Crowdfunding Industry Establishes Standards to Help Protect Entrepreneurs and Investors and Spur JOBS Act
Crowdsourcing.org and Crowdfunding Industry Experts Launch Crowdfunding Accreditation for Platform Standards (CAPS) Program
LOS ANGELES, CA, Mar 21, 2012 (MARKETWIRE via COMTEX) — Today, the JOBS Act took one step closer to becoming law. On the heels of the JOBS Act passing the Senate cloture vote by a wide margin (with two amendments pending) — which will allow companies to offer securities to non-accredited investors via crowdfunding platforms — the launch of the Crowdfunding Accreditation for Platform Standards (CAPS) program is the first significant milestone adopted by the industry. The CAPS program establishes standards for crowdfunding operations and aims to protect investors from fraud. As the industry begins the process of creating a self-regulatory framework, CAPS — which will govern the accreditation of crowdfunding platforms — will be a key pillar within this framework.
More than 400 crowdfunding platforms were operating in January 2012. As industry leaders recognized that investors would need help and more information when funding ventures through these platforms, the CAPS program was created to ensure a secure and reliable experience. Now CAPS-accredited platforms will display the CAPS badge on their sites to demonstrate they have been accredited based on qualification criteria in four areas:
- Operational transparency
- Security of information and payments
- Platform functionality
- Operational procedures
“Now that crowdfunding legislation is gaining momentum in Washington, the future of the industry will be determined by its ability to create a consistent and safe environment,” said founder of Crowdsourcing.org Carl Esposti. “As the intermediary between investors and entrepreneurs, crowdfunding platforms owe fundraisers and investors a high degree of transparency and the ability to facilitate secure transactions to reduce the risk of fraud. If the industry can deliver in these areas, the potential is unlimited, and crowdfunding can effectively become the backbone of both SME financing and philanthropic donations.”
The CAPS Council, the governing body of CAPS with currently 11 crowdfunding experts, has taken the initiative to establish these accreditation criteria to ensure crowdfunding platforms adequately protect fundraisers and investors. Members of the CAPS Council include:
- Carl Esposti, founder of The Industry Website Crowdsourcing.org
- Sherwood Ness & Jason Best, founding members of the Start-up Exemption, and leading lobbyist and advocate for crowdfunding
- Kevin Lawton, author of Crowdfunding Revolution
Following an initial private invitation-only launch, eight organizations — Crowdcube, Grow VC, Crowdfunder, GreenUnite, HelpersUnite, Symbid, Give A Little and Fundrazr — have been accredited by the CAPS program and another 20 organizations are currently undergoing the process. More than 200 crowdfunding platforms are expected to apply for accreditation in 2012.
“Crowdfunding is the future of seed and growth financing for startups and entrepreneurs,” said Sherwood Ness, founding member of the Startup Exemption. “It uses the web, social media and advances in technology to allow an entrepreneur to raise a limited amount of capital from his friends, family & community under a framework that provides for investor protection. Establishing high platform standards is the clear next step to not only protecting investors but also to ensure continued success and growth of the industry.”
Journalists interested in speaking to a CAPS Council member or learning more about the program can contact Jennifer Moebius at email@example.com.
About STARTUP EXEMPTION:
Startup Exemption is the name 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 three Crowdfunding bills considered by Congress and was endorsed by the President. It passed the US House in November, 2011, 407-17 and the US Senate on March 22, 2012 as part of the JOBS Act 73-26. The path from idea to law in 579 days can be found at: www.startupexemption.com.
Sherwood Neiss Jason Best
(202) 247-7182 (415) 999-2271
Available 7am to 7pm M-F (ET) Available 7am to 7pm M-F (PT)
- Website: www.startupexemption.com
- CrowdFund Investing framework http://bit.ly/mRWXcZ
- twitter: @woodien
Founded in 2010, the industry website Crowdsourcing.org is a neutral organization dedicated solely to crowdsourcing and crowdfunding. As one of the most influential and credible authorities in the crowdsourcing space, Crowdsourcing.org is recognized worldwide for its intellectual capital, crowdsourcing and crowdfunding practice expertise and unbiased thought leadership. Crowdsourcing.org is an initiative by massolution, a unique research and advisory firm specializing in crowdsourcing and crowdfunding solutions for private, public, and social enterprises. More information at www.crowdsourcing.org .
