There was standing room only at June 19th 2012,
“Crowdfunding: Disrupting Traditional Funding Models”panel hosted by MIT/Stanford Venture Lab (VLAB). The event was held on the Stanford campus at the Li Ka Shing Center for Learning and Knowledge.The talk centered around the passage of the federal
crowdfunding legislation as part of the
JOBS Act, and its implications.
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.
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
Mr. Esposti outlined four distinct types of crowdfunding platforms, and noted that over $1.5 billion have been raised through all four types, and that reward-based platforms are the fastest growing ones.
- 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>>
Mr. Rubin started his talk on a very personal note, sharing the story of his father’s passing when he was only 15 years old. Ten years later Rubin decided to start a charity for cancer and used online platforms but noted that the process, in his words, “sucked”. He launched Indiegogo on January 17th, 2008 as an alternative to existing crowdfunding platforms.
He talked about how crowdfunding is not a new concept, noting that a version of it was used to raise funds for the base of the Statue of Liberty. He shifted into explaining the concept of Indiegogo, namely to be a global crowdfunding platform where anyone can raise funds for anything. In 2009 Indiegogo was open to all, and today hosts 70K campaigns, in 200+ countries, with millions of dollars raised, and a contribution happening every 55 seconds.
Mr. Rubin underscored that Indiegogo is a “no judgment platform” that does not filter the kinds of campaigns created. He noted that successful campaigns have had good pitches, have been proactive, and have been able to find an audience that cares about the campaign.
He also spent a few minutes dispelling myths related to starting a company:
- 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.
- startup myth: you need a lot of initial funding to start—Rubin said Indiegogo bootstrapped for a long time.
- startup myth: you need a business plan—Rubin dismissed this myth saying, instead, that you need a 1 pager with your idea
- 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.
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.
socially responsible ventures. She is the CEO of Cutting Edge Capital (check out their great blog), and a Partner at Katovich & Kassan Law Group.
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