Startup Exemption

Entries tagged as ‘crowd funding’

Jason Best of the Startup Exemption on Nightly Business Report about Crowdfund Investing

November 8, 2011 · Leave a Comment

Video here. Forward to 9 minute and 25 second part to begin segment.

Crowd Funding for Start Ups
Tuesday, November 08, 2011

SUSIE GHARIB: Another source of funding for small businesses is crowd funding. It’s a way for startups to use the Internet to raise relatively small contributions from a large number of people. The only problem is that securities’ regulations severely limit the ability to crowd fund. But as Darren Gersh reports, Congress is on the way to changing that.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Find a friend with extra bars of gold in the basement — that’s the traditional way entrepreneurs fund a business. But for those who don’t have a rich uncle, there is what’s called crowd funding. Crowd funding is a strategy to raise small sums of money from many people, even people all over the country.

JASON BEST, CO-FOUNDER, STARTUPEXEMPTION.COM: It really democratizes the ability to raise funds for your business.

GERSH: Jason Best is lobbying Congress to pass legislation making it legal to crowd fund. The bill he backs allows entrepreneurs to raise up to $1 million, $2 million if companies provide audited financial statements. Entrepreneurs would not have to go through the expensive process of registering their shares with the Securities and Exchange Commission or state regulators. In a given year, investors can pitch in a total of up to $10,000 or 10 percent of adjusted gross income, whichever is smaller.

BEST: This is an opportunity for entrepreneurs and small business people, whether they are in Arnold, Nebraska, Detroit, Michigan or Miami, Florida, to be able to raise capital for their ideas and to build their businesses.

GERSH: To combat the kind of fraud that brought down Enron, Congress has tightened accounting rules, making it harder for companies to go public. Entrepreneurs like Idealab’s Bill Gross say crowd funding will provide cash before venture capital and the chance at an initial public offering comes along.

BILL GROSS, CEO IDEALAB: At this first stage, when a company is just getting going, this could be a big boost to getting a company to go from, say 10 people or five people to 50 people and to first revenues or even first profits. And I think that’s going to be really helpful to the economy.

GERSH: But state securities regulators like Heath Abshure say crowd funding will lead to crowd fraud.

HEATH ABSHURE, ARKANSAS SECURITIES COMMISSIONER: The fact is, it is a wide open gate that a lot of folks can run through and some of those folks, we don’t want them running through the gate.

GERSH: But supporters say the Internet will help police the crowd.

BEST: Anything that happens is posted to the web almost in real time. Anything that goes wrong or right is posted to the web in almost real time. And so, the crowd will be a great enforcement tool, along with regulators at the state and Federal level.

GERSH: The idea of crowd funding is attracting an unusual crowd in Washington. The president, House Republicans and House Democrats are all on board. Now, the idea just needs to find a backer in the Senate. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.

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Our IndieGoGo Campaign – Hey U.S. Senate, We’re Coming to Talk to YOU!

November 4, 2011 · Leave a Comment

BREAKING NEWS …. Our Bill, HR 2930 passes with almost unanimous, rare bipartisan support!  This is a HUGE achievement for every struggling entrepreneur and innovator out there that is looking for capital!

BUT we aren’t done yet!  “If and when” the Senate picks this up IS YET TO BE DECIDED?!?!

WE CAN’T WAIT!  

So help is fund and hold our RALLY IN WASHINGTON,DC on November 17th to keep the positive momentum going!  This coincides perfectly with Global Entrepreneurship Week and a one-day meeting the SEC is having that day on Small Business Capital Formation.  OUR FACES NEED TO BE SEEN AND OUR VOICES HEARD!

We’ve launched a campaign on Indiegogo to help fund the rally and WE NEED YOUR support!  So please contribute!  And if you are in or near Washington on November 17th, Please COME TO THE RALLY!

Click the image below or here to go to the Indiegogo campaign:

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Categories: Crowd Fund Investing · Sherwood Neiss · Woodie Neiss
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US House Votes in Favor of Crowdfund Investing!

