A STUDY ON CROWD FUNDING VIA SOCIAL MEDIA AND ITS DIFFERENCES FROM TRADITIONAL FUNDING METHODS A STUDY ON CROWD FUNDING VIA SOCIAL MEDIA AND ITS DIFFERENCES FROM TRADITIONAL FUNDING METHODS ETM520 - Team 2 Sara Bahrini Elizabeth Gibson Shabnam Jahromi Kayvan Javadi Rupha Natarajan Matt Nickeson 1

Agenda Introduction: Importance of Funding (Elizabeth) Funding Challenges (Elizabeth) Funding Options (Comparison matrix) (Elizabeth) Crowd Funding via Social Media: Kickstarter Research Methodology (Shabnam) – Our approach – Our interviews (3 Kickstarter + 2 traditional) Interview Structure (Shabnam) Data/Results Combined Results (Elizabeth & Rupha) Future Work Q & A 2

Importance of Funding (Elizabeth) New companies start up all the time Knowledge required is more than just technical – Leadership and Management Skills – Business Skills – Marketing Skills Technology enables small groups to have large results Customer base is global Adequate funding and resources is essential 3

Funding Challenges (Elizabeth) (cite lit?) How to get the money – Money needed to get an idea off the ground. Start up funding is often underestimated. Not only is funding required for the commercialization of the product or service, but there are also start-up operational, legal, marketing, and living expenses required for the entrepreneur that are often overlooked.. How to get the word out How to maintain control of your own destiny Too much success? 4

Funding options (Elizabeth) 5 Funding TypeDefinitionStructureTypical SizeExamples Government Sponsored Bid and selection of contractor for joint research objectives. Joint project$Billions - TrillionsArpanet, IBM computers. Corporate Spin-off Grows out of existing corporate structure Various$Millions - BillionsTrip Advisor Venture Capitalists Wealthy investors who make an investment into the company, typically for a piece of ownership. Co-ownership or majority. Board of directors assignment. $MillionsGoogle, Facebook Angel FundingMoney exchange for: Stock options, grant, loan Typically limited ownership. $Hundred Thousands - Millions ANSR Crowd Funding/ Social Media Backers: value exchange without ownership. Online pledge with funding fulfillment upon completion of goal. $Thousands - Millions Indiegogo, Kickstarter Self-Finance/ Private Owners contribution or private loan acquisition. Owners purchase % of company secured by stock certificates. Dependent upon owner wealth. Family Businesses

Crowdfunding: Kickstarter One of the largest crowd funding platform via social media for creative projects [1]. Founded in 2009, to crowdsource the funding of art projects. Kickstarter projects are now sortable by 13 categories Yancey Strickl er Charles Alder Perry Chen (CEO) [1] 6

Kickstarter Statistics Since 2009, over $350M pledged by 2.5 M people funding more than 30,000 successful Projects 54 % of successful projects belong to Music, Film and Video categories 5% belongs to Design and Technology Only 17 Projects were above $1M, 6 of them belong to Technology and Design (35%) and the rest was Gaming Novhttp:// Nov 2012 Stat 7 CategoryLaunched Projects Total Dollars Successful Dollars Unsuccessful Dollars Live Dollars Live Projects Success Rate All78,395$421 M$361 M$45 M$ 14M3, %

Kickstarter - How it works 8 1.Define Project Clear beginning and end 2.Create Rewards 3.Setting Your Goal Funding goal and a length of time (All or Nothing) 4.Making Your Video 5.Building Your Project 6.Promoting Your Projects 7.Project Updates 8.Reward Fulfillment :))))

Research Methodology Literature Review – Discover primary focus areas Interviews – Content Analysis – Crowdfunding via social media Kickstarter projects (3 projects) – Traditional funding (2 projects) 4 of them in person, 1 via Google Hangout 9

Interview Structure Scope/Goal of the project Reasons to choose the specific method of funding Success/Failure factors in collecting the funds Challenges/Risks in the specific method of funding Benefits of the method of funding 10

