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11/15/2013 McKinsey & Co - Why crowdfunding appeals to the Middle East
12/30/2013 KQED Radio - Richard Swart - A How-To Guide to Crowdfunding 12/20/2013 Gulf Times - Silatech Hosts Seminar...

Use equity or debt crowdfunding to give Ebola funders a vested interest in the outcome

The following was posted on OpenIdea by Sherwood Neiss
Ideas are great but they are nothing without money. Money solves one part of the problem, funding, but not the other, engagement. Crowdfunding has proven it is possible to engage a community of interest in the solution to a problem with funds. Debt & equity crowdfunding is showing that funds given in the form of an investment turn donors from passively involved to actively engaged. This means they become a marketing engine, help to sell a product/solution, help iterate on an outcome, and/or provide introductions to other key players - all because they have a VESTED interest in the success of their investment. This crisis could benefit from incorporating the crowd for their funds and to engage them as investors rather than donors.
How could it work 
Debt Scenario: 
1) Crowdfunding campaign to fund a cure 
2) Funds pledged are given as a convertible loan 
3) If a cure is found, any sales from the product will go to pay back investors 
4) Perhaps put a cap on the return (eg: 10x) 

 

Equity Scenario 
1) Crowdfunding campaign to fund a cure 
2) Funds pledged are given as equity 
3) If a cure is found the profit from any pharma who buys the solution will go to pay back investors 

NOTE: Both scenarios might require a US or UK Entity be the one that receives the money as they have the most established debt and equity crowdfunding markets.  Governments and regulators would have to collaborate under a special "Eboala Exemption" 
 

How Craigslist could get rid of 99% of fraud but is too lazy to do so

Screen Shot 2014-10-01 at 12.20.34 PMBeing on the forefront of all things crowdfunding, we get to see how new technologies are solving old problems. One of the areas where I bet we will see ‘less of a big’ problem is fraud when it comes to the private capital markets. Sometimes we hear stories of people investing in a business they heard of through a friend of a friend only to find out it was a scam, the company didn’t exist, or it was a shell business formed to steal money from unsuspecting investors. More often than not, these investors lose out on their money because it is impossible to track down the perpetrator.

The reason these scams take place is there is usually no one vetting the scammer. This is a problem technology companies like Early IQ (in full transparency we are an advisor to Early IQ) are solving. Early IQ has figured out how to detect fraud with almost 100% accuracy. The system works by requiring that individual’s self-disclose certain information up front that is then verified. Their team, databases, and algorithm then go to work to see if they are a real person, at a real address, with a real phone number so that if anything goes wrong the police know where to get them. 

With Early IQ, investors that want to invest in businesses that have been through an Early IQ fraud detection don’t have to worry about a potential shyster taking off to the Cayman Islands with their investment. This doesn’t guarantee that the business will be a success, but at least we’ve removed one of the biggest problems in the private capital markets, identifying fraudsters before they have a chance to commit fraud.

This got me thinking, what if Craigslist were to require everyone listing an item for sale or an apartment for rent to go through the same background check. How much fraud could be reduced on Craigslist if everyone selling something there had to have a badge certifying that they have a clean slate? And to prove it, you could click on the badge and it would take you to a website like Early IQ’s to confirm they performed the background check.  How much money would be saved from trusting buyers or renters that have been taken advantage of by unscrupulous scam artists?

I bet a ton of money and here’s a personal reason why. I listed my condo for rent this past spring on Craigslist. Some shyster took pictures of my pictures and started renting it as a short-term rental in a different area on Craigslist. He used a story that he was my tenant and was subletting it because he was transferred on assignment to Alaska. This was a total lie but he used my name, pictures and listing to build credibility.

More than 5 people eventually saw my real post and called me to say they lost money to this guy! They each sent him a deposit and never heard from him again. One poor soul showed up at the condo to MOVE IN for 3 months only to find out she’d been scammed.  I have no idea how many more people were taken advantage of.

Here’s another real life example.  I have a friend who runs a specialized online horse tack store and received a large order to be shipped to Argentina (not too crazy as this sport is popular there), but the "customer" required that he use a specific freight forwarding company rather than UPS.  Turns out that company didn't exist. Imagine if he had required an Early IQ check on the freight forwarding company? 

The analogy in B2B is that most if not all large corporations require new vendors to complete a vendor information application - generally run them through a BBB check and a credit check.  But for smaller companies and smaller vendors, it's not practical or particularly effective.

But think about all the fraud that could be deterred and money saved if Craigslist just required all buyers and sellers to be verified?  Think about the confidence people would have in Craigslist as a real marketplace if they knew they could track down and hold a fraudster accountable?