Leave it to the Crowdfunding opposition to turn ‘entrepreneurship, innovation and jobs’ into ‘fear, fraud and apocalypse.’ Now that the JOBS Act is on the verge of passing, the media is running wild with stories that re-regulating the markets (yes Crowdfund Investing (aka equity-based crowdfunding) is re-regulating not deregulating) will lead to mass fraud, hysteria, a loss in investor confidence and a collapse of the general markets. Most importantly there’s a general misperception among the opponents to Crowdfund Investing that access to capital will NOT lead to innovation and jobs. How wrong they are.
Over a year ago, 3 successful entrepreneurs sat down with a goal to craft a framework to allow a limited amount of seed and growth capital to flow into the hands of entrepreneurs using the tenants of crowdfunding. These entrepreneurs had the experience of taking ideas, raising money, growing businesses and hiring over 150 employees. That’s walking the walk. These MBA grads understand what it means to be an entrepreneur, what information investors need to make informed decisions, what the laws regarding raising capital formation are and the benefits of a symbiotic relationship to a functioning, transparent marketplace.
The missing component post the 2008 financial meltdown was the disappearance of capital. Along with the collapse of the financial markets went home equity lines used to launch ideas, credit cards with large credit lines and low interest rates used to finance growth, and private money used to expand businesses. Business 101 – Cash is KING. Without access to capital, you cannot grow or hire!
So rather than come up with “a mechanism to undermine market transparency, roll back important investor protections, and, drive up the cost of capital for small companies” as Barbara Roper Director of Investor Protection, Consumer Federation of America said, these Entrepreneurs crafted a framework that if implemented along its original extent would have addressed all the concerns, misperceptions and drama floating around today.
The framework was carefully crafted. It carved out a rule under which fraud-free entrepreneurs and small businesses with revenues of less than $5M that weren’t foreign corps, public or investment companies could raise up to $1M either selling Common Stock or revenue based financing on SEC-registered websites. Where, investors would have to agree using current standard verification technology that they understand there is no guarantee of return, that they could lose their entire investment and that their liquidity/return is limited to any dividends, sale, public offering or a merger of the company. And once they agreed to that, would be limited as to how much they could risk to the lower of $10,000 or 10% of their AGI. Where standardized forms (generic term sheets & subscription agreements) based on industry best practices would be used to maintain transparency and reduce time and expense for all parties. Post funding standardized and automated reporting for use of proceeds would be required on a quarterly basis by entrepreneurs. Platforms would provide the SEC monthly offering reports that include information on: deals funded, entrepreneurs’ names, social security numbers, addresses, date of births, amount of capital raised, list of investors and individual dollar amount contributed. And most importantly social media would control the process. Entrepreneurs would only be allowed to solicit people in their social network using Facebook, Twitter, Linkedin, etc. Platforms would use social media tools to create a deal room for each idea where interested investors can publicly pick apart the entrepreneur, the idea, the business model and the investment opportunity. And most importantly, NO MONEY would be exchanged until the ENTIRE crowd decided to fund the entrepreneur and the entrepreneur’s funding target was 100% met. Not so easy, right?
If implemented as designed it would allay all concerns including entrepreneurs who need capital, investors who need proper disclosures to make informed decisions, regulators who want to know what is happening in the capital markets and intermediaries who will provide the social media tools to allow for solicitation and vetting before the crowd collectively and in an open dialog, decides which of their community entrepreneurs they wish to fund and with how much money as well as the conduit for the transaction to happen.
Crowdfund Investing will be a great financing tool for our nation’s entrepreneurs. The opponents, well they are academic and regulators. We are entrepreneurs , investors and most importantly JOB CREATORS. We created 150 jobs before when capital was available. But you know what? We can’t do it today, without Capital! The time is now to Legalize Crowdfunding!!
