 Entrepreneurship is key to global prosperity. It stimulates national and local economies by driving innovation, creating jobs in emerging markets, encouraging local investment, and increasing a country's exports. Small and medium-sized businesses create the largest percentage of jobs globally, over 90% in some countries. However, one of the first challenges is always how to fund a startup. The roadblock entrepreneurs face worldwide is that in order to make revenue, you need to have capital to get started. That's where crowdfunding comes in, and that's what we're here to talk about today. My name is Shelly Porges, and I'm the Senior Advisor for the U.S. State Department's Global Entrepreneurship Program, which is dedicated to advancing entrepreneurship in emerging markets and developing countries by creating vital public-private partnerships with non-governmental partners. I'm joined here today by one of those partners in the studio with me is Woody Niece, the co-founder of Crowdfund Capital Advisors, along with his partner Jason Best. CCA is a consulting and advisory firm that helps clients position themselves to leverage crowdfund investing. He's also the co-author of a new book coming out called Crowdfund Investing for Dummies. And joining us virtually from New York, we have Jessica Jackley, currently a venture partner with the Collaborative Fund, a lending source devoted to a shift from an economy based on hyperconsumption to one based on collaborative consumption. Jessica was also the co-founder and former Chief Marketing Officer of Kiva, a non-profit working to alleviate poverty through crowdfunded lending and in support of microfinance institutions. And in fact, for me, it's also a regrouping with Jessica as we met each other years ago when Jessica was a graduate student at Stanford when she was working on Kiva, and I was the president of the Financial Women's Association of San Francisco. And we had a scholarship fund that Jessica then won a scholarship from during the time that she founded Kiva because of that vision that she had. So we were very impressed with her then, and we're impressed with her today again. So before we get started, I just wanted to welcome all of you online and encourage you to take an active part in the discussion by submitting your thoughts and questions regarding entrepreneurship. This is a two-way conversation, so we want you to express yourselves and share your insights on your entrepreneurial ecosystem and what, if any, funding challenges you may be facing. So with that, let me turn to both of you, Jessica and Woody, and say let's start with what I think might be the obvious question on people's minds. Just exactly what is crowdfunding? Hi, Shelly. It's great to be here. Thank you. Crowdfunding is a really exciting new business opportunity for entrepreneurs to raise capital using the social network. It's a business case for your Facebook friends, Twitter followers, and your likes. The way in which it works is if you're an entrepreneur, you would create a pitch or a campaign and you would list it on a platform that's registered with the security administration. You would put up information, certain disclosures about your business. You would talk about the business plan, the use of proceeds, the valuation, and then you would invite people using your social network to that campaign page and they would decide whether or not they want to fund that business. So it's like Web 2.3.0 where you combine the social web with community financing to help entrepreneurs get funding to launch businesses. Fantastic. Jessica, do you have anything to add to that? Can you share with us any particular thoughts you have on the lending side of crowdfunding? Sure. So what I find interesting and a really positive thing is that, you know, I often, you see in newer sectors or newer movements that the language sort of sometimes takes a while to catch up with the reality of what's happening. And so Kiva was started in 2005. We never uttered the word crowdfunding in the beginning and not for several years. So it's interesting to see now that the world has named this thing and it's great because then we can all have a common understanding of what we're talking about when we're talking about this. And of course there are however the capital and the community support is coming together using technology is what we put it out. It is absolutely important and relevant to how crowdfunding is happening today. You know, there are lending options. There are donation options. There are purchase-based structures, right? Pre-sale of inventory sometimes, which is often what happens on the kick-stars and the Indiegogo's of the world for businesses. But there are also, of course, now in the crowdfunding world that we live in today and certainly in the Post-Jobs Act crowdfunding world. There are equity options too, which is really exciting. Indeed, indeed. You know, we certainly, as we go around the world, one of the things that we hear most often is, I have a great idea. You know, I even have a way of getting it started, but I don't know where to go for capital. So, you know, we're excited too that this is an option that will start to become more and more available to entrepreneurs around the world. Well, I think, what would you say is the difference between equity-based and loan-based crowdfunding? Well, the main differences are if you are selling equity in your company, you're giving people a piece of that business. Okay, so if you have 100% of it and you're selling some shares, you sell 10% of it, you only own 90%, and essentially if it's crowdfunding, the crowd owns the other 10%. Lending-based crowdfunding is actually having investors lend you money for your business. So, in exchange for the money that you're getting for that business, you'd be giving them a fixed rate of return over time for that. Now, the good thing about that is the entrepreneur owns, retains 100% control of the business. But the bad thing is you really have to have cash from day one to start paying that loan back. So, if you're looking at it from two points of views, debt-based crowdfunding is going to be really good for small businesses that are already up and running that are generating cash because they can repay the loans. If you're looking for an equity-based crowdfunding play, then you're going to be giving up some equity. It comes with responsibilities. You're going to have to communicate with your investors. You're going to have to do reporting, a lot of ongoing communication with those investors. And you're going to be giving up some percent of your business. Good points. Just to add anything to add to that? Yeah, yeah. What's exciting, again, about what's happening today is there are all these other options, I think, in between different forms. Some are still securities, technically regulated by the SEC, technically securities just as an equity-based sort of option is a security. There are revenue share options where perhaps you can promise your investors, a year from now, I will share 5% of my revenues with you. Something like that for the next four years or the next five years or whatever you'd like to break it down. So those will be options as well in the post-Jobs Act world. And obviously with Kickstarter and some others, like I mentioned earlier, there's some creative options where you can do something in between. You can effectively do pre-sale of inventory, which is just a really common one that you see a lot now on Kickstarter, Indiegogo, etc. So for example, let's say you want to make a great new, I mean, one of the more well-known examples is the Pebble Watch Company. Basically, let's say you want to make some sort of new, awesome product. You can show people a prototype, show that online, and then raise money by selling in advance the items that you're going