Startup Exemption

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Peer-to-Peer Community Investment Presented as a Solution to the Capital Crunch for Startups & Small Businesses

May 9, 2011 · Leave a Comment

Washington, DC –On May 10th the Government Oversight and Reform committee is meeting to discuss Capital Formation and Investor Protection.  Namely, they are meeting to review aspects of our country’s securities laws that inhibit capital formation.  One of the most important aspects of the meeting will focus on access to capital for startups and community-based businesses.

Sherwood Neiss a Small Business and Entrepreneurship Council member in conjunction with SBEC’s President, Karen Kerrigan, crafted a framework called Crowd Fund Investing (CFI) that was presented to the SEC for review and is building support among Americans.

Even though Crowd Fund Investing (CFI) is taking place in the U.K., Holland, India & China, in the U.S. it is not permitted because it breaks the Security & Exchanges’ accreditation and solicitation rules. According to Neiss, “These rules were written at a time when only 4% of Americans invested in the markets.  Today we have technology that has leveled the playing field and increased investor sophistication making these rules outdated.” (more…)

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Categories: Crowd Fund Investing · Funding Gap · Investment · Jason Best · 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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Access to Capital #1 Problem for Startups

April 22, 2011 · Leave a Comment

 

Techcrunch reported today that 83% of startups are planning on hiring in the next 12 months to keep up with expected growth. This is great news for these industries and for job seekers alike.  However, once again we see the same problem emerge.  According to the survey by Silicon Valley Bank that the article was based on, the number one thing holding these startups and small businesses from growth is access to capital. The traditional means of financing startups (e.g. bank loans & credit cards) are not working.  Trying to fix that problem will take more than bureaucracy and a campaign.  The solution is simple and is right in front of our eyes.  Regulatory changes need to take place to get capital flowing from the people that have it to the people who can use it to build their businesses, employ more people, and get our economy back on track. Angels and VCs do a great job but there simply aren’t enough of them to inject capital in all the companies that need it. Creating a new class of micro-angles is one way to get this capital flowing and the economy growing.  Believe it or not, they are already doing this on websites like Kickstarter and Indiegogo, we should continue to encourage this behavior by allowing the average American to invest in entrepreneurs rather than just donate their money.

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Categories: Crowd Fund Investing · Investment · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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In the News: Crowdfunding Promoted to Help Small Businesses

April 18, 2011 · 1 Comment

An April 17, 2011 article in the Fiscal Times (Crowdfunding Promoted to Help Small Businesses) did a good job explaining the current problem facing startups and small businesses when they are trying to raise money.  As this article points out, everyone in government is hoping that small businesses will lead our country out of this recession.  However, in order to grow and expand, small businesses need capital.  According to the Federal Deposit Insurance Corporation (FDIC) outstanding lending to small businesses continues to fall steadily.  It peaked  at $336 trillion in 2008 and has steadily fallen to $291 trillion at the end of last year.

This fall in lending to small businesses also coincides with the fall in job creation by newly formed businesses over the last 2 years.  Government officials have proposed providing $1.5 billion in funding for small businesses.  This is good in the sense that it gets more money into the hands of businesses that will use it to improve the economy.  However, this government spending only worsens our huge deficit that we are currently dealing with.  If the government could pass this startup exemption it would get money into the hands of the people who can create jobs while not having the government spend anymore taxpayer money.

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Categories: Crowd Fund Investing · Funding Gap · Investment · 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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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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Categories: Funding Gap · Investment · Petition · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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The US Takes Steps to Improve the Economy by Focusing on Startups

March 23, 2011 · 2 Comments

Senators John Kerry, D-Mass., and Richard Lugar, R-Ind. are leading the way to ease immigration requirements for foreign entrepreneurs with their “Startup Visa” bill. There are many different requirements to qualify for the Startup Visa, but most importantly the foreign entrepreneur must directly create jobs for Americans.  Essentially, what this is saying is that foreigner entrepreneurs will be allowed to come and work in the US if they have a direct and major impact on the US economy.

These visas will not effect the overall immigration quotas in the US, they will simply be using unused visas. Entrepreneurs, small businesses and startups are the way we are going to grow our economy to get out of this recession.  The UK has already realized this and have passed a Startup Visa of their own recently. It is important to note that the crowd funding exemption we are talking about here at Startup Exemption is already allowed in the UK.  If the US does not move fast we are going to get left behind while entrepreneurs, money, and jobs flow overseas to the UK and other more forward thinking countries.

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Hong Kong Invests in US companies where Americans can’t

March 9, 2011 · 2 Comments

American companies are having a very difficult time raising the money they need to grow their businesses. It’s not because the money is not there but rather because it is not flowing from the people who have it to the people that can use it to grow our economy. One of the things that has always made America great is our ability to innovate. Unfortunately, innovation is currently being stifled by overly strict SEC regulations. These regulations however are not stoping other countries from innovating and riding off the coat tails of US entrepreneurs.

GrowVC, a Chinese company, has now launched with its intention to fill this funding void by collecting money from investors (including Americans).  They already have successful cases of US Startups raising capital from them.  What does this mean? First, by being offshore they just worked around the entire SEC process.  And second, the future success stories of the USA as well as their technology, Intellectual Property and future profits will be owned/shipped overseas.  The one major loophole in these regulations is that if you are not an American or an American company, you are not regulated by these security laws. Clearly, these outcomes were not the intention of the Securities law however it is exactly what is happening. I personally don’t feel that selling our nation’s entrepreneurs to foreign countries is in anyone’s best interest.

By making common sense amendments to the 1933 and 1934 Securities laws we can stop this mass export of US entrepreneurs and get back on track to recovery and innovation.

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Categories: Investment · Uncategorized · Zak Cassady-Dorion
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US companies look to China for investment

March 1, 2011 · 2 Comments

Small businesses and startups in the United States are having an increasingly difficult time raising the money they need to expand their businesses.  During the recent economic downturn funding has become increasingly difficult to find. Banks have stopped lending, credit card companies are tightening up their lending requirements, and there is substantially less Venture Capital and Private Equity available.

The money is out there but there but it is simply not flowing from the people who have it to the people that need it.  Making this problem worse is the stringent investment regulations that the SEC imposes on small businesses. Entrepreneurs and small businesses are starting to look outside the US for the capital they need to expand their businesses.

A recent article in the WSJ highlighted just such a situation.  A small manufacturing business in Riverside California, has been desperately searching for capital so it can hire more workers and expand its operations.  “During the downturn, we went on the hunt for capital, but after 44 presentations we came up short,” says Mr. Williams, 56 years old. (more…)

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Categories: Funding Gap · Uncategorized · Zak Cassady-Dorion
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