printable banner

U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

Crowdfunding: Supporting Innovation and Entrepreneurship

Yancey Strickler,; Premal Shah,; Dana Mauriello,; and Amy Cortese
New York, NY
November 2, 2011

Date: 11/02/2011 Description: Foreign Press Center Briefing on ''Crowdfunding:  Supporting Innovation and Entrepreneurship'' - State Dept Image

2:00 p.m.., EDT


MODERATOR: Good afternoon. I’m Alyson Grunder, the Director of the New York Foreign Press Center. Today, we’re doing something we’ve never done before, which is to have a briefing where some of our briefers are in remote locations. We’re really pleased to have with us today here in the briefing room Yancey Strickler of; Amy Cortese, an author and a journalist who has recently published a book on local investing; and via Skype video, Dana Mauriello in Los Angeles from ProFounder; and Premal Shah in San Francisco from

So we’re going to start with some brief comments from each of them, beginning with Premal of Kiva, and then we’ll have Yancey talk about Kickstarter and Dana talk about Profounder, and then Amy will provide an overview of the crowdfunding industry. And then we’ll take your questions.

So Premal, please begin.

MR. SHAH: Sure. Well, hey, everyone. I’m sorry I can’t be there in person and I’m sorry I can’t see out into the crowd, so – (laughter) – just looking at the people who are going to be speaking. But what I thought I’d do is just – oh, there it is, awesome – what I thought I would do is just give the basics of Kiva, including how it came to be, and some of the benefits of crowdfunding in the microfinance space, which is the space that Kiva operates in.

So Kiva’s mission is to connect people through lending to alleviate poverty. And as you see up on the screen, the way we attempt to do this is through a website that allows you to sift through profiles, similar to, and then in $25 increments, help fulfill a loan request that’s posted by one of our 150 microfinance field partners in 60 countries.

And essentially, when you go to the website, the whole idea with microfinance is that it’s supposed to pick up where banks leave off. Oftentimes, banks don’t make loans because of the perceived cost and risk of, for example, reaching a rural farmer in Uganda. But a microfinance institution will start there, typically, and the whole idea with the internet community and crowdfunding is that we think that people are fundamentally more risk-tolerant than banks, especially when there can be a sense of connection between two people, because that connection will breed an empathy, and that empathy will breed a generosity.

And so on Kiva, what you’re doing is, when you make a loan, you’re not able to get a rate of return, but the best thing you can do is get your money back. And then once you get your money back, you can choose to withdraw that money or you can re-loan it to someone else. And one of the things that we encourage our microfinance partners to do is post up people that they otherwise might not have loaned to. And the reason why they’re encouraged to do that is because the loss of that loan, if that person defaults, is borne by the internet community, the people who are making the loan.

So some of the areas that are more risky – microfinance is about a 30-year-old kind of movement, and there’s a lot of things that has been refined over time, but it’s not a very flexible, low-cost product to get for – particularly microcredit for the working poor. So an example of something that we would like – that you might find on Kiva, you might find a loan to a farmer in Uganda, and the microfinance institution will now list it with a six-month grace period. And that’s absolutely essential because oftentimes, if the farmer – in microfinance, they would have to go back and pay each week in a group. But if they have to go back and make small monthly, weekly payments, they’re not able to maybe buy that illiquid investment asset, like a water pump. But if they can pay back after six months, they can buy that asset, they can plant the seed, they can get the harvest, they can sell it at the market, and essentially, it’s a more flexible loan product.

So one thing I wanted to highlight about Kiva is we started in 2005 – in fact, the cofounder of Profounder is the cofounder of Kiva – and in the first year, it really didn’t have much traction. It wasn’t until October of 2006 when Muhammad Yunus won the Nobel Peace Prize, which made microcredit overnight a kitchen table word, and we were featured on PBS Frontline World, which is a documentary here in the United States. Our website crashed for four days. But when it came back up, we went from raising, up until that point, probably about $500,000 for the whole year to about a million dollars a month. And now the website raises about a million dollars every five days.

And one of the things I wanted to highlight is if someone could click on the community tab on the Kiva website – I don’t know if you guys have a visual there – if you go to the community tab, you’ll see a list of, basically, lending teams. Lending teams are similar to the concept of Facebook groups. And you’ll see that if you scroll down the page, for example, that the top two lending teams on Kiva are the atheists versus the Christians. And this is a way for people with common affinities to come together, form a team, and make impact together.

And what’s interesting now is that four of the top lending teams are actually – for example, there’s Team Europe in the third slot. But some of the top teams like Team Belgium or Team Netherlands or Team India – of the top 20 teams, nine of them represent different countries. And what’s been a really interesting thing for us to discover – you’ll see Team Australia, so on and so forth as you scroll down the page – has been that now over 40 percent of the people who are registering and making a loan on Kiva now come from outside the United States. So not only is money going to people in 60 countries around the world, but actually the people who are now providing the money are not just people in the U.S., but they’re people around the world.