The technology and businesses like Early IQ are there. The reality is, Craigslist is just a “listing service” and “buyers need to beware.” Easy enough to hide behind that but if they really want to establish a credible marketplace as the crowdfunding industry is doing by verifying that the sellers of securities in businesses are real people at real addresses with real companies, perhaps companies like Craigslist need to incorporate some of these new technologies into their own business models?

What I learned at 4am going to the Miami Airport

Sometimes it takes me a while to really hear something and process it.  This was the third time and it finally sunk in.  A different side of the Uber/Lyft phenomena:  The Driver.  Woodie and I were headed to the Miami airport, for yet another flight, and we were chatting with the driver.  About half of the time when I'm in an Uber/Lyft the driver seems interested in talking and if so, I usually ask a few questions about how long they've been driving, how do they like it, what were they doing before, etc.  

When we asked the driver our first question about how long he had been driving for Uber/Lyft, he responded with "Uber has changed my life...Lyft has too."  I had heard 2 other drivers say this in the past, but not with the same emphasis has he did.  We asked him to tell us more.  Essentially it was this:  He came to the U.S. 20 years ago and and worked a steady series of security jobs making barely above minimum wage.  A few months ago he was working at a quick service restaurant and security at the same time.  A few months ago, he started driving for Uber/Lyft, and he had just quit his other two jobs the day before he picked us up.  He said again "It has changed my life" and talked about how much he enjoyed driving, meeting the nice people who used the service and that he was now able to start saving some money to start his own business one day.  The pride and joy in his voice was palpable and impossible to forget.  

I look forward to a time when thousands of business owners can talk about about how crowdfunding changed their lives, or the life of someone they knows...the ability to work hard, get funding from your community, and start a business.  Woodie and I are passionate about creating new ways for businesses and entrepreneurs to start businesses.  That is one of the reasons that by the end of this year, we will have flown a combined total of over 1,100,000 miles over the last 3 years to create this opportunity for people in countries around the world.   We will continue to do so, because we must if we are going to create enough jobs and business opportunities to stabilize economies/regions and engage populations in driving their own economic destiny.  

Asia Turns Up the Volume on Crowdfunding

Recently I was in Singapore to speak at the Crowdfunding Asia 2014 event and lead a panel discussion. The event was very well organized and had many interesting and engaging speakers including the Minister of State from Cambodia, the Secretary General of the Stock Exchange of Thailand, Doug Ellenoff of Ellenoff Grossman and Schoel, and Paul Neiderer of ASSOB.  The roughly 200 attendees came primarily from Southeast Asia but also included crowdfunding industry participants from China, Taiwan, Japan and Korea. Screen Shot 2014-08-25 at 2.54.06 PM

If you have not been to Singapore, I highly recommend it for a number of reasons (business environment, support of entrepreneurship, etc.), but for me #1 is the food.  Food in Singapore has influences from the entire region and they come together (and/or remain separate) in lots of amazing ways.  Even if you just have 48 hours, you can enjoy yourself on a stopover. (ok...ending the unpaid Chamber of Commerce message).

A few takeaways to share from the event and the meetings and conversations during the event.  

  • Several countries in Southeast Asia are moving quickly to finalize their regulation on equity (and in some cases equity and debt) crowdfunding.  We are working directly with 2 of these countries and will be able to discuss more on this in the coming weeks/months.  
  • There was a significant focus of the conference on Women in Crowdfunding and Women Investing in Women.  This is a huge issue globally and is one of the reasons why we published a paper on the value of crowdfinance for women/minority owned businesses was referenced by 6 different speakers at the event.
  • CCA has been invited on our 12th mission for the US State Department to Hong Kong September 15-18.  These missions are always fascinating as a way to do a quick and deep dive into an entrepreneurial and funding ecosystem in a country.  We'll provide a a heads up on the schedule when it is available, and a summary following the event.  
  • Crowdfunding as a possibility in Cambodia?  Yes, in the future ... possibly near future.  The team from the Cambodian government that attended the event was laser-focused on what they can do to develop their economy and create jobs.  With smart phones and tablets now for sale at $100, and soon less than that, greater and greater numbers of citizens have social Web connectivity.  The generation born after 1980 is taking power in the country and they are moving quickly to modernize and build entrepreneurial capacity and skills.  While challenges abound, I do believe this is a country to watch because it has interesting potential.  
  • In countries in Southeast Asia that have majority or minority Muslim populations, it will be interesting to see the extent to which Islamic Finance compliant platforms emerge.  
  • Crowdonomic continues to charge ahead in Singapore and I look forward to talking with their CEO Leo Shimada in mid-September when I'm back in Kuala Lumpur, Bangkok and Singapore.
  • Taiwan has the largest rewards-based platform in Asia - Flying V.  I had the chance to sit down with its CEO and Founder Tim Cheng and learn the great things he and his team are working on and I'm looking forward to lending a hand to their efforts early next year.  
  • I also had the chance to sit down with the Founder and CEO of e27, the leading tech blog in the region.  Their site is a great way to learn a bit about this fast growing tech scene and if you are in Bangkok in mid-September, check out his Eschelon event...it will be great.  http://bangkokstartup.com/2013/08/01/echelon-ignites-thailand-in-september/