November 4, 2011 · 1 Comment

One word …. AMAZING!  The debate was amazing and the vote was AWESOME – 407 to 17!  I can’t believe in only 9 short months we went from “hey we’ve got a framework and a solution” to a bill that just passed the US House of Representatives!

We owe a HUGE debt of gratitude to the AMAZING group of people who made this a reality thus far:

1) Karen Kerrigan at the Small Business & Entrepreneurship Council, for listening to me and putting up with my nonsense!

2) Whoopi Goldberg and Tom Leonardis who first publicly spoke out in favor of our idea and got slammed for it. … Guess 96% of Congress agrees with you/us! 😉

3) Angus Loten at the Wall Street Journal for deciding the subject was newsworthy enough in our early days to write about it in the WSJ?!?!

4) Kevin Lawton who wrote The Crowdfunding Revolution and provided major contributions to my testimonies and the Startup Exemption framework.

5) Paul  Spinrad, Jenny Kassan & Danae Ringelmann (of IndieGoGo) who wrote the first petition to the SEC to make equity-based crowdfunding legal.  Paul also provided incredible input in the testimonies and framework.

6) Chairman Darrell Issa who so graciously took 20 minutes after the May hearing to talk one-on-one with me about crowdfunding as a solution.   Peter Haller & Hudson Hollister for pushing the idea forward.

7) Doug Rand from the White House who reached out to us and included our proposal as part of the President’s Jobs Act.  That’s bipartisan support!

8) And the AMAZING Chairman Patrick McHenry for calling the Crowdfunding hearing, writing the legislation, entering it into record, deliberating over TWO committee hearings, bringing together ideas from both sides, passionately debating it on the floor today and pulling off a 96% bipartisan win in the US House of Representatives!!!  Also a shout out to Dana Mauriello for her awesome testimony at the September Crowdfunding hearing!

And most importantly to my cohorts JASON BEST and ZAK CASSADY-DORION without whom NONE OF THIS WOULD HAVE happened!  As Jason said, “we were naive enough to think we could challenge the status quo and make a difference.  Look at what happened?”

WE AREN’T DONE! … Off to the SENATE … Stay tuned because we have our own big news on this front coming out in the next 24 hours!!

THANK YOU EVERYONE!

Sherwood

 

 

 

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House approves bipartisan SEC bills; GOP, Dems still bicker – The Hill’s Floor Action

November 3, 2011 · Leave a Comment

House approves bipartisan SEC bills; GOP, Dems still bicker – The Hill’s Floor Action.

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Another Step Closer to Crowdfund Investing (CFI) Reality

October 27, 2011 · Leave a Comment

Yesterday, October 27, 20011, our bill HR 2930 was amended in the Full Financial Services Committee. It now pretty much matches everything we have been advocating for in Washington! From here it goes to the floor of the US House of Representatives.

Sherwood Neiss, chief advocate of the Startup Exemption said, “What an amazing milestone. Several democrats also signed on showing further bipartisan support for entrepreneurship, innovation and JOBS!”

The Startup Exemption formulated only 10 months ago with a goal to update the security laws to use the tenants of crowdfunding to get capital flowing to entrepreneurs. In that short period of time, they acquired thousands of follows on their petition, blog and twitter feed. They were part of 2 congressional hearing in Washington, DC. They were consulted and included in President Obama’s American Jobs Act and were the backbone for HR 2930, what they like to call the Crowdfund Investing Act.

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Crowdfund Investing ITSELF Is an Investor Risk Mitigation Strategy

October 26, 2011 · 1 Comment

There has been a lot of progress to date in our effort to make Crowdfund Investing (CFI) legal. The proponents, including the President who included our framework in the American Jobs Act as well as leading Republicans on the Hill who introduced HR 2930, otherwise known as the Crowdfund Investing Act, get it.

  • Capital is hard to come by.
  • Wall St isn’t focused on entrepreneurs.
  • The banks aren’t lending and private money is only for a select few.
  • Since donation-based crowdfunding is working, let’s apply those tenants to equity-based crowdfunding and get capital flowing to entrepreneurs; also known as our nation’s net job creators.

