Crowdfunding in the Nordics

Trends, Challenges and Opportunities for Entrepreneurial Growth

September 2015

Shneor, Rotem

What is Crowdfunding?

Definition:

• “The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet”. (Oxford Dictionary)

What is it good for?• Alternative source of early seed funding for entrepreneurial ventures.

• Conceptual fine-tuning through real-time interaction with stakeholders.

• Opportunity to recruit initial customer base and brand promoters.

Democratization• Alowing more entrepreneurial ventures to launch.• Allowing more investors to contribute to venture growth.

Where Crowdfunding Fits on the Funding Lifecycle ?

Amou

nt o

f cap

ital n

eed

Idea/Inception

(based on: World Bank (2013) “Crowdfunding Potential for the Developing World”)

Prototype Startup Early Growth

Expansion

Fund

ing

Gap

Reward and Donation Crowdfunding

Equity and Business lending Crowdfunding

Venture Capital

Institutional Investors and Investment Banks

Angel Investors

Crowdfunding Types

Equity-based

Lending-based

- Funders receive an interest in the form of equity in the venture they fund or, alternatively, revenue or profit-share arrangements.

- Funders often receive fixed periodic income and expect repayment of the original principal investment. Split between:- Peer-2-Peer consumer lending.- Peer-2-Peer business lending.

Reward-based

Donation-based

- Funders receive non-monetary rewards often take the form of a token of appreciation or the pre-purchasing of products or services.

- Funders donate to causes that they want to support, with no expected compensation.

(Based on: Crowdsourcing LLC Report, 2012; EY-Cambridge Alternative Finance Report, 2015)

(Based on: Massolution 2015)

$9.46 Billion

$3.26 Billion

$3.4 Billion

• In 2014, the total volume of funds raised through crowdfunding grew 167% to reach USD 16.2 billion (Massolution 2015) .

• Massolution forecasts doubling in global crowdfunding volumes in 2015, to USD 34.4 billion (Massolution 2015).

• World Bank Report estimates global volumes of investment crowdfunding will reach USD 93 billion by 2025 (World Bank 2013).

• It is estimated that there are over 1500 active Crowdfunding platforms operating globally.

• Lending-based is the largest category worth USD 11 billion in 2014, but most attention on reward and equity (Massolution 2015).

Global Figures

• Entrepreneurship – $ 6.7 Billion.

• Social causes – $ 3 Billion.

• Films and performing arts – $ 2 Billion.

• Real Estate – $ 1 Billion.

• Music and recording arts – $ 735 Million.

Top 5 Most Popular Categories in 2014:

(Massolution, 2015)

Nordic Crowdfunding Facts and Figures

(Based on: EY-Cambridge Alternative Finance Report, 2015)

Nordic Crowdfunding Facts and Figures

(Based on: EY-Cambridge Alternative Finance Report, 2015)

• Crowdfunding in the Nordics is still new, but growing fast.

• Crowdfunding campaigns running on Nordic platforms during the last two years have raised over EUR 25 million (excluding crowd-lending).*

• Nordic companies have raised over EUR 15 million by running campaigns on global platforms such as Kickstarter and Indiegogo, as well as localized platforms of other international players (i.e. CrowdCube), and niche platforms (i.e. PledgeMusic).

• Overall, it is roughly estimated that (non-lending) Crowdfunding initiatives involving Nordic companies comprise close to 6% of (non-lending) European Crowdfunding volumes thus far.

Nordic Crowdfunding Facts and Figures

Sweden-based Earin raised USD 1,6 million for producing the world’s smallest wireless ear buds.

Norway-based Red Thread Games raised USD 1,5 million for developing a sequel to the successful ‘Longest Journey’ game series.

Sweden-based Laser Unicorns raised USD 630K for producing a film titled “Kung Fury”.

Sweden-based Flyte raised close to USD 617K for producing their levitating light bulb.

Sweden-based Memoto raised USD 550K for producing the Lifelong Camera and App.

Denmark-based Full Control raised USD 368K for developing the Jagged Alliance game.

Denmark-based Thermodo raised USD 336K for developing a thermometer for mobile devices.

Nordic Stars on

(Source: http://www.kickstarter.com/)

Denmark-based Airtame raised close to USD 1,5 million for developing their wireless HDMI solution.

Sweden-based Flic raised close to USD 896K for developing their wireless smart button.

