Startup Exemption

Entries categorized as ‘crowdfunding’

White House Press Release: Legalize Crowdfunding

January 31, 2012 · 1 Comment

In a press release issued by the White House today to celebrate the 1-year anniversary of Startup America, President Obama again called on Congress to pass a Crowdfunding Bill that would allow entrepreneurs to Crowdfund Investments to launch new businesses and create jobs.

The announcement comes after the State of the Union Address in which President Obama made reference to easing the regulatory burdens on startups, small businesses and entrepreneurs.

The current regulatory system requires that entrepreneurs seeking to raise capital go through lengthy and costly  procedures.

These procedures are necessary for businesses that are raising larger, more traditional means of financing but for ideas coming from college business plan competitions or Startup Weekend Challenges they are a deterrent.

Since small businesses are our nation’s net job creators, we need to do everything in our power to get them the capital they need so that they can innovate and hire.

Crowdfund Investing is a zero-cost solution to the jobs crisis.  It doesn’t require government spending but easing of regulations that were written over 80 years ago.  These regulations while good in there intent are holding back the creative force of America’s entrepreneur.  Only with the advances in the Internet and Technology can easing regulations allow the crowd to step in where Wall Street and the Banks have left off.

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Categories: Crowd Fund Investing · crowdfunding · Sherwood Neiss
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Obama Pressures Congress for Crowdfund Investing!

January 25, 2012 · Leave a Comment

In tonight’s State of the Union Address the President said the following to a loud round of applause: “It means we should support everyone who wants to work and every risk taker and entrepreneur who espires to become the next Steve Jobs.  After all innovation is what America has always been about.  Most new jobs are created in startups and small businesses.  So let’s pass an agenda that helps them succeed.  Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.  Expand tax relief to small businesses that are raising wages and creating good jobs.  Both parties agree on these ideas.  So put them in a bill and get it on my desk this year!”

Crowdfund Investing is the zero-cost government initiative he is discussing that can create millions of jobs!  The President gets it.  The House of Representatives gets it!  Now we have 2 bills in the Senate.  Let’s get this on the desk of the President NOW so that we can get back to innovating and creating jobs!

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Categories: Crowd Fund Investing · crowdfunding · Sherwood Neiss
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You Can Crowdfund a Politician but you Can’t Crowdfund an Entrepreneur

January 25, 2012 · 2 Comments

On Tuesday January 24, 2012 President Obama delivered the State of the Union Address.  He highlighted the challenges our economy faces and the direction in which we need to take the country.   One of our nation’s biggest challenges he focused on is unemployment.  Crowdfund Investing (CFI) also known as equity-based crowdfunding, is a solution to the jobs crisis.  We originally pitched this idea to Washington a year ago. CFI allows the community to fund their local entrepreneurs to spur innovation, launch businesses and create jobs.  And it is one of the solutions the President supports.   Our framework is the basis for all the bills before Congress (HR.2930, S.1791 & S.1970).  And until we legalize it, we can’t help fund our nation’s net new job creators.

Politicians use crowdfunding daily.  It is how they fund their campaigns.  They go out to thousands of supporters and say, “Hey give me as much money as you can afford (capped, of course).  Collectively it will add up to something substantive so that I can talk about my goals, build my team, market my message and get elected (or re-elected).”  Entrepreneurs do the same thing (take an idea, make a proof of concept, build a company, and hire employees to market and grow) but only with accredited investors.  Here’s the ironic part.  It is legal for politicians to go to the masses but illegal for entrepreneurs to do the same thing.

When it comes to crowdfunding, entrepreneurs are held to a different standard than politicians. Yet politicians constantly look to them as the solution to our economic woes.  Why are there rules on how much money one has to make in order to give to an entrepreneur but there are none when it comes to politicians?  Do you know that 100% of Americans can give to politicians of their choice but only 5% of Americans can invest in entrepreneurs that can create jobs?   In full disclosure, the rationale (according to the opponents to Crowdfund Investing) is that Americans aren’t sophisticated enough to understand the risks inherent in investing in startups.  They don’t understand that there are bad actors in the marketplace.  They are gullible and believe the first thing anyone says.