to eventually produce. So there are a lot of creative ways to get the money in and get the job done as well. And that's a really good example of someone that might want to use debt-based crowdfunding or pre-order product crowdfunding, sort of the donation base. If you're looking for someone that maybe wants to start a food truck in anywhere in the world and understands that someone might buy that, that might be a good example of where you want to use equity to help fund the food truck itself, to get the capital to get it started, knowing that later on someone might want to come by and buy it. Interesting. That's a great example. So what are some of the challenges that entrepreneurs face in regards to crowdfunding? Well, I think the biggest challenge is an understanding of the serious, of the responsibility that comes with this type of capital formation. Taking money from anyone is a very serious proposition, and it comes with a great degree of responsibility. And in exchange for that money, you have to go through disclosures, the business plan, the use of proceeds, the valuation and how you determined it, the communication that takes place with the investors, post-funding. You have to make sure that investors see the opportunity but understand the risks associated with it. And you have to look at the crowd as not just money, but as people that bring knowledge and wisdom that can help you actually get your company to the next level. I think one of the best things about crowdfunding is, you know, money's great, and everybody needs money to help get their company to the next level. I mean, that's how you started this dialogue. But what we're realizing is, is when you give someone an actual piece of the pie, or give them the opportunity to own something within that business, they have a vested interest in the success of that company. What we're learning is, is those people will now become marketing agents for it. So the beauty about this crowdfunding mechanism is it allows people to go out and become brand evangelists, you know, marketers for you in many cases, and go out there and do what you probably couldn't do with dollars on your own. They can do because you've got this community of people behind you. That's great. So it's sort of, it's institutionalizing the word of mouth advertising that in the old days we used to all aim for and had a challenge with. Jessica, any thoughts there on challenges that you see for entrepreneurs? Absolutely. I mean, I think what, as Woody mentioned, it's complicated stuff and it definitely takes a level of seriousness and commitment, which I do see most entrepreneurs bringing fully to the table, which is great. I think there are three others, though, that end up being sort of more invisible and hard to talk about barriers. One is this confidence curve. I mean, often many entrepreneurs start slowly and in a small way, maybe on the side, on evenings and weekends kind of pursuing this thing outside of maybe their paid job. And eventually, of course, things, you know, there's a choice to make that a bigger part of your life or you're pulled in that direction because things are going so well. But that moment when you're, you know, those little steps towards being more committed to your entrepreneurial idea are sometimes very scary steps to take. And so there's sort of this confidence curve where I watch people, they need to get there kind of on their own time to be able to tell the world what they're doing and why they're excited about it. And sort of related to that, there's also this emotional barrier of, I see people frame their crowdfunding of the opportunity that they're putting out there as sort of an ask. And they feel nervous or they feel bad asking people for a favor. When in reality, I genuinely believe in having a background in nonprofit fundraising, you know, it's easy to feel, it's easy to go into conversations like that where you feel like, oh, I'm asking you for your money or I'm asking you for this favor. The truth is there's a global community of people that are excited to participate in these entrepreneurial endeavors and to participate in other people's stories. And so to position it instead and to emotionally sort of get comfortable with the idea that it's not just an ask, it's actually, you're providing a great opportunity for people to, you know, again, follow along, participate in your story and eventually again with equity-based crowdfunding, have a dynamic financial upside potentially, which is very exciting. The third thing I'll say very quickly is I think it can be, there's sort of this up and down, to be touchy-feely about this, there's an emotional sort of up and down that happens when people maybe learn about and get really excited about crowdfunding but then realize, oh, it's not a silver bullet, it's not just posted and they will come and suddenly your business will be fully funded. It's a tool and it's one of many tools out there that can move you forward. Sometimes it's the right fit, sometimes it's not. And basically you still need to do a lot of work to rally people and get them excited to come to the site to see what you're, what you're doing to pay attention and then to be willing to part with your money to invest in you. So I guess I'd say that there's confidence, there's emotional stuff around feeling like people are asking for something and then it's also, you know, it's still a lot of hard work. It's not just an easy, fast solution. Very definitely. I think the other thing, thanks for those points, Jessica. I think the other thing to realize, crowdfunding, as you pointed out, is a tool and it's one in a spectrum of opportunities for funding a business. Typically, you know, most entrepreneurs start with their own capital, with their own savings, if they have some credit in the U.S. and credit cards are used often, whatever to get their businesses going and then they reach out to friends and family and arguably this is a different, more effective, more far-reaching approach to reaching out to friends and family if you want to think of it or your wider communities. And of course then there are other alternatives as your business grows and as it gets more revenue producing, reaching out to banks, reaching out to more formalized angel networks, you know, angel investors, private equity landers or venture capitalists. So there's actually a spectrum of financing options and depending on where your business may be, you know, crowdfunding comes usually early on in that spectrum. That's what makes it such a fine alternative but it's not without its challenges and downsides for sure. So thanks for that. So we have a question from a viewing group in Chennai, India. Right? Yes. Jessica, perhaps you can answer first. What do you look for at a start-up idea to be eligible for crowdfunding? Well, there's eligibility and just to clarify, there's eligibility and each platform can define that on their own and can, you know, can I sort of describe those terms? But I think perhaps the more important question is really just about fit. I think any organization, any company, any entrepreneur thinking about doing crowdfunding should ask themselves first and foremost, what do I need? What are my goals with my business and what do I need to take those steps forward now in the medium term and the long term? And if it is indeed the reality that funding is needed and that's often the case, great. But even then I would also, I like to push entrepreneurs to think very creatively about okay, so yeah, money can buy a lot of things but what are the, like what are your items on your budget? Is it a staff person that then you of course want to pay? Is it an actual piece of capital equipment? What is, you know, is it another sort of service or product that you need to make your business go? Is it office space? Because