Startup Exemption

Entries tagged as ‘President Obama’

Why Crowdfunding & the JOBS Act is a Win for Entrepreneurs and Investors

March 28, 2012 · 1 Comment

As published in Inc.com: http://www.inc.com/sherwood-neiss/why-you-can-feel-good-about-the-jobs-act.html 

The crowdfunding provisions have more than enough protections for investors, and they’ll give entrepreneurs the capital they need

CrowdFund investing (aka equity-based Crowdfunding) is about to become the law of the land. Opponents have spent months screaming about how it would be an open invitation for investment fraud and a menace to small investors if it passed. Now that it has passed, it’s time to set those fears to rest. Crowdfunding will become a great source of funding for entrepreneurs and fully transparent way for investors to get in on the ground floor of what will be the greatest businesses of the future.

Every entrepreneur, at one time or another, has felt the pinch of the capital markets. Inspired by the success of donation-based crowdfunding, social media as marketing tool, and the principles of seed financing, the three of us—Jason Best, Sherwood Neiss and Zak Cassady-Dorion—decided to create a solution. The result is a framework that allows an entrepreneur to raise a limited amount of capital from his friends, family and customers on SEC-registered websites with prudent investor protections.

Why is CrowdFund Investing so necessary? With the collapse of the markets in 2008, the traditional means of financing startups and small businesses—credit cards, home equity lines, bank loans and venture capital—disappeared.Banks stopped lending and venture capital shifted away from seed stage investments to larger, more secure deals. What was left was a funding void for businesses looking to raise $250,000 or less in seed or early-stage funding. According to the SBA, this round is the most critical capital a young company can get. Lack of it is the #1 reason why startups fail in the first 5 years.

Only entrepreneurs with clean records need apply

We carefully crafted our framework to protect investors, drawing on similar programs exempt from SEC rules.  It is a rule under which entrepreneurs (who pass fraud/background checks) and small businesses with revenues of less than $5M (that aren’t foreign corps, public or investment companies) could raise up to $1M by either selling Common Stock or using revenue based financing on SEC-registered websites.

The law manages investors’ expectations

Investors would have to pass a quiz proving 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. Once they understood that, the amount they could invest (i.e., risk) would be limited—between $2,000 and $10,000, depending on their income.

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 so people would know what is going on. All of this would be overseen by a Self Regulatory Organization (SRO) that reports to the SEC on what is taking place on CrowdFund Intermediaries with the goal to protect investors.

Platforms would provide the SEC real-time 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. This way regulators would know who is crowdfunding, who is backing them and how much they’ve raised.

Social media would enforce integrity

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 important, no money would be exchanged until the entire crowd decided to fund the entrepreneur and the entrepreneur’s funding target was 100% met. So if you say you need $50,000 to expand your business, you only receive the money when you have secured commitments for the entire $50,000.

Not so easy, right?

If implemented as designed, these protections would allay everyone’s concerns.  Entrepreneurs would get the capital they need. Investors would get the disclosues they need to make informed decisions. Regulators would stay informed on what is happening in the capital markets.

Think it can be gamed? Well consider this. You know those eBay ratings that guide your decision to send $1,000 across the country in exchange for a product? You are going to see similar ratings for both entrepreneurs and investors on CrowdFund Investing sites. Know those comment fields with the like buttons on Facebook? You are going to see those on the communication panel where interested investors will require answers of an entrepreneur and those answers will be rated and further discussed (just because that’s how we like to do things in an open dialog on the internet today).

Now take any fraud example you can think of and run it through this scenario. How many con artists want to register with the SEC?  How many want to target those closest to them? (That’s how crowdfunding through social media works: You are limited by soliciting your social media connections.) Yes, once the law is implemented a bad guy could cold-call an investor and claim to be crowdfunding the next Facebook. But that would be fraud, just as it is today, and the perpetrator could go to jail. The CrowdFund Investing framework restricts all communication to crowdunding intermediary sites, and in doing so provides the tools to protect investors. In 5 years, chances are the SEC will be using these tools to crack down on larger scale fraud.

Now that the JOBS Act has passed, we are moving to the next phase of development on a two-track strategy. First we’ll help build a self-regulating organization, like Nasdaq, to be the voice of the Crowdfunding industry and work with the SEC to regulate funding platforms and keep investors educated.

Second, we’ll work with the SEC on their rule-making progress. It is vitally important that entrepreneurs and small business people stay tuned in. The SEC will begin with 90 days of rulemaking, and then open their draft rules for 90 days of comments. These comments are very important to the process. Entrepeneurs have the most to gain (and lose) so we must continue to fight for rules that provide fair balance between the needs of investors and entrepreneurs.

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US Senate Votes in FAVOR of Crowdfunding!

March 22, 2012 · 2 Comments

At 1:20pm Thursday, March 22, 2012 the US Senate voted in FAVOR of HR3606 the JOBS Act.  

The vote was 73-26. 

CrowdFund Investing (CFI) to be LEGALIZED in the USA!

Because The Senate version of Crowdfunding was attached as an amendment.  It needs to go back to the US House for one final vote!!

 

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Crowdfunding isn’t Sex, Drugs and Rock n Roll

March 19, 2012 · 1 Comment

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

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Senate Votes on Crowdfunding Tomorrow! Call your Senators TODAY and say “Vote for JOBS!”

March 19, 2012 · Leave a Comment

 

 

An update on the Process to Legalize Crowdfunding from the guys who brought Crowdfund Investing to Washington, DC
Is this email not displaying correctly?
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Dear Crowdfund Investing Follower,

On Tuesday, March 20th the Senate will take up the House-approved JOBS Act.  It includes the majority of the Crowdfunding framework that we originally brought to DC, was used by Representative McHenry (R-NC) as the basis for HR2930, and was endorsed by the President.  Several components of the framework were also included in the Senate version and many of our ideas are the ones used in the bipartisan Merkley/Bennet/Brown/Landrieu compromise that was offered as an amendment to the Crowdfunding portion of the House-approved Bill.

Everyone is