If they don’t think people are sophisticated enough to decide how to invest a few thousand dollars in a venture, why do they think they are smart enough to choose the right candidates?   Why do we allow people the freedom to use their money as they wish when it comes to crowdfunding politicians but we don’t give them the same freedom to use their money as they wish when it comes to investing in startups and entrepreneurs?  Are we to assume that there’s no fraud in politics?  Should the supporters of Representative Weiner or Presidential Candidate Herman Cain get refunds?

This election season half a billion dollars will go to fund the campaigns of many a politician.  Imagine the impact we could have on our economy if those same dollars went into starting new business ventures?  Businesses create jobs; jobs provide income, which consumers spend in order to live.  Increased consumer spending stimulates the economy. This will get us out of the recession.

Our conclusion is simple.  If people are deemed smart enough to invest in the right politician, shouldn’t they be able to do the same, freely, in a business?   The time is now to change the security laws that were written 80 years ago.  The Internet can allow us to identify those ideas we deem worthy and fund them with the same dollars we spend on political campaigns. Crowdfund Investing is the mechanism to allow it all to happen.  Join our cause to make Crowdfund Investing legal in 2012!

Ps – Our statisticians performed some analysis on entrepreneurship based on data from the Census, the SBA and the Kauffman Institute.  If we legalize Crowdfund Investing over the next 5 years we can launch over 500,000 jobs that have the potential to create 1.5M jobs!

 

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Categories: crowdfund investing · crowdfunding · Sherwood Neiss · Woodie Neiss
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Investor Protection in Crowdfunding – Why for 5 Years There Has Been No Fraud

January 11, 2012 · 2 Comments

When discussing the current crowdfunding taking place, the question is raised: “why are people doing this?” If only 43% of projects on Kickstarter succeed, why aren’t people crying foul but instead pledging more than ever before? ($9M in December, 2011 on Kickstarter compared to $4m in January, 2011). The answer is simple. They want to help someone they know. They want to support an idea. They want to be part of a community and they want some recognition for it. People are drawn to crowdfunding because they are capitalists. They admire entrepreneurs, and they know that sooner or later they may be entrepreneurs as well.

What are they basing it on? It comes down to trust and transparency. AirBnB is one of the nation’s fastest growing crowd sourcing startups focuses on renting other people’s floors, rooms, homes, yachts – even igloos. It is growing at a staggering 45% per year because people trust the system, vet the offerings and rate them as well. On the Internet, when your “wares are out there,” it is on the line for everyone to see. By being transparent, you build trust. Users check out the reviews, read what other people are writing and make careful and informed decisions. All of this is recorded and becomes part of a larger “self-­policing community” of profiles for both parties and a greater community rating system. These reputations today are carrying across the web from eBay to Tripadvisor to Rate-­a‐VC.

Other companies like TrustCloud aim to become a portable reputation system where their algorithm collects your online “data exhaust” – the trail you leave as you engage with others on Facebook, LinkedIn, Twitter, commentary-­‐filled sites like TripAdvisor and beyond – and calculate your reliability, consistency and responsiveness. The result is a contextual badge you carry to any website, a trust rating similar to the credit rating you have in the offline world. These are tools that can and will be incorporated into any online crowdfunding platform to help foster transparency and accountability.

We think any of you would find it hard to disagree with this statement, “the internet today has made the world a more transparent place. Your actions are followed and the opinions flow freely.”

According to the Sustainable Economies Law Center, “The success of crowdfunding sites demonstrates the desire of the public to support projects that they believe in. Enabling the additional motivation of possible financial return would only reinforce this economically healthy impulse.”

But crowdfunding goes beyond money, experience or trust. Michael Shuman, author of The Small Mart Revolution: How Local Businesses Are Beating the Global Competition, states “Crowdfunding has the potential to deliver the jobs Americans have been longing for. We know that small businesses, especially locally owned ones, are key for expanding the nation’s employment, and these businesses comprise (by output and jobs) more than half the private economy. And yet almost none of the $30 trillion we have in our long-­term investments (stocks, bonds, pension funds, mutual funds, insurance funds) touches these businesses. This is a colossal market failure, driven by obsolete securities laws. Moving even a few percentage points of our capital into local, small business could effect a stimulus home run.”

