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 1995—Two grad students meet at Stanford 
 1996—Begin work on Internet app 
 1998—Receive $100k from angel investor 
 ...
Total Crowdfunding Market
 What is it? 
› Roots in Crowdsourcing and Microfinance 
 Wikipedia 
 Grameen Foundation 
› Making a big task possible ...
 Many older examples 
› Jerry Lewis’ Labor Day Telethon 
› NPR Fund Drives 
› United States saving bonds
Early adopters: often 
used by rock groups 
going on tour 
•CD of concert 
•Concert tickets 
•Back-stage pass
Crowdfunding 
Donation Investment
 Donation crowdfunding 
› Kickstarter, Indiegogo, RocketHub and more 
› Rewards are often included 
 Similar to an NPR f...
 Donation crowdfunding 
› All or nothing vs. keep it all 
› Platform/credit card fees—8% to 10% 
› Huge marketing/public ...
 Risk of “cannibalizing” University 
contributions 
› Loyal pool of potential donors 
› Target other potential donors 
 ...
University 
Donation CF 
Specific 
Non- 
Research 
Projects 
Annual 
Fund 
Specific 
Research 
Projects
Unrestricted 
Contributions to 
Annual Fund 
• Specific time period 
• Columbia 
• Vassar
Contributions to 
Diverse Student 
Projects 
• Band uniforms 
• Campus flood 
• Sports team 
• Philanthropic trip
 Research-specific donation Crowdfunding 
› University’s own site, or 
› Independent academic platforms 
 Experiment.com...
 Research-specific donation 
crowdfunding 
› Promotional efforts are essential 
 Social media 
 Possible use of Univers...
 Research-specific donation 
crowdfunding 
› Tax-deductions 
 Up to 40% “discount” 
 Cannot contribute to benefit speci...
University research 
platforms 
• Donations to universities 
• May tap into alumni 
• Tax-deduction likely 
• Generally, n...
Non-university 
research platforms 
• University may/may 
not be involved 
• Tax-deduction 
uncertain
University 
Donation CF 
Specific 
Non- 
Research 
Projects 
Annual 
Fund 
University 
Startups 
Specific 
Research 
Proje...
 Startup businesses 
› ~75% of inventions are never licensed 
› University can license technology to new 
company 
› Univ...
 Startup businesses 
› Working capital has to come from 
somewhere 
 Further research, production, marketing, etc. 
› Al...
 Startups vs. licensing 
› Pro: more potential gain as part owner 
› Pro: gains linked to company-wide performance 
› Pro...
Brookings Institution: “University Start-ups: Critical to 
Technology Transfer”
 Types of Crowdfunding “return” 
› None—donations to a cause (22%) 
› Reward 
 Usually something consumed 
 Often the n...
 Financial return = “security” status under 
Federal and State securities laws 
› Regulate the offering of securities 
 ...
 Regulation D exemptions—pre-JOBS Act 
› Rule 506—unlimited dollar amount 
 Unlimited “accredited” investors and up to 3...
 JOBS Act of 2012 
› Two big changes relative to capital raising: 
 Title II—general solicitation for offerings up to 
$...
Title II Crowdfunding 
• Not just for startups 
• Early adoption by real 
estate developers 
• Prodigy Network closed 
on ...
 JOBS Act of 2012 
› Title III Crowdfunding exemption 
 SEC published proposed rules October 23, 2013 
 Comments receiv...
 JOBS Act of 2012 
› Title III “Crowdfunding” exemption 
 Must use a “funding portal ” or registered 
broker/dealer 
 G...
 JOBS Act of 2012 
› Title III “Crowdfunding” exemption 
 Investment limitations over 12-month period 
 If income or ne...
 JOBS Act of 2012 
› Title III “Crowdfunding” exemption 
 Disclosure requirements 
 Narrative description of the compan...
Is Crowdfunding better under Title II or III? 
Title II 
(accredited only) 
Title III 
Maximum offering Unlimited $1 milli...
 Federal investment Crowdfunding 
› Title II: Available now 
 Only accredited investors 
› Title III: Not yet available ...
 State securities regulation 
› Most states require registration or an exemption 
 Usually have exemption for offerings ...
 State attempts to sidestep federal rules 
› Single-state crowdfunding 
› Reliance on intrastate exemption 
› Offering to...
 Practical startup issues 
› Lack of liquidity 
 No trading market initially and perhaps 
indefinitely 
› Possible large...