there are often ways to still reduce that number that you think you need, reduce the fundraising amount that you think you put out there by reaching out for these sort of in-kind things to your community or providing payment in other ways. So anyway, I'll put that out there just because I think it's really easy and exciting to think I'm going to do crowdfunding. Here's the number that would be perfect for me. I could get everything I ever needed. Let's go for it. I think it's really important before you even start to push yourself to figure out exactly what you do need and raise the appropriate amount, not too much, not too little. And I also think the important and what you touched on this briefly earlier, to really think through, and this is one of the, I guess eligibility, you know, does play into this, but I think it's important for communities, for organizations to think very carefully about the communities that they have and that they want to build, knowing that, again, crowdfunding is a tool. If all else was equal and a business had the opportunity to get a loan elsewhere, get an investment elsewhere from one person or one entity, or to get it from the crowd, maybe hundreds of people, I think businesses need to think very carefully about why that would be a better or a worse thing for them. It's a lot of relationships to manage, but, of course, on the very positive side, it's also a wonderful community of supporters that can provide not just perhaps their funding as current or future customers, but also they can provide advice and information and other connections and be ambassadors and advocates for what you're doing. So, again, eligibility, I feel like, is less of the question is, is this the right fit for me? And I hope I don't sound like a maser. I'm obviously very, very much a fan of crowdfunding. I just think I see the best results and I see the most success happen when people have done a lot of the hard work and asked the tough questions up front before they start to engage the world in supporting what they're doing. And they know why they're asking for what they're asking and they know what they want above and beyond the money. I'm going to add to what Jessica was saying because she had on some really important and valid points. Businesses don't die because of lack of products. They die because of lack of consumer interest many times. And what this does is it forces you to go up there and say to the crowd, what do you think about my idea? Do you think I've solved a problem? For instance, I had started a company that flavored medicines for children because I saw that mothers had a hard problem getting their kids to take medicine. And we were able to raise capital for that because our investors said, I have kids. They don't like to take medicine. I would use that product. So you as an entrepreneur really have to sit there and understand what is your problem? What are your goals? And then you have to translate that like Jessica was saying into finances and you have to look and see how much money do I need? What am I actually going to use this capital for? And you really need to be able to explain that to your investors. If you can't do it in a fully transparent fashion and win over the confidence like she was saying, you have to be very confident about this, you're not going to be able to raise the capital that you need from investors. Makes sense, makes sense. We have another question from Chennai. How are risks minimized for investors interested in crowdfunding? Can you answer that, Woody? So investing in stocks in general or loaning money is risky activity. The way in which one investor needs to protect themselves is through what we call portfolio diversification. And what that means is spreading the risk among many different assets or stocks or loans. Don't put all of your quote-unquote eggs in one basket. So if one thing fails and everything's diversified, you don't lose everything. So the way in which you protect yourself in crowdfund investments is to invest over a few of them and don't put all your money behind one company. The other way in which you do it is to make sure that you are an active and engaged investor. So here in the U.S., actually, it's mandated that you're going to have to take an education training so that you understand the risks and rewards that come with this type of investing. So go through that education to make sure you understand that you might never see a return. Businesses do fail. If you do get money back, it could be very far down the road. If it does come back, it could be less than you've made. You need to go into it with your eyes open. And the other thing is that engage part that I was talking about means reading all of those disclosures, looking at that business plan, and seeing if it makes sense to you as an investor. Because if you are not actually convinced by what they're saying, other people might not be either. And it's your responsibility in this crowd diligence and wisdom part of it to share your thoughts with the other people in that online platform so that collectively you can decide whether or not an entrepreneur gets funded. Great. You know, related to that, I know that some of today's crowdfunding platforms like Indiegogo and so forth, have you designate the amount you want to raise and if you don't raise the full amount, then nobody, none of the investors have to come through with their investments. So how will this work going forward? That's a great point. It's what we call all or nothing financing and we believe it's a critical component to crowdfunding because it forces entrepreneurs to raise capital in what we call lean startup methodology. So they have to hit, talk about milestones and targets that they want to reach and reach those milestones with that capital and use it accordingly or they won't be able to raise future financing. So with this all or nothing target, let's say you've got a dry cleaner that can open up in a region of the world and you need a $50,000 to do it. You would put your campaign pitch up there and you would solicit people for that. If you come in at $40,000 or whatever the equivalent is, you would actually not get funded. That money sits in an escrow account and goes back to the investors. We believe that's an investor protectionism mechanism because what it does is it, again, it's the crowd diligence and the crowd wisdom coming together to say all or nothing. We're all into it or some of us, we don't believe it's worthy of getting going. Interesting. Which I presumably is then a downside for the entrepreneur looking for the funds because they may not get the whole $50,000 upfront, but even if they had the $40,000, those that did invest in had offered up, that could have been useful for them at least to get them moving in a direction. So it's an interesting trade-off. Right, it is. This isn't meant to be easy. This isn't meant to be, as you were saying, an on-ramp to traditional financing. We like to see people hit their goals. If they hit their goals and be transparent and accountable, we like them to go back and get more. Yeah. So it's also a way of forcing the entrepreneurs to be thoughtful and moderate, if you will, in their asks. And there's nothing wrong with that. Yeah, there's nothing wrong with that. So that's a protection too. We have an online viewer from Islamabad who asks, do you know of countries outside the U.S. which offer crowdfunding to small businesses? Jessica, can you address that? Well, I can say that, you know, Kiva does provide an option for microfinance institutions and other lending programs and other organizations to post entrepreneurs' profiles and their own needs on the platform. And then this global community of lenders comes to the site to lend money. So that's always an option. I know it may not always be the right