So let’s address all the naysayers. What if we carve out an exemption and it all comes tumbling down? What if we open the doors to defrauding thousands of people out of $80? Are these protectionists right? Will crowdfunding bring down the entire economy? To them we say, recall what happened in the Ireland Banking crisis of the late 70’s when the bankers went on strike and warned the public that the economy would collapse without a banking system. What happened instead was a peer-­to-­peer banking system where the local pubs became de facto banks, lending money to their customers. It worked so well that some people even joked that there is no better judge of character than a bartender.

Opening the doors to a limited exemption will not cause the fraud that Worldcom and Enron did to their employees and investors, or that Wall Street and Bernie Madoff perpetrated on the American people. It will create a peer-to-­peer system where communities become the de facto seed and early stage funders to entrepreneurs. And if you think about it, there is no better judge of character in the United States than your neighbor, friends, and family.

But there are more reasons to trust the crowd. First, they are massively diverse. Fundamentally the collective IQ of the crowd works like this. Every time a new member joins who has one or more superior facets of IQ, the collective IQ is raised by those unique facets. Second, the values that VC’s claim to provide will be disrupted by the crowd. A VC’s Rolodex is easily replaced by social networks (i.e.: LinkedIn). And the Rolodex of a few thousand crowd investors is much stronger than that of a few VCs. Third, expertise – it is disputable that the people who manage money bring more operational experience to the table than an interconnected crowd of people, many of whom are investing in you because they understand your business. And finally, valuation sophistication – the crowd has been putting their value on things since the beginning of time. Price anything too high and no one will buy it.

These naysayers act as if crowdfund investing were made legal, then every American will dump their savings into this. So either that makes us think they REALLY think we have the solution to kick starting our economy and are afraid of money not being invested traditionally OR they think that everyone for some reason will see crowdfund investing as lower risk than any other choice they make in their daily lives when in fact we all know this isn’t true.

Crowdfund investing is more than just money – it is facilitation, diligence, team building, and valuation. Most importantly, it is jobs.

That being said, we shouldn’t assume that “everyone” will bring expertise. Some will be a marketing engine for the entrepreneur and others will just bring a few dollars. Collectively, they will gather behind entrepreneurs they believe in, they will fund only those they are willing to risk their investment in and they will invest only if they think what they are being offered is fair. Trying to circumvent the crowd to bilk them out of a lot of little dollars isn’t going to be worth the time or energy of a shyster.

There seems to be a general understanding in Washington that government spending stimulates the economy, but that when it comes to letting the average American decide how he or she wants to spend and/or invest his or her own money, then we need government oversight.

We stand at a moment in time when we can use crowdfund investing to start an education process. Where the average American who wants to be part of the process (mind you there’s no forcing here) can be taught to think like an investor and ask questions of entrepreneurs like, “How does your idea generate cash? Do you offer a product or service I would buy? What skills/experience do you have to be accountable with my money and why should I trust you?”

In doing so, Entrepreneurs will learn how to communicate, be accountable and transparent, and investors will provide critical seed and early stage capital. Jobs will be created, innovation will be spurred and our economy will continue to grow.

We do not believe it is the role of government to limit how we can spend our money. Nonetheless, we appreciate their desire to protect our savings and so let’s have the discussion, “if you believe that $10,000 is too much for an American to risk, what is the smallest amount you believe I should be able to invest in my entrepreneurial friend without SEC scrutiny? If you are fine with $1, at what point are you uncomfortable?” That is the point whereby we should set the limit. I wouldn’t be surprised though, if we put it to a vote, the crowd would tell you “I’m an adult, I can make my own financial decisions.”

If the dollar amount isn’t what concerns you but the potential for fraud, even at $1, then we need to have a frank discussion about that.

