Equity Crowdfunding for Investors. Matthew R. Nutting

1

Jeffrey Sohl, “The Angel Investor Market in 2012,” Center for Venture Research, University of New Hampshire, April 25, 2013. Among angel clubs (comprising accredited investors only), the sectors that attracted the most capital in 2012, ranked by the Angel Capital Association, were: healthcare, Internet, software, mobile/telecom, business products/services, energy/utilities, computers, consumer products/services, electronics, industrial, environmental services/equipment, media, and financial services.

2

Private company securities are those not registered with the Securities and Exchange Commission and not listed on a public stock exchange.

3

We don't mean to imply that if you had known about Apple's and Facebook's early investment opportunities then, you would have been able to invest in them. At that stage, the companies wanted only strategic investors, i.e., people who had expertise to help the companies develop, market, and distribute their products, populate their boards of directors, and attract future rounds of venture capital.

4

Some members of the House of Representatives have proposed increasing the capital-raise limit to as much as $5 million.

5

Scott A. Shane, Fools Gold? The Truth behind Angel Investing in America, Oxford University Press, New York, 2009, pp. 11 and 158.

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Specifically, out of 269 companies in which the Band of Angels invested between 1994 and 2013, 10 have gone public, for an IPO hit rate of 3.7 percent. Data provided by Ian Sobieski, PhD (in aerospace), managing director, Band of Angels (www.bandangels.com), December 10, 2013.

7

When we refer to “funding portals,” we intend to include online offering platforms of broker-dealers who intermediate equity crowdfunding deals.

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Most surveys and studies of angel investment returns use self-reported data from investor groups and individual angels, and thus are not necessarily reliable. It is likely that some investors and investment groups exaggerate their returns based on both practical and ego-related motives.

9

Be careful not to view highly rated investors, who are not paid fees for their opinions and advice, as true investment advisers. People who give advice to investors and earn fees for it must comply with strict regulations, including the Investment Advisers Act of 1940.

10

A December 17, 2013, conference in New York City, cosponsored by Thomson Reuters, was called “Crowdfinance 2013: Redefining Wall Street.”

11

Joseph Pulitzer, New York World, March 16, 1885, as reported by the National Park Service, U.S. Department of the Interior, at www.nps.gov/stli/historyculture/joseph-pulitzer.htm, accessed October 2013.

12

Based on e-mail correspondence with Maria Schneider and the ArtistShare publicity team, October 2013.

13

“Top 1 °Crowdfunding Websites by Traffic,” GoFundMe, October 16, 2013. Ranking by Alexa.com.

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Source: www.kickstarter.com/help/stats?ref=footer.

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http://www.kickstarter.com/projects/1015015457/chipolo-bluetooth-item-finder-for-iphone-and-andro?ref=live, accessed October 23, 2013.

16

Quoting Jake Bronstein of Brooklyn, owner of Flint and Tinder, which manufacturers “premium men's underwear” made in the USA. Bronstein's April-May 2012 Kickstarter campaign raised $291,493 from 5,578 backers, based on a goal of $30,000. (From e-mail correspondence with the authors on October 24, 2013.)

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This project wasn't an unalloyed success. The company had fulfillment problems, and then some of the big tech companies copied its idea.

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The latest study was Ethan R. Mollick, PhD, “The Dynamics of Crowdfunding: An Exploratory Study,” Journal of Business Venturing, 2013. Mollick reported that “over 75 percent deliver products later than expected.” His study was based on a dataset of over 48,500 Kickstarter projects with a combined funding of over $237 million. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2088298&http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2088298. The other study relied on here was Julianne Pepitone, “Why 84 % of Kickstarter's Top Projects Shipped Late,” CNNMoney.com, December 18, 2012, http://money.cnn.com/2012/12/18/technology/innovation/kickstarter-ship-delay/. This CNNMoney study focused on the 50 highest-funded Kickstarter campaigns, primarily in the technology and video game categories, with projected delivery dates of November 2012 or earlier. Only eight of those 50 projects hit their delivery deadlines.

19

Mark Gibbs, “The Truth about Kickstarter and ZionEyez,” Forbes, August 20, 2012. Also Blair Hanley Frank, “Eyez: One of Kickstarter's Biggest Busts Is Trying to Come Back from the Dead,” GeekWire.com, July 12, 2013. See also the ZionEyez Kickstarter page: www.kickstarter.com/projects/zioneyez/eyeztm-by-zioneyez-hd-video-recording-glasses-for. ZionEyez or Zeyez is apparently under new leadership, including Matt Krumholz, vice chairman. The authors attempted unsuccessfully to contact Krumholz and the company through its website (www.zioneyez.com), via his LinkedIn profile, and by other means.

20

Mollick, op. cit.

21

Letter from Ethan Mollick to Vladimir I. Ivanov, financial economist, Office of Corporate Finance, U.S. Securities and Exchange Commission, December 2012.

22

Originally quoted by Adrianne Jeffries, “If You Back a Kickstarter Project That Sells for $2 Billion, Do You Deserve to Get Rich?” The Verge, March 28, 2014.

Source: Serena Saitto, “Oculus Deal Said to Deliver 20-Fold Return to Spark, Matrix,” Bloomberg News, March 26, 2014. On that same day, CircleUp announced that it had raised $14 million in venture capital from Canaan Partners and Google's venture arm.

23

Most of the lists that rank crowdfunding sites do so from the point of view of entrepreneurs and business owners, not investors. An example is Forbes's “Top 1 °Crowdfunding Sites for Fundraising,” by Chance Barnett, May 8, 2013, www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/.