a study on crowd funding via social media and its differences from traditional funding methods a...

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A STUDY ON CROWD FUNDING VIA

SOCIAL MEDIA AND ITS DIFFERENCES FROMTRADITIONAL FUNDING METHODS

ETM520 - Team 2

Sara BahriniElizabeth Gibson

Shabnam JahromiKayvan Javadi

Rupha NatarajanMatt Nickeson

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Agenda• Introduction: Importance of Funding (Elizabeth) • Funding Challenges (Elizabeth)• Funding Options (Comparison matrix) (Elizabeth)• Crowd Funding via Social Media: Kickstarter• Research Methodology (Shabnam)

– Our approach– Our interviews (3 Kickstarter + 2 traditional)

• Interview Structure (Shabnam)• Data/Results• Combined Results (Elizabeth & Rupha)• Future Work• Q & A

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Importance of Funding (Elizabeth)

• New companies start up all the time• Knowledge required is more than just technical

– Leadership and Management Skills – Business Skills– Marketing Skills

• Technology enables small groups to have large results• Customer base is global• Adequate funding and resources is essential

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Funding Challenges (Elizabeth) (cite lit?)

• How to get the money– Money needed to get an idea off the ground. Start up funding is often

underestimated. Not only is funding required for the commercialization of the product or service, but there are also start-up operational, legal, marketing, and living expenses required for the entrepreneur that are often overlooked..

• How to get the word out

• How to maintain control of your own destiny

• Too much success?

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Funding options (Elizabeth)

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Funding Type Definition Structure Typical Size Examples

Government Sponsored

Bid and selection of contractor for joint research objectives.

Joint project $Billions - Trillions Arpanet, IBM computers.

Corporate Spin-off

Grows out of existing corporate structure

Various $Millions - Billions Trip Advisor

Venture Capitalists

Wealthy investors who make an investment into the company, typically for a piece of ownership.

Co-ownership or majority. Board of directors assignment.

$Millions Google, Facebook

Angel Funding Money exchange for: Stock options, grant, loan Typically limited ownership.

$Hundred Thousands - Millions

ANSR

Crowd Funding/ Social Media

Backers: value exchange without ownership.

Online pledge with funding fulfillment upon completion of goal.

$Thousands - Millions

Indiegogo, Kickstarter

Self-Finance/ Private

Owners contribution or private loan acquisition.

Owners purchase % of company secured by stock certificates.

Dependent upon owner wealth.

Family Businesses

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Crowdfunding: Kickstarter

• One of the largest crowd funding platform via social media for creative projects[1].

• Founded in 2009, to crowdsource the funding of art projects.

• Kickstarter projects are now sortable by 13 categories

Yancey Strickler

Charles Alder

Perry Chen (CEO)

[1]http://www.crunchbase.com/company/kickstarter

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Kickstarter Statistics

• Since 2009, over $350M pledged by 2.5 M people funding more than 30,000 successful Projects

• 54 % of successful projects belong to Music, Film and Video categories

• 5% belongs to Design and Technology• Only 17 Projects were above $1M, 6 of them belong to

Technology and Design (35%) and the rest was Gaminghttp://www.kickstarter.com/help/stats Nov 2012 Stat

Category Launched Projects

TotalDollars

SuccessfulDollars

Unsuccessful Dollars

Live Dollars

LiveProjects

SuccessRate

All 78,395 $421 M $361 M $45 M $ 14M 3,354 43.78%

http://www.kickstarter.com/help/stats-Nov

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Kickstarter - How it works

1.Define ProjectClear beginning and

end

2.Create Rewards

3.Setting Your GoalFunding goal and a

length of time(All or Nothing)

4.Making Your Video

5.Building Your Project

6.Promoting Your Projects

7.Project Updates

8.Reward Fulfillment

:))))

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Research Methodology

• Literature Review– Discover primary focus areas

• Interviews – Content Analysis– Crowdfunding via social media

• Kickstarter projects (3 projects)

– Traditional funding (2 projects)

• 4 of them in person, 1 via Google Hangout

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Interview Structure

• Scope/Goal of the project• Reasons to choose the specific method of funding• Success/Failure factors in collecting the funds• Challenges/Risks in the specific method of funding• Benefits of the method of funding

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Interview-Woxom

SLINGSHOT: Stabilizes Smartphone videoCategory: Product Design Project

Asked for $20,000 in 90 daysReceived $70,074

2,739 BackersGoal

Came up with a product idea specifically for Kickstarter and used it both

For funding and marketing platform

Why Kickstarter

Attractive product designAttractive video for young computer-savvy audience

Attractive rewarding scheme, attractive profile,Periodic updates

Marketing outside Kickstarter

Success/FailureFactors

Kickstarter Benefits:• Customer acquisition (Backers)• Great marketing platform• Retailers specializing on Kickstarter products• Full control compared to VC wants equity and a very high rate of return

Time and effort to create the profile and failAsk for the right goal that covers costs

Risks

Future Plans:•Caution note for Kickstarter policies• Proven success online – take to traditional retail channels

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Interview-Red Branch

Art JournalCategory: PublishingProject

Goal

Being young and unknown Social crowd funding the only option

A platform to use their private fundingand use it as marketing to get more fund

Kickstarter becoming popular that attracts young people

Why Kickstarter

Proper use of Kickstarter platformAttractive and honest video

Using social media like Twitter/Facebook


None- as there was no other options for themRisks

Kickstarter Benefits:• Customer acquisition (Backers)• Marketing platform• Requires no previous reputation• Platform to receive funds from other private funders

Future Plans:•Moving towards supporting biggerprojects•Moving towards supporting services as well

Asked for $6,000 in one monthReceived $7,820

2,739 Backers

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Interview-Trygger (Rupha/Sara fill in data)


Goal




Why Kickstarter





Kickstarter Benefits:• Customer acquisition (Backers)• Marketing platform• Requires no previous reputation• Platform to receive funds from other private funders



2,739 Backers

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Interview- Traditional(Elizabeth fill in data)


Goal




Why Traditional





Traditional Benefits:• Customer acquisition (Backers)• Marketing platform• Requires no previous reputation• Platform to receive funds from other private funders



2,739 Backers

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Interview- Traditional(Rupha fill in data)


Goal




Why Traditional





Traditional Benefits:• Customer acquisition (Backers)• Marketing platform• Requires no previous reputation• Platform to receive funds from other private funders



2,739 Backers

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Crowdfunding via Social Media Results(Shabnam/Team)

• Pro:– Does not require previous

history– Acts as market research

• Con:– Cannot be easily used to

establish long-term company

– Publically available, no data protection

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Overall ResultsCriteria

Private & Angel Funding Venture Capital

FundingCrowdfunding via

Social Media

Design

Stage:Idea v. Defined Project Both Both Defined Project

Type:Product v. Service Both Both Mostly Product

Few ServicesTechnology:

High-Tech v. Not High-Tech Both Both Mostly Not High-Tech

Marketing Customer Acquisition and Market Awareness None Market Awareness Both

Financial Small = 0 - 100k

Medium = 100k - 1MLarge = > 1M

Small & Medium Small, Medium, Large Small & Medium

Social Established Credibility Not Required Highly Required Not Required

Laws / Regulations FDA Approval

SEC RegulationsTax Involvement

FeasibleFeasibleFeasible

FeasibleFeasibleFeasible

ComplicatedComplicatedComplicated

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Future Work (Shabnam,Team)

• Kickstarter as Public Utility– How to manage policies– Conflicts of interest?

• Decision-making model– Quantitative analysis to indicate best funding method

for a given project/team

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Any Questions?

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