As Kevin Lawton, author of The Crowdfunding Revolution says, “Fraud isn’t really the issue, ‘Failure’ occurs much more frequently in startups.” According to a Kauffman Foundation survey, approximately half the time you will lose all or some of your investment. Just as you diversify in the publics markets to reduce exposure, having a portfolio of varied investments solves failure in the crowd funding space. As we have seen from over $500 million donated to projects and ideas through crowdfunding already, while people are concerned about losing their money, they are more interested in helping someone bridge the gap, bring an idea to fruition, succeed, and in the end being able to tell their friends and family they had a part in the creative and entrepreneurial essence of what it is to be American. It’s like paying for a brick in a new park or baseball stadium to be engraved with your name.

“Fraud is just some noisy component of failure,” As Lawton says, “and at that, it’s going to be pretty hard to get away with much of it when there are millions of eyeballs worth of visibility and mechanisms which social networking enables to further vet entrepreneurs.”

And thus, the biggest problem we need to solve is education. Running a portfolio and understanding the risk-­vs.-­reward dynamics of investing in early phase companies is essentially an education problem. One way to solve the problem of unaccredited investors making investments, if you think of it as a “problem,” could be to make people ‘educationally accredited’. This can be done with a simple document, which explains the basics of the risk-­vs.-­reward curve of risk startups and the basic principles of a portfolio. It can be done in a few pages and can be sent out in paper form, transmitted via email as a pdf, or done online in a more scalable way via a platform. Before being allowed to invest, people would have to answer a series of questions that test their comprehension of the document.

Instead of pushing people down with a relentless assault on their intelligence, perhaps we should contemplate that people are adults and will make their own decisions. Our job should be to educate: education helps to create prosperity.

Education will teach the participants about analyzing and understanding risk. Nearly every company has a level of opacity. Even a brick-­and-­mortar restaurant business probably doesn’t give you their recipes. Tech startups don’t give you their ‘IP’, often not even to VCs. That’s how it is. Lack of complete transparency creates a level of risk, which is why we have varied portfolios. And within an open market, if an investor has access to two similar deals, one of which is more transparent, which do you think he’ll invest in? Concerns should be focused on the basics of investing, such as disclosures of the principal people in the company, details of the business model, use of funds and the securities offered.

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Categories: Crowd Fund Investing · crowdfunding · Kevin Lawton · Sherwood Neiss
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The 80-20 Rules Applied to Crowdfunding – Why Larger Single Investments Will be Critical

December 26, 2011 · Leave a Comment

According to Wikipedia, The Pareto principle also known as the 80-20 rule states that, for many events, roughly 80% of the effects come from 20% of the causes.  The validity of the 80-20 rule can be seen throughout the economy.

Why is the 80-20 rule important to consider in relation to the Crowdfunding bills that are moving through congress?  Because where Congress sets the Crowdfund Investing limits, will determine if this legislation will create or destroy jobs and innovation. The Startup Exemption framework originally suggested $10,000 or 10% of an investors Adjusted Gross Income (AGI).  Our rationale for the $10,000/10% AGI was to cap the maximum an individual could invest based on their income but also cap the total amount anyone could put into one endeavor at $10,000. This was to provide significant investor protection for unaccredited investors who choose to invest in this high-risk asset class yet allow higher net worth individuals for flexibility to use their cash as they see fit.

The current bills before Congress each limit the maximum amount an investor can risk at different levels.  The $10,000/10% AGI we advocate matches what is in HR2930.  The Senate bills take different and more dramatically smaller positions; between $500 & $1,000.   If these lower caps from the Senate bills are enacted, it will kill the value of this legislation and will dramatically limit or eliminate the possibility of any new jobs or innovation being created via Crowdfund Investing.

Applying the 80-20 rule to crowdfunding, the theory would assume that 80% of the crowd will provide the majority of the count of contributions but the 20% of the crowd will provide 80% of the dollar value of the financing.  If this theory is true, then it is crucial that the 20% of the investors that will provide 80% of the investment dollars are able to provide larger dollar investments.

To prove this, we reached out to several of the major crowdfunding platforms and asked them for statistics on a few of their larger projects.  We specifically asked for the larger projects because we anticipate the average amount entrepreneurs will seek in their initial rounds will be $50,000.  Here’s what the data showed.