Sherwood Neiss, Jason Best & Zak Cassasdy-Dorion are the developers of the framework for Crowdfund Investing which is the basis for all the CF Bills before Congress. For more information about us go to www.startupexemption.com/about-us
The SoHo Loft Capital Creation Event Series Announces the Agenda for the Capital Creation and Crowdfunding Conference
in Los Angeles
BriefingWire.com, 2/24/2012 - Roswell, GA, Feb. 24, 2012 — Today the SoHo Loft announced the agenda for its upcoming Capital Creation and Crowdfunding Conference, the definitive forum for learning about the rapidly evolving marketplace for private company stock. The two-day event will be held in Los Angeles, CA on Tuesday, March 13th and Wednesday, March 14th.
In this remarkable moment in history, the U.S. regulatory environment, its capital markets and the innovation that drives those markets are simultaneously on the threshold of dramatic change. We are currently witnessing the embryonic period of a cutting-edge stock market just as we usher in a new era of mass media. At the same time, new legislation aimed at facilitating capital formation is being introduced to support this modern infrastructure. There has never been a more opportunistic time to capitalize on change.
TSL’s Capital Creation and Crowdfunding Conference provides attendees with key insight into the direction of the U.S. capital markets during this period of regulatory transformation and the rapid progression of the developing ecosystem. Attendees will get a fresh look at how capital formation is changing as well as learn where new growth opportunities exist, how social media is transforming Wall Street and most importantly, how to capitalize in this changing paradigm.
Attendees will also get to know the players who are shaping the Private Company Marketplace (PCM) including the private shares desks and exchange platforms, crowdfunding experts, secondary private share buyers and angels, private stock analysts, legislators and seasoned entrepreneurs. There will also be ample networking sessions to exchange ideas, discourse and opportunities.
DAY ONE: CROWDFUNDING – TUESDAY, MARCH 13TH
· 1pm – Registration, pre-networking, Demos
· 130pm – Opening Remarks and Introduction
· Employing Crowdfunding to Enhance Capital Formation and Create Jobs
· Rep. Patrick McHenry to discuss his bill, HR 2930 also known as the “Crowdfunding bill”
· “How you can make a difference and be heard” by Jason Best, Co-Founder and partner of Startup Exemption
· 3 to 330pm – Coffee Break: Snacks and Networking Under the Buttonwood Tree
· The Capital Markets of Tomorrow – Meet The Pioneers of Crowdfunding
· 330 to 415pm Panel: “Legalize it” – The transforming regulatory landscape to introduce a new asset class
· Panelists include:
1. Jason Best, Co-Founder of Startup Exemption
2. Jouko Ahvenainen, Co-founder of Grow VC
3. Richard Salute, Capital Markets and SEC Practice Director with J.H. Cohn
4. Mitchell Littman, Esq., founding partner of Littman Krooks LLP
· 415pm to 445pm Panel: The relationship between Angels and Crowdfunding
· Panelists include:
1. Julia Dilts, Co-Founder and CEO of Maverick Angels
2. Charles Sidman, Managing Partner of ECS Capital Partners and Angels
3. Wil Schroter, Serial Entrepreneur & CEO of Virtucon Ventures
4. Candace Klein, Founder and CEO of Bad Girl Ventures and SoMoLend
5. Connie Koch, President of the Southern California Region of Keiretsu Forum
· 445pm to 515pm Panel: Establishing the Infrastructure to enhance Crowdfunding:
· Panelists include:
