The document discusses the history and growth of crowdfunding, including its roots in crowdsourcing. It describes different types of crowdfunding models like donation, reward, and equity-based crowdfunding. It outlines regulations around crowdfunding under the JOBS Act, including Titles II and III. Title II allows equity crowdfunding for accredited investors, while Title III will allow it for non-accredited investors pending SEC rules. The document also discusses opportunities and challenges for universities using crowdfunding for research projects and startups.
Testing with Fewer Resources: Toward Adaptive Approaches for Cost-effective ...
Crowdfunding to Commercialize Inventions and Innovations through Startups - Thomas Sharbaugh
1.
2. 1995—Two grad students meet at Stanford
1996—Begin work on Internet app
1998—Receive $100k from angel investor
1998—Form company with license of Stanford patent
1999--$25 million of venture capital
2004—IPO market value of $1.67 billion
2004—Stanford yields $336 million
5. What is it?
› Roots in Crowdsourcing and Microfinance
Wikipedia
Grameen Foundation
› Making a big task possible by breaking it
down into multiple smaller tasks
› Internet is ideal for this
6. Many older examples
› Jerry Lewis’ Labor Day Telethon
› NPR Fund Drives
› United States saving bonds
7. Early adopters: often
used by rock groups
going on tour
•CD of concert
•Concert tickets
•Back-stage pass
9. Donation crowdfunding
› Kickstarter, Indiegogo, RocketHub and more
› Rewards are often included
Similar to an NPR fund drive
› University programs typically have nominal
rewards
10. Donation crowdfunding
› All or nothing vs. keep it all
› Platform/credit card fees—8% to 10%
› Huge marketing/public relations burden
Social media
11.
12.
13. Risk of “cannibalizing” University
contributions
› Loyal pool of potential donors
› Target other potential donors
Non-alumni
Alumni non-givers
Millenials/recent grads
› Increases donor base for
future contributions
14. University
Donation CF
Specific
Non-
Research
Projects
Annual
Fund
Specific
Research
Projects
22. University
Donation CF
Specific
Non-
Research
Projects
Annual
Fund
University
Startups
Specific
Research
Projects
23. Startup businesses
› ~75% of inventions are never licensed
› University can license technology to new
company
› University receives minority equity stake
› Some universities have “incubators”
24. Startup businesses
› Working capital has to come from
somewhere
Further research, production, marketing, etc.
› Alumni are a receptive pool of potential
investors
25. Startups vs. licensing
› Pro: more potential gain as part owner
› Pro: gains linked to company-wide performance
› Pro: promotes local job growth
› Con: big licensee likely more stable
› Con: big licensee likely has management
experience
27. Types of Crowdfunding “return”
› None—donations to a cause (22%)
› Reward
Usually something consumed
Often the new product being produced
› Prepurchase right
Right to buy the new product
› Financial
Ownership or interest on a loan
28. Financial return = “security” status under
Federal and State securities laws
› Regulate the offering of securities
“Registration” unless exempt
Significant disclosure requirements
› Regulate those engaged in offering and sale
29. Regulation D exemptions—pre-JOBS Act
› Rule 506—unlimited dollar amount
Unlimited “accredited” investors and up to 35
“sophisticated” investors
“Accredited” investors
Net worth (excluding home) > $ 1 million
Annual income > $200,000 ($300,000 with
spouse)
Often include “angel” investors
30. JOBS Act of 2012
› Two big changes relative to capital raising:
Title II—general solicitation for offerings up to
$5 million if directed solely at accredited
investors
Title III—up to $1 million through a “funding
portal” to unlimited number of investors
31. Title II Crowdfunding
• Not just for startups
• Early adoption by real
estate developers
• Prodigy Network closed
on two hotel projects
• $31 million
• $25 million
32. JOBS Act of 2012
› Title III Crowdfunding exemption
SEC published proposed rules October 23, 2013
Comments received for 90 days
CANNOT use exemption until final rules are
published
Still waiting for final SEC rules
33. JOBS Act of 2012
› Title III “Crowdfunding” exemption
Must use a “funding portal ” or registered
broker/dealer
General solicitation—possible with Internet
May raise up to $1 million during a 12-month
period
34. JOBS Act of 2012
› Title III “Crowdfunding” exemption
Investment limitations over 12-month period
If income or net worth is < $100,000: greater
of $2,000 or 5% of income or net worth
If income or net worth is > or = to $100,000:
up to $10% of income or net worth but not
more than $100,000
35. JOBS Act of 2012
› Title III “Crowdfunding” exemption
Disclosure requirements
Narrative description of the company and its
business
Financial statements
Offering > $500,000, audited financial
statements
36. Is Crowdfunding better under Title II or III?
Title II
(accredited only)
Title III
Maximum offering Unlimited $1 million
No. of investors Unlimited Unlimited
Investment limit per
investor
Unlimited Yes, based on
income/net worth
Investor disclosure None required As specified by SEC
Intermediary Not required Required
General solicitation
Yes No
(social media)
37. Federal investment Crowdfunding
› Title II: Available now
Only accredited investors
› Title III: Not yet available
Crowdfunding “for the masses”
38. State securities regulation
› Most states require registration or an exemption
Usually have exemption for offerings to limited
number of investors
› New Federal crowdfunding exemption under
Title III will preempt state registration
requirements
› States can still pursue fraud investigations
39. State attempts to sidestep federal rules
› Single-state crowdfunding
› Reliance on intrastate exemption
› Offering to residents of a single state
› General solicitation possible
40. Practical startup issues
› Lack of liquidity
No trading market initially and perhaps
indefinitely
› Possible large number of stockholders with
diverse goals
42. Frequently Asked Questions:
› Isn’t licensing much easier?
› Is it realistic to expect alumni and others to
donate for research?
43. Frequently Asked Questions:
› Isn’t licensing much easier?
› Is it realistic to expect alumni and others to
donate for research?
› Do universities ever retain majority ownership
in tech startups?
45. Frequently Asked Questions:
› Could startups just do an IPO?
› Can a university use a broker?
46. Frequently Asked Questions:
› Could startups just do an IPO?
› Can a university use a broker?
› Why not solicit venture capital firms?
47. Frequently Asked Questions:
› Could startups just do an IPO?
› Can a university use a broker?
› Why not use venture capital firms?
› What is impact on other stages of financing?
48. How big is the market?
› Forbes magazine
Title II--$20 billion
Accredited investors
Title III--$2 trillion
Non-accredited investors
49. Follow Innovosource to monitor university
investment activity
› http://www.gapfunding.org/community/news/
› Recent news:
University of California has new $250 venture fund
Innovate Indiana startup gets $10 million in venture
round
Illinois starts fund for startups at IL-based universities