On Crowdcube, the UK’s first and largest crowdfunding platform that just successfully funded the first £1 million (approx. $1.57M) project (need we say any more about how powerful crowdfunding will be), the data revealed the following:

  • From a group of projects that raised collectively $280,800, individuals who invested less than $1,000 accounted for 81.2% of the total number of investors.
  • The remaining 18.8% of investors, who invested greater than $1,000, accounted for 93.8% of the total financing!

Indiegogo, one of the largest donation-based crowdfunding platforms which has been around longer was able to pull data from a much larger data set.  (They have funded over 25,000 projects).

  • The data indicated the more money one raises, the more reliant on $500+ contributions one is.
  • For campaigns that raised between $500 – $5,000, 24% of funding came from $500+ contributions.
  • For campaigns that raised over $5,000, 46% of total funding came from $500+ contributions.
  • For campaigns that raised over $10,000, 50% of total funding came from $500+ contributions.
  • For campaigns that raised over $20,000, 53% of total funding came from $500+ contributions.
  • For campaigns that raised over $50,000, 65% of total funding came from $500+ contributions

Profounder, one of the first to try equity-based crowdfunding but forced to augment its model for the time being, was able to share these statistics from all projects funded on their site:

  • 24% of the total number of investors contributed less than $1K.  These individuals delivered just 4% of all funding raised.
  • 76% of individuals who invested greater than $1,000 delivered 96% of all funds raised.
  • The average investment was a little over $1,700/ investor.
  • These statistics closely match what Crowdcube discovered.

The data demonstrates how important it is to allow investors the opportunity to make investment decisions at a level that is appropriate to their income/net worth, while capping the total investment level for all unaccredited investors. $10,000 or 10% of AGI (whichever is smaller) should be that limit.  The larger contributions are critically important to successfully funding companies.  If overly restrictive limits of $500, $1,000 or even $5,000 are enacted it would have a grossly negative impact in the potential for crowdfunding.

What this theory leaves out though is the importance of the small dollar donations from something other than money — a voice and a potential customer base.  While 20% of a crowd might provide 80% of the financing, if it weren’t for the 80% who expressed interest in a company in the first place by pledging small dollar funds, those larger investors would not be stepping up to the plate with 80% of the financing.  There is validity to the voice the 80% puts behind their dollars because it shows that there is interest from the crowd for the product.  Market research like that prior to launching is invaluable and something any traditional financier would look for.

We urge the Senate to enact the investment limits from our framework: $10,000/10% AGI (Whichever is lower).

 

 

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Categories: crowdfunding · Jason Best · Sherwood Neiss
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Crowdfund Investing: 13 Lessons from the Guys Who Brought Crowdfunding to Washington

December 20, 2011 · Leave a Comment

Image from crowdsourcing.org

This article was originally published on crowdsourcing.org.

A year ago, Jason Best, Zak Cassady-Dorion and I were deep in the trenches either trying to launch, grow or expand our entrepreneurial endeavors. There was a common thread to all our stories: capital was scarce. The trickle-down effect of the global recession was having a negative impact on our ability to innovate. Without access to capital, how could we grow and hire? If jobs were the economic stimulus needed to lift our nation out of the recession, then someone needed to address the capital crisis facing entrepreneurs and small businesses, our nation’s job creators.

With that, we sat down and crafted a framework to allow an entrepreneur to raise a limited amount of equity capital from his friends, family or community using the tenants of crowdfunding. We then embarked upon changing outdated security laws, which were written for a period in time that did not reflect today’s technology, the internet or the flow of information. We further vetted our framework at a symposium we held in San Francisco attended by security lawyers, academics, investors, crowdfunding platforms and entrepreneurs. Buy-in was building from the community at large.

With the help of Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, Washington started to listen. President Obama came out in favor of our proposal to make equity-based crowdfunding legal, then the House drafted the first bill — H.R. 2930, the Entrepreneur Access to Capital Act — and, in a rare burst of bipartisan support, passed it 407-17. Now there are two bills in front of the Senate. All signs are pointing to some version of crowdfunding for entrepreneurs being legal the beginning of 2012.