fit for small and medium enterprises. It's mostly for micro enterprises. It's something that is obviously very, very widespread. Now it's good to also note that, you know, those microfinance institutions and those organizations that lend as a rule have many other clients, many other members in their portfolio who are not posted on the website. So they provide options above and beyond what you might see as a sort of, what you might see on Kiva. So that's just, that's obviously my go-to example of what exists out there. And in every, you know, in so many other countries there are other programs popping up. But Indiegogo really set itself apart in the very beginning by saying that they wanted to be, they wanted to be international and really prioritize that. So that is an option as well for many, many people. Thank you. And we're involved in a number of initiatives around the world. So do you want to talk about some of the things that we're doing? Sure. So thanks to Shelley and the State Department. There's a global entrepreneurship program here. We are actually out promoting crowdfunding to countries globally. And what we're helping them understand is, this is a path towards job creation, a path towards economic stability by leveraging the power of the crowd to help fund startups and small businesses. And what we're hopefully going to accomplish is to help countries A, either come up with regulatory frameworks of their own that are similar to what we've accomplished here in the United States. Or B, come up with a mechanism whereby they can raise capital for projects that they've got going on within their countries. And we're at the very beginning stages of what's going to be a global movement. And platforms are sprouting up right now that are both local, regional, and global. And what we'll be able to see is people that are listening to this right now have an opportunity to go on to these platforms and put up their campaigns and raise capital for them. It's going to be exciting, but if you're going to be looking at it at a regional level, it will require that we engage with government officials and we talk to them about current securities laws that they have in place, the type of investors that invest in private companies, and the type of disclosures that they're going to need to feel comfortable with small businesses raising capital. Because one of the reasons that we have public markets is it mandates the type of disclosures that investors need to feel confident about investing in companies. What we like about what we did with crowdfund investing is we've standardized and institutionalized the process of raising capital for small businesses. And we've just narrowed down the scope and the degrees of disclosures and standardized it so it makes it easier for investors to make these decisions. Great. Well, we do know that in some conversations we're having in different parts of the world, in different regions of the world, that there are a lot of governments now very interested in this as a mechanism for accelerating, as you say, job creation and prosperity in their country. So we do have a lot of positive expectation around this and we'll look forward to reporting more when we have some more to report. So what is the status of regulated crowdfunding in the U.S.? I know you've been very involved with the SEC and the rules writing that's going on right now. And I know that we have been expecting those rules any day now. Right. So can you tell us a little bit about that? Well, things happen in Washington, D.C. It's a two-step process. We thought it was a one-step. It turns out there's multiple. You have the legislative part of it, which is getting the law passed, which is, as you mentioned, we created the Startup Exemplary Framework, which is what the crowdfunding provision and the JOBS Act was based on, which the president signed into law on April 5th. And now we've got the SEC and FINRA, which is the organization that oversees the broker-dealers and the funding portals, the websites that are registered to do this capital formation. So they need to actually write the rules related to how this will play out. And so within the bill itself, there were certain areas where they said the SEC must define what the rule is here. For instance, for the first time in history, we've mandated that anyone that wants to raise capital must submit to a background check. So the rule that they need to come up with is what does a background check look like? Is it just securities fraud background check? Is it a criminal background check? What are the different components of the background check that the crowd needs to be able to see to make sure that they know that there's no bad actors in the system? So there's different sections of the law that we're waiting for the SEC to come out with these rules. The good news, the rules from what we understand are pretty much done. The SEC and the staff has been very forthcoming and transparent in working with the industry and engaged in the process, which has been very wonderful for us. And our job right now is to help usher this along and encourage them to come out with these rules. I think one of the things as we travel the world, and as you know, because we see that this capital formation problem is really a global crisis. I mean, the lack of capital out there for the people that create 90% of the jobs is outstanding. And if we can just move that needle a little bit, we can create sustainable businesses and jobs. A lot of the world's securities laws really come from what we did here in the United States in the 30s with the establishment of the SEC. So funny enough, you've got governments looking to us and the United States saying, this is a great opportunity. When the SEC finishes its rules, we want to be right there behind them. So we believe within the next three months the proposed rules will come out. What that means is the SEC gives the public a period, a commenting period whereby they can give feedback on the rules. And then they'll take that feedback and incorporate them and come out with final rules. So we believe that that process will start within the next two or three months. And then we will probably have a live crowdfunding system here in the United States by the end of the year. Fantastic. Good. Something to look forward to. Something to look forward to. Yeah. Jessica, any thoughts there at all? I think we covered all of it. Yeah. Okay. Great. Another question from Chennai. Crowdfunding versus going public. Can I start up there going public too early? Yeah, that's a good question. The responsibilities are a serious one. It is not something to be taken lightly. Like I was saying before, we've sort of institutionalized what happens in the public markets down to crowdfunding. And so the burden is a big one, but we believe it's a required one. If you don't go through completing the business plan, what you're using the money for, we don't necessarily feel that you should have the right to use other people's money. So while the requirements are high and the burden is pretty high, if you don't actually go through that, how can we be certain that you're going to do what you say you're going to do with the money? Now, it also comes with costs. The costs associated with raising capital are there. You've got accounting costs, you've got legal fees, you've got the listing service fee for the website. All of that is going to be included in what we call the cost of capital or the cost of raising this money. And so that's a burden as well. But again, if you're going to raise this money, you need to go through the process and nothing's free. Everything costs a little bit of money and you're going to have to do that in order to get the money. I think it's an interesting question because I'm not sure how many businesses, when they go