Presentation given by Dr Richard Swart, UC Berkeley @SV Crowdfunding Conference April 3, 2014.

1. Alternative Finance: Perspectives, Challenges
and Recent Data on Crowdfunding and New
Markets
Dr Richard Swart, UC Berkeley

2. Tweet Please
•@richardswart

3. Who am I?
• Run UC Berkeley’s Crowdfunding Research efforts
• Strategic advisor/consultant
• Independent researcher
• Sample projects:
• Job Creation and Economic Effects of Crowdfunding
• Geographical, gender and racial effects in funding patterns
• Strategic uses of crowdfunding and social finance for philanthropies and
universities
• Manifesto on Crowdfunding Policy
• Market size estimates for Real Estate Crowdfunding
• Analytical model for impact of crowdfunding effectiveness
• Predictive model for crowdfunding’s effects in a given country
• Quality indicators for determining investments in crowdfunding platforms

4. Big Announcements
• Ewing and Marion Kauffman Foundation
• Sloan Foundation
• Milken Institute
• Major projects in Middle East, Latin America and Europe

5. The 100,000 Foot View
• Alternative Finance represents:
• A growing and viable international market for
institutional investments, allocation of capital in debt
instruments, and relatively low risk equity transactions
into microenterprises
• A proven means of accelerating capital infusion into
microenterprises resulting in job creation, increased
revenues, and follow-on investment activity/loans

6. The 100,000 Foot View
• A new channel for product validation, market testing,
and customer engagement for brands
• A possible disintermediation of charitable giving
• A mechanism to activate communities of interest and
increase long-term brand/cause engagement
• Deal sourcing for Angel and VCs – rise of hybrid models
• An organizing tool for Diaspora / Foreign Direct
Investment into developing economies

7. Government and Policy
• Second wave of equity crowdfunding coming
internationally
• US Congress has essentially lost political will to fix JOBS
Act until change of administration and/or Senate
• There will be changes to JOBS Act once administration
changes
• Capital flowing into alternative finance markets in part due
to challenges of SEC delays and regulations
• Governments see Equity Crowdfunding as an SME
expansion strategy, less a startup discussion

8. Who Uses CF to fund enterprise?
• 95% had some college education
• 84% male
• Nearly 50/50 self-employed and working
• 35 years old
• Average firm size is 2 employees
• Largest “reported” firm size was 20
• Women set lower goals, but are more successful than
men at reaching those goals

9. Some big numbers …
• 15 Trillion / 450 Billion (Big Assets)
• 4.56 Trillion (the 4s)
• 81 Billion (Yuebao)
• 51 Million (Eyeballs)
• 86%/56% (Engagement)

10. Fraud (or lack thereof)
• Empirical evidence does not support the argument that
fraud will be a significant concern in crowdfunding
markets
• Mollick – 0.01% of KS show potential fraudulent intent
• No reported fraud in equity crowdfunding markets despite
hundreds of millions in transactions globally
• But, Occulus and perceived relationships …
• Fraud thrives on mechanisms of deception that are
difficult if not impossible to maintain in open and
transparent crowdfunding
• We have seen emergence of FAKE crowdfunding sites in
Africa

11. Viability
• Over 90% of groups raising more than $5,000 in
successful CF projects turned into viable ongoing
ventures
• Greater than 70% of ASSOB backed firms still in business
after 5 years
• Evidence suggests CF associated with selection of more
viable firms – challenges 70% failure rate

12. Some takeaways
• Alternative finance markets for consumers are slow
growing
• Online consumer finance poorly understood but rapidly
threatening banking models
• Institutions have figured out efficiencies in social finance
mechanisms – challenges are underwriting and retail
recruitment
• Silicon Valley is the Crowdfunding Bank

13. Flows
• Initial (not yet published) data shows:
• Money flow from heartland to coasts
• Money flow from Silicon Valley to LA
• Users are late 30s, college educated, urban, technology
savvy
• Nearly no penetration of minority communities

14. Challenges
• Banks: Leverage P2P and P2B, use CRA for reaching
minorities, reposition your loan products downstream from
crowdfunding
• Institutions: Lack of industry experience resulting in
analysis challenges, risks:
• Platforms misstating earnings
• Platforms undercapitalized
• Some management teams are light weight
• Some platform technology can’t scale

15. Challenges
• Universities/Philanthropies
• Most universities don’t have a clue, yet between 60-90 will launch
CF initiatives this year
• Donor disintermediation
• Alignment with CSR and corporate programs
• Donors and Investors do not see Crowdfunding as time
limited … they are participating in creation in a
community. So how do you create ongoing value?

16. Questions …
• rswart@berkeley.edu
• @richardswart