5.9 crowd funding, a new source of finance for innovation and sustainability

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

KICKSTARTER

https://www.kickstarter.com/

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

A SHORT SUMMARY