to a crowdfunding platform, think about it in terms of now I'm effectively going public in the sense that they think of an IPO going public. So I think it's kind of an interesting viewpoint. I think that because of the positive side, there are some barriers to entry that have been lowered. It feels less formal. You point out that in fact there are a number of protections that an entrepreneur has to offer up in fact to their investors. We call this re-regulation. This is not deregulation. The securities markets have regulation in place. When we put our framework together, we looked at what those regulations were. We tailored them down to a small business offering. All we did is take the internet and how we live in our internet world, in our social media world today and layer that on top of how we raise capital and what's going on on these donation-based crowdfunding platforms today and said if we can give away money to entrepreneurs in developing countries and help create jobs on Kiva, which is a wonderful thing and we should continue to do that, or help fund art-related projects on Indiegogo or Kickstarter, why can't we use those same dollars to help fund a startup or small business and own a piece of that pie? Because the majority of wealth in a company is created at that very young stage. Now, not all businesses go public. Actually, no one should go into this thinking that they've got an IPO because the chances of that are very slim. But the reality is businesses do pay dividends, businesses can pay back loans, and businesses can sell. And there's an exit opportunity for many investors there too. And as Jessica was talking before, people shouldn't look at this as just a return on investment. There's people that make these investment decisions because they want to be part of something bigger than themselves. It makes you happy to be a part of something. It's sort of fun and exciting. It's cool to talk about it. Jessica, share with us some stories about some of the more exciting cases you saw out there in terms of companies getting funded through Kiva. Absolutely. So you see hundreds, thousands of entrepreneurs all the time on Kiva on a daily basis getting funding from this generous community of lenders all around the world. And not to nitpick. But you mentioned, we give away money on Kiva. No, people do not give away money on Kiva. They lend and they lend at 0%, which is one of the reasons that Kiva was able to proliferate so quickly. So it's not an interest-bearing investment, of course, but it's not just about the lender. It's simply a 0% loan where, as I've heard happy lenders talk about it, it's a donation that comes back. So anyway, that's the way that's structured. And honestly, it's one of the toughest questions that I'm asked. What are some great, what are some of your favorite examples of entrepreneurs that have received funding on Kiva that have succeeded? Because truthfully, to see, okay, that's a woman named Sophia, I see on the web stream in Vietnam. Anyway, she, which is just rare, I don't know all of the hundreds of thousands of borrowers on Kiva, but I happens to know who that is. Which is kind of weird. Basically, you see individuals making amazing things happen in their lives and in their family's lives. They are slowly lifting themselves out of poverty thanks to a few hundred dollars of a loan. You see goat herders, seamstresses, farmers, small kiosk owners, small restaurant owners, people raising chickens and all kinds of other animals. You see people doing work, very hard work every day. And it's interesting doing kind of everything right. All they have needed is just an access to this small amount of capital. And so I respect and I admire and find such inspiration in the stories of Kiva entrepreneurs. Because while on the outside, some of the business success certainly doesn't look like or feel like what business success might look like in many of our own lives in very wealthy regions of this planet. But they are legitimate and amazing and very respectable stories of great business success and great life change. A standard of living goes up and changes in really fascinating and beautiful ways. Whether that's sending children to school, being able to afford three full meals a day or more protein in their diet or whatever other elements sort of are missing to have them have a nutritional sort of balanced diet. Investing in other health related things, investing in their home, things that allow people to live more full and more abundant lives. So I'll tell you, I mean, having perspectives of both what it looks like, what an entrepreneur looks like in developing regions of the world versus what entrepreneurship looks like in the Silicon Valley of the world and everything in between. I really love and believe in and admire entrepreneurs that make it work in any setting. Whether they have amazing, you know, web based options to crowdfund at their fingertips or whether they're making it work in any other way. Excellent points. Thanks so much. That's really good insight. I actually made a crowdfunding thing last night on Kickstarter where a friend was who's been an advocate against lead poisoning here in America is producing a film and she was just a very short amount of money away from her goal to produce the film and I hadn't seen her request before. So I got the email from her and from Kickstarter and I think I was able to help finish that gap. So that was a good feeling. Like you said, it's very personally driven. It's about not only issues that you care very personally about but people you care about and the issues that they care about. So I think that as well as businesses that are game changers, businesses that are innovators and businesses that change the world in the way that Jessica was just describing. Let me ask a participant from Belarus asks, in countries where crowdfunding is not yet available, what steps could small business owners take to make it part of the local legal framework? That's a great question and if I could do a plug, unfortunately, if they go to our website, Crowdfund Capital Advisors and type in 21 steps, they will find a list of 21 steps or questions that need to be answered by local governments to help them understand whether or not they have the right background to develop a framework for crowdfunding investing because it takes both entrepreneurs, it takes investors and it takes a government that's willing to do this. So they need to engage and they need to actually form a community of people that want to make this change and so that document 21 questions will help them figure out whether or not this is right for them. Great, thank you. And of course, engaging with whomever you know in your government structure around this topic is an important thing as well. So after you read the 21 steps, do that. And are there countries in which crowdfunding is a preferred option? And if so, why would that be? That's a good question. So it all comes down to where is capital hard to find and where is it easily accessible? Crowdfunding is an option, I believe, for anyone anywhere globally because we've got these epicenters of capital that exist in the world. Here in the U.S., it's Silicon Valley, it's New York, it's Boston. There's a quake to almost 60% of all the capital that flows but the majority of the people don't live in those cities. It's the same globally. So where crowdfunding is applicable is where anyone has an idea and they need funding where capital isn't available. So it allows you to actually go to the community, people that already know you and say to them, help me fund my idea and let's keep the money there. Here's an interesting fact that I think is really important. Every dollar of money that's funneled into a local community actually circulates within that community three times. As opposed to