1. Raising Capital
Through Equity
Crowdfunding
James Hoffmire, Ivon Yeap, Erica Flemming, Liu Yifei

2. The Funding Gap

3. Equity-Based
Crowdfunding is
Playing an
Increasingly Large
Roll in Closing That
Funding Gap

4. Overview
Intro to Crowdfunding
Legislative Changes in the US
Equity Crowdfunding Platforms
How to Crowdfund Successfully

5. What is Crowdfunding?

6. Four Types of Crowdfunding
(Source: Massolution)
EQUITY-BASED
(includes revenue and profit-sharing
models)
REWARD-BASED
LENDING-BASED DONATION-BASED
REWARD-BASED

7. Equity-Based Crowdfunding
High growth and large fund per project
Selling equity in a
company using one of
the crowdfunding websites
In return for investing in the
company, the investors receive a share of
the profits (dividends or distribution)
Source: wsj.com

8. Project Funds Paid for Donation
and Reward Crowdfunding
Source: Massolution

9. Project Funds Paid in Equity-Based
Crowdfunding
Source: Massolution
Crowdfunding by selling equity brings in BIGGER dollar amounts

10. Growth in Crowdfunding Internationally
Source: Massolution
2.8 Billion Dollars raised in 2012
and this number is expected to grow even more

11. Growth in the Amount of
Crowdfunding Platforms by Category
Based on a sample of 143 CFPs
Source: Massolution
Equity-based Crowdfunding is rapidly
growing

12. Crowdfunding vs. Traditional
Methods of Funding
Bank Loans Angel
Investors
Venture
Capitalists
Crowdfunding
● Traditional
source of capital
for small
businesses
● However, banks
are not lending
as much as they
use to
● Need collateral,
previous
business
financials, and a
relationship with
a bank
● It is often hard for
small businesses
to meet
qualifications
● A wealthy
individual or
small group of
individuals
providing capital
in exchange for
partial ownership
● Typically they
make bets on
companies in
their earliest
stages (seed
funding)
● Investments
usually range
from $25,000 to
$100,000 or
● Investors (usually
firms, not
individuals)
invest in the early
stage of startup
companies with
high potential
and high risk in
exchange for
owning equity
● Have significant
control over
company
● Investments
range from $1
million to $10
million
● Raising small
amounts from
many individuals
through the
Internet and
other social
media
● Projects can
vary greatly
● Lending is less
costly than
traditional
methods
● Investors may
be connected
and involved

13. Crowdfunding vs. Traditional
Methods of Funding
Bank Loans
Venture
Capitalists Crowdfunding
Collateral
Time
Required
Relationship
Success
Rate
Management
Control
Needed Not needed Not needed
Long Long Relatively Fast
8.2 Weeks
Previous relationship
with the bank helpful
Have to know the right
person
Can gain support from
many people
Varies, unlikely to
secure a large loan
0.07%
No Large Influence No
Varies by platform
Ourcrowd accepts 7-8%,
followed by a success rate
of at least 33%

14. Legislative Changes in The US
In April 2012, Congress passed the JOBS
(Jumpstart Our Business Startups) Act.
● The JOBS Act makes it easier for startup companies to find
investors, and makes many changes in the financing process
for private companies.
● The JOBS Act instructs the SEC to revise their rules
concerning the sale of private company equity. Some of
these rule changes have not yet been implemented.
● We encourage you to read about the details of this act, if you
have not already.

15. The JOBS Act
aimed to end the
legislative chaos
surrounding
equity
crowdfunding.
federal legislators
presented at least
five conflicting
pieces of
legislation
that would have
regulated equity
crowdfunding.
JOBS combined
pieces from these
and other bills.

16. Summary of JOBS Act in Relation
to Equity Crowdfunding
● A private company may have up to 2,000 shareholders.
● Soliciting and advertising private equity publically is
allowed (This allows for solicitation on Facebook,
Twitter, Linkedin, Television, etc.) In effect this week
● Some public offerings may be exempt from SEC
restrictions that face public companies. Through these
exemptions, equity may be exchanged through
crowdfunding portals. Companies looking to sell equity
through crowdfunding must request an exemption from
the SEC
● Private companies are allowed to raise up to
$1,000,000 of equity annually through an SEC exempt
public offering (crowdfunding).