While we aren’t done yet, our story is one of trial and perseverance, of old vs. new. Many people have asked us what we’ve learned along the way, so here are 13 lessons from our journey to get this legislation passed…

1) Giving up is not an option.
2) When you’re in a recession and you have a solution to the jobs crisis, people listen.
3) There is power in a few voices. Showing up in Washington is more than half the battle. Making your voice heard does resonate and people on Capitol Hill can and have been incredibly gracious with their time, experience and knowledge.
4) The people trying to run the government aren’t bad people. As a matter of fact, the majority of people there work insanely hard for the good of our nation, but the bureaucracy makes it difficult to understand and the media spins public perception of our elected officials.
5) On the Hill, both sides need to feel like they are winning. In order to get to the end goal, you need to present Washington with 100% of something that will be reduced to 25%, whereby each party can add back bits and pieces, bringing it up to 85% or so. We might not get 100% of what we want, but both parties will feel satisfied that they did their job.
6) Fear is the enemy of progress. The special interests have spent countless hours and dollars to derail the discussion from entrepreneurship, opportunity and jobs to focus on fraud. Fraud sells like sex and their message resonates with the media even though it defies logic. We haven’t shut down the markets because of fraud.
7) It is true, money and special interests (lobbies) control Washington in an unhealthy way and eerily so. They don’t try too hard to hide who they represent. You quickly come to understand how the special interests can be nice to your face and stab you in the back. If only you could have been present for some of the nice chats we’ve had with the special interests only to see what they espouse in the media.
8) Believe it or not, there is logic to some of what the opposition has to say. Fraud is an important point. Social media and crowd vetting has shown how we can mitigate this.
9) It is easier for the opposition to focus on the past than craft a working solution for the future. The opposition isn’t focused on helping the American economy and creating jobs. They don’t claim to be. And yet no one asks them, if you see the problems in the capital markets firsthand, why don’t you see the solutions as well?
10) In America, one’s right to use one’s money as he see fit is trumped by the government’s right to tell you how you can invest it. Isn’t there a first amendment case here?
11) Lobbying is exhausting; it takes a lot of patience and you have to get comfortable educating and repeating the same information over and over.
12) Nothing in life is free. This has cost us a lot of personal time, energy and money. We are grateful to people that have supported our struggle and are dismayed by those who stand to benefit the most but not participated materially or financially. It is no wonder why special interests succeed with the endless flow of capital to their coiffeurs. Couch surfing — thank you various D.C. friends — is exhausting and eating up your own financial resources is painful.
13) And once more: giving up is not an option.

Helping Fund the Fight to Make Crowdfund Investing LEGAL

Changing the Security Laws isn't easy and it sure isn't cheap. Everything that you see here costs us money. If you support our cause, if you wish to see it legal for entrepreneurs to go to their friends, family and community to crowdfund money, then help us fight the cause with a small donation. You have no idea how much every dollar helps us achieve this goal!
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Categories: crowdfunding · Sherwood Neiss
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Startup Exemption & SBE Council to Hold Crowdfunding Briefing for Senate Staffers

December 10, 2011 · Leave a Comment

Crowdfunding Briefing, December 15, 10:00 a.m.
December 7, 2011

Please Join SBE Council for this Briefing Event

Crowdfund Investing: A Modern and Transparent Platform to Help Entrepreneurs Access Capital

December 13th
10:00 a.m. -11:00 a.m.

 Featuring

Woodie Neiss, Co-FounderStartup Exemption

Freeman White, CEO & Founder, Launcht.com

Karen Kerrigan, President & CEO, SBE Council (Moderator)

Crowdfund investing legislation passed the U.S. House 407-17. Now, the U.S. Senate is considering similar legislation that would modernize SEC regulations and allow entrepreneurs to raise and identify new sources of capital through crowdfunding platforms. How will these platforms work to help entrepreneurs raise capital while protecting investors?  How do startups use crowdfunding currently?  How would startups and startup investors like to use crowdfunding in the future?  What about fraud? Experts on crowdfunding and advocates for reform legislation will answer questions about this transformative approach for raising capital.

