Stanford’s VLAB June 2012 Panel Talks Crowdfunding

Agreeing to Disagree

The panel was moderated by the founder of Crowdsourcing.org, Carl Esposti and featured players with  unique perspectives associated with the field. The main points of distinction between panelists had to do with the benefit (or proposed detriment) that is to come part and parcel with the new crowdfunding legislation. And while each panelist had significant experience and perspective on the topic, the opinions clashed on key points, making it all the more interesting to listen in on.

The evening also included a video message from Senator Scott Brown who introduced the crowdfunding legislation as a way to fund innovation. He noted that the SEC is reviewing the legislation and is accepting comments at SEC.gov.

Below are some main points raised by the speakers.

Moderator: Carl Esposti, Founder at Crowdsourcing.org <<@crowdsourcing_>>

Mr. Esposti gave a little background on his experience in crowdfunding, which he began exploring 4 years ago. He entered the field to determine the ‘why’ of why bets are placed on whether companies succeed and to dive deeper into determining if crowdfunding companies would eventually lead to job creation. Since his entry into crowdfunding he noted that crowdfunding has taken on larger platforms and payment systems.

Crowdfunding.org conducted a survey which found a growth in the number of crowdfunding platforms from 450+ as of April 2012 to a projected 500+ by the end of 2012. He noted that the steep expansion of platforms is partially attributable to the ‘low cost of admission’ since there is often not much required in the way of setting up a crowdfunding platform.

He highlighted the U.S. as home to the greatest number of crowdfunding platforms, but noted that Europe is on the heels, and there are increasing efforts in Britain, Brazil, Netherlands, Australia, India, and China.

A key point Mr. Esposti set forth is the impetus behind crowdfunding as a way to support and grow entrepreneurship. He stated that crowdfunding is largely grounded in our desires for social experiences, to be part of something bigger than ourselves.

4 Types of Crowdfunding Platforms

• equity-based crowdfunding (incl. revenue + profit-sharing)
• reward-based crowdfunding
• lending-based crowdfunding
• donation-based crowdfunding

Panelist: Slava Rubin, CEO & Co-Founder at Indiegogo <<@gogoslava>>

1. startup myth: there’s a right time to start a company—Rubin said there’s not. His team started in 2008, he noted that perseverance is a key trait for startup success.
2. startup myth: you need a lot of initial funding to start—Rubin said Indiegogo bootstrapped for a long time.
3. startup myth: you need a business plan—Rubin dismissed this myth saying, instead, that you need a 1 pager with your idea
4. startup myth: it’s all about the idea—Rubin stated that while ideas are interesting, its actually about the expectation created from the idea.

Panelist: Ryan Caldbeck, CEO & Founder, CircleUp <<@CircleUp>>

Ryan Caldbeck recently founded CircleUp as a platform to present investment opportunities to investors. He explained that investors visit the site, read about various new companies, invest in them, wire funds over, and become an owner in the company.

Mr. Caldbeck expressed his skepticism about the new federal crowdfunding legislation which opens investment to non-accredited investors in addition to accredited investors (the current rule). He is concerned that venture capital (VC) firms will just make a decision to pass on companies seeking crowdfunding.

Panelist: Daniel Zimmermann, Partner, WilmerHale <<@WilmerHale>>

Mr. Zimmerman is a partner at WilmerHale, a corporate law firm with offices in a dozen cities across the globe. His specializes in corporate and transactional law. Regarding the new crowdfunding legislation, he said it would be interesting to see what specifics the SEC arrives at with regards to implementation and compliance.

He provided a background explanation of the crowdfunding legislation stating the JOBS Act laid groundwork for the bill. Mr. Zimmerman mentioned that where existing crowdfunding efforts and platforms are aimed at simplifying the raising of capital through loans and donation, there is a possibility that the new legislation may complicate the process.

Panelist: Don Ross, Managing Director/Founder and Board Member, HealthTech Capital and Sand Hill Angels <<@Sandhillangels>>

Don Ross provided a venture capital perspective to the conversation. In addition to being the Founder and Managing Director of HealthTech Capital, a funding group made of private investors supporting startups at the intersection of healthcare and technology, Mr. Ross is also a Board Director of Sand Hill Angels. Sand Hill Angels is a consortium of successful Silicon Valley tech professionals who are dedicated to supporting formation and growth of startup companies.

Mr. Ross stated that rewards-based crowdfunding has generally been ‘totally embraced’ by the VC community and noted that equity-based crowdfunding models may have hidden ‘landmines’ and issues, especially with regards to the how the new crowdfunding legislation may be implemented. He pointed to messy capital tables, liability issues, and requirements for public disclosure of business plans (eliminating the ‘stealth mode’ advantage most startups aim for) as issues that could become further complicated by legislative requirements.

He also stated that allowing non-acredited investors could raise accountability issues, increase responsibilities of entrepreneurs, and may even create situations ripe for abject fraud.