowdfunding Seedrs (UK) (Mostly Non-accredited) (future) 400+ getting ready in US Equity LocalStake, AngelList Capital Marketplace (Mostly Accredited) P2P Capital Markets Prosper, LendingClub Interest (%) P2P Lending Zopa Philanthropy – “Give Back” Micro-Lending Kiva Pledging & Donation Product and Goods Kickstarter, IndieGoGo Platforms Be part of something - Pledging & Donation ArtistShare, RocketHub Fun, Passion, Status PlatformsMontreal Startup Festival Randy Smerik 23July 11-13, 2012
  • 24. Pebble Technologies is a Huge (non-equity) Success StoryMontreal Startup Festival Randy Smerik 24July 13-15, 2011
  • 25. Better the devil you know …Montreal Startup Festival Randy Smerik 25July 11-13, 2012
  • 26. My Advice • Keep “traditional” funding as your “Plan A” • Weave in social crowd-based methods if at all possible to your funding strategy – Really work to understand your audience and have a plan; just as you would for target customers – Prioritize Pledging Platforms like Kickstarter and Capital Marketplaces like AngelList and LocalStake • Watch what happens with Crowdfunding in the US during this year as the SEC writes the rulesMontreal Startup Festival Randy Smerik 26July 11-13, 2012
  • 27. Good Luck! Bon Chance! Thank You! Merci Beaucoup!Montreal Startup Festival Randy Smerik 27July 13-15, 2011
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