And I’ll conclude with a final thing: In 2009, we launched here in the United States where you can now fund small businesses in the United States that are underserved by today’s banking system. And one of the most interesting things that I saw when we launched was that someone from Nairobi, Kenya made a loan to a woman here in San Francisco – in effect, kind of reversing the flow of money that we were kind of used to seeing on Kiva. And that’s something that we’re really excited about with the crowdfunding phenomenon, is giving people an opportunity to give other people an opportunity in really small increments of money. And then when they can see other people doing it together, it’s a real empowering experience.

MODERATOR: Let’s move on to Yancey Strickler of Kickstarter.

MR. STRICKLER: Hi, how’s it going? My name is Yancey. I’m one of three founders of a website called Kickstarter. Kickstarter began here in New York in 2009. It launched April 2009. And the site helps creative projects raise money. Kickstarter is not investment and it’s not a loan. Instead, it’s a mix of patronage and commerce. So someone contributes money to a project, and in exchange, they get some good or product or service – so a copy of the CD, a ticket to the premiere, their name in the credits, things along those lines.

We restrict Kickstarter to be used for creative projects, so things in the creative realm, so it’s film, it’s music, it’s design, it’s art, it’s food, it’s technology. And every category on Kickstarter – there are a dozen in all – has seen over a million dollars in funding move through them. Since we launched two and a half years ago, over a million people have supported a project on Kickstarter, and collectively they have pledged over a hundred million dollars during that time. Right now, over $2 million a week flows through the site, and that goes to a variety of projects, but the leading category is film. Film is a candidate for $40 million of the hundred million, and music is second with about 25 million.

We require that everything be a project, something that is precisely defined with a beginning and an end, so there’s not open-ended fundraising. There are not general operating costs; you’re raising funds to do something. And one trick to how Kickstarter works is that you have to raise the amount of money that you’re seeking. You set a funding goal; you must raise that goal within a time limit that you set or you don’t get anything at all. So all the funding is all or nothing. So typically, projects last for about a month. If you’re trying to raise $5,000 in a month, if at the end of that point, you’ve raised your funds, then the money is yours and you go and you complete your project. If you come up short, then no money at all changes hands.

And we see this as an interesting model that protects both the creators of projects and the backers, the people who contribute money. For a creator, they know that they have the full funding that they need to complete the project as they’ve described, and for a backer, they know that their money is going to a project that is fully funded. They’re not just buying someone’s groceries or something like that.

So 44 percent of projects make their goal. We think that’s a great rate, and that’s held steady since we’ve launched. And the most common amount pledged on Kickstarter is $25. The average pledge amount is $70, so they’re very low price points. And people are backing projects for reasons of not trying to get rich or anything like that; they’re backing for reasons of affinity, because they like a project, because they like the person behind it, because they appreciate it. They want to see how it – they want to see it exist in the world. And we see this as being an important addition to the way that things are traditionally funded, whereas typically, ideas are funded based on their capacity to produce revenue for somebody else. But of course, most ideas have no intent to make money; they’re just an idea, and those things are completely locked out of our mainstream culture. So we saw Kickstarter as a way to allow ideas that just wanted to exist solely for that reason to happen, as well as anyone else who wanted to use it and build a community around their work at the same time. So we think that’s very important. We think that’s very important that people are contributing because they like the thing and because they want to – they want to see it happen.

The largest project to date on Kickstarter was one that raised just shy of a million dollars. That was a product design project. It was a designer creating a wristband to turn an iPod Nano into a watch. He raised just shy of a million dollars in a month. We’ve had probably about three dozen projects raise over six figures. We’ve had other projects that have been – that have gone on to be sort of internet famous. We’ve become a source of memes and things like that as well.

I guess that’s it for me for now.

MODERATOR: Thank you very much. Dana, let’s turn it over to you.

MS. MAURIELLO: Hi, good to speak to you from Los Angeles this morning. And I’m Dana. I started ProFounder in August of 2009 with my partner, Jessica Jackley. And the problem – ProFounder is a platform for entrepreneurs and businesses to raise investment capital from their communities. And the case study that really got us to start to think about ProFounder and the need for it to exist in the world is when we saw our classmates starting a business and wanting to raise money from fellow classmates. And when they went to their lawyers to try and structure this deal, they learned about how the classmates were, quote/unquote, “unaccredited investors,” meaning they had net worth of less than a million dollars. And if you have net worth less than a million dollars, it’s very challenging for you to invest in private businesses without the help of a professional investment advisor, broker, dealer. And this was all news to us and really startling to see this example of how someone’s own community could not invest in them and support them, and it seemed like an incredible market inefficiency. You could have great entrepreneurs, a community that wants to support them, but they just could not connect. And there was no flexibility to the law to say that, oh, they’re unaccredited investors but they can invest a certain amount or in a certain way or with a certain relationship. It was a very hard and fast rule.