investing it in, let's say, the public markets where only 15% of that dollar would stay in the local community. So what I mean is, if we can create more businesses locally that business will hire someone that will pay a salary, that person will actually pay rent or have a mortgage payment and go out and buy groceries which equates to more business spending in that community and it keeps the money flowing within there and that builds larger sustainable communities. One of the most amazing things that we're seeing that Jessica was talking about this is the rapid urbanization that's taking place globally. People aren't living in the big cities anymore. What we need to be able to do is provide them access to capital so that they can build these community businesses, the goat farmers that Jessica was talking about so that they can provide the products and services that people need to sustain themselves in these communities. Big sense. Jessica, any other thoughts there? I don't want to jump in here but Woody's covering a lot. This is great. Okay, great. Have you found that this type of funding mechanism helps women more than traditional types of funding and if so, why? Jessica? Yeah, sure. When you say this type of funding mechanism I guess I want to be clear about one thing. Sometimes, let me say it this way, Kiva works with existing microfinance institutions all around the world. There are institutions and again programs that provide loans. We're just branching out and doing some new things there too. These lending institutions exist to serve populations that have been shut out of the traditional financial system. Many of those individuals are women. It turns out that also statistics show women are better borrowers in the ways that matter most to many of these microfinance institutions meaning they are more able to invest in their families with the proceeds from their business and the profits that they make thanks to the additional capital and the loan, they repay in a more timely fashion, etc. They are better borrowers and they often are the individuals for whom the microfinance institutions serving them were sort of created to serve. Those are elements that contribute to the reality that many of the borrowers on Kiva are women, the vast majority are. In terms of crowdfunding we see who sort of will end up men versus women who will end up taking advantage more of it as a tool. I don't think it's a gender specific tool that's for sure, but I think for example just in the US I believe that the communities that men and women have around them are different. I think I mentioned that I think the emotional sort of framing of a crowdfunding hitch requires a certain kind of level of confidence and a certain ability to really be convinced that you're providing something valuable out to the world. I think it would be very interesting to see how the dynamics and the natural cultural differences that might exist between first time, let's just call it first time women entrepreneurs, first time men entrepreneurs I think it would be really interesting to see who takes advantage and what ways. But again, I really want to stress I don't think this is a tool designed for women or for men, it's just it's designed for entrepreneurs. I'm excited to see of course because I am a champion of women entrepreneurs, especially I am very excited to see how this might unlock sources of capital that exist in communities that otherwise have really not participated in this kind of activity. So strong I think about as a new mom myself I think about all of the groups related to becoming a new mom that have really tight bonds, tight connections, there are ideas are shared about not just how to be a parent but all sorts of other things as well and I think tapping into some of those communities that again have not participated necessarily in supporting a local business or a startup that they believe in that will be really interesting to see those communities unlock. So I get excited for that. Yeah, I agree with you. I think the potentials there are really fantastic for women around the world as we know while the tool itself is an equal opportunity tool so to speak the reality of women's situations in many parts of the world is they don't have access to the networks that would typically provide them access to capital. They often don't have some of the legal standing and ownership requirements that would make them eligible for capital, etc. So I think crowdfunding as technology has in other ways provides huge opportunities to unleash potential for women. We know then some parts, for example, of the Middle East where women sometimes have more difficult access to certain circles nevertheless they've gotten around that through technology and there are countries where women work a lot from home with technology, technology based businesses from home. There's actually a huge emerging surge of women entrepreneurs throughout the Middle East something that, you know, some places is unexpected. We had a start-up weekend in Alexandria, Egypt and out of the 800 participants making it one of the largest start-up weekends in the world 200 were women. These were predominantly women technologists. So, you know, I'm very encouraged by the fact that the technology, the fact that it's a technology based access to capital will give many groups, women in particular but also in some cases youth, in some cases other players who are otherwise marginalized give them access to resources and capital that they might not otherwise have been, you know, had access to. You're going to see these communities what we call verticals popping up within the crowdfunding space all over. Mothers, women entrepreneurs anyone that's got a community of origin, interest, geography will come together and they'll have their own little area where they'll say help fund this idea within my community. I mean, my sister who's an entrepreneur, a wannabe entrepreneur here, she's actually starting a co-working space here in the Washington, D.C. area strictly focused on mothers because she gets the fact that you've got these, as Jessica was saying you've got mothers that are at home that they're smart. They got great ideas too and they see problems all day long but give them the ability to come together in a co-working space and share their thoughts on these problems and come up with collective solutions. She wants to crowdfund that. So you're going to see people like my sister doing this globally. Interesting. Well, let's turn to this. An online viewer from Italy asks, on average, how much capital can an entrepreneur expect to raise through crowdfunding for a small business? Well, it depends on... Let me just add here, worth noting that Italy is at least at the same stage as the U.S. with respect to legalizing crowdfunding as we knew because you guys have been in... Recently. It was exciting when Italy called and asked for us to go over our framework with them. Jason flew over there and met with leaders of the coalition government. They're actually moving ahead quite rapidly. I wouldn't be surprised, in fact, if Italy beats us and is first to have crowdfunding up and running. The caps themselves will depend on where you are in the world. This is something that's set by each country. Here in the United States, it's a million dollars a year. In Australia, I think it's up to five million. So it depends on what the government regulations are and you'd have to check with each of your securities regulators. So that would be a cap, not to say that that would be the average. That would be a cap, not to say the average. Right. Average we would expect much smaller than that. Average, yes. So if you look at the funding void that exists, it's usually about zero to $250,000 of capital. That's what startups and small businesses really need and that's sweet