Briefing will take place at:

 Jones Day
• 51 Louisiana Avenue, N.W.     • 
Washington, D.C. 20001-2113

  

Rsvp: (703)-242-5840, or mvaught@sbecouncil.org

  

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Categories: crowdfunding · Sherwood Neiss
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Frustrating Day for Crowdfunding at the Senate

December 1, 2011 · Leave a Comment

Today was a frustrating day for Crowdfunding.  The Senate Banking Committee, one of the most powerful committees on Capitol Hill held a hearing called, ‘Spurring Job Growth Through Capital Formation While Protecting Investors.’  It should have been called, ‘Why We Need to Stop Americans From Investing $1,000 into their Community Entrepreneurs.’

Anyone attending today’s hearing could tell it was to listen to special interests and regulators talk about the risks inherent in investing under the current system and why we need to protect consumers.  There was no discussion about protecting people from spending their $1,000 paycheck on a lottery ticket, gambling it on Red in Vegas, nor spending more than that on their credit cards and being locked into interest payments upwards of 36% on the balance.   For some reason, the only area they feel we need to provide prudent consumer protection is when a person is making a decision where they want to invest their money.  Why?  Because the expectation is different.  Yes, we expect to win the lottery.  Oh wait, no we don’t.

What’s the point of having a hearing about small businesses and capital formation if there isn’t one panelist that is an entrepreneur, small business owner or crowdfunding expert?  How do you have a balanced discussion of crowdfunding if there is no one on the panel to discuss how crowdfunding works, the merit of allowing the community to back their local entrepreneurs, how the crowd will only fund those ideas they collectively decide are worth and how the social media connectivity will expose fraud and foster winning ideas.  More importantly, if you don’t have a crowdfunding representative on the panel, how do you expose the blatant misrepresentations from the other panelists about crowdfunding?

One of the most frustrating parts of the hearing was when John Coffee the anti-crowdfunding law professor from Columbia said crowdfunding could lead to a situation where unlicensed, nefarious salesmen “who look like Danny Devito,” could set up shop in a bar or coffeehouse and peddle risky offerings to unsophisticated investors. And “In its current form, [Senator Brown’s] bill could be called the Boiler Room Legalization Act of 2011,” Boy does this drama sell.  His fabrication immediately became the cover story for Investment News.

If you are reading this, you understand that the Crowdfund Investing framework we put together is based on a few main principles:

  1. Social Networking – you are raising capital from your friends, family and community.  Your 1st degree connections.
  2. Communication – you must clearly articulate to your friends, family and community what you are doing, why you need this money, why they should trust you to do what you say and why this is a good investment opportunity for the crowd.
  3. All or nothing financing – using the principles of lean startup, you should set the minimum amount of money that you need to accomplish the milestones that you set out to your investors.  If you don’t hit that funding target, you aren’t funded.

You also know that the very first thing we advocate is a fraud/background check to keep unsavory people from participating.  That Crowdfund Investing platforms will need to be registered with the SEC and that we advocate for communicating who (including name, address, social security number, etc) is raising money on crowdfunding platforms and sending that information to both the SEC and the State Regulators.

What the panelists were discussing today was another form of Reg D offering without the safeguards that we’ve been advocating for 11 months.  Not one of the panelists today acknowledged how crowdfunding works or any of the principles above. Obviously, just looking at them, it is clear that none of them have a Facebook page, have tweeted or blogged to a community that follows them.  No wonder they don’t understand how crowdfund investing would work.

Why is it that the people who are crafting the rules under which entrepreneurs can raise capital are the same people who benefit from the rules not changing or changing in their favor?

At the end of the day, why not focus on what we do know.  Crowdfunding has been around for over 5 years now.  Over half a billion dollars has been given away and while we still expect people to do what they say with their money, no one has complained of fraud.  It’s worked well enough up to now, under our framework it will continue to work well but have the added benefit of spurring entrepreneurialism and JOBS!