17. JOBS Act Summary (Continued)
● Accredited investors are allowed to invest up to
$100,000 (per company) annually through equity
crowdfunding
● (Not yet in effect) Non-accredited investors (average
people) may purchase equity through crowdfunding, up
to $2,000 per company . Private companies may only
have 500 non-accredited shareholders
○ If 500 average people can invest up to $2,000, that
means that Crowdfunding can raise up to
$1,000,000 from non-accredited investors

18. What is an Accredited Investor?
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
1. a bank, insurance company, registered investment company, business development company, or
small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if
a bank, insurance company, or registered investment adviser makes the investment decisions, or
if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that
exceeds $1 million at the time of the purchase, excluding the value of the primary residence of
such person;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint
income with a spouse exceeding $300,000 for those years and a reasonable expectation of the
same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose
purchases a sophisticated person makes.
(Taken from SEC website)

19. JOBS Act is Slowly Kicking In
● Some provisions of The Jobs Act took effect immediately
● Most provisions of the JOBS act to the were deferred to
the SEC to draft the final rules. On July 10th, SEC
amended their rules to allow for public solicitation. These
rule changes took effect on September 23rd.
● SEC has proposed filing requirements that are generally
opposed by the crowdfunding community. One
requirement is that companies must inform the SEC 15
days before they begin selling equity.
● A private company that fails to meet SEC filing
requirements will be banned from selling equity for one
year
● SEC has not amended all of their rules to comply with the
JOBS act. More rule changes are expected this year

20. State Legislation
● Under the belief that the Jobs Act does not loosen
crowdfunding restrictions enough, or that it is taking
effect too slowly, some states are passing their own
crowdfunding legislation.
● Kansas and Georgia have passed legislation that allow
unaccredited investors to more easily participate.
● Washington, North Carolina, and Wisconsin are
currently debating similar legislation. Equity
crowdfunding legislation has passed on a state and
federal level by large margins, so it is likely that these
states will also successfully pass their legislation.
● State legislation encourages interstate investing.
(Unaccredited investors in Kansas may invest in a

21. Successful Example
Lucid Energy (US based company):
-Objective: To expand its in-conduit hydro turbine
operation to foreign shores
-Market:
-6% of all energy in the US is used to move water
-Over 2/3 of the states in the US have renewable portfolio
standards (RPS) requiring the use of renewable energy
-Industry: Hydro turbine/ Renewable energy
-Platform: OurCrowd
(Israel’s hybrid venture capital/crowdfunding platform)
-Capital raised: $1,632,000

22. Key Financials:
Annual Sales (Estimated): $210,000
Prescreen Score:
High Risk
Location Type:
Single Location
(Portland, OR)
Plant/Facility Size (sq. ft.) (modeled): 2,570
Employees (All Sites) 3
Primary Industry
Electrical Contractors
Lucid Energy

23. Cost to do an Equity Crowdfunding Project
Fees to the platform (fees are generally 5% to 10%)
● E.g. CrowdCube keeps 5%
Time and energy to set up the Crowdfunding project
● 10 hours to potentially thousands of hours of time and energy to set up project
● Hire or delegate someone to manage the project along with anyone else needed
Promoting the crowdfunding initiative
● Advertising: Varies by website, if any
Bank commission
● Paypal: 2.4-3.4%
● Credit Card: varies by bank
Taxes
● Depends on whether the money is received by a company or by an individual.
● Depending on the type of crowdfunding used.

24. Sample Fees Structure - OurCrowd

25. Top 10 Crowdfunding Platforms-Source:
Forbes
1.
Kickstarter is a site where creative projects raise donation-based funding.
2.
Indiegogo approves donation-based fundraising campaigns for most anything
— music, hobbyists, personal finance needs, charities and whatever else
you could think of.
3.
Crowdfunder is a crowdfunding platform that focuses on private businesses. It
originally offered a blend of donation-based and reward-based
crowdfunding. Crowdfunder is transitioning to equity-based crowdfunding
individuals and angel investors for businesses, with a growing social
network of investors, tech startups, small businesses, and social
enterprises.
4.
Rockethub powers donation-based funding for a wide variety of creative
projects. RocketHub has expressed interest in offering equity-based
crowdfunding.
5.

