5.9 crowd funding, a new source of finance for innovation and sustainability
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Vincenzo ButticèPolitecnico di Milano / Management, Economics and Industrial Eng. Dept.
Vincenzo ButticèPolitecnico di Milano . Department of Management Economics and Industrial Engineering.
Learning Network on Sustainability (EU asia-link)Learning Network on Sustainabile energy systems (EU edulink)
course System Design for Sustainability (SDS)
Crowdfunding, a new source of finance for innovation and sustainability
Vincenzo ButticèPolitecnico di Milano / Management, Economics and Industrial Eng. Dept.
CONTENTS
WHAT IS CROWDFUNDING?Crowdfunding ModelsPeople Involved And MotivationDeterminants of SuccessRegulation
REWARDS BASED CROWDFUNDINGFeaturesHow To Present a CampaignAn Example: Kickstarter
CASE STUDYA Successful StoryAn Unsuccessful Story
. …
1. WHAT IS CROWDFUNDING?
TRADITIONAL METHODS TO FINANCE A START-UP
• FAMILY AND FRIENDS
• BANK LOAN
• BUSINESS ANGEL
CROWDFUNDING
• Crowdfunding involves an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes (Lambert and Schwienbacher , 2010)
THE EVOLUTION OF THE PHENOMENON
1. WHAT IS CROWDFUNDING?• CROWDFUNDING MODELS
CROWDFUNDING MODELS
DONATION-BASED: backers donate with no expectation of any kind of rewards, driven by philanthropic motivation.
EQUITY-BASED: Investors receive equity in the company.
LENDING-BASED: The entrepreneur or company borrows money and must repay it.
REWARD-BASED: the proponents offer non monetary rewards in exchange for backers’ contribution.
DONATION-BASED CROWDUNDING
DONATION-BASED: backers donate with no expectation of any kind of rewards, driven by philanthropic motivation.
http://buonacausa.org/http://buonacausa.org/cause/standup
SOCIAL
CHARITY
THIS FUNDING METHOD IS THE EVOLUTION OF ONLINE FUNDRAISING
< 10.000 $
REWARD-BASED CROWDUNDING
REWARD-BASED: the proponents offer non monetary rewards in exchange for backers’ contribution.
https://www.kickstarter.com/?ref=navhttps://www.kickstarter.com/projects/600730948/the-mwezi-light-made-in-africa-for-africa?ref=live
CREATIVE
NON-MONETARY REWARDS
< 100.000 $
LENDING-BASED CROWDUNDING
LENDING-BASED: The entrepreneur or company borrows money and must repay it.
http://www.prosper.com/https://www.thincats.com/Apps/WebObjects/thincats-pfp.woa/1/ra/Website/14624/14625/index.html
SMALL BUSINESSES
INTEREST AND REPAYMENT OF THE LOAN
THIS FUNDING METHOD IS SLIGHTLY DIFFERENT FROM PEER TO PEER LENDING AND MICROFINANCE.
EQUITY-BASED CROWDUNDING
EQUITY-BASED: Investors receive equity in the company
https://www.seedrs.com/startups/glassup
INNOVATIVE START UPS
DIVIDEND
THIS IS THE MOST CONTROVERSIAL CROWDFUNDING MODEL
< 250.000 $
1. WHAT IS CROWDFUNDING?• ACTORS AND MOTIVATION
ACTORS INVOLVED
PROPONENT: submits to the crowd his idea
BACKERS: finance worthy ideas
CROWDFUNDING PLATFORM: creates the condition for collaboration
WHY PROJECT PROPONENTS CHOOSE CROWDFUNDING?
Crowdfunding can be an useful alternative funding form
Crowdfunding promotes the development of an ecosystem around the project.
Crowdfunding increases the awareness of clients’ preferences
Crowdfunding can be an engine for radical technological innovation
CHALLANGES FOR THE PROPONENTS
CROWDFUNDING MAKES PUBLIC YOUR IDEAS
TIME CONSUMING ACTIVITIES
PEOPLE SEE YOUR FAILURE
WHY BACKERS PARTICIPATE IN A CROWDFUNDING CAMPAIGN?
INTRINSIC MOTIVATION: driven by an interest or enjoyment in the task itself.
EXTRINSIC MOTIVATION: refers to the performance of an activity in order to attain an outcome.