So that’s what we started to dig into and to see how we could solve. And as we started to dig into that, we looked at the fundraising landscape and saw that this idea of community fundraising is one that’s very common and happens all the time offline. So, for instance, I grew up around small family businesses, and all of our businesses got off the ground by other friends and family investing in them. And actually, other than personal credit card, that’s the most common way that businesses get started in the U.S. is your own community, your own friends and family investing, actually, to the tune of $144 billion a year. That’s how money is moving in these informal networks, but it’s very hard to make more efficient and make more effective. Nobody really ever talks about it because of complicated law that happens around it.

So that’s what we chose to dig into, and we found a set of securities exemptions that allowed us to structure this fundraising. The most challenging thing that we were able to achieve is taking all the laws in all the 50 states as well as the federal government and automating them for compliance with how these deals could be done. So entrepreneurs could come to our platform, create a fundraising pitch, create a term sheet. Most of our entrepreneurs choose to – chose to use terms around royalties, sharing a percentage of their revenue over a fixed period of time – and then use our compliance calculator to really easily understand the rules and regulations around how they could do this, how many people they could include in their fundraising, et cetera, and have the deal facilitated directly online, publishing a private fundraising website, having the transaction occur right there.

So some examples of entrepreneurs who have seen success this way, we do have a number of classmates, investing classmates. We have a shoe – a sneaker company that they raised $65,000 from about 20 of their classmates, and it was that money that got the first production run of sneakers complete, and they sold through that first production run and then went on to raise money from angel investors. We have a brewery in Fargo, North Dakota, and they wanted to raise money for their brewery from neighbors because they knew that by having their neighbors invest, those were the very people who would be customers of the brewery and be the greatest advocates for it and help it succeed. And that’s how they started their brewery. A motorcycle company in San Francisco that raised money from fellow motorcycle enthusiasts because those motorcycle enthusiasts were the most, quote/unquote, “strategic investors” that they could have because regardless of their wealth, these were the people who were really the trendsetters in the space where the company was going to be involved.

So some numbers – it’s a little bit of a different scale. The average investment that an investor is making is $1,300. The average raised is $35,000. The average number of investors included is about 20. And by community, it means that they includes friends, family. It could be colleagues. It could be customers in some cases.

We only operate in the U.S. for the securities law that we automate is uniquely applicable to the U.S. What’s interesting is the U.S. is not as progressive as some other countries in this particular area, so we’re trying to be more progressive. And for example, there is a new rule in the House of Representatives, H.R. 2930, that’s actually up for vote in the floor of the House today that would legalize a much more liberal version of crowdfunding, allowing any business to publicly list their investment opportunity and for anyone in the general public to then be able to invest. That currently is not something that can happen. That’s what this law would enable. And President Obama actually mentioned crowdfunding and its ability to spur economic growth in his recent speech on the jobs bill, and that’s what pushed this bill through more quickly than ever before. I testified on this bill twice recently, and at one of these – one of the hearings, there was also a gentleman from the U.K. who runs a company called Seeders that does crowdfunding in the U.K. And what I think was really interesting about this hearing, to view the U.S. in the context of international crowdfunding innovation, is that he was brought in to show that the U.K. is actually more innovative in this area, and how can the U.S. catch up and do more to provide more access to capital.

MODERATOR: Thank you, Dana. So I guess we’ll move on to Amy. You’re going to show us your book, I hope.

MS. CORTESE: Hi, everyone. And I apologize; I have a little bit of a cold today, so bear with me. But I am not with a company. I am a journalist and the author of Locavesting, which is this book. And to give a little context, it’s about the local investing movement and how it has the potential to rebuild communities and the economy. And that is happening today across the country. The name, to just explain that, in case you’re not familiar with it, is a play on the term locavore, which is used frequently, in this country at least, to describe people who eat a diet that’s sourced locally, so it’s very slow food, you’re eating local, sustainable food. Well, locavesting is investing that way.

And so I got started on this book after the financial crisis. I was looking around, and a lot of people were looking for alternatives, but I noticed a lot of people were actually out there creating them. And the book is the result of my attempt to kind of get my arms around this local investing, slow money thing that I saw happening everywhere and put it into some sort of framework that made sense and that might be useful to people.

So I’ll go quickly through the sweep of it, because there are a lot of different things going on and I think crowdfunding is one of the more exciting. But basically, I go through established models and emerging ones, so from community development loan funds, which are – they’ve been around for a long time, but a lot of people have never heard of them. But you can invest money, get a modest return, but all the money gets invested in your community, generally to under-served markets and entrepreneurs.

