Great progress has been made to legalize Crowdfunding in the US with 3 bills before Congress. We have seen Crowdfunding gain traction in the US with 2 donation-based projects raising over $1.5M each on Kickstarter. In addition, the UK is accelerating it’s push to encourage Crowdfunded Investments by offering a new tax credit. Now is the time to push Crowdfund Investing legislation over the finish line here.
As we move the Crowdfund Investing legislation forward it is important to keep the following in mind. 1) It has to be written so a market can successfully be formed, within the confines of the regulations. (i.e., Trying to crowdfund $250,000 in increments under $1,000 is going to be nearly impossible if entrepreneurs are forced to raise 100% of their funding request in order to be funded). 2) It has to be easy to understand from an entrepreneur’s, an investor’s and intermediaries point of view. 3) It needs to be fair, without needless bureaucracy and costs where the advances in the Internet and technology can offer enhanced security and streamlined process and 4) It needs to be done in a way that our Nation’s Job Creators can start capitalizing on its effectiveness NOW… without getting bogged down by lengthy SEC rule making.
In order to help advance this legislation, the Startup Exemption,which represents over 5,000 active crowdfunding followers (including entrepreneurs, investors, intermediaries, security lawyers, authors, and security experts) sought a consensus on the 3 bills. The goal was to take the best of them and consolidate it into one that would provide access to capital without undue bureaucracy. It is important to keep in mind that the technology built into today’s Internet can allow both the transfer of information between entrepreneurs and potential investors as well as intermediaries and regulatory agencies without lengthy and costly bureaucracy — all in a transparent and accountable fashion.
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!
Dear Crowdfund Investing (CFI) Followers,
The rally was a HUGE success. How do we know? The regulators have launched a full-frontal assault against us in the Senate and are trying to kill Crowdfund Investing for good in the next 6 weeks. Here’s what you need to know in 3 sections: 1) What you can do now, 2) What’s happening next week (SENATE HEARING Dec 1st!) and 3) Highlights from last week:
WHAT YOU CAN DO NOW:
o 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.
o We need your financial support to help offset the mounting costs (travel, marketing, additional rallying, etc.) of getting the message to the Senate.
o We need you to recruit other supporters! Please send this to your friends, family and community and say, “I NEED YOU TO HELP ME STOP THE REGULATORS THAT REFUSE TO JOIN THE INTERNET AGE. WE HAVE A SOLUTION TO THE JOBS CRISIS BUT THE REGULATORS ARE STAGING A TURF WAR THAT DRAMATICALLY HINDERS ENTREPRENEURSHIP. ONLY THE VOICE OF THE PEOPLE CAN CHANGE THE LAW TO MAKE IT EASIER FOR ENTREPRENEURS TO ACCESS CAPITAL, INNOVATE, AND HIRE AMERICANS!”
WHAT’S HAPPENING NEXT WEEK:
o The Senate Banking Committee is holding a hearing on December 1st for which they still haven’t guaranteed us a seat at the table (crazy how you can bring this stuff to Washington and not be included in the hearing on the subject).
o We plan on hosting a luncheon for Senate Staffers the beginning of December to walk them through how CFI works and answer any questions/fears they might have about letting entrepreneurs raise capital from their social networks.
o We MUST push for a vote before the end of the year! If we do not get a vote by the end of 2011, it is unlikely the laws will change because next year is an election year.
- NPR, The Wall Street Journal and Fast Company covered the event. Much thanks to everyone who came to the rally, everyone who sponsored the rally and Representative McHenry & Maloney for speaking at the rally.
- We confronted our most vocal opponents at the SEC Small Business Capital Forum.
o Heath Abshure (Arkansas Securities Dept.) told us while they are in favor of crowdfunding (funny how this isn’t what he says in the media) their number one concern is ‘investor protection’ and market confidence.
o We responded with 2 questions that fell on blank stares:
1) If investor protection is so important, why haven’t they brought anyone to justice for the 2008 financial meltdown?
2) If fraud leads to the collapse of the markets due to lost confidence, why haven’t the financial markets ceased to exist with the 2008 financial meltdown?
o NOTE: If the broader markets are where the fraud is being perpetrated why isn’t the SEC focusing their energies on combating and stopping fraud there while letting the crowd take over in their community?
- We met with 9 Senate offices.
o Republicans are in favor of the legislation from a Jobs perspective and cutting the bureaucratic tape which inhibits access to capital for entrepreneurs.
o Democrats (including the President) are in favor of Jobs and democratizing the financial market so that not only the rich are allowed to participate.
o Both sides understand that the Internet has fundamentally changed the way we do business and hence it only makes sense that it should change the way we also do financing in the future.
