An Emerging Avenue of Funding? Crowdfunding at the University:  An Emerging Avenue of Funding? Elvira Henson and Alex Loyd University Counsel Retreat 2012

Crowdfunding: What is It? Alternatively called “crowdsourcing.” Internet-based method of funding that allows researchers and others to post their projects on crowdfunding websites, or “platforms,” for purposes of soliciting contributions for those projects.   Allows individuals to raise money efficiently and directly for projects that may otherwise never be funded by traditional methods.

Types of platforms Kickstarter Rockethub Indiegogo Innovocracy

Uses for Crowdfunding Initially popular for more creative endeavors, such as film or music, or personal entrepreneurial efforts. http://www.kickstarter.com/projects/daniellesandwich/help-danielle-ate-the- sandwich-make-her-new-album?ref=live “Colorado musicians turn to fans for funds” – Friday Magazine, Daily Camera, June 8, 2012 http://www.dailycamera.com/music/ci_21030309/colorado-musicians-turn-fans- funds?source=most_emailed http://www.kickstarter.com/projects/1250439912/popsockets-iphone-case-it- pops-props-kicks-and-cli “As Kickstarter and other crowdfunding sites grow, so does scrutiny” – The Denver Post, August 26, 2012 http://www.denverpost.com/news/ci_21396678#ixzz24tAIocmN

Applications beyond research Scholarships Capital improvements Endowments Athletics

How Crowdfunding Works Submit description of project to Kickstarter, along with a video about project. Provide rewards depending on pledge amounts. Set goal and time frame – usually 60-90 days. Kickstarter will review for approval and post. Individual informs friends, family, colleagues, acquaintances and others about the project. Follow-up emails, updates on sites, blogs, etc. Donors submit pledges on behalf of individuals. Donors’ credit cards will not be charged if goals not met. If successful, Kickstarter takes 5% of total funds raised. Processing fees are 2%. http://www.indiegogo.com/artificialInelligenceSTEM

http://www.kickstarter.com/

Why Crowdfunding for the University? Traditional funding sources becoming scarcer, and even more so next year: January 1, 2013 funding cliff. 2012 Boulder Economic Summit: Richard Wobbekind noted the potentially impending "fiscal cliff" -- measures starting in January that include expiring tax credits and a series of automatic spending cuts -- which could gut the U.S. economy by $500 billion. Wobbekind said that if Congress remains inactive, the measures could slow the nation's gross domestic product growth rate by 1.5 percent. “’That would really slow the economy down significantly,’" he said. “CU economist: Research, innovation key for Boulder's 'bright' future” – Boulder Daily Camera, June 5, 2012. http://www.dailycamera.com/cu-news/ci_20790780/cu-economist-research-innovation-key-boulders-bright-future

Why Crowdfunding for the University? “Boulder planetary scientist Alan Stern said he's tired of weathering the federal funding storm -- the 2013 budget proposed by President Barack Obama would cut funding for planetary sciences by 20 percent -- and he's guessing he's not alone.” “Boulder researcher spearheads effort to privately fund space science” – Boulder Daily Camera, August 19, 2012. http://www.dailycamera.com/news/boulder/ci_21342052/boulder -researcher-spearheads-effort-privately-fund-space-science

JOBS Act Jumpstart Our Business Startups Act (Public Law 112–106). This may spur more interest and growth for crowdfunding. Signed into law 5 April 2012. SEC has not yet promulgated regulations; deadline 1 January 2013. Allows startups to raise funds through crowdfunding. Creates an exemption to the rule that prohibits securities sales prior to filing SEC registration statement. Companies can issue stock or debt through a crowdfunding platform to both accredited and non-accredited investors. Start-up can use crowdfunding to raise up to a total of $1,000,000 per year. Investors would acquire equity in the project.

Challenges Regarding Use of For-profit Platforms in the University Setting For-profit platforms generally do not allow for tax deductibility. Intellectual property theft – risk created by putting your idea out on the web. Innovocracy—Platform asserts that intellectual property protection is built-in to their process. Also, claims that their system permits tax-deductions. Caveat – still in “conception” stage. Significant transaction and processing fees: 5% transaction costs, and anywhere from 2-5% processing fees.

What About a CU-hosted Platform? Tax deductible Receipting Branding Custodian of donor database

Leeds School of Business Proposal

Leeds School of Business Proposal

Leeds School of Business Proposal

Leeds School of Business Proposal

Leeds School of Business Proposal

Factors to Consider in Hosting an Internal Platform Software – who will build and maintain the platform. Kickstarter v. ArtistShare. Administrative support -- what are the costs for building, maintaining and managing the platform? Approval of credit card merchant accounts. According to Joe Tinucci, the banks are very conservative when it comes to these types of things – “at least a decade behind.” Onerous, because more short lived, more of a burden, so banks are not happy to set up short-term accounts. Donor tracking: Must each project be kept separate? And within each project, do we have to keep track of individual donors? Would we have to get a credit card merchant account for each project? Checks: Will require separate accounting by campuses. Not likely that the university will be able to do this any cheaper than the for-profit platforms.

Administrative Oversight Accounting. Reputational Risks. Criminality. Project vetting. University resources for private gain. Use of brand. Intellectual property.

Foundation Donor confusion. Donor alienation if project not handled well. Competing priorities between donor desires and leadership’s fundraising priorities. Dilution/cannibalization/re-routing of donations Used to larger projects, not small project fundraising initiatives (although take small-dollar donations). With exception of endowment gifts, 100% to charitable purposes – w/crowdfunding, would have to take similar transactions costs requiring change in policy.

Conclusion Hosting internally requires cost benefit analysis. Administrative costs unknown, as is possible value of hosting internally. Third party platforms for individual projects are more feasible at this time.