1. Gene Massey, CEO of MediaShares
2. William Davis, President of Gate Impact
3. Alon Hillel-Tuch, Co-Founder of RocketHub
4. Steven A. Cinelli, Founder, CEO, PRIMARQ Inc.
· 515 to 545pm – Coffee Break: Snacks and Networking Under the Buttonwood Tree
· 545pm to 7pm – Presentations:
· 545pm: Case Study: One start-up’s experience utilizing Crowdfunding
· 605pm: “Models and approach to building the new sustainable finance sector” by Jouko Ahvenainen, Co-founder of Grow VC
· 625pm: “Transforming an Idea into a Business” by Julia Dilts, Co-founder and CEO of Maverick Angels
· 645pm – Closing Remarks, Meet our Sponsors
· 7pm – Cocktail Party, Extensive Networking
To register for tickets, please visit http://tslccla.eventbrite.com/. Only ticket holders will be permitted into the event. Press Passes will be provided to qualified members of the media at no charge. To receive Press Passes, please contact firstname.lastname@example.org. To view detailed bios of our distinguished speakers, please visit http://www.thesoholoft.com/our-network/speakers-2/
ABOUT THE SOHO LOFT CAPITAL CREATION EVENTS:
The Soho Loft Capital Creation (TSLCC) Event Series is the only global event platform where accredited investors; accomplished angels; microfinancing groups; CIOs of investors; select merchant and investment bankers; VCs; family offices; incubators; private equity firms; pre-IPO mutual funds; secondary stock buyers, sellers and equity analysts from across the world assemble in order to exchange ideas, discourse and opportunities that will help reshape the capital markets and stimulate economic growth. Our mission is to bring awareness and drive capital to the private company marketplace (PCM) as well as to help develop its infrastructure so that it can mature into a viable and functional institutional marketplace that facilitates capital formation, innovation, expansion and job creation. For additional information please visit us at http://thesoholoft.com and www.facebook.com/TheSohoLoftevents.
National Council of Entrepreneurial Tech Transfer Presents
Crowdfunding Webinar Mini-Series
Register for this free series here:
(or go to: https://www2.gotomeeting.com/register/415957282)
A rare glimpse of Crowdfund Investing. This free webinar will focus on different aspects on what Crowdfunding is, to what it looks like today, how it differs from Crowdfund Investing, what framework for Crowdfund Investing is to the legislative process in Washington DC, the hurdles to becoming law and dealing with everyone from leading Representatives and Senators all the way up to the White House.
ABOUT THE PRESENTERS:
Jason Best is a Co-Founder of Startup Exemption and brings over 10 years of executive management experience at 2 SaaS healthcare businesses (one of which he co-founded) in the bay area. His work there included starting a business from the ground-up during the dot com crash, building broad coalitions of US medical societies in support of Internet-based physician-patient communication and changing FDA regulations to enable physicians to receive electronic medication and device warnings instead of paper. This change dramatically increases patient safety while reducing time and costs for physicians and the pharmaceutical industry.
He is a successful entrepreneur and consultant to technology companies on business development and strategy issues to enable companies to grow quickly and effectively. In both 2010 and 2011, his work in strategy development, building scaleable processes, partnership development and branding/marketing, led to one of his clients, Kinnser Software, being named by Inc. Magazine as one of the 500 fastest growing private companies in the USA.
In Dec 2010, he also Co-Founded A Single Production Company, a documentary film company based in Bangkok Thailand. He has served as the Executive Producer for its first feature “The Cheer Ambassadors”. The film will premier at the Bangkok World Film Festival in January 2012. He is also working on a program with local entrepreneurs and educators to create a more entrepreneurial Web development industry in Thailand.
Jason earned his MBA from the Thunderbird School of Global Management, the world’s top international MBA program as well as a BA from William Jewell College, ranked by Forbes and US News and World Report as one of America’s best national liberal arts colleges. He has lived and worked in Europe, South America and Asia. He grew up in Louisiana and is now based in San Francisco, California to be near snow skiing, the ocean and wine country.
Chances are this entrepreneur has already helped you, your child, someone very close or even your pet. As a 3-time INC500 winner whose company won E&Y’s Entrepreneur of the Year, Sherwood understands the keys to entrepreneurial success from concept to company to sale.
Sherwood Neiss started his post-MBA career on Wall Street and moved to Silicon Valley where by his 29th birthday reached the personal and financial goals he set for his 30th year. Wondering what to do next and also left struggling with a debilitating family dilemma, he used his entrepreneurial drive to help turn his family adversity into a multi-million dollar company that today is helping millions of sick children, animals and adults get better by being more compliant with their medicines.
Sherwood Neiss co-founded FLAVORx (www.flavorx.com) the company makes 42 yummy flavors that take the yuck out of medicine. His structured approach helped not only build a business model that threw off millions of dollars in cash but also helped grow the business from one pharmacy to over 80% of the pharmacies in the United States. He raised millions of dollars in capital and saw the culmination of his endeavors with the sale of the company in 2007.