There are local investing groups where residents of a town may just get together and decide they’re going to start investing in local companies. There’s a great example in Port Townsend, Washington, and they’ve called theirs LION, for the Local Investment Opportunities Network. So a lot of people are copying that LION model elsewhere. In fact, we are doing one here in New York City.

And there’s sort of the catch-all group of community capital, and it’s kind of a lot of the things that Dana is talking about, where you have entrepreneurs and they’re looking to their friends and family and neighbors to raise capital, but they probably hadn’t heard of ProFounder yet so they sort of go off and do it on their own. We had a bookstore here in Brooklyn called the Green Light Bookstore, which opened, thanks to loans from people in the community who lent them a total of $70,000 in small amounts to help them open. And what happens is those customers – those investors, rather, become the best customers and they’re really helping that bookstore thrive. And defying all the doom and gloom about bookselling, it’s been profitable since its first year.

There is also a group called Slow Money – again, sort of philosophically aligned with slow food but looking to funnel capital to sustainable food and agriculture companies. Cooperatives are enjoying a resurgence. If you’re a member of a cooperative, you can lend to your cooperative and get a nice return.

Direct public offerings are sort of like do-it-yourself IPOs, but you’re cutting out the Wall Street middleman. And it’s perfectly legal, but a lot of people don’t know about it. That’s coming back into fashion a little bit more as people hear about it. But probably the most famous one was – if you know the ice cream company Ben & Jerry’s, they started in Vermont, and the first time they raised capital was through a direct public offering available only to residents of Vermont. And they raised – I forget how much, but a lot of money – and that allowed them to expand and then they went on the following year to do an IPO and made all of those early believers very happy.

And I end with the really fascinating concept of local stock exchanges. A lot of the things I talked about are illiquid, so in other words, you don’t necessarily have a way to trade or get your money back quickly if you need to. So a local stock exchange would serve a particular region, rather, bring together investors and companies, and sort of be a focal point for that. And a lot of people don’t realize, but a hundred years ago in this country, also in England and probably elsewhere, we had dozens of local stock exchanges that thrived across the country in places like Buffalo, New York, in Denver, Colorado, and many other places. So of course, with technology, they all slowly emerged or died off, and now we have global efficient markets, but they’re no longer serving the same type of company that they used to. So I’m very excited when I hear about people looking to start up local stock exchanges again.

And the chapter that I skipped, last but not least, is crowdfunding. And I think, of all of these things, there’s so much potential there. And I would also add that the one thing that all of these different things I’ve talked about have in common is that they allow ordinary people to put modest sums of money into companies that they believe in or that are their neighbors and that they want to see succeed.

Dana went over the securities laws, so I won’t go into that, but it is encouraging to see bipartisan support for changing some of the securities laws we have in this country that make it hard to do that kind of crowdfunding. Dana also mentioned Cedars, which is a very interesting company in England that is letting investors buy shares in small companies. But there’s another one which has been around for more than a year called Funding Circle, and they let investors make loans to small companies. And they’ve – I think they’re – yes, they’re at a point where they’re loaning more than 2.3 million pounds per month to small businesses in the UK. And so far there’s been no instances of fraud, and they’ve only had two defaults out of hundreds of companies that have been funded. So I think that’s a very good example.

And I’m not sure how I’m doing on time here, so I will just end it and be happy to answer your questions.

MODERATOR: Thank you so much to all four of you. So now we’re going to open it up for questions. Please let us know your media organization and your name, and specify which panelist you want to direct your question to.

Who would like to ask the first question?

QUESTION: Hi. My name is Emily Hay and I’m with the Nikkei, and this is a question for Yancey. I wonder whether or not you can tell us whether you think that the Kickstarter funding model is sort of a new invention in terms of building up projects, or is this a reinvention of something that used to exist?

MR. STRICKLER: I don’t think it’s new at all. I mean, obviously the internet is new, but this was how art was funded for hundreds of years. This is patronage. It’s only in the last hundred years that art has been something that has been largely subsidized by debt or by selling ownership to a corporation. We see that as the only way that art comes to exist, but it’s a very modern invention, so we see as – what we’re doing is an old idea sort of made new by using the web and social media and the ease of connections that we have the benefit of now.

MODERATOR: Any other questions?

QUESTION: Hi. My name is Chiara Basso. I write for Il Secolo XIX, an Italian newspaper. This question is for every one of you who wants to answer.

So I see somehow a relation, a social relation between the indignados in the world, in Occupy Wall Street, and this new generation. You can call it the startup generation. Do you – can you see the same? I mean, so we have these young people on one side, they are not able to find a job, and so maybe they are looking for – they want to create their own job somehow.

MODERATOR: Maybe we’ll start with Premal. Premal?