 Frequently Asked Questions: 
› Isn’t licensing much easier?
 Frequently Asked Questions: 
› Isn’t licensing much easier? 
› Is it realistic to expect alumni and others to 
donate fo...
 Frequently Asked Questions: 
› Isn’t licensing much easier? 
› Is it realistic to expect alumni and others to 
donate fo...
 Frequently Asked Questions: 
› Could startups just do an IPO?
 Frequently Asked Questions: 
› Could startups just do an IPO? 
› Can a university use a broker?
 Frequently Asked Questions: 
› Could startups just do an IPO? 
› Can a university use a broker? 
› Why not solicit ventu...
 Frequently Asked Questions: 
› Could startups just do an IPO? 
› Can a university use a broker? 
› Why not use venture c...
 How big is the market? 
› Forbes magazine 
 Title II--$20 billion 
 Accredited investors 
 Title III--$2 trillion 
 ...
 Follow Innovosource to monitor university 
investment activity 
› http://www.gapfunding.org/community/news/ 
› Recent ne...
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
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Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh

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There has been much news coverage of Internet-based crowdfunding recently, including stories about entrepreneurs who have funded diverse projects through donation crowdfunding on popular sites, such as Kickstarter, as well as stories about the developing federal securities laws for investment crowdfunding. With large dedicated pools of alumni, universities and colleges may be particularly well positioned to take advantage of crowdfunding as a means of funding the development of inventions and innovations by their scientists. The securities laws with respect to investment crowdfunding are still evolving and will impact how broadly this trend will be adopted.

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Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh

  1. 1.  1995—Two grad students meet at Stanford  1996—Begin work on Internet app  1998—Receive $100k from angel investor  1998—Form company with license of Stanford patent  1999--$25 million of venture capital  2004—IPO market value of $1.67 billion  2004—Stanford yields $336 million
  2. 2. Total Crowdfunding Market
  3. 3.  What is it? › Roots in Crowdsourcing and Microfinance  Wikipedia  Grameen Foundation › Making a big task possible by breaking it down into multiple smaller tasks › Internet is ideal for this
  4. 4.  Many older examples › Jerry Lewis’ Labor Day Telethon › NPR Fund Drives › United States saving bonds
  5. 5. Early adopters: often used by rock groups going on tour •CD of concert •Concert tickets •Back-stage pass
  6. 6. Crowdfunding Donation Investment
  7. 7.  Donation crowdfunding › Kickstarter, Indiegogo, RocketHub and more › Rewards are often included  Similar to an NPR fund drive › University programs typically have nominal rewards
  8. 8.  Donation crowdfunding › All or nothing vs. keep it all › Platform/credit card fees—8% to 10% › Huge marketing/public relations burden  Social media
  9. 9.  Risk of “cannibalizing” University contributions › Loyal pool of potential donors › Target other potential donors  Non-alumni  Alumni non-givers  Millenials/recent grads › Increases donor base for future contributions
  10. 10. University Donation CF Specific Non- Research Projects Annual Fund Specific Research Projects
  11. 11. Unrestricted Contributions to Annual Fund • Specific time period • Columbia • Vassar
  12. 12. Contributions to Diverse Student Projects • Band uniforms • Campus flood • Sports team • Philanthropic trip
  13. 13.  Research-specific donation Crowdfunding › University’s own site, or › Independent academic platforms  Experiment.com  Petridish.org  Fundageek.com--closed
  14. 14.  Research-specific donation crowdfunding › Promotional efforts are essential  Social media  Possible use of University donor lists › Rewards
  15. 15.  Research-specific donation crowdfunding › Tax-deductions  Up to 40% “discount”  Cannot contribute to benefit specific individual
  16. 16. University research platforms • Donations to universities • May tap into alumni • Tax-deduction likely • Generally, no rewards
  17. 17. Non-university research platforms • University may/may not be involved • Tax-deduction uncertain
  18. 18. University Donation CF Specific Non- Research Projects Annual Fund University Startups Specific Research Projects
  19. 19.  Startup businesses › ~75% of inventions are never licensed › University can license technology to new company › University receives minority equity stake › Some universities have “incubators”
  20. 20.  Startup businesses › Working capital has to come from somewhere  Further research, production, marketing, etc. › Alumni are a receptive pool of potential investors
  21. 21.  Startups vs. licensing › Pro: more potential gain as part owner › Pro: gains linked to company-wide performance › Pro: promotes local job growth › Con: big licensee likely more stable › Con: big licensee likely has management experience