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Categories: Crowd Fund Investing · crowdfunding · Sherwood Neiss
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Post Rally Update

November 22, 2011 · Leave a Comment

We have a problem and we need YOUR HELP. Everyone we met with last week after the rally said the same thing:  “If you don’t get this bill passed in the Senate by the end of the year, you will have no chance of passing it at all because 2012 is an election year.”  If you read no further, please click this link to identify your Senators, call them and tell them “I support HR2930, the Crowdfunding Bill as a solution to getting capital flowing to community entrepreneurs so that we can create jobs!” It may sound crazy but grass roots calls are powerful.

12 months ago, everyone said allowing an entrepreneur to go to his friends, family and community to raise small amounts of capital to fund their startup or small business would never be made legal.  After the last 9 months of work, we have proven there IS a market for Crowdfund Investing (CFI) and that President Obama, the US House of Representatives, the Small Business and Entrepreneurship Council and the US Chamber of Commerce all agree. Crowdfund investing is a part of the solution to the jobs crisis.

Now the problem, the SEC, State regulators and special interests with DEEP pockets and tons of influence are throwing a full-frontal assault at the Senate to stop our progress and they are using fear mongering by spreading nonspecific threats of fraud!

They are marketing “fraud” because, like sex, it sells newspapers.  They want you to focus on some seemly scary generic issue from the past rather than focusing on how today’s technology, Internet and social media can identify winning ideas and fund them. They don’t want you to focus on how crowdfunding by nature will expose fraud and they are avoiding the basic way all investors are taught to protect themselves against loss, DIVERSIFICATION.  WHY?  To protect their turf and dollars.

How can they claim their number one concern is ‘investor protection’ when they haven’t brought anyone to justice for the financial meltdown?  According to their argument, the financial markets should have ceased to exist with the 2008 financial meltdown because of fraud and loss of investor confidence. However, the markets DIDN’T stop functioning because people understand the risks and rewards of investing, especially over the long-term.  Why then, do special interests treat CFI any different?  CFI will do a much better job at backing winning ideas with money, experience, knowledge, marketing power and investor protection than any one investment an individual makes in a Fortune 500 company or someone they don’t know who comes to them with a Reg D offering.

Fraud historically has been one-to-one.   The principals of crowdfunding are based on many-to-many communication in an OPEN DIALOG where NO investor will partake if an entrepreneur hasn’t won over the confidence of the crowd.  We’d love to think that crowdfunding has the ability to finance 100% of the ideas, but history shows that only 40% of the ideas will be successful in raising money via CFI. Not every idea is great and the crowd is able to determine this.  That’s what we call investor protection at work.

They tell us to our faces they are willing to work with us but their quotes in the media reveal the opposite.  They need to join the Internet Age.  The way we did things in the past is NOT the way we will do them in the future.  They need to look at how we mitigate fraud through crowd-vetting.  Understand that social media is based on connectivity and trust.  And using the principles of crowdfunding we can get a limited amount of capital from our friends, family and community to innovate, create jobs and not be left behind China!

We need more of your support to stop the nonsense.  We need your financial support to help offset the costs (travel, marketing, additional rallying, etc) of getting the message to the Senate (Jason, Zak and I as well as Karen Kerrigan of the SBE Council have been incurring all the costs on our own). We also need you to call your Senators and tell them you are in favor of the Crowdfunding bill that went thru the house, HR 2930.  We aren’t looking for long-term financing.  This bill either passes by the end of the year or dies for good as everyone in Washington told us.  Remember January 1st is the beginning of an election year.  The special interests are banking on the fact that we don’t have the interest, support or money of those that this would most benefit.  We need to prove them wrong!

Please donate here:

Helping Fund the Fight to Make Crowdfund Investing LEGAL

Changing the Security Laws isn't easy and it sure isn't cheap. Everything that you see here costs us money. If you support our cause, if you wish to see it legal for entrepreneurs to go to their friends, family and community to crowdfund money, then help us fight the cause with a small donation. You have no idea how much every dollar helps us achieve this goal!
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Categories: crowdfund investing · crowdfunding · Jason Best · Sherwood Neiss
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