spot there. So that's where you're going to see the majority of the funding taking place and as you were talking about, when they hit their goals, their milestones and they follow through, they'll go out for additional money. If they hit that million dollar goal, they'll very likely be able to qualify for more traditional financing, going to a bank, going to angels or private equity or VCs, looking for money. Again, on ramp. Right. So what's been your experience around averages that are lent at? I know the focus of Kiva's been more micro-enterprise than SMEs or than small and medium enterprises. That's correct. On Kiva, the average loan size is around $400, although there's a wide variance. And then with Profounder, it started that I launched around four years ago, but we've since sort of wound down for a number of different reasons. The average raised on the site was around $30,000. And this really fit with, I think really, most of the businesses that raised money were just these incredible, very forward-thinking, very innovative small business entrepreneurs. And some of them, you know, it's interesting. We sort of use all of this language together. Small businesses, startups, et cetera, entrepreneurs, small business owners. I found a surprising sort of amount of self-categorization. And sometimes I'd be talking to a small business owner as they would call themselves. And I would talk about them being an entrepreneur. I'd reference them as an entrepreneur, and they would say, oh, I don't know if that's me, and vice versa. So, you know, I think it's an interesting thing to note. And I do believe that sometimes the aspirations of somebody that sees themselves as a small business owner are different, not better or worse, just different. And they might want to raise their amount of capital, for instance, then somebody who has a high growth startup in mind and might be using different language and have a different idea of where they want to go when. I mean, the truth is, even if, you know, you might have one business, you might have two businesses, each of which need, you know, $200,000 to get through the first two years. And one business may just simply choose based on milestones, based on all sorts of things, level of risk, et cetera, may choose to raise $50,000 at first, and then raise the rest of the funding later. And the other business might choose to raise $200,000 because that's the kind of runway that they want to seek. So there aren't easy right and wrong answers in this environment. In terms of how much is the right amount to raise and where do you get it and how do you get it? I mean, as we've said, I think there are many benefits to at least sourcing some of your capital. Even if you don't, even if you have many other options, I think there are solid benefits to sourcing some of your startup capital through crowdfunding mechanisms. Interesting. Well, given that, you know, what are some of the limitations of crowdfunding? It's not a cure-all. It's not the answer. It's an opportunity. It democratizes access to capital. But it requires a degree of diligence and a serious commitment to follow through. If you don't have that, you're not going to raise the money. You need a regulatory framework, period. You need to have governments that understand that businesses create jobs. And if they don't have the solution to creating those jobs and their respective wall streets can't step in and help fund those businesses, that they need to update their securities laws to allow the communities to come together to fund them. So, limitations are both within the entrepreneurs themselves with, you know, capital. You have to have investors that are willing to invest in these entrepreneurs. And that comes with what we call a circle of trust. You just don't give money to someone without a level of confidence that they're going to follow through with what they say they're going to do. So, you need to have these communities of trust that are established so that investors can feel confident putting money behind entrepreneurs in those communities. All of this comes, it's a new age. It's a new age just because it uses technology. But believe it or not, this is an old way of doing business. So, you know, you have to have a lot of money to fund companies. Friends and family financing is the way the world of finance companies for history. All we've done is applied the internet to this. But it's not the cure-all. Yeah. Well, with that in mind, I mean, one thing we haven't really talked about is competition from entrepreneurs, between entrepreneurs who are looking to crowdfund. And it's kind of related to this notion that if you've done an effective job of mobilizing a community of trust, a community that's interested in some of the initiatives that you're undertaking, whether it's your business or your social enterprise or, you know, whatever it may be, then you're not going to have much of a community to reach out to. And if your, you know, solution, so to speak, if your idea or your business isn't one that's sufficiently unique or can be portrayed to be, you know, true added value. There's a question of other entrepreneurs on there who are going to be seeking, you know, seeking to raise money as well. Right. And then you have to be careful. A lot of times you've got intellectual property that needs to be protected. And you've got trademark issues that you need to be concerned about. All of this is very valid and concerns that entrepreneurs need to be taking into account. They should be looking for crowdfunding platforms that have what's called data rooms. And these are rooms where personal or private information, intellectual property is stored behind a locked door. And you can grant access to investors on a one-to-one basis so that you know who's looking at that IP. It's, you know, it's a very important thing to protect. And you need to be able to look who's, watch who's looking at your IP to make sure that competitors aren't just fishing for information. So while I want to jump in, while I agree with that, and I definitely think there are circumstances of company development, et cetera, where protection is really the issue, I find it, I often hear this from entrepreneurs starting a business that does not have necessarily, forget financials, but just maybe somebody comes with an idea and says I really want to do this, but I don't want someone to steal my idea. I will just put this out there to be devil's out and get a little bit. It's usually there are going to be, at any given time, even your best idea imagine that it does and other people have that idea right now. It's about who's going to execute best and who's going to get it done. And to be honest with you, sometimes being a little bit vulnerable and putting yourself out there and saying to the world, for example, on a crowdfunding platform or elsewhere, hey, I'm thinking about doing this. Here's exactly where I am. Here's me being transparent and open about the development and asking for your help to come on board and make this happen. That sometimes is the person who will win and be like, this is what I'm about. This is what I want to go do. So another perspective, I'm not saying throw your financials up on public sites and all that, I'm just saying when if your fears are more amorphous, if you and entrepreneur out there have fears that are more just generally nervous about sharing your idea, I think you certainly be thoughtful about that, but imagine and think through you know, try on for size. What might it look like if the benefits might exist by putting yourself out there sooner than later and not waiting for everything to be perfect and smoothed out and 100% sort of locked down. Yeah, and I'll add to that. I had a conversation, I'm sorry. No, it's great. I had a conversation yesterday with one of the