MR. SHAH: Well, I think the sentiment of – people are looking for alternatives – and Amy talked about this really eloquently – alternatives to the way things are today. And I think the platforms that you see represented here are, like, the wind and solar of the financial services industry. We’re small right now. There’s promising momentum. But there’s something pretty fundamental about letting people connect with one another. And through that connection, there’s just this incredible space for patient capital to emerge.

And so if you combine that with the unemployment problem, not only here, but you look in some of the Arab states with a youth bulge, this is something that we’re really focused on at Kiva. In fact, today, we just launched in Yemen, and a big part of our focus in Yemen is focused on youth and making sure that they can actually have someone – if the banks decline them for a loan or if they’re unable to get a loan from a bank, they can actually go to take their case to the internet community. And every day, 50- to a hundred thousand people will visit the Kiva website and they can make their case. And that’s the way the world ought to be, is your only sources of funding should not necessarily be name brand institutions on High Street or on Wall Street – although they have an incredibly valuable role in society – but just each other. And that idea is as old as time.


MS. MAURIELLO: Yeah. I also – I think it’s notable that when President Obama was speaking about the jobs bill and job creation, a lot of the tact for job creation was around access to capital and entrepreneurship, the fact that the crowdfunding bill is being considered as part of a job creation initiative. It’s very telling to think that the way that the government is thinking and is progressing toward is thinking that creating opportunities for people to become entrepreneurs not only allows them to create jobs for themselves, but allows them to create opportunities for others. So that is – that’s incredibly encouraging. And this idea and this mantra around democratizing access to capital is really one that I think you’re hearing from all of us and is also being really purported through these bills and legislative changes that are happening.

MODERATOR: Okay. Yancy, do you –

MR. STRICKLER: Yeah. I mean, I’ll just say very practically, the Occupy Wall Street Journal that’s being passed out downtown was funded on Kickstarter. Same with the Occupy Boston Globe. So, yes.

MS. CORTESE: I would add that it’s very important to note that small businesses create two out of every three jobs, and we do have a jobs crisis here and around the world, as Premal pointed out. So it’s very important to get funding to entrepreneurs who would like to do something and create jobs, but if you don’t fit in that cookie cutter model that banks want and you’re not a sexy mobile app that can’t get venture capital funding, you’re sort of out of luck. So there really is this capital gap, and I think there’s a lot of viable, energetic, innovative ideas out there that are just looking for funding.

And to put it into context, in this country, Americans have more than $26 trillion invested, so that number includes mutual funds, pension funds, people’s individual holdings, and where is – where does that go? It’s all primarily in the stocks and bonds of large companies, the same companies that many times are outsourcing jobs, keeping wages down, laying people off, cutting benefits, all the things that the people at Occupy Wall Street are protesting against and that other people feel on an everyday basis. So I believe that we really need to start looking at where we invest. I mean, if you could shift even 1 percent of that 26 trillion to some of these smaller companies, that would be $260 billion for the Main Street economy. That’s just 1 percent. So it’s got enormous potential.

QUESTION: Hi, there. I’m Asaf from Israel, and two questions. Premal, the first for you: Could you perhaps give us a little bit of demographics, in terms of do you see immigrant remittances flowing back through Kiva? Do you see people who are better off today, let’s say, an Indian that is working in Dubai sending money back home through Kiva? Or are they still keeping the normal or a more traditional route of sending it back to their family?

And perhaps a broader question to the lot of you: The 2012 campaign is coming up, and we know that crowdfunding was a big hit with the current President. Any tips for the possible candidates or for Mr. Obama himself?

MR. SHAH: Okay. Well, on the first question, one, about six months ago we actually launched in Israel with a phenomenal partner out there, KIEDF, and those loans have been really, really popular. And what’s been interesting is to see the countries – people from countries right around Israel funding in and vice versa. So that’s an interesting story to me.

But in terms of remittances, one of the things that – Kiva right now, it’s facilitating the flow of loans back and forth, and remittances are usually – they’re kind of a one-way cash transfer between two people who know each other, so a family member. And I think the most intriguing thing that’s happening on the planet right now around remittances, in my mind, is in Kenya. And it’s the M-PESA mobile payment system. Twelve million Kenyans have mobile money on their cellphone. Only two million Kenyans have a bank account. And now some – I think something like 20 percent of the GDP, if you get the informal economy of Kenya, is actually flowing through this M-PESA mobile payment system, where you can use your cell phone minutes almost as a digital currency. And so what that allows you to do is if you’re working in the city and you want to remit money to your family in a rural location, or if you’re in London, England and you want to remit money to Kenya, I think you can now do it. The rails are there to do it for a fraction of the cost of the traditional alternatives like a Western Union, and with increased convenience, because now your mother back at home can actually sit and get her money right from her household, and she doesn’t have to go anywhere with the inconvenience of that.

