Memo: Dominic Augustus Lin writing from TSL Crowdfunding Conference in Los Angeles, March 13th, 2012
There were a lot of great discussions being held around the topic of crowdfunding at this SOHO LOFT TSL Captial Creation and Crowdfunding Conference, and I want to summarize the things that resonated with me personally.
Crowdfunding Fuels Job Creation
According to Wil Schroter of Virtucon Ventures and Candace Klein of Bad Girl Ventures and SoMoLend, the typical entrepreneur “needs only around $15,000 to $18,000 initial seed money to get off the ground.” That amount is typically outside of what can be raised through family and friends but far too low for angel route. There is a gap, and crowdfunding is the bridge. Through crowdfunding, entrepreneurs now have a new route for raising funds, thereby increasing the number of entrepreneurs and the potential boost in job creation. In relations to the automotive community, I personally believe that a large majority of entrepreneurs with great ideas to advance the automotive industry can benefit from using crowdfunding as a stepping stone into something greater.
Purchasing Equity through Crowdfunding
It is illegal; to purchase a “piece” of the company through crowdfunding today. Jason Best, the co-founder of Startup Exemption is trying to make a difference, and through the passing of H.R. 2930, a bill that has passed the House and is currently being evaluated by the Senate, the rules will change. The biggest question I have is how would the passing of this bill change Crowdfunding as we know it today? How many investors exist out there today shy away from participating in crowdfunding because they won’t see a tangible ROI? If crowdfunding websites today can raise hundreds of millions of dollars each year without this bill, would the amount double or triple after the bill passes? We have to start by examining the types of successful crowdfunding campaigns today.
Reward Based Crowdfunding versus Long Term Job Creation
If you ask people today what they know about crowdfunding, they would point you to one of the major crowdfunding websites for creative projects. What I’ve learned from attending this conference is that crowdfunding websites as we know it today only represent one type of crowdfunding platform called reward based crowdfunding where contributors receive perks from donating money to a campaign. The nature of projects funded by reward based crowdfunding platform is that they are typically short term. A campaign to raise money for an artist recording her first album ends when the album get distributed, and a campaign for indie film ends when the film hits the screen. One could argue that producing an album or a film drives job creation, but can crowdfunding be the starting point for the next Apple; thereby creating thousands of jobs? I believe it can happen. There is no restriction around how a campaign originator must use the money raised through crowdfunding. It can be used for product development, PR campaign, or even paying off debt. It will all depend on the nature of the campaign and the vision of the creator. Just be aware that through the current reward based crowdfunding platform, your committed contributors have an expectation that at the end of the campaign they would receive the perk you had promised them at the beginning. This, however, could all change when H.R. 2930 passes. With the passing of H.R. 2930 comes the introduction of investors into the mix of people contributing to campaigns, and they may prefer ROI instead. In that framework, the responsibility of a Crowdfunded entity will shift from focusing on product/service delivery to managing company growth.
Noteworthy Quotes
Alon Hillel-Tush of RocketHub:
“Crowdfunding is about converting social capital to financial capital”
“80% of the funds comes from people in your social network”
“Over 200 crowdfunding websites have failed”
Jason Best of Start-up Exempt
“There’s nowhere to run and hide in social networks when communication goes from many to many.”
Richard Salute of Capital Markets
“A lot of smart people are trying to find money, but they can’t find them”
Mitchell Littman of Kittman Krooks LLP
"It’s a mistake to look at the regulators as the enemy; they have to be our partner”
Julia Dilts of Maverick Angels
“We need hope in this country – reignite passion”
Connie Koch of SoCal Region of Keiretsu Forum
“What is your exit? Focus on the exit and plan your path”
Candice Klein of Bad Girl Ventures and SoMoLend
“Video is going to be important for the crowdfunding platform. You can’t see on paper the same passion on video.”
Wil Schroter of Virtucon Ventures
“Not a lot of people these days have $500 to spare at the end of the month”
