Startup Exemption

Entries categorized as ‘Petition’

Crowdfund Investing – The Future of Startup Financing

November 21, 2011 · 13 Comments

Want to learn everything you need to know about crowdfunding to be a success?  Click here or click the image below.

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Startup Exemption is the name entrepreneurs Sherwood Neiss, Jason Best and Zak Cassady-Dorion created to describe their Crowdfund Investing (CFI) framework.  The framework is an exemption under Regulation D Securities Offerings that would allow startups and small businesses to raise a limited amount of seed and growth capital from their social networks using SEC-registered websites.  Their framework was the basis for the four Crowdfunding bills introduced in Congress and endorsed by the President.  Their first bill passed the US House in November, 2011, 407-17 and the US Senate on March 22, 2012 as part of the JOBS Act with a vote 73-26. The path from idea to law in 460 days can be found at: www.startupexemption.com & www.legalizecrowdfunding.org.

Since the President signed the bill into law, they have started Crowdfund Capital Advisors, a strategy and technology consulting firm for investors, entrepreneurs, governments and NGO’s.  They can be found speaking globally about the shift crowdfund investing is going to make, how it will spur entrepreneurship & innovation and create millions of jobs!

 

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Categories: Funding Gap · Petition · Uncategorized · Woodie Neiss · Zak Cassady-Dorion
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Legalize Equity-Based Crowdfunding to Create Jobs

September 3, 2011 · Leave a Comment

Next week President Obama will be talking about a plan to create jobs in America.  Finally a subject both parties should be able to agree upon; jobs! The premise behind his action is correct, however his focus is not.

While we are in favor of improvements that advance our education system and infrastructure to keep us competitive in the world, the real long-term opportunity to pull us out of this recession lies in the hands of our nation’s entrepreneurs and the confidence we as a nation have to help them succeed.

Both the SBA and the Kauffman Foundation for Entrepreneurship will tell you that the bulk of net new jobs (those jobs created less jobs lost) during prior recessions came from small businesses and entrepreneurs.

So logically, helping foster the entrepreneurial engine in the USA will foster innovation, businesses and jobs; undoubtedly in a multiple of what our government can do through public stimulus.

However, the traditional capital that our nation’s entrepreneurs used prior to the financial meltdown has disappeared – I know I tried to raise capital for 2 ideas I have and I’m a seasoned three-time INC500 entrepreneur.

There’s a solution gathering support and it only exists today because of advances in the Internet and Technology.  It is based on Crowdfunding where entrepreneurs pitch their ideas to average Americans and let them decide which ideas they would back with a few dollars in exchange for an equity stake in the company.

This form of investment is illegal in the USA because it breaks 80 year-old Security Laws on public solicitation and accreditation.  However, American’s today are more sophisticated than they were 80 years ago, they have seen the financial crisis firsthand and are more skeptical than ever before freely giving away their hard earned cash.  Go ahead, try and ask a group of 1,000 people for $50 each and see how successful you are.

If we can update the security laws to make equity-based Crowdfunding (aka Crowdfund Investing) legal, then we can put the power in the hands of the American people to decide which of their community entrepreneurs they want to back and those that they do not.  The ones that rise to the top will not only have access to a small amount of critical seed capital that doesn’t exist in the markets, but knowledge, experience and marketing power from their supporters.  Think about it. If you own Apple stock chances are you have an iPhone and rave about it.  Subsequently, if you want to back your friends Korean BBQ Food Truck or Internet Startup, chances are you will not only be a consumer but an advisor and marketing agent for them as well.

Direct ownership will not only increase the chance of success (as social networks have time and again shown the ability of the crowd to rally behind an idea) but first-hand ownership will help entrepreneurs succeed thru shared knowledge and experience.  More small successes will lead to an increase in consumer confidence, which is a direct economic indicator.

We are on the verge of a double dip recession.  No one trusts our government.  Let’s put something on the table that is good for the country that both side should be able to agree upon; a zero-cost framework that provides a limited amount of capital flow to entrepreneurs that has the ability to stimulate innovation and jobs, in a fashion that both mitigates risk and provides for investor protection.

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Categories: Crowd Fund Investing · Petition · Sherwood Neiss · Woodie Neiss
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Crowd Fund Investing Wins Startup Weekend Miami Challenge

June 1, 2011 · Leave a Comment

The Initial Pitch

On May 20th Sherwood Neiss, Chief Advocate for The Startup Exemption decided to test the basis for Crowd Fund Investing by pitching the idea to approximately 150 people at Startup Weekend Miami.

Startup Weekend (funded by the Kauffman Foundation – American’s largest Entrepreneurial Foundation) is a 54-hour event that takes place in 100 cities around the world.  It is designed to provide superior experiential education for technical and non-technical entrepreneurs. The weekend events that have launched over 2,000 businesses, are centered on action, innovation, and education. Beginning with Friday night pitches and continuing through testing, business model development, and basic prototype creation, Startup Weekends culminate in Sunday night demos to a panel of potential investors, experts and local entrepreneurs.  Participants are challenged with building functional startups during the event and are able to collaborate with like-minded individuals outside of their daily networks.