 

3 Ways Crowdfunding Can Foster Open Source Pharma

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Nestled among the beautiful scenery of Lake Como, Italy with pristine lake and soaring evergreen mountains a group of 23 hyper connected individuals from biotech, NGOs, non-profits and global funds gathered to answer the question "How can we use the 'evolving collaborative economy' to treat diseases in very effective ways without destroying incentives?"

It was apparent to the attendees that process for drug discovery and development is broken.  These problems include:

  1. Scientists who are afraid of losing their intellectual properties (consisting of molecules, compounds and libraries) are not sharing them, and this is inhibiting innovation.
  2. A lack of collaboration among scientists means repeating costly errors and duplicating unnecessary research.  This ends up increasing the length of drug discovery, only leads to incremental improvements, and furthers the "drug development is a costly initiative" theory.  And
  3. The lack of funding is falling short of what is needed to move from drugs from Phase II to Phase III clinical trials -- the point at which drugs go from 'proof of concept' to 'human consumption.'

 

These individuals aren't focused on the problems but the solutions. "Open Source Pharma" (#OpenSourcePharma) is the idea where the process of drug discovery is brought online, everyone collaborates, time and costs are reduced, solutions to developing economy and small market ailments are addressed, and the world wins.

Luckily the biotech industry understands the power of collaboration because crowdsourcing, where people are invited online to collaborate in solving a curated problem, is rapidly evolving as a tool among scientist to foster innovation.  Data points to the fact that crowdsourcing has proven to lead to better solutions faster. However there are still many problems to be resolved.  These include the time to take drugs to market and funding.

Crowdfunding is sweeping the globe as a solution to the funding void in many industries.  The funding void is the most difficult money to raise between one's own personal cash and that of venture investors who tend back projects that have a greater likelihood of being viable with their investment.  Crowdfunding is the ancient practice of 'friends and family' financing brought to the Internet age where websites list fund raising campaigns and individuals use their social networks to solicit contributions. Crowdfunding saw its emergence around 2009 with artists using it to raise funds for their concerts or projects.  Today companies are using crowdfunding to pre-sell products, raise equity funds or borrow money from the crowd on more favorable terms than the banks.  In 5 short years, it has  grown into a multi billion dollar industry.n 1425 colore

Crowdfunding isn't a panacea. Taking into account all forms of crowdfunding, less than 35% of initiatives are successful with their fundraising.  However, it does increase the opportunity for individuals' to access capital where the traditional financiers have either shown no interest in funding or have stepped out of the equation.  Depending on the type of crowdfunding it requires that certain technology, social, cultural, regulatory pieces are in place.  Globally an entire industry has sprouted to support crowdfunding.

Here are 3 ways the nascent Open Source Pharma community could use crowdfunding to further its goals:

  1. Host a crowdfunding campaign with the goal of launching the Open Source Pharma initiative.  Set a realistic goal to create a minimum viable organization that leverages a community of engaged supporters but understands the need for a central organization to represent them as the voice of the Open Source Pharma network.
  2. Figure out if the organization is best suited to buy, build or white label its own crowdfunding platform.  It is critically important to understand that crowdfunding platforms are complicated websites with major technical needs.  The Open Source Pharma initiative needs to support scientists at all stages in development.  They should promote innovate crowdfunding terms that include donation at the earliest/riskiest stages to engage both communities of affected people and communities of scientists.  At later stages of development these platforms should leverage equity and revenue based financing to further incentivize people should be promoted.
  3. Seek matching funds or create an X-Prize type of reward to further encourage collaboration and move development through the pipeline.  Reward people along the way and promote multiple smaller campaigns rather than one large one.  This will continually engage backers along the development lifecycle.

 

These are a few of the ways that will get the Open Source Pharma movement up, running, promoting crowdfunding, and fostering innovation.  There are many more.  Crowdfunding works because it engages the community where they have interest and provides not only money but a voice to the initiative.  It is 'open source financing' and can be a huge benefit to Open Source Pharma initiative.  It needs to be carefully curated though.