So it’s a phenomenal system, and what it means not only for remittances but savings, giving (inaudible) safe place to save, there’s this great quote that – from Kenya. A woman was saying that, “My husband may be able to try to take my cell phone, but he will never be able to remove money from my SIM card.” The security of actually saving money on one’s cell phone is also, I think, a game changer. So Kenya is worth watching as well.

MODERATOR: And then there was a question for all of you, I believe.

MS. MAURIELLO: I believe the other question was about what the Administration can do?

MODERATOR: Do you want to repeat it?

QUESTION: I’ll repeat the question. The question was regarding the upcoming elections and how the candidates can better use crowdfunding in order to set off a bit of the exuberant financial costs that campaigning in the U.S. is all about.

MS. CORTESE: I can talk to that a little.

MODERATOR: Go ahead, Dana and then Amy, okay?

MS. MAURIELLO: I’m sorry. I misinterpreted the question. In terms of candidates using crowdfunding to raise money for their own campaigns, that’s something that President Obama did incredibly well in his election. I expect that that will just continue. In terms of what the candidates can do to bring forward the crowdfunding agenda, which I hope will also be part of the conversation as well for a long time, not just now, I think something that the crowdfunding conversation around HR-2930 has brought up is this concept of cost-benefit analysis with the SEC.

That’s the overarching issue that I hope that future candidates can address as well, as to say in these more innovative areas of finance there’s always going to be a little bit of risk. Of course, no one can deny that, but how do we create more – how do we create smarter ways of thinking about cost-benefit analysis with these risks so innovations can happen, and we don’t look for things that are just a hundred percent risk-free and therefore never have any innovation at all. That’s a conversation I hope continues.

MS. CORTESE: Yeah. And I would just say it’s very smart for any candidate to get behind this. This has such populist appeal, and I think it really resonates with both the Occupy Wall Street movement, as well as people who are conservatives and want government out of their business and no regulations. So it’s a rare middle ground, and it’s really hard to argue against being able to invest in small, job-creating companies that are domestic or even in your town. So there’s something kind of patriotic about the whole thing.

And to Dana’s point, yes, there are risks. But I think the rewards outweigh the risks, and there are ways that you can mitigate risk. I mean, any investment is going to involve risk. But look at eBay, where a system has developed where they rate vendors, so your chances of getting ripped off on eBay are pretty slim because that system has developed, and there’s sort of a vetting mechanism. And to Dana’s point, community crowdfunding, when you’re keeping it within a community of known people, whether it’s physically or an affinity group, or your group of grad school friends, there’s some accountability in that – in this personal relationship.

So I think that the risks can be addressed, and I think that it’s really worth pursuing, and I would like to see more politicians get behind it personally. But I also think it just makes sense for them. I mean, it’s got a lot of populist appeal.

QUESTION: Hi. My name is Elna Svenle. I’m from Sweden, and I have a question for you, Yancey. In Sweden, we still have a fairly strong public funding of the arts, but recently there have been a couple of crowdfunding sites that have started. They’re still very, very small, and I think the biggest raised is about a million dollars a year. So my question to you – and you mentioned now that you raise about $2 million a week. That sounds almost comparable to the entire National Endowment of the Arts. So I was wondering if you could give me your thoughts on that relationship, that you raise almost as much as the entire government gives out to art projects in this country.

MR. STRICKLER: Yeah. I mean, the 2011 Fiscal Year budget for the NEA was $154 million. Kickstarter this year will process over $100 million in transactions in 2011 alone. And so we’re not far off from there, having – being a company that’s only two years old, so I imagine that we will pass the NEA budget at a certain point in the not-too-distant future. I think that’s a good thing for us, but also a sign of how little we really prioritize arts funding. We do not want to be a replacement for the state’s roles in the arts. I think that is an important role for it to play. But obviously, we’re filling a lot of gaps, and there’s a lot of money that was there at some point in time that is not there now.

Just last week, the State of Kansas dismantled its entire arts commission, which made – not only did it cut all arts funding to anyone in the State of Kansas, but it also prevented the NEA from channeling any funds to the State of Kansas. So we’re seeing that sort of thing happening in a lot of places. But the amazing thing is, at the same time, you are seeing, during the midst of a severe economic downturn, regular people, a million people, stepping up and contributing over $100 million to support projects that are not trying to make money, that are often idiosyncratic, that are not going to be profitable, that simply want to exist. And to see that kind of generosity and that – and just to that scale, I think, is really exciting, and we’re really encouraged about where that leads.

QUESTION: Hi. My name is Thomas Koch. I’m writing for German regional newspapers. I was a little bit late, so I – perhaps you have addressed the issue already. I would like to know how are you living out of this business, because you’re not doing this for a charity or whatever kind of thing. So this is a question to all of you except the author. Of course, the author is selling a book, so we know how she is making money.

MS. CORTESE: Not much. (laughter)

QUESTION: But the rest of you, I would be interested.

