IT FOR FINANCIAL SERVICESIS356

Agenda

• Crowdfunding basics• What is it?• How does it work?• Who uses it?• Legal issues?

• Examples• Success stories

• Next steps

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What is crowdfunding?• Crowdfunding is an internet-inspired mechanism for raising

money or sponsorship from members of the public for a small project or business venture 

• Crowdfunding has its origins in community, not-for-profit, social causes, and arts-based ventures, which members of the public were inclined to support for benevolent reasons. 

• Crowdfunding wasn’t initially seen as having any significant business angle but that has changed as banks have ratcheted up their lending requirements

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Basics

• Types of Crowdfunding• Good cause crowdfunding (Kickstarter.com, goFundme.com)

• Arts festivals

• Rewards-based crowdfunding (fundable.com)• Music recording – receive a CD in return

• Pre-order crowdfunding (fundable.com)• Be one of my first customers when I launch my product/service

• Debt-based crowdfunding (Prosper.com, LendingClub.com)• Fixed repayment schedules

• Start-up equity crowdfunding (illegal until recently) • Become a shareholder

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Statistics

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Examples

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Kiva - microfinance

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Kiva – My Portfolio

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Kiva – Loyola Chapter

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Lender Participation (not so fast…)

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Getting Funding (easier said than done)

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How does Prosper.com work?

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Legal Woes

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• Jumpstart our Business Startups (JOBS) Act• President Obama signs the JOBS Act on April 5, 2012. • Intended to be friendly to crowdfunding since earlier legislation

prohibited public solicitation for private companies raising funds.• The act came into effect on January 1, 2013• The SEC has missed the deadline to repeal the ban on general

solicitation and advertising of private placements as required by the JOBS Act, and has not yet proposed a substantive set of rules to enable crowdfunding to function effectively.

• When enacted, limited to a maximum of $1 million in funding• Companies seeking to raise > $500,000 in funding need to supply

audited financial statements

What’s the hold up?

• The SEC is trying to do three things:• Provide an easy, low-cost way for startups to raise money online• Protect investors from new forms of fraud• Create incentives for financial firms to run crowdfunding websites

• The average investor is potentially misinformed, dumb or both• Title III allows anyone to buy shares• Title II allows solicitation to buy shares buy shares• Applies to accredited investors > $1 million

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Crowd Fraud… top 5 scam attempts

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Crowd Fraud… actually there is a #1

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What’s next?

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Source: The Motley Fool

Source: thenextweb.com

Crowdfunding-as-a-service