Friday Night Crowd Voting

There were 60 ideas pitched by the attendees and the crowd voted.  Crowd Fund Investing received the 4th highest number of votes.  The Top 15 ideas formed teams and started working on their prototypes for the next 50 hours.   Neiss’ team consisted of students; front and back end web developers, and business people.  They divided the work into functional groups and by Sunday had a Minimum Value Proposition “MVP” to present to the judges.

Neiss’ presentation began by congratulating to all the finalists with a reminder that while great ideas are sparked at this event, no one would go very far without funding.  And that’s where their idea came in.  With only 5 minutes to explain and demonstrate their proof of concept, Neiss was able to win over the 5 industry experts and VC judges.  Winning comes with a variety of prizes that include a month of free social media support and 3 months of free office space at a Miami incubator.

After Winning Startup Weekend Challenge

Maris McEdwards Community Manager for Startup Weekend Corporate had the following to say, “Startup Weekend’s mission is to empower entrepreneurs to create new and innovative solutions to real-world problems.  We encourage teams to incorporate customer validation and feedback at every stage of development.  Personal experience provided Sherwood years to think about and perfect this funding and investment option for entrepreneurs. Their win at Startup Weekend Miami was not simply due to a great solution; a large part of their success can be attributed to a thorough knowledge of the problem they were tackling. Given the positive response from the Startup Weekend Miami judges and attendees, they have clearly defined entrepreneurs’ needs and are building some serious momentum for Crowd Fund Investing.”

With 3rd party validation about the business model, Neiss will be using this as further evidence that the time is ripe for the SEC to update the Security Laws to include an exemption based on the framework in The Startup Exemption.

 

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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Our Congressional Testimony: Reversing the Decline in Capital Formation

May 9, 2011 · Leave a Comment

“Reversing the Decline in Capital Formation”

 

Testimony of

 

Sherwood Neiss

Entrepreneur

Sherwood Speaks, LLC

Miami Beach, Florida

May 10, 2011

Before the

Committee on Oversight and Government Reform

United States House of Representatives

The Honorable Darrell Issa, Chairman

The Honorable Elijah Cummings, Ranking Member

Introduction:

 

Chairman Issa, Ranking Member Cummings and members of the Committee, thank you for holding this hearing today and allowing me to share an entrepreneur’s perspective on improving capital formation through regulatory modernization.  My intention is to explain why outdated securities laws — put in place before the Internet age — need to be modernized and overhauled, and how these reforms can boost our struggling economy.  By revamping the Security and Exchange Commission’s (SEC’s) position on solicitation and accreditation, we can open the doors to small business growth and prosperity.  Allowing for an exemption for Crowd Fund Investing, which includes protections for investors, will spur innovation among your constituents, create jobs, increase consumer spending, and reinvigorate our economy. (more…)

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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O’Reilley’ Radar Blogs About Crowd Fund Investing

May 7, 2011 · Leave a Comment

** From http://radar.oreilly.com/2011/05/crowdfunding-exemption.html **

Improving the landscape for organic startups

A congressional committee will hear a “crowdfunding exemption” proposal next week.

by: Paul Spinrad

Next Tuesday, May 10, entrepreneur Sherwood Neiss will be testifying before U.S. Congressman Darrell Issa and the House Committee on Oversight and Government Reform to advocate a regulatory change that I have been working to support: a small offering exemption, aka “crowdfunding exemption.” It’s a simple change that the SEC has the authority to make, and which I believe would spur grassroots innovation and empowerment the way the NSF’s revision of the internet backbone’s Acceptable Use Policy did back in the early 1990s. (Remember that one?)

The background (which I didn’t know until fairly recently), is that any investment where the return does not depend on the investor’s active, day-to-day involvement is considered a security. And securities, no matter how small, are either regulated by the SEC or state securities departments. There are no de minimis exceptions; shares in a lemonade stand would require registration, which I’m told costs $50,000-$100,000 or more (federal) or $20,000-$50,000 (state), mostly legal fees. For VC-free startups based on people doing things that they care about, these costs are prohibitive. (more…)

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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In the News: Startups seek new form of microfinance

April 28, 2011 · Leave a Comment

The Startup Exemption was highlighted again in the April 28th edition of the Washington Times: http://www.washingtontimes.com/news/2011/apr/26/startups-seek-new-form-of-microfinance/

We will be testifying at a hearing on Capitol Hill in Washington, DC on May 10th!

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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How to Provide Investor Protection in Crowd Fund Investing

April 13, 2011 · 4 Comments

Creating prudent investor safeguards is an important part of enabling a vibrant and effective crowd fund investing ecosystem.  With this in mind, we propose a series of steps to increase transparency and accountability while limiting the opportunity for fraud and abuse.

