Crowdfunding                   Is there Safety in Numbers?                                   Randy Smerik                 ...
It’s all about the Movement of Money                   Entrepreneurs want to use it      Investors want to see it “do some...
Typical Funding Sources Today                                                                       Traditional           ...
Enter: Crowdsourcing & Social Networks                                                             Traditional            ...
People with Money: What do they Want?                                           Equity            $           $           ...
Crowdsourcing Money                            Equity               • How it works today                                  ...
Crowdsourcing Money                            Equity               • How it works today                                  ...
Crowdsourcing Money                            Equity               • How it works today                                  ...
Crowdsourcing Money                            Equity               • How it works today                                  ...
Crowdsourcing Money                            Equity               Two Key Options:                                      ...
The Crowdfunding Dream     Equity                  General              Non-accredited     Offering                Solicit...
The Dream is now (almost!) a Reality     • JOBS Act was approved by the US Congress       and Senate and signed into law i...
And, What helped make this Dream                     come true?         The latest chapter in this story started in       ...
Michael Migliozzi had a Great Idea     • He read in Nov 2009 that       Pabst Brewing Company       was for sale for $300 ...
15
Reality Swoops In …   • In March 2010, the SEC contacted Michael   • He was violating the Securities Act of 1933 by     of...
… But the Dream Prevails!    • Patrick McHenry (US Congressman) and others      watched what happened to Michael and used ...
JOBS Act of 2012                             IPO On-Ramp                            CrowdfundingMontreal Startup Festival ...
JOBS Act of 2012                             IPO On-Ramp     For Emerging Growth companies (<$1B sales)     • Confidential...
JOBS Act – Crowdfunding!     • Creates a special exemption so companies can sell       securities (equity) by way of crowd...
The Good: (equity-based) Crowdfunding     • Entrepreneurs need access to money, and here is       another way to get up to...
The (potentially*) Ugly:                     (equity-based) Crowdfunding     • Disclosure and Communication – imagine havi...
Crowdsourcing Money - Prioritize        What People with Money      How it Happens Today                                  ...
Pebble Technologies is a                Huge (non-equity) Success StoryMontreal Startup Festival    Randy Smerik         2...
Better the devil you know …Montreal Startup Festival        Randy Smerik      25July 11-13, 2012
My Advice     • Keep “traditional” funding as your “Plan A”     • Weave in social crowd-based methods if at all       poss...
Good Luck!                             Bon Chance!                              Thank You!                            Merc...
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Startupfest 2012 - Crowdfunding, Is there safety in numbers?

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Transcript of "Startupfest 2012 - Crowdfunding, Is there safety in numbers?"

  1. 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. 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. 3. Typical Funding Sources Today Traditional VC’s Super Angels Convertible Debt $$$ Angels Seed & Incubator Note: there is lots of overlap Friends & between these categories in the Family real world Desire for Control/InformationMontreal Startup Festival Randy Smerik 3July 11-13, 2012
  4. 4. Enter: Crowdsourcing & Social Networks Traditional Super VC’s Angels Convertible Debt Angels Seed & $$$ Incubator Social Graph and Viral Friends & Family Desire for Control/InformationMontreal Startup Festival Randy Smerik 4July 11-13, 2012
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 18. JOBS Act of 2012 IPO On-Ramp CrowdfundingMontreal Startup Festival Randy Smerik 18July 11-13, 2012
  19. 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. 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. 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. 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. 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. 24. Pebble Technologies is a Huge (non-equity) Success StoryMontreal Startup Festival Randy Smerik 24July 13-15, 2011
  25. 25. Better the devil you know …Montreal Startup Festival Randy Smerik 25July 11-13, 2012
  26. 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. 27. Good Luck! Bon Chance! Thank You! Merci Beaucoup!Montreal Startup Festival Randy Smerik 27July 13-15, 2011
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