Sherwood is an avid public speaker. He speaks at universities and seminars around the world about what it takes to be an entrepreneur, how to fund your idea and build a winning company. He testified at three Congressional hearings; one on the impediments to capital formation under Sarbanes-Oxley and two regarding access to capital for entrepreneurs and Crowdfund Investing. His SOX testimony was one of the reasons the Small Business Exemption to section 404(b) audit requirements was passed in July 2010.
Most recently Sherwood won the November 2010 & May 2011 Startup Weekend Challenges in Miami to use smartphones for instant polling & for an equity based crowdfunding platform. Currently he advocating for the SEC to update the securities laws to make it legal for groups of people to pool small dollar amounts of money together to invest in startups aka “Crowdfund Investing.”
When not working, Sherwood is an avid traveler. He lived in Japan for a year and post-sale of FLAVORx took his second backpacking trip around the world. In addition to speaking at universities and businesses around the country he invests in real estate in the U.S. and Brazil, is part of a Private Equity group in Los Angeles, is working on a clean tech project in Puerto Rico and is involved with several other start-up ventures.
WEBINAR DURATION: Each session is a 90-minute webinar with 60 minutes of presentation and 30 minutes of Q&A.
COST: Free, but registration required by clicking on register the Register button above.
HOW TO PARTICIPATE?: This webinar is online. You need a computer with web access for the visual/audio. You may also dial-in using the audio-only telephone number. The call in details and instructions on how to join the webinar will be sent to you via email after you register. Once registered to the webinar you will receive a reminder email 24 hours before the start of the webinar with instructions on how to join.
QUESTIONS TO SPEAKERS: Q&A is conducted by a chat box to the speakers.
WHO SHOULD PARTICIPATE IN THE WEBINAR?: National and international media, federal and state government officials, venture capitalists, angel investors, Global 1000 companies, industry representatives, university officials, entrepreneurs and individual investors.
SLIDES AND VIDEO: The slide presentations and video recording will be available on this page. If you are unable to join the live webinar, you may view the recorded video that will be posted within 24 hours after the scheduled webinar ends.
If you have questions about this webinar, please email NCET2′s Research Commercialization and SBIR Center at email@example.com
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!
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!
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.
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:
- Social Networking – you are raising capital from your friends, family and community. Your 1st degree connections.
- 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.
- 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!
The following is an excerpt from Kevin Lawton, the author of the Crowdfunding Revolution.
I recently re-ran a quick study of the risk-vs-reward profile of penny stocks vs initial angel investments in startups (data from the Kauffman Foundation’s AIPP). See below. It’s yet another confirmation that early stage investments are actually less risky and have better returns than “penny stocks” (which the public has access to without limitation).
Fraud has been trotted out as the ad naseum bogeyman, but it’s been nothing but a red herring. Failure is the issue. Given any degree of risk, a portfolio is necessary to mitigate against investment failure. So far, I can not find a person (at least one who has any wealth left) who does not have a portfolio. And thus, for any high-risk asset class where one can lose 50% of the time, having 1% of fraud is a tiny and noisy component in investment failure.
The issue has always been an education thing (i.e. the portfolio). Beyond that, if a system suppresses crowdfunding in a futile attempt to fight the 1 unit of fraud, it will not only suppress the 99 units of investment, but often a 3x .. 10x economic multiplier (so up to a 1000 units). Most of the crowdfunding projects tend to have a geographic locality component. And as Amy Cortese points out in Locavesting, local businesses have a strong local economic multiplier.
But I’m most curious why we are starving private equity of some serious profits and deal flow. Please see my brief post about how I applied a black-box hedge fund technique to amp up Venture Capital IRR from 30% to 46%. Allowing crowdfunding platforms to flourish, opens up the door for some bigger players to access investments in smaller companies, and frankly eat some of the VC pie.
Crowdfunding platforms will include crowdsourced diligence & fraudster detection, which will rival the response time and accuracy of anything that Venture Capital has ever seen. We just need the government to get the heck out of the way…
Author of The Crowdfunding Revolution and serial entrepreneur