26. Top 10 Crowdfunding Platforms -cont.
6.
Somolend is a site for lending for small businesses in the US, providing debt-
based investment funding to qualified businesses with existing operations
and revenue.
7.
If you want to build the next new mobile app and are seeking donation-based
funding to get things off the ground or growing, then check out appbackr
and their niche community for mobile app development.
8.
If you’re a tech startup with a shiny lead investor already signed on, or looking
for Silicon Valley momentum, find equity or debt investments through
AngelList.
9.
donation-based fundraising for a specific group or niche in the market.
10.
If you’re an inventor, maker, or tinkerer of some kind then Quirky is a place to
collaborate and crowdfund for donation-based funding with a community of
other like-minded folks.

28. Equity Crowdfunding Platforms
- Internet platform which connects investors
and entrepreneurs
- Investor provide entrepreneurs with capital in
exchange for equity
- Generally selective, screens applicants and
reject companies that do not seem profitable

29. OurCrowd (ourcrowd.com)
● Founded in Israel, expanded internationally
● Hybrid venture capital - crowdfunding platform
● Provide mentor for entrepreneur
● High base investment of $10,000 with only
accredited investors
● Intend to be exclusive and will not open up to
general public
● The platform invests 10% in each company they
take on
● Plans to fund 40-50 deals in 2013
● Funded largest equity crowdfunding deal $2.2M for
AE Squared

30. AngelList (angel.co)
● Exclusively sells equity, mostly for startups
● Oversees startups by providing mentorship and
template business plans
● Currently only accepts accredited investors. Plans
to expand to accept non-accredited investors
● Allows users to apply for employment at selected
companies
● Found investors for pinterest.com

31. Crowdfunder (crowdfunder.com)
●
● Initially debt and revenue share based, recently has
shifted to equity based
● Mostly serves startups that are tech-based, often
web-based
● Sponsors entrepreneurship contests. Startups are
awarded cash prizes and exposure to investors
● Direct engagement with US House, Senate, and
White House around legislative efforts that became
the JOBS Act

32. Other Equity Crowdfunding
Platforms
Platform Focus
CircleUp Consumer products and retail
EarlyShares Seed stage businesses
Fundable Seed stage businesses
Seedups Early stage tech-startups
StartupValley Technology startups and businesses
Bolstr Local small business, revenue sharing
Fundable Equity and reward based crowdfunding
SecondMarket Market for all kinds of illiquid asset (equity, debt…)
SeedInvest Platform for angel investor
Wahooly Connect social network for promote startup
Wefunder Seed stage businesses

33. Keep in Mind
● Selling equity means
giving up a part of
your business.
Selling a lot of equity
means giving up a
large part of your
business.

34. Keys to a Successful Equity
Crowdfunding Campaign●
● Pick the right platform
● Set a realistic goal (sometimes all-or-
nothing campaign)
● Build your pitch
○ The problem you’re trying to solve
○ Company, market, competitors, and consumers
○ How money raised helps
● Network + Social Media
● Video
Marketing Your
Crowdfunding Campaign

35. Leverage Your Network
● Family and friends
○ Have commitments from family
and friends before launch
● Social media
○ Twitter, Facebook, LinkedIn,
email subscribers
● Press
○ Newspapers, magazines, blogs,
anything that will increase
visibility

36. Most Important Factor for a Successful
Campaign: Friends and Family (Seedrs)
Seedrs has found that all of their campaigns have succeeded once they have
received 35% of the funding
It is important for each company to have commitments from family and
friends
Because independent investors will only invest if there is momentum in
the campaign

37. Pitch Video
In Kickstarter, campaigns with video are 60%
more likely to succeed!
● Idea (Scalability)
● Credibility (Name-drop)

38. If your company is interested in equity based
crowdfunding, you can send any questions to
me at jhoffmire@wisc.edu
Note that I am not a lawyer, and I recommend
consulting with one before you venture into
crowd funding.