TAXONOMY OF THE BACKERS
FOR PROFIT BACKERS: receive equity for their money
EARLY ADOPTERS: customers who pre-order a product
SOCIAL BACKERS: people interested in being part of a community
CULTURAL BACKERS: philanthropists who don’t expect any kind of rewards
CROWDFUNDING PLATFORMS
MATCHING MARKET-PLACE
ALL OR NOTHING: pledged money is only collected if the fundraising goal is met. If the goal is not met, no money is collected.
KEEP IT ALL: even if the target capital is not reached, the entrepreneurs receive the money.
1. WHAT IS CROWDFUNDING?• DETERMINANTS OF SUCCESS
DETERMINANTS OF SUCCESS
SOCIAL CAPITAL: number and strength of ties
PROJECT QUALITY
EARLY STAGE FUNDING
THE INVESTMENT PATTERNS ARE INDEPENDENT FROM GEOGRAPHICAL DISTANCE
1. WHAT IS CROWDFUNDING?• THE REGULATION
THE REGULATION TIME LINE
1. THE REWARD-BASED MODEL• FEATURES
REWARDS BASED CROWDFUNDING
REWARD BASED CROWDFUNDING IS THE MAINLY ADOPTED CROWDFUNDING MODEL
HIGHEST SUCCESS RATE
RELATIVELY LOW RISKS
LOW COMPLEXITY AND UNCERTAINTY
MINIMUM REQUIREMENTS
PROJECT DESCRIPTION
REWARDS
PROPONENT’S INFORMATION
VIDEO
1. THE REWARD-BASED MODEL• HOW TO PRESENT A CROWDFUNDING CAMPAIGN
HOW TO PRESENT A FUNDING CAMPAIGN
PRELIMINARY STEPS
DESIGN YOUR CAMPAIGN
FOLLOW YOUR CAMPAIGN
SUBMIT YOUR PROJECT
HOW TO PRESENT A FUNDING CAMPAIGN
PRELIMINARY STEPS:
HAVE A GOOD IDEA
EVALUATE ECONOMICALLY YOUR IDEA
PREPARE A BUDGET
ENGAGE PEOPLE AROUND THE PROJECT
IMPROVE YOUR REPUTATION
HOW TO PRESENT A FUNDING CAMPAIGN
DESIGN YOUR CAMPAIGN:
DESCRIBE YOUR IDEA
PREPARE A VIDEO
DEFINE REWARDS
PREPARE A COMPLETE CV
HOW TO PRESENT A FUNDING CAMPAIGNPROPOSE YOUR FUNDING CAMPAIGN
FOLLOW YOUR CAMPAIGN:
ANSWER QUESTIONS AND PROVIDE ADJOURNMENTS
PROMOTE YOUR PROJECT
INVOLVE YOUR SOCIAL NETWORK
1. THE REWARD-BASED MODEL• AN EXAMPLE: KICKSTARTER
AN EXAMPLE OF A REWARD-BASED PLATFORM: KICKSTARTER
GENERALIST CROWDFUNDING PLATFORM
HELP BRING CREATIVE PROJECTS TO LIFE
Rank Total USDProject name
Creator Category % funded Backers
1 10,266,845
Pebble: E-Paper Watch for iPhone and Android
Pebble Technology
Design 10,266 68,928
2 8,596,474
Ouya: A New Kind of Video Game Console
Ouya Inc.Video Games
905 63,416
3 5,702,153Veronica Mars movie
Rob Thomas
Film & Video
285 91,585
KICKSTARTER RECORDS
https://www.youtube.com/watch?feature=player_embedded&v=008ZofyIRHo
https://www.youtube.com/watch?v=nSScO6Vh7ug#t=129
1. A CASE STUDY
A SUCCESSFUL PROJECT
HTTPS://WWW.KICKSTARTER.COM/PROJECTS/WAKAWAKALIGHT/WAKAWAKA-POWER-THE-BEST-COMPACT-SOLAR-POWER-STATIO?REF=LIVE
AN UNSUCCESSFUL PROJECT
https://www.kickstarter.com/projects/600730948/the-mwezi-light-made-in-africa-for-africa?ref=live
DIFFERENCES BETWEEN THE CASES
PROJECT DESCRIPTIONINTERNAL AND EXTERNAL SOCIAL CAPITALINFORMATION PROVIDED
COMMENTS AND ADJOURNMENTS
REWARDS