How to Provide Investor Protection in Crowd Fund Investing

 

Creating prudent investor safeguards is an important part of enabling a vibrant and effective crowd fund investing ecosystem.  With this in mind, we propose a series of steps to increase transparency and accountability while limiting the opportunity for fraud and abuse.

 

Investor Risk Proposed Rules to Mitigate Investor Risk
How do you prevent large scale fraud? Limit the maximum amount any one entrepreneur/company can raise via crowd fund investing platforms to an aggregate of $1 million
How do you keep large corporations from using this as a loophole for cheaper financing? Limit the types of companies that can utilize the platform to those that are less than 50 employees (and not a majority owned or wholly owned subsidiary of another entity) with less than $5 million in revenue in the previous calendar year
How do you prevent someone from swindling all of Grandma’s retirement? Limit the amount that anyone can invest to either $10,000 or 10% of their prior year’s Adjusted Gross Income (whichever is lower)
How do you prevent limited disclosure requirements from increasing risk? Have the crowd vet the entrepreneur.  Create a standards based set of data that each entrepreneur must complete in order to attempt to seek funding.  Then enable a communication channel for investors and entrepreneurs to communicate about their questions, ideas and solutions.  Investors only invest in entrepreneurs that have complete information and a product or service that the investor believes in.  Connecting this service to social media groups whereby the entrepreneur and investors are part of the same group, the investors can ask questions of the entrepreneur and the entrepreneur can solicit the investors for help, experience, contacts, etc.  Investors can rate the entrepreneur following their investment and entrepreneurs can rate investors.
How do you protect against professional scam artists? Just like when financing a major purchase or renting an apartment, Crowd Fund Investing entrepreneurs must agree to credit checks that match their name, social security number and receive a credit score that the crowd can view.  Make the initial money loans that the entrepreneur is personally responsible for.  If he/she defaults it appears on their credit report.
How do you prevent someone from attempting to raise funds without proper planning? Crowd Fund Investing must be an all or nothing platform.  If the entrepreneur doesn’t raise all the requested funds within the specified timeframe, the funding round closes and the investors keep their money.  By limiting the amount of money individuals can contribute, an entrepreneur has to be careful about how much money he is asking for (if he asks for too much and doesn’t reach his funding target, he doesn’t get funded).
What about nondisclosure/lack of transparency? Make the entrepreneurs fill out standards based information about themselves and how they will use the capital.  Have them attach links to their “social proof” from various online communities (LinkedIn, eBay, Amazon, Facebook, etc) profiles that show how the “crowd” views them.  Most of these investments will be made to individuals that are already known to the investors via social media platforms.  Investors will be provided with standards based agreements and this information will be stored within the community, and a data set of relevant investor and entrepreneur data will be transferred to the SEC on a quarterly basis. Examples of this dataset might include:  company name, entrepreneur name, funding rounds attempted, funding rounds successful, number of investors, total investment raised, investor names, etc.
How do you prevent people from “underwriting” & “reselling” the securities? Restrict the shares and mandate that shares must be held a minimum of 1 year by the acquirer.  Let people know that they are buying restricted shares and there is no secondary market to them.  Make sure they understand that unless the company is sold, merges or goes public they will not see a return. (Shares can be transferred to family)

 

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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2 Days in a Row – Wall Street Journal Covers us Again

April 9, 2011 · Leave a Comment

Small Internet Sales of Stock Get Review

Without directly mentioning our name, everything that we have been working on in Washington seems to be coming up in the news!

Today (April 9, 2011), a day after it was the cover story in the Wall Street Journal, we again make the headlines.  Check out the story, Small Internet Sales of Stock Get Review (http://on.wsj.com/ft24am)

Together we can make Crowd Fund Investing Legal!  Spread the word!  Sign the petition!

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The Sweet Smell of Progress

April 9, 2011 · 3 Comments

Cover Story WSJ - April 8, 2011

It has been just over 1 month since we launched this initiative and today we take heart in the fact that the SEC is listening to our concerns.  Without directly mentioning our names, Startup Exemption was part of today’s (April 8, 2011) Wall Street Journal cover story: U.S. Eyes New Stock Rules – Regulators Move Toward Relaxing Limits on Shareholders in Private Companies (http://on.wsj.com/eBJC52 – subscription required)

On March 22nd a Congressman we have been working with sent a letter to the SEC asking them to explain if there is a correlation between the decrease in capital formation in the U.S. since 1996 and antiquated U.S. Regulations.  In that letter we contributed six questions that asked the SEC to respond to our crowd fund investing solution that could immediately get capital flowing to entrepreneurs but is hindered by regulation.

In particular we asked: (more…)

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Whoopi and Neiss in the WSJ

March 23, 2011 · Leave a Comment

Today the Wall Street Journal picked up the story of the startup exemption.  As more people hear about this exemption being pushed forward the more people that realize it is a tangible solution to getting money flowing in our economy.

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