The model we propose is itself, a self-vetting mechanism that utilizes the Internet, and the wisdom of crowds to help mitigate risk for investors. CFI isn’t free money. In a time of recession folks are even more cautious about their money and no one is going to look at this as a way to make a quick buck, entrepreneur, investor or crook. The crowd is more skeptical than ever before. And only those entrepreneurs that are transparent and accountable will be successful in raising capital, forming businesses and hiring Americans.

However the naysayers are surfacing.

  • A number of them can be dismissed because they do not want another competitor in the capital markets. (Our response to them is, step up to the plate and fund our nation’s entrepreneurs at the same degree or better than prior to the financial meltdown).
  • Another group are just naysayers with no solution, just vague fear mongering with little data.
  • And the final group is the conspiracy theorists that believe (with no hard data) it will open the floodgates to fraud. We adamantly refute this.

First, naysayers need to understand the framework and rules under which we are proposing CFI to take place. An entrepreneur wishing to raise capital would have to:

  • Submit to a background/fraud check (name, address, social security and date of birth) to ensure he hasn’t committed fraud.
  • He would have to pitch his idea on SEC-registered Crowdfund Investing platforms.
  • These platforms will be required to perform the fraud checks and contain an investor education component.
  • Investor education and terms of service will warn investors to only invest in people they know, products or services they believe in, entrepreneurs whom they can talk to about the idea and only those ideas that have the greatest number of 1st degree connections. eg: You can feel confident backing an entrepreneur with 89% first degree (meaning they know him personally) investors that represent at least 89% of the committed capital. However, you should be skeptical of an entrepreneur that only has 24% first-degree backers and they have only ponied up 10% of the amount needed. All of this is easily tracked and graphically displayed with standard web tools.
  • The platforms will enable open dialog where potential investors can pick apart the idea, the entrepreneur’s experience, the business model and the amount of equity offered. The entrepreneur will have to respond to each of the comments to the satisfaction of the crowd. The crowd will vote on the answers by using the “like” button. A higher number of likes the more confidence investors will have again. If an entrepreneur doesn’t answer the questions to the satisfaction of the crowd he/she won’t be funded, period. Again all of this can be tracked and graphically displayed for potential investors to see.
  • Our proposal is an all or nothing financing window. If a fraudster is trying to bilk people out of $1M and he hits a funding target of $999,999.00 he won’t be funded and no money will be exchanged. Anyone who is trying to raise capital will have to set small milestones and raise smaller amounts of capital, hit their milestones and go back for more with proof that they’ve achieved what they said they were going to do.
  • Of course, they will have to be transparent and communicate with their investors or again they won’t have the confidence going forward to raise additional money.
  • Another trigger will be the percent of 1st round investors that come back for a second round. The higher that percent the more confidence. The lower, the less likely they will raise additional funds.

So still think fraud can take place with all these triggers? If so, give us the example and let’s work it thru the model.

ps – Remember, this exemption is not be available to foreign issuers, investment companies, and public companies.

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Washington Times: Crowd-funding could boost entrepreneurship

September 28, 2011 · Leave a Comment

Updated regulations would allow investors to find innovators on the Internet 

From the Washington Times.  Click here for article:
Illustration: Crowd funding by Alexander Hunter for The Washington Times

A solution is gaining steam to help spur small-business growth and the anemic state of job creation. It requires updating Securities and Exchange Commission (SEC) regulations regarding general solicitation and accreditation so average Americans can choose to invest in small businesses.

Crowd-fund investing is a common-sense solution that has attracted the interest and support of President Obama. Republican Rep. Patrick T. McHenry of North Carolina recently introduced H.R. 2930, the Entrepreneur Access to Capital Act, legislation that aligns with the general framework supported by the president. So here we have a common-ground idea over which both sides of the political aisle agree on many key details. It’s time to move forward quickly so crowd-fund investing can help capital-starved businesses and our gasping economy.

Nascent entrepreneurs and growth-oriented firms continue to have a difficult time finding capital to expand and innovate. Of course, our nation has counted on the job-creating prowess of small businesses to lead us out of difficult economic periods. This time around, unfortunately, the uncertainties have become too great. New startups, which have fueled job creation following previous recessions, have not taken root at the same pace as in the past.