MR. STRICKLER: Kickstarter is a for-profit company. We’re not a nonprofit; we’re a for-profit company. If a project successfully raises its funding goal in Kickstarter, we take 5 percent of what they raise as our fee. We take no ownership stake at all, but that 5 percent fee is our source of revenue and the sole thing that we charge, and through that we have a staff of 30 people who have health insurance, which is harder than you think. But yeah, 5 percent of what people raise.

MS. MAURIELLO: We’re a for-profit company as well. We recently changed our pricing model. We went to a free, do-it-yourself model for the time being, and are going to be scaling back up to charging for packages of tools that people use, and we also do some custom development work for various communities that want funding projects managed.

MR. SHAH: And Kiva’s actually a nonprofit organization. The way to think about it is it’s similar to Wikipedia. The intention is to be an internet public good, and I think because of the borrowers that we’re intending to reach, it certainly helps to be a nonprofit. For example, we have six pro-bono law firms out working on all the different regulatory issues in the 60 countries that we work on. If we had to pay for that law – those law firms, I don't know if we would have much of a sustainable model.

The organization has now a hundred employees, and the way we cover our costs is 70 percent of our costs are actually through tips. They’re optional donations, similar to when you walk into a museum and you can choose to donate to the museum or you go to a restaurant and you can tip on top of what you’re paying for the bill. Those tips at Kiva cover about 70 percent of our operating budget. The remaining 30 percent come from corporations and foundations to support the internet public good.

MODERATOR: Any more questions from journalists?

QUESTION: Hello. I am Shinyoung Kim from Chosun Daily newspaper of South Korea. I have two separate questions for Amy and Yancey. For Amy, since the term Slow Money, I think it’s very interesting and since it came from – as you mentioned, it came from Slow Food. And Slow Food started from the concern about the environment, I think. So do you think the Slow Money can change – like Slow Money can do some good for environment of the financial system itself? Like, I want to ask your opinion.

And for Yancey, do you have any tool for preventing somebody from not completing the project? What happens if somebody doesn’t complete the project?

MS. CORTESE: Yes. Very good question about Slow Money. There’s a big focus, thanks to Slow Food, on where our food comes from and supporting your local farmers and sustainably raised meat and produce. But the problem is if small businesses have a hard time raising money – if you’re a farmer or a food producer or even a restaurant, forget about it. So those ventures in particular really need help funding. And we all love our heritage pork and our heirloom tomatoes, but without getting money to those people who are growing them and producing them, at some point it’s not going to be around.

That said, it’s a very difficult area because you have the vagaries of weather, and there are a lot of things that make that model difficult to predict. So it has to be patient money, it has to be slow money, and I think the people involved in slow money recognize that; they are patient and they just want to help recreate local food systems and support these people. And honestly, some of them go on to be incredibly successful, but some of them don’t. Their farms, they’re just going to get by and make their modest revenue, but there is a big need to be able to fund those sort of organizations. And Slow Money has chapters all over the U.S. I don’t think they’ve gone international yet. But we have one here in New York City that’s very active if you’re interested.

MR. STRICKLER: In terms of accountability in Kickstarter, when someone launches a project, the majority of their funders, their backers, are people they know, their fan base, people who have some direct relationship with them. And so what we rely on are the social forces of those connections to where, if you burn all of those people, your career is probably done. So we rely on kind of an honor code, an honor system, as well as shame, I think, of people. If you just fail massively, everyone you know is going to know about it because launching a project is a very public act. And so we think that that is a very strong deterrent to keep people honest and accountable.

But one thing that backers have to understand going in is that backing – supporting a project on Kickstarter is not going to Best Buy or going to a store and buying something. In many cases, you’re supporting something that does not exist yet. And being a part of that process of that thing coming to life is a lot of what the reward is of Kickstarter. You get to become – you get to watch it unfold, maybe you get to exert some influence here and there. But that experience is a big part of it, so things might not go as planned. And what we have found is that if the people running projects are very open about the process – even if they’re honest about a catastrophe – that becomes something interesting and is worth the price of admission alone. So we just see that whole creative process being really what you’re buying into.

But if someone does get ripped off, what recourse do they have? You can have it charged back to your credit card company. There’s legal options if you want, but we have not seen issues like that today.

MODERATOR: Any other questions?

QUESTION: Hi, my name is Filippo. I’m from Italian Public TV. My question for the – all your crowdfunders: In terms of how to make your proposal to the public or to your friends or to your acquaintances, do you only give the platform for the people to raise funds, or you also give advice on how to – I know how difficult it is to write a proposal to raise funds. And I’m wondering if you have any – you give any advice to people who want to raise funds for their projects.