Finland-based Iron Sky Universe raised close to USD 786K for film production as part of the Iron Sky film series (in 2 campaigns).

Sweden-based Wheelys raised closed to USD 473K for promoting their mobile café concept (in 2 campaigns).

Norway-based Future Home raised close to USD 200K for developing home control app.

Iceland-based MailPile raised close to USD 163K for developing their Open Source Free web-mail client.

Swedish Minna Sundberg raised close to USD 151K for a hard-cover print of the webcomic “Redtail’s Dream”.

Nordic Stars on

(Source: http://www.indiegogo.com/)Minna

Sundberg

Nordic Crowdfunding Platforms

Nordic Crowdfunding Alliance (Today)

• 69% of platforms operating in the Nordic region indicate needs for regulatory clarifications and amendments.

• Denmark and Finland leading the way.

Greatest Challenge: Existing Regulation

(Based on: EY-Cambridge Alternative Finance Report, 2015)

Virtual Starvation for Early Seed Funding in the Nordic Region

Nordic Crowdfunding Alliance – why?

Relative newness and limited resources of local Crowdfunding platforms.

Governmental priority of support for entrepreneurial development.

Rapid international growth and strong global players

www.nordic-crowdfunding.com

Academic curiosity about new phenomenon

The Nordic Crowdfunding Alliance is a partnership of key players in the Nordic crowdfunding scene committed to: (1) developing an ever more crowdfunding-friendly Nordic region, while (2) empowering and facilitating entrepreneurial growth in the region.

• Established in March 2014 as a university-industry partnership.

• Made possible through the support of the Nordic Innovation High Growth Entrepreneurship Program

• By 2017 the alliance aims to enter independence mode.

• The alliance is open and endorses a vision of a wider alliance in the near future.

Nordic Crowdfunding Alliance

* Spreading knowledge and understanding of Crowdfunding, its benefits and challenges.

* Developing a thriving Nordic community of Crowdfunders that can become one of the most vibrant in the world.

* Launch of an alliance website that will allow backers to identify interesting projects across the Nordics.

* An option allowing campaigners to run and international Nordic level campaigns.

* Knowledge sharing between platforms and the public via research.

Nordic Crowdfunding Alliance – Current Activities

National Events

Community Development

Alliance Website

Nordic CampaignsKnowledge Sharing

The alliance members are jointly responsible for successfully helping entrepreneurs, artists and social ventures raise EUR 9,6 million in period between mid-2012 to Mid-2015. • EUR 7 Million in equity-Crowdfunding of 40 projects (average EUR 175K).

• EUR 2,6 million in reward-Crowdfudning of 822 projects (average EUR 3,123).

Representing a thriving and growing Nordic Crowdfunding community:

- Over 30.000 community members across the Nordic countries.

Nordic Crowdfunding Alliance - Facts and Figures

Nordic Crowdfunding Alliance - Facts and Figures 2012-july 2015

Booomerang(Denmark)

Bidra.no(Norway)

Karolina(Iceland)

Mesenaatti(Finland)

Type Reward Reward+ Donation

Reward Reward

# Successful campaigns

470 66 136 150

Success rate 35,1% 35,7% 77,4% 70,9%

Growth Dec 14 to Jul 15

Total -37%

Successful – 55%

Total -131%

Successful – 83%

Total -43%

Successful – 43%

Total -103%

Successful – 108%

(* for period mid-2012 to mid-2015)

* 78% success in 2015.

Invesdor(Finland)

Equity + Lending

40

41,7%*

Total -23%

Successful – 54%

Total = growth in total number of campaigns in first half of 2015.Successful = growth in number of successful campaigns in first half of 2015.

Record Breaking Camapaigns (2012- july 2015)

Booomerang(Denmark)

Bidra.no(Norway)

Invesdor(Finland)

Karolina(Iceland)

Mesenaatti(Finland)

Copenhagen Boulders

(sport center)

EUR 42.430 (DKK 314,000)

Car for sick child

(social cause)

EUR 15,245 (NOK 134,153)

Cityvarasto

(storage facilities firm)

EUR 1.037.385

Stundin

(newspaper)

EUR 45,520

NEW RUN – Pekka Hyysalo

(film)

EUR 31,746

Reward-based Crowdfunding in Iceland 2013-July 2015

2013 2014 2015 (jan-aug)0

50

100

150

200

250

300

350

114

245

308

148

189

41

KarolinaGlobal

EU

R (i

n th

ousa

nds)

(Indiegogo and Kickstarter)

Mar

ket s

hare

(in

mon

etar

y va

lue)

(Indiegogo and Kickstarter)

2013 2014 2015 (jan-aug)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

44%

56%

88%

56%

44%

12%

GlobalKarolina

Reward-based Crowdfunding in Iceland 2013-July 2015

MailPile raised close to EUR 121K for developing their Open Source Free web-mail client.