  22. 22. Brookings Institution: “University Start-ups: Critical to Technology Transfer”
  23. 23.  Types of Crowdfunding “return” › None—donations to a cause (22%) › Reward  Usually something consumed  Often the new product being produced › Prepurchase right  Right to buy the new product › Financial  Ownership or interest on a loan
  24. 24.  Financial return = “security” status under Federal and State securities laws › Regulate the offering of securities  “Registration” unless exempt  Significant disclosure requirements › Regulate those engaged in offering and sale
  25. 25.  Regulation D exemptions—pre-JOBS Act › Rule 506—unlimited dollar amount  Unlimited “accredited” investors and up to 35 “sophisticated” investors  “Accredited” investors  Net worth (excluding home) > $ 1 million  Annual income > $200,000 ($300,000 with spouse)  Often include “angel” investors
  26. 26.  JOBS Act of 2012 › Two big changes relative to capital raising:  Title II—general solicitation for offerings up to $5 million if directed solely at accredited investors  Title III—up to $1 million through a “funding portal” to unlimited number of investors
  27. 27. Title II Crowdfunding • Not just for startups • Early adoption by real estate developers • Prodigy Network closed on two hotel projects • $31 million • $25 million
  28. 28.  JOBS Act of 2012 › Title III Crowdfunding exemption  SEC published proposed rules October 23, 2013  Comments received for 90 days  CANNOT use exemption until final rules are published  Still waiting for final SEC rules
  29. 29.  JOBS Act of 2012 › Title III “Crowdfunding” exemption  Must use a “funding portal ” or registered broker/dealer  General solicitation—possible with Internet  May raise up to $1 million during a 12-month period
  30. 30.  JOBS Act of 2012 › Title III “Crowdfunding” exemption  Investment limitations over 12-month period  If income or net worth is < $100,000: greater of $2,000 or 5% of income or net worth  If income or net worth is > or = to $100,000: up to $10% of income or net worth but not more than $100,000
  31. 31.  JOBS Act of 2012 › Title III “Crowdfunding” exemption  Disclosure requirements  Narrative description of the company and its business  Financial statements  Offering > $500,000, audited financial statements
  32. 32. Is Crowdfunding better under Title II or III? Title II (accredited only) Title III Maximum offering Unlimited $1 million No. of investors Unlimited Unlimited Investment limit per investor Unlimited Yes, based on income/net worth Investor disclosure None required As specified by SEC Intermediary Not required Required General solicitation Yes No (social media)
  33. 33.  Federal investment Crowdfunding › Title II: Available now  Only accredited investors › Title III: Not yet available  Crowdfunding “for the masses”
  34. 34.  State securities regulation › Most states require registration or an exemption  Usually have exemption for offerings to limited number of investors › New Federal crowdfunding exemption under Title III will preempt state registration requirements › States can still pursue fraud investigations
  35. 35.  State attempts to sidestep federal rules › Single-state crowdfunding › Reliance on intrastate exemption › Offering to residents of a single state › General solicitation possible
  36. 36.  Practical startup issues › Lack of liquidity  No trading market initially and perhaps indefinitely › Possible large number of stockholders with diverse goals
  37. 37.  Frequently Asked Questions: › Isn’t licensing much easier?
  38. 38.  Frequently Asked Questions: › Isn’t licensing much easier? › Is it realistic to expect alumni and others to donate for research?
  39. 39.  Frequently Asked Questions: › Isn’t licensing much easier? › Is it realistic to expect alumni and others to donate for research? › Do universities ever retain majority ownership in tech startups?
  40. 40.  Frequently Asked Questions: › Could startups just do an IPO?
  41. 41.  Frequently Asked Questions: › Could startups just do an IPO? › Can a university use a broker?
  42. 42.  Frequently Asked Questions: › Could startups just do an IPO? › Can a university use a broker? › Why not solicit venture capital firms?
  43. 43.  Frequently Asked Questions: › Could startups just do an IPO? › Can a university use a broker? › Why not use venture capital firms? › What is impact on other stages of financing?
  44. 44.  How big is the market? › Forbes magazine  Title II--$20 billion  Accredited investors  Title III--$2 trillion  Non-accredited investors
  45. 45.  Follow Innovosource to monitor university investment activity › http://www.gapfunding.org/community/news/ › Recent news:  University of California has new $250 venture fund  Innovate Indiana startup gets $10 million in venture round  Illinois starts fund for startups at IL-based universities

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