- HOWEVER, State Regulators and special interests are throwing a full-frontal assault to stop our progress and KILL CROWDFUND INVESTING.
o They are using nonspecific cases of fraud to halt our progress because fraud, like sex and war, sells newspapers.
o They are doing this because they think we are encroaching on their territory and money.
o They are detracting from the conversation (JOBS via access to capital) without taking time to understand the advances in technology, the Internet, and how social media has led to transparency and accountability.
o They want you to think there will be millions of cases of fraud when the bigger issue is failure. The hedge against failure is portfolio diversification.
o Less than 40% of CFI ideas will ever be funded, and those that are funded, will be by people who know the entrepreneur (true investor protection at work).
o They want you to focus on fraud because they don’t understand that Crowdfund Investing is based on many-to-many communication between an entrepreneur and many investors in a open dialog as opposed to one-to-one fraud.
o They want to distract you from the benefits of this bill because they know that January 1st starts an election year and this bill will die if it isn’t passed into law before then and focus shifts to election politics.
Entrepreneurs, ideas, capital, businesses and jobs. You can have many entrepreneurs with thousands of ideas but you’ll NEVER HAVE ONE BUSINESS NOR JOB WITHOUT CAPITAL. We need to pick up where Wall Street and the Banks have left off. The Regulators are standing in the way simply because they don’t stand to earn a commission. Join the cause. Spread the word and let’s get Joe the Entrepreneur back to Innovating so that we can create JOBS and get us out of this recession!
Sherwood, Jason & Zak
***If you cannot read the following clearly, click to go directly to mailchimp post ****
Sherwood Neiss, Chief Advocate of the Startup Exemption testifies September 15, 2001 in front of a Congressional Committee on the ways in which we can get capital flowing to entrepreneurs, spur innovation & create over 500,000 companies and 1.5M net new jobs over the next 5 years.
1) Sherwood Neiss’ testimony: http://1.usa.gov/oHrFy5
2) Video of Crowdfunding hearing: http://bit.ly/raknZY
3) List of panelists including their respective testimonies: http://1.usa.gov/oVD9OX
On September 14, 2011, Dylan Ratigan interviewed Startup Exemption Chief Advocate, Sherwood Neiss. The interview took place in advance of the 9:30am hearing on September 15th on Capitol Hill regarding Crowdfund Investing.
Sherwood spoke to Dylan about the importance of young businesses asjob creators, the need for capital to help fund these companies and how the Startup Exemption is a framework under which the SEC can allow equity-based crowdfunding to take place.
Sherwood discussed how under the Startup Exemption framework entrepreneurs that pass the muster of the crowd can raise equity capital. How the model accounts for investor protection and how by working together not only can we get capital flowing but we can help those entrepreneurs with the best ideas succeed.
The Startup Exemption was just endorsed in President Obama’s American Jobs Act and it has been promoted by Republican leaders of Congress as a way to promote business and capital formation for our nation’s net job creators.
The framework for the Startup Exemption has the ability to create 500,000 new companies over the next 5 years employing over 1.5M Americans.
To watch the interview click here.
Last night President Obama delivered a speech to the nation in front of both houses of Congress. During his speech he laid out his plan to create jobs and jumpstart our economy.
He had the following to say: “Everyone here knows that small businesses are where most new jobs begin. And while corporate profits have come roaring back smaller companies haven’t.” “Ultimately our recovery will be driven not by Washington but our businesses and our workers. We can help.” “I agree there are some rules and regulations that do put an unnecessary burden on businesses at a time when they can least afford it.” So “we are … planning to cut away the red tape that prevents too many rapidly growing startup companies from raising capital and going public.” “We should have no more regulation than the health, safety and security of the American people required. And every rule should meet that commonsense test.” “We should be in a race to the top and I believe we can win that race.” “And it has been the drive and initiative of our workers and entrepreneurs that has made this economy the engine and envy of the world.” “Members of congress it is time for us to meet our responsibilities”
Today his Jobs Act was released with the following paragraph pursuant to his speech.
Reducing Regulatory Burdens on Small Business Capital Formation: As part of the President’s Startup America initiative, the Administration will pursue efforts to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection. This includes working with the SEC to explore ways to address the costs that small and new firms face in complying with Sarbanes-Oxley disclosure and auditing requirements. The administration also supports establishing a “crowdfunding” exemption from SEC registration requirements for firms raising less than $1 million (with individual investments limited to $10,000 or 10% of investors’ annual income) …. This will make it easier for entrepreneurs to raise capital and create jobs.
The bolded line comes directly from what the Startup Exemption has been advocating within its networks in Washington, DC! Sherwood Neiss, the entrepreneur and Chief Advocate for the Startup Exemption said, “It is AMAZING to see Washington come together over this issue. Crowdfund Investing (CFI) is an AMERICAN opportunity. It has the ability to get capital flowing to our nation’s struggling entrepreneurs so that they can grow and hire. Our zero-cost government initiative has the ability to create over 500,000 companies and 1.5M net new jobs over the next 5 years.”
President Obama is pushing congress to enact the Jobs Act. If passed, the crowdfunding changes advocated by the Startup Exemption will be the first changes to the security laws in the past 20 years.
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.
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.
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.
“Reversing the Decline in Capital Formation”
Sherwood Speaks, LLC
Miami Beach, Florida
May 10, 2011
Committee on Oversight and Government Reform
United States House of Representatives
The Honorable Darrell Issa, Chairman
The Honorable Elijah Cummings, Ranking Member
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…)