Haafell Goat Farm raised close to EUR 91K for saving the unique Iceland Goat from extinction.

Árstíðir raised close to EUR 50K for producing a music album.

Stundin raised close to EUR 45K for launching ‘new’ newspaper.

Sirkus Íslands raised close to EUR 42K for purchase of new circus tent.

Best 5 Icelandic Campaigns

(Sources: Indiegogo, Karolina, Kickstarter)

Main campaign success factors

Networking• Dedication and persistence in social media interactions.• Active networking throughout campaign process.• Capitalize on existing fan and follower base.

1

Based on the experience from thousands of campaigns on the alliance’s platforms, we have summarized critical success factors:

Attractive Presentation

• Attractive, good and clear project description.• Use of images and videos.• Highlighting unique aspects of concept.

2

Good Preparation

• Good business and marketing plans.• Reasonable valuations and target/goal sums.• Communication on multiple media platforms.

3

Reasons for refusing campaigns

Purpose• Moral, Ethical and social aspects.• Unbacked claims of dubious nature.

1

• Up to 55% of proposed reward-based campaigns, and up to 80% of equity-based campaigns are refused publication.

Goals • Unrealistic targets and goal sums.• Excessive valuations of own project.

2

Project • Unorganized and non-responsive project owners.• Insufficient planning and information about project.

3

Some interesting facts and figures

• According to an interview with Indiegogo founder in 2011 (HuffingtonPost 2011):- Campaigns with video receive 122% more funding than campaigns with only text.

- Campaigns involving teams raise 70% more than those with just one person involved.

• Spelling errors in crowdfunding campaign texts decrease the chance of success by 13% (StartupInnovation.org).

• Once crossing the 30% milestone, statistics suggest that crowdfunders have nearly a 90% rate of success (Crowdclan 2013).

• On Kickstarter, about two-thirds of women-led projects reach their funding goals, which is compared with a little less than one-third of male-tech ventures. The research showed that women are 13% more than likely to meet their goals on the crowdfunding giant (Crowdfundinsider 2014).

Code of Ethics

to providing information in good time to crowdfunders or potential corwdfunders with regard to platform services and all costs and related charges.

1

• We the members of the Nordic Crowdfunding Alliance commit :

2

3

to a due diligence and authentication process when approving projects and individuals prior to campaign publication, in accordance with each platforms guidelines.

to publish campaigns in accordance with nationals laws, and those that are not against or hurting human rights of third parties (individuals or groups).

Code of Ethics (continued)

to use best filtering practices for avoiding publication of campaigns including false, inaccurate and misleading information.

4

5

6

to accept campaigns where campaign owners are actively engaged and fully committed to campaign completion.

to best security practices in IT systems and data protection.

1. Rise of equity-crowdfunding.

2. Rise of niche platforms.

3. Regulatory amendments and adaptations across countries, to better fit a Crowdfunding reality.

4. Increased focus on educating stakeholders in the market about the prospects and practice of Crowdfunding.

5. Increasing competition and consolidation across platforms.

6. Increasing professionalism of campaign management following stronger competition among campaign owners for the Crowd’s attention and support.

Trends and Future perspectives

The Danish government owned fund Markedsmodningsfonden made public, that it will match fund DK crowdfunding projects. Projects have to be pre-accepted by the fund, and the match funding can go as high as DKK 1.461.000.

Finnish equity-Crowdfunding platform Invesdor chosen as a 2014 Red Herring Top 100 European Startups. - Surpassing EUR 4 million in funds raised via equity-crowdfunding for

entrepreneurs in March 2015.

Finnish equity-Crowdfunding platform Invesdor first in Europe to receive MiFID license covering all 31 EEA countries.

GOOD NEWS

Thank you for the attention…

Dr. Rotem Shneor

Centre for Entrepreneurship - School of Business and Law, University of Agder, Norway

E-mail: rotem.shneor@uia.no

Nordic Crowdfunding Alliancewww.nordic-crowdfunding.com