managing partners of one of the top three angel networks in the United States and this topic came up and he said what he tells entrepreneurs if your idea is that easy to steal, then obviously it's not distinguished that there ought to be some reason where either the idea or your ability to execute it is distinctive and or you've got a protection on the IP in terms of it's actually unique IP and they'll actually decline if there are entrepreneurs who are concerned about sharing ideas, they decline hearing the ideas because obviously they don't want anybody who has that concern presenting. I mean it is a fine balance. It's a real can be a real problem, we know that but there are actually IP protection issues around the world that's a whole other topic so it's not a topic that we can just brush off the table but certainly one needs to be able to share one's ideas if you're going to progress. So an online viewer from Nigeria asks how to create a crowdfunding framework in a country with unique ethno-religious elements. That's a really good point. Muslim countries. Sharia compliant finance. Islamic finance. It's something that is unique to the MENA region. It's something that's unique to Muslim countries and you have to look at what those laws are and you have to develop a framework around there. Again if you go to our website Crowdfund Capital Advisors we've got a whole section about Sharia compliant crowdfunding and how to develop a crowdfunding mechanism that is Sharia compliant because for instance you know debt is not an option in Sharia finance. So you need to come up with equity based crowdfunding mechanisms that work where they can share that's the whole principles of Sharia finance is sharing the wealth and so we talk about a lot of that on our website. Great. Thank you. Jessica have you encountered any ethno-religious constraints on the kind of crowdfunding that you all have participated in? Absolutely and you know there are Kiva lenders in I think more countries than the UN recognizes so there definitely is there's too many stories to list specifically but I guess I will just say this I believe it's hard to have a general answer to a question that is going to really find a to a question that is from a specific place specific concerns and I think what he put it at some great points and some great tools and there are more online as well but I guess I would say the common principles of what works in crowdfunding and what will allow not only platforms to succeed but also for individual entrepreneurs raising capital to succeed are pretty universal so I think common principles to think about are really again like what do you need and what is necessary for that you can justify asking the world to provide to you so find that right number and be really confident about that think about the kinds of investors that are going to be relevant and investors I'm using this loosely investors, lenders, whatever think about the contributors that make the most sense for you to engage and to partner with and what you're doing and why when you can add that element of anything that is faith based if you're drawing people in and inviting them to be part of what you're doing share common set of beliefs and common set of values I think that's a beautiful and very good thing and you need to think about the scope of what you're doing and how far you want to get again based on milestones based on what's next for your company to develop and to grow and I also think being considerate and understanding the type of individuals and their budgets the individuals that you do want to have contribute sounds like an obvious no-brainer but there's going to be a range of contributions depending on how I guess you structure the opportunity but you need to think about what's realistic for people to get involved and sort of provide a relevant set of rewards or return for what they're contributing so anyway I think there are common elements and there are definitely elements that are going to be very specific to any particular region or ethnographic community so it's hard to give a very specific answer but I'm with Woody I think doing research on existing existing platforms existing sort of rules is a great thing and I guess I'd also encourage you if you are somebody in your particular community that does not see a solution that fits you should create one right maybe I'd turn that question back to you and say what do you think would work well in your community and then get creative about figuring out how to make that happen within the boundaries and the rules that exist for you yeah I think that's really interesting because though an ethno religious the question perhaps was posed with the notion that that presents a constraint that actually that could present a common ground of values that could help you moving forward well I think we're coming near the end of our session here so we perhaps we have time for each of you to answer one more question that's how could crack funding benefit entrepreneurs in the developing world if you could just with a really brief answer here because I know we're running out of time as we took on some a couple of extra questions we were in schedule to take on and if more crowdfunding opportunities were offered to small and medium sized enterprises what impact do you think that could have so if you could with any final thoughts here I think like I said before that we're on the cusp of a global movement and that this is the opportunity to disrupt the way in which small businesses are financed and I believe that if we can come up with the right regulatory environments in countries if people you know follow the 21 questions to see if it's right for them we can get capital flowing and we can create millions of jobs jobs that are sustainable jobs that are long to have a longevity to them and communities that will prosper great thank you Jessica how about you well I'll provide it right what you provided the regulatory answer I'm going to provide the touch you feel answer I think one of the most amazing things that happened on platforms like Kiva and that will happen on others as they crop up from a very selfish perspective is that the the rest of the world right and let's just say for me you know middle class America will get to see the talent and the innovations and the creativity and the entrepreneurship that's happening all around the world and I genuinely genuinely believe that as that happens and more people are able to see each other's entrepreneurial journeys unfolded to participate in those stories that we will collectively sort of continue to move more towards which we didn't get to talk about but more towards a society and a global community where people collaborate and co-create more and more and form these communities based on shared values and based on a common understanding of entrepreneurship so that gets me really excited simply yes the money flying around the world is very very exciting to think about but with that money comes people's attention and comes a deeper understanding of each other which I think is there's nothing more important than that we agree wholeheartedly we always like to say talent is universal but opportunity is not and we're excited that crowd funding is one of the mechanisms that we think will actually help you know deliver more opportunity for more talented innovators and entrepreneurs around the world so with that that's all the time we have for today thank you to everyone who joined us online just because the web chat is over that doesn't mean that the conversation has to stop here visit the state department's innovation generation facebook page and follow the conversation on twitter using hashtag start up and at connex c-o-n-x or at innov gen in-n-o-v-g-e-n thanks again everyone this program has been brought to you by connex