Interview-Woxom 11 SLINGSHOT: Stabilizes Smartphone video Category: Product Design Project Asked for $20,000 in 90 days Received $70,074 2,739 Backers Goal Came up with a product idea specifically for Kickstarter and used it both For funding and marketing platform Why Kickstarter Attractive product design Attractive video for young computer-savvy audience Attractive rewarding scheme, attractive profile, Periodic updates Marketing outside Kickstarter Success/ Failure Factors Kickstarter Benefits: Customer acquisition (Backers) Great marketing platform Retailers specializing on Kickstarter products Full control compared to VC wants equity and a very high rate of return Time and effort to create the profile and fail Ask for the right goal that covers costs Risks Future Plans: Caution note for Kickstarter policies Proven success online – take to traditional retail channels

Interview-Red Branch 12 Art Journal Category: Publishing ProjectGoal Being young and unknown Social crowd funding the only option A platform to use their private funding and use it as marketing to get more fund Kickstarter becoming popular that attracts young people Why Kickstarter Proper use of Kickstarter platform Attractive and honest video Using social media like Twitter/Facebook Success/ Failure Factors None- as there was no other options for them Risks Kickstarter Benefits: Customer acquisition (Backers) Marketing platform Requires no previous reputation Platform to receive funds from other private funders Future Plans: Moving towards supporting bigger projects Moving towards supporting services as well Asked for $6,000 in one month Received $7,820 2,739 Backers

Interview-Trygger (Rupha/Sara fill in data) 13 Art Journal Category: Publishing ProjectGoal Being young and unknown Social crowd funding the only option A platform to use their private funding and use it as marketing to get more fund Kickstarter becoming popular that attracts young people Why Kickstarter Proper use of Kickstarter platform Attractive and honest video Using social media like Twitter/Facebook Success/ Failure Factors None- as there was no other options for them Risks Kickstarter Benefits: Customer acquisition (Backers) Marketing platform Requires no previous reputation Platform to receive funds from other private funders Future Plans: Moving towards supporting bigger projects Moving towards supporting services as well Asked for $6,000 in one month Received $7,820 2,739 Backers

Interview- Traditional (Elizabeth fill in data) 14 Art Journal Category: Publishing ProjectGoal Being young and unknown Social crowd funding the only option A platform to use their private funding and use it as marketing to get more fund Kickstarter becoming popular that attracts young people Why Traditional Proper use of Kickstarter platform Attractive and honest video Using social media like Twitter/Facebook Success/ Failure Factors None- as there was no other options for them Risks Traditional Benefits: Customer acquisition (Backers) Marketing platform Requires no previous reputation Platform to receive funds from other private funders Future Plans: Moving towards supporting bigger projects Moving towards supporting services as well Asked for $6,000 in one month Received $7,820 2,739 Backers

Interview- Traditional (Rupha fill in data) 15 Art Journal Category: Publishing ProjectGoal Being young and unknown Social crowd funding the only option A platform to use their private funding and use it as marketing to get more fund Kickstarter becoming popular that attracts young people Why Traditional Proper use of Kickstarter platform Attractive and honest video Using social media like Twitter/Facebook Success/ Failure Factors None- as there was no other options for them Risks Traditional Benefits: Customer acquisition (Backers) Marketing platform Requires no previous reputation Platform to receive funds from other private funders Future Plans: Moving towards supporting bigger projects Moving towards supporting services as well Asked for $6,000 in one month Received $7,820 2,739 Backers

Crowdfunding via Social Media Results(Shabnam/Team) Pro: – Does not require previous history – Acts as market research Con: – Cannot be easily used to establish long-term company – Publically available, no data protection 16

Overall Results 17 Criteria Private & Angel FundingVenture Capital Funding Crowdfunding via Social Media Design Stage: Idea v. Defined Project Both Defined Project Type: Product v. Service Both Mostly Product Few Services Technology: High-Tech v. Not High-Tech Both Mostly Not High- Tech Marketing Customer Acquisition and Market Awareness NoneMarket AwarenessBoth Financial Small = k Medium = 100k - 1M Large = > 1M Small & Medium Small, Medium, Large Small & Medium SocialEstablished CredibilityNot RequiredHighly RequiredNot Required Laws / Regulations FDA Approval SEC Regulations Tax Involvement Feasible Feasible Feasible Complicated Complicated Complicated

Future Work (Shabnam,Team) Kickstarter as Public Utility – How to manage policies – Conflicts of interest? Decision-making model – Quantitative analysis to indicate best funding method for a given project/team 18

Any Questions? 19