Weak demand, tight capital and credit markets, and policy uncertainties continue to erode confidence and entrepreneurial activity. The crowd-funding solution addresses a key concern that would help entrepreneurs identify new sources of capital, thus providing optimism and much-needed resources for investment and growth.

America, the land of opportunity, is being out-innovated. Other places, such as the United Kingdom and France, with similar capital constraints have already made crowd-fund investing legal. The crowd is vetting the ideas of entrepreneurs and backing only those they deem worthy. Fraud – a key issue of concern for regulators and legislators alike – hasn’t reared its wicked head, thanks to hundreds if not thousands of prospective investors picking apart the idea, the business model or the execution plan of the entrepreneur for bringing his goods or services to market. These discussions and vetting occur in open dialogues on Internet platforms.

While not allowable under existing U.S. securities laws, crowd-fund investing can provide a way for micro-angel investors, both accredited and unaccredited, to pool their individual small investments to support entrepreneurs and enterprises that have merit. If changes are made in U.S. laws, the funding rounds can occur via SEC-regulated websites. These websites will provide transparency, open communication, accountability and reporting among the investors, entrepreneurs and theSEC. This is an expanded version of “friends and family” fundraising, which uses an individual’s or business owner’s social networks to create jobs and grow the economy.

Mr. McHenry’s bill would provide a crowd-funding exemption to SECregistration requirements for firms raising up to $5 million, with individual investments limited to $10,000 or 10 percent of an investor’s income. The exemption would erase limits on the number of investors until the first $5 million of capital is raised. This exemption provides smaller investors an opportunity to support startups, which currently is not an option under SEC regulation.

In my recent testimony before the House Committee on Oversight and Government Reform subcommittee that Mr. McHenry chairs, I noted some other key provisions that may be considered to address fraud and accountability concerns. For example, there could be a requirement that investors take a brief online course about crowd-fund investing and review a series of disclosures that demonstrate they are familiar with the basics of investing and understand the risks.

In addition, general solicitation should be allowed only on registered Internet platforms where entrepreneurs and investors can meet and the crowd can vet in an open and transparent manner. Standards-based reporting would be submitted to the SEC by small businesses using the platform. A project would not get funded until it met its minimum target. It would be an all-or-nothing proposition. Only if the target was reached would money be withdrawn from donor accounts.

The proposed reforms to existing law are modest and follow the spirit of the Securities Act of 1933 and the Exchange Act of 1934. The modifications include anti-fraud safeguards and create a peer-to-peer system in which communities become the de facto seed and early-stage funders to entrepreneurs. There is wisdom in crowds. They are massively diverse and have a better collective intelligence. Every investor contributes to the crowd’s knowledge. An interconnected, knowledgeable crowd brings more experience. Together they will fund ideas that help small businesses – and the investors themselves – succeed.

A crowd-funding model, of sorts, has been taking place successfully online for the past five years. The current model allows a group of people to pool their money and “donate” it to fund an idea. More than $300 million has been donated to more than 500,000 artists, musicians and developing world entrepreneurs. Imagine what could be accomplished if investment dollars were devoted to promising U.S. entrepreneurs whose ideas only need the capital to launch into the marketplace?

Now it’s time to take action. Americans need to be allowed to do what they do best: come together as one to out-innovate, outproduce and outwork the rest of the world. The only question: How long will it take for our government to let us?

Sherwood Neiss, an entrepreneur, is founder of Startup Exemption and a member of the Small Business and Entrepreneurship Council.


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Dylan Ratigan Interviews Startup Exemption Chief Advocate, Sherwood Neiss

September 15, 2011 · 2 Comments

September 14, 2011 Interview

Sherwood Neiss being Interviewed by Dylan Ratigan

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.

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Obama Evokes the Startup Exemption in American Jobs Act!

September 9, 2011 · Leave a Comment

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.

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Sherwood Neiss Speaks About the Startup Exemption

September 7, 2011 · Leave a Comment

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