IT FOR FINANCIAL SERVICES IS356. Agenda Crowdfunding basics What is it? How does it work? Who uses it? Legal issues? Examples Success stories Next steps.

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Presentation transcript:

IT FOR FINANCIAL SERVICES IS356

Agenda Crowdfunding basics What is it? How does it work? Who uses it? Legal issues? Examples Success stories Next steps 2

What is crowdfunding? Crowdfunding is an internet-inspired mechanism for raising money or sponsorship from members of the public for a small project or business venture Crowdfunding has its origins in community, not-for-profit, social causes, and arts-based ventures, which members of the public were inclined to support for benevolent reasons. Crowdfunding wasn’t initially seen as having any significant business angle but that has changed as banks have ratcheted up their lending requirements 3

Basics Types of Crowdfunding Good cause crowdfunding (Kickstarter.com, goFundme.com) Arts festivals Rewards-based crowdfunding (fundable.com) Music recording – receive a CD in return Pre-order crowdfunding (fundable.com) Be one of my first customers when I launch my product/service Debt-based crowdfunding (Prosper.com, LendingClub.com) Fixed repayment schedules Start-up equity crowdfunding (illegal until recently) Become a shareholder 4

Statistics 5

Examples 6

Kiva - microfinance 7

Kiva – My Portfolio 8

Kiva – Loyola Chapter 9

Lender Participation (not so fast…) 10

Getting Funding (easier said than done) 11

How does Prosper.com work? 12

13

14

Legal Woes 15 Jumpstart our Business Startups (JOBS) Act President Obama signs the JOBS Act on April 5, Intended to be friendly to crowdfunding since earlier legislation prohibited public solicitation for private companies raising funds. The act came into effect on January 1, 2013 The SEC has missed the deadline to repeal the ban on general solicitation and advertising of private placements as required by the JOBS Act, and has not yet proposed a substantive set of rules to enable crowdfunding to function effectively. When enacted, limited to a maximum of $1 million in funding Companies seeking to raise > $500,000 in funding need to supply audited financial statements

What’s the hold up? The SEC is trying to do three things: Provide an easy, low-cost way for startups to raise money online Protect investors from new forms of fraud Create incentives for financial firms to run crowdfunding websites The average investor is potentially misinformed, dumb or both Title III allows anyone to buy shares Title II allows solicitation to buy shares buy shares Applies to accredited investors > $1 million 16

Crowd Fraud… top 5 scam attempts 17

Crowd Fraud… actually there is a #1 18

What’s next? 19 Source: The Motley Fool Source: thenextweb.com Crowdfunding-as-a-service