MR. STRICKLER: Yeah, we have – on Kickstarter we have basic tips and tricks and tutorials like anyone would. Really, though, people learn by looking at other projects. We are a platform, a marketplace, and Kickstarter’s primarily video-driven. It’s really a video site in a lot of ways. Eighty percent of projects launch to video. And really, Kickstarter has created this new video format of this – of a normal person making a commercial about their work. They’re kind of anti-commercials where someone says, “This is who I am, this is what I do,” but they’re a little awkward about it. They don’t want to sell themselves too hard. They want to show that they’re just like us. And that video is really the chief way that people communicate what they’re doing. So we really stress doing that and for people to learn from others.

And then there are basic things like making sure you don’t charge too much for the things that you’re offering, making sure you tell people about the project. We have a staff of 15 people on a community team who work directly with creators and backers to help them with their projects, so we can provide as much hands-on advice as anyone needs, or we’re perfectly fine to stay out of the way if they know what they’re doing.

MODERATOR: Dana, do you want to –

MS. MAURIELLO: Yeah, I would concur with the fact that the best advice usually comes from just looking at case studies and looking at things that have succeeded in the past and learning from those. We also allow people to collaborate on the pitch, and we’ve found that the best thing that you can do to create a really effective pitch is to talk to the people who you’re pitching to beforehand and test things out with them and ensure that things are going to resonate and get their buy-in.

So we encourage that instead of an entrepreneur writing a pitch in a bubble and then just putting it in front of a potential investor, getting a feel for what that investor really wants, and drafting things and sharing the – making the investor part of the process and getting feedback from them, so you’re asking for more than just money. You’re asking for feedback on a work in progress. And so when you present it to them, it’s a product that both parties are really happy with.

MODERATOR: And Premal?

MR. SHAH: So the vast majority of times, the borrowers that you might see on Kiva don’t have access to the internet directly, so a woman in Uganda who wants to buy a cow to start a dairy business – and so her link to Kiva is the local organization that she trusts. In that local organization, Kiva tries to train them or – and that local organization is watching the website to see how can you position this small business such that it’ll be fully funded.

However, in the United States, where we launched a couple of years ago, we’re now launching a pilot of actually – just because the borrowers here in the U.S. are online, and they do enjoy interacting with the Kiva lender community, and in addition to getting a loan, they could say, “Well, I need three computers from my business,” and one of their 400 lenders might just ship them an old computer, there seems to be a real value to allowing people to – and I think Kickstarter has done this so well – to further humanize the small – in the case of Kiva, the small business. And if – in doing so, you can create a community that not only provides you capital, but will also buy what it is that you’re selling or maybe promote you on Yelp or tweet about you. And we’re starting to see all these kind of things beyond just the capital starting to form as the experience of the person who’s listing themselves becomes more personal and more real.

MODERATOR: Any other questions?

QUESTION: Hello, my name is Chang J. Yoo from Korea Economic Daily. My question goes to all the crowding funders. And I want to know the process how lenders make a capital gain from the investment. I mean, there is – it’s not just the little donation, right? So they – if they lend money, how they can get the money back?

MR. STRICKLER: Well, I’ll start. On Kickstarter, there is no money that comes back. That is --

QUESTION: (Inaudible.)

MR. STRICKLER: Yeah. You’re basically – in many cases, you’re pre-purchasing something, so I’m writing a book and you’re going to pay $15 to help me publish the book, and for that money, you get a copy of it. So it’s typically a clean exchange. But there’s never any money that changes hands. There’s never any repayment or anything like that at all. So we’re unique here. I’ll let the other two speak.


MS. MAURIELLO: At Profounder, it is a system of investments, and we offer two different term sheets as templates. Entrepreneurs can use whatever term sheet they like. The one that’s most popular is the template that we offer as a royalty agreement. It’s offering a percentage of the revenue of your company over a fixed period of time.


MR. SHAH: And on Kiva, we’re a middle space between investment and donation. The best you can do is when you lend $25, get your money back, and on the $250 million that’s been lent, there’s a 98 percent repayment rate, and then people just relend that money to somebody else.

MODERATOR: Okay. Any more questions? We have time for maybe one more if anyone has one. (No response.)

QUESTION: In that case, I have a super-quick question for Yancey again. You have been very successful in the U.S., and as I’m understood, you have to be based in the U.S. to use Kickstarter. Do you have any plans to launch in other countries?

MR. STRICKLER: Yeah, we do. Right now, to start a project, you have to be based in the United States. You can support projects from anywhere in the world, but to actually create one, you have to be based in the U.S. This is a limitation based on our payments provider, which is Amazon Payments, and so they haven’t yet cleared all the red tape to make their service available around the world. Changing that is a priority for us, and you’ll see us start to expand internationally, likely next year.

MODERATOR: Okay. Well, thank you so much for coming today, either virtually or here in person. Premal, Dana, Amy, and Yancey, we really, really appreciated your making the time, and it was so interesting to hear everything you had to say. And I thank the journalists as well for coming. So thank you.


# # #