Hi, welcome to this course on crowdfunding. I'm Professor Ethan Mollick. I teach here at Wharton about innovation entrepreneurship, and a lot of my research and time is devoted to studying crowdfunding. I wanted to share some of the findings that I've come up with, and other researchers have developed, over the last few years with you here in a sort of a practical setting to help you understand crowdfunding better. And hopefully improve your crowdfunding skills and your outcomes. So we're going to do that in a series of talks. The first of them is this introduction here, where we'll discuss a little bit about what crowdfunding is, and why we know what we know. And some sort of general guidelines that we'll talk more in some future segments. So let's get started. In this talk, we're going to cover what crowdfunding is. Crowdfunding is the raising of a relatively small amount of money from a relatively large amount of people over the Internet. And there's a lot of ways of doing this. There's actually four different kinds of crowdfunding. We'll discuss all four of those briefly. And we'll concentrate on just a couple of them for the class. But the principles generally apply to many different kinds of crowdfunding as well. We're also going to discuss why you might want to approach crowdfunding. And we'll discuss some of the data that I have that will be the basis of a lot of this talk and how you might go about crowdfunding. And I'll introduce you to some of the other topics we'll be covering later on in this session. So crowdfunding is a bit of a tricky term because it's used to describe lots of different things. And, in fact, it's often misused to describe many things. In reality, there are four main types of crowdfunding. We call them equity crowdfunding, reward based crowdfunding, patronage or charity crowdfunding and finally peer-to-peer lending. We're not really going to discuss peer-to-peer lending in this class. It's a very big topic beyond just this sort of crowdfunding we're discussing here. Though some of the lessons that you'll learn about other kinds of crowdfunding could apply. Instead, we're going to concentrate on the other three kinds of crowdfunding. First is equity crowdfunding. In equity crowdfunding, you're actually seeking investment from the crowd. So people make an investment in your company. They get a number of shares in return for that investment. As a result of that, they are able to buy a piece of your company. And when you eventually, hopefully sell or IPO your company, they get a piece of the return from that. So it's having people act like mini venture capitalists or angel investors. This was made legal in the United States by the Jobs Act of 2012, which just started to be put into production by the SEC in May of 2016. And we're not going to go into huge detail into the many different kinds of complicated crowdfunding approaches, whether that's Title II or Reg A+ or Reg CF. These are all different approaches to crowdfunding with different sorts of limits and different approaches. And in other parts of the world, there are other legal restrictions of crowdfunding. So equity crowdfunding is a relatively new type of crowdfunding. It's not that large compared to other crowdfunding formats. So in the United States as of 2017, the beginning of 2017, there's only about $4 million a month being raised through equity crowdfunding through these methods. But it is growing rapidly. And some of the research that we've done shows that equity crowdfunding works a lot like reward crowdfunding, which I'll discuss next. So equity crowdfunding big players include things like OurCrowd, WeFunder, if you're doing video games, Fig and AngelList. So those are all equity crowdfunding companies, where you're seeking to raise money from investors. And the investors in return want either a piece of your profit, or they want a piece of the exit when your company eventually sells. The second major kind of crowdfunding is reward-based crowdfunding. And this has been the big form of crowdfunding over the last few years. If you've heard of Kickstarter, Indiegogo, that's reward-based crowdfunding. In reward-based crowdfunding, you seek money from people, and in return, they get some sort of a reward. That reward could be a ticket to your play, a walk-in part in your movie, your 3D printer when you finish making it, or sponsoring some sort of artistic cultural or social event that matters to them. Sometimes, it works like pre-ordering. I'm paying you money for you to make a product, and eventually ship that product to me. This has been a very successful form of crowdfunding. Over $4 billion has been raised through this method, and it's growing rapidly. There's not a lot of regulation, or sort of difficult steps in the way. And it is probably the most established approach to crowdfunding. It's the one that most research has been done on, and that I'll probably discuss in most detail, as we go through the rest of the slides. Then, finally, there's patronage or charity-based crowdfunding. This kind of crowdfunding is about supporting a person or a cause, and receiving money to support that person. It's growing very quickly. There tends to be many smaller campaigns rather than large crowdfunding events. Big players might include things like GoFundMe, where you might raise money to help pay for medical bills, or college tuition, or to support a charitable cause or some sort of disaster relief. Or else something like Patreon, where you might support people on YouTube or writers that you like by giving them some amount of money per month or per thing they produce. So this is the charitable form, or patronage form of crowdfunding. All three kinds have some fairly basic things in common, though it changes from case to case. This is an example of a Kickstarter project. And what you can see is the basic features of a crowdfunding campaign. There's some sort of description of why you're trying to raise money. There might be a video in most cases describing your pitch for this sort of thing. There are people backing the project. Hopefully, you'll get hundreds of backers, thousands of backers. Most of crowdfunding approaches have a goal. Some minimum amount of money you're trying to raise. If you don't raise that amount of money, in many cases you get no money at all. Only once you cross that threshold, do you successfully get money from your backers. Now, this might change, depending on what platform you're using. But that's sort of general sense, is that most of the platforms do has some sort of goal or amount you're trying to raise. You will have some information on who's creating the project or why they're creating it. And you may have some sense of rewards. What is that money being spent on? So for equity crowdfunding, you'll know what percentage of the company you'll get for every $1 you invest, or percentage of the profit you get for every $1 you invest. For reward-based crowdfunding, you might be given the idea that for $10 you get a t-shirt, or for $100 you get a ticket, or whatever the sort of prizes are. What's important to realize about crowdfunding is that it does many different things for many people. So not just is it an investment tool, but available to support a charity, or medical expense. But even something like Kickstarter, which is reward based crowdfunding, people turn to it for may reasons. So here's some results from a survey that I did of tens of thousands of Kickstarter project creators. And what you could see is that people were creating projects for all sorts of reasons. People said that their campaign helped them advance their career. Over a quarter of people in the more product oriented categories of Kickstarter said that it helped increase the money they made. For a decent amount of people, it helped them switch careers, or even find new job opportunities. And you can see there's also a social element. Even on Kickstarter, which was not like GoFundMe where you're trying to raise money for a cause, you could see that people often are creating projects to do some sort of social good, to help out a community, do something important for society. So crowdfunding can serve many purposes and many goals, no matter what type you pick. And we'll go into this in much more detail but money is just a piece of what crowdfunding provides. So even if you're trying to raise money, you also tend to get social connections as a result, you can get publicity as a result. It can lead to additional funding opportunities, to opportunities to find new jobs, either for you, or to hire for your organization. So crowdfunding done right is more than about money. It does a whole bunch of other things as well. So next, why should you listen to me? So there's a lot of people out there offering crowdfunding advise. And I think what I can bring to the table that's a little bit different is imperical analysis, and the fact that I'm actually not selling anything either. So, for both those reasons, I'm interested in trying to understand crowdfunding is a phenomenon, and help it make sense to the outside world. So I've actually conducted a lot of research on this. I've surveyed over 65,000 Kickstarter projects, over 250,000 Kickstarter backers with the help of Kickstarter. So I'll be using results from those surveys to help inform some of the things I'm telling you. I also gathered quotes from lots of people, and suggestions that they had for people who are looking to raise money in Kickstarter. That will also appear in these presentations. I've done a little bit of additional analysis on things like Patreon. I'll share some of that data with you, though it's not as in-depth as Kickstarter. And I'll also tell you about what other people have found, other academics looking at these topics. And I'll give them credit where I do that, and try and share some of the most interesting and exciting results that we're finding in crowdfunding. So this is empirically research based results. Ultimately, I want to help you figure how to crowdfund. So we´re going to spend some time talking about the basics of crowdfunding. We're going to do a little bit on how you set up your goals, how you set up rewards. I will talk about some of the details in how you do pitching, and how you prepare to do crowdfunding. And I'll be recording some interviews also with some prominent people. Both people who've run important platforms in the crowdfunding world, and also people who've been successful in raising crowdfunding dollars before. So we'll work together to figure out how to make crowdfunding successful for you. How to make sure your project's right for crowdfunding. And to increase your chances of success, both in raising money and in delivering what you promised to your backers or investors.
