Crowdfunding:

an overview and directions

Prof. Ethan Mollick

Wharton School
University of Pennsylvania
Four areas for discussion
1. What is crowdfunding?
2. Why crowdfund?
3. How to crowdfund?
 What is crowdfunding
 “Crowdfunding refers to the efforts by entrepreneurial
individuals and groups – cultural, social, and for-profit –
to fund their ventures by drawing on relatively small
contributions from a relatively large number of individuals
using the internet, without standard financial
intermediaries.”
 In the tens of billions raised every year
 Four main types of crowdfunding exist

Mollick, 2014
Reward
crowdfunding

• Nearly $4B raised on Kickstarter alone

• Early reseach on equity shows it replicating
much of what happens on reward platform
• Most research on reward
Equity crowdfunding

• Legal in many parts of Europe

• Legal as of May 2016 in US, but off to
a slow start
Charitable
crowdfunding

• Can include sites like Go Fund Me or

Kiva
• People either raise money for
themselves or charities
• Most campaigns very small
Lending
crowdfunding

• Very large amounts of money lended

• Often not considered to be a part of
crowdfunding because many of the
lenders are large companies
Two trends go into crowdfunding

Crowdfunding=
Crowd+Funding

Rise of social media – Startup funding cycle changes –

crowdfunding is how communities decreasing startup costs, increasing
make changes in the real world funding options
Trend 1: crowds
Trend 1: Crowds
 10

9%
100
20%

1000
40%
Mollick, 2014
 Percent of funds
20 40 60 80 10
0 0
A
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m
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s
C
ra
ft
D s
an
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D e
es
i
Fa gn
Fi
lm shi
& on

From Strangers
Vi
de
o
Fo

From Family & Friends

o
G d
Jo am
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Ph M
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bl y
Te ish
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Percent of money from various providers

Th gy
ea
te
From my Community

r
Support comes from friends and family
end 2: startups
According to Marc Suster of
GRP, the cost of launching a
web-based startup has dropped
by 3 orders of magnitude since
1999 (from around $5M to
around $5k)
Confluence of these two trends
 As costs of startups falls, new funding mechanisms

VCs and Angel Investors

Traditional source
Mid-2000s super angels
of funds for
Individuals
2005 Seed Incubators
startups Late 2000s
making many Crowdfunding
individual early Y-combinator
stage deals TechStars, and
Roots in
organizations
microfinance,
funding early
internet
stage startups
community,
foreign markets

Online communities
Why crowdfund?
 Crowdfunding leads to startups
100%
Q: What kind of organization created the project?
90%
80%
70%
70% of projects
60% generate outside
50% revenue.
40%
30% The average successful
20% projects hires .6 FTE
10% and 2.21 temporary
0% workers.
ig
n od y es n ics g ic rt ce lm
es Fo log am sh io m h in us A an Fi
o
Co is M
t D
c hn G Fa u bl ter
/D
d uc Te P ea
Pr
o Th
Product-oriented categories Art-oriented categories

Pre-existing organization New organization established for project

One time project, no organization

Mollick, 2016
 You can generate sustainable revenue from
crowdfunding
Dollars in non-crowdfunding revenue per dollar in crowdfunding pledges
for completed projects
$18

$16

$14

$12

$10

$8

$6

$4

$2

$0

* The lower bound for Film is -$.41, the upper bound for Food is $23.19

Mollick, 2016
 Crowdfunding also can help you achieve
other important goals
Percent Agreeing that “My Kickstarter campaign helped me...”
Advance in Increase the Switch Find new job
my career money I careers opportunities
made
Product-oriented 26% 28% 14% 16%
Art-oriented 41% 18% 5% 21%

Percent
responding yes
Did your project produce something aimed at helping a 53%
community?

The project helped do something important for society 27%

Project helped create something important 67%

Mollick, 2016
 Crowdfunding also works for people who
have trouble getting access to other funds
 Average crowdfunder is 39 years old and married.
 In every other field of fundraising, women do worse than
men. In crowdfunding, women are 13% more likely to
succeed than men.
 Also, unlike venture capital investment, crowdfunding is
geographically diverse
Locations of Technology Seed VC Investments 2009-2012
n=835

VC Seed Investment
About Tableau maps: www.tableausoftware.com/mapdata
Map based on closest MSA. Color shows number of deals. Pale yellow areas have only one deal. Biotechnology ventures not included.
Crowdfunding
Deals

1.0 188.0

Greenberg and Mollick, 2016; Mollick, 2016

How to crowdfund
Pick a platform
 For reward crowdfunding, generally go where the crowd
is: Kickstarter or Indiegogo
 I would generally avoid equity crowdfunding in 2018,
since the market is not large, there are no breakout hits,
and it isn’t clear how well it will be received by funders
 Setting Goals: what you actually want to
achieve
 50% of projects get 10% or less above their goal
 Less than 25% of projects raise 35% over their goal
 Only 1% of projects get 10x their goal
Failed Projects Successful Projects
40

40
Percent of Successsful Projects
Percent of Failed Projects

30
30

20
20

10
10

0
0

0 .2 .4 .6 .8 1 1 2 3 4 5
Percent of Goal Multiple of Goal

Mollick, 2014
 So raise what you need to complete your
project!
 You will probably raise almost exactly what you ask for –
don’t expect to go viral!
 Budgeting is critical
 Amount you raise is not profit, it is revenue
 Expect to pay a lot of fees
 5-8% to platforms
 Taxes on earnings(!!)
 Sales tax
 Can be hard to go back and get more

Mollick, 2016
Mollick, 2016
Most popular reward level, ($)
0 50 100 150
A
C rt
om
ic
s
Cr
af
ts
Da
nc
De e
si
Fa gn
Fi
lm shio
& n
Vi
de
Setting reward levels

o
Fo
o
G d
Jo ame
ur
na s
li s
m
Ph M
ot usi
og c
r
Pu aph
For other platforms: Patreon: $6/month. Indiegogo $20-$50 bl y
Te ish
ch ing
no
lo
Th gy
ea
te
r
 Be thoughtful about your rewards
 Ideally create a range of donation levels, without a lot of
different rewards
 Helps to have one at ~$20
 Rewards can be very challenging
 Shipping (especially internationally)
 Returns
 Logistics
 Price out all reward tiers up front
 Digital rewards where possible
 Be creative

Mollick, 2016
 Crowdfunding is hard work!
Hours per week for average project
40

35

30

25

20

15

10

0
All projects Goal>10000 Goal>100000

Before During After

Mollick, 2016
 Planning time is not wasted
 Statistically: An average successful project that had 10
hours of prep time a week makes about $9,000 less than
one that had 40 hours of prep time
 Things to plan:
 Building prototypes
 Budgeting and logistics planning
 Risk reduction (ensuring you can deliver)
 Media plan
 Videos and pitches

Mollick, 2016
What does it All Mean?
 Crowdfunding continues to evolve
 It is the way that communities make things happen
 On large scale, most of the news is good
 More people with ideas get a chance to pursue them
 More viable businesses will be formed
To raise money you need to:
 Spend the time
 Set appropriate goals – don’t expect to be viral
 Develop a compelling pitch and launch plan
 Plan in advance to launch
Thank you!
 Feel free to follow on Twitter: @emollick