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.

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

4. Total Crowdfunding Market

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

8. Crowdfunding
Donation Investment

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

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

15. Unrestricted
Contributions to
Annual Fund
• Specific time period
• Columbia
• Vassar

16. Contributions to
Diverse Student
Projects
• Band uniforms
• Campus flood
• Sports team
• Philanthropic trip

17.  Research-specific donation Crowdfunding
› University’s own site, or
› Independent academic platforms
 Experiment.com
 Petridish.org
 Fundageek.com--closed

18.  Research-specific donation
crowdfunding
› Promotional efforts are essential
 Social media
 Possible use of University donor lists
› Rewards

19.  Research-specific donation
crowdfunding
› Tax-deductions
 Up to 40% “discount”
 Cannot contribute to benefit specific
individual

20. University research
platforms
• Donations to universities
• May tap into alumni
• Tax-deduction likely
• Generally, no rewards

21. Non-university
research platforms
• University may/may
not be involved
• Tax-deduction
uncertain

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

26. Brookings Institution: “University Start-ups: Critical to
Technology Transfer”

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

41.  Frequently Asked Questions:
› Isn’t licensing much easier?

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?

44.  Frequently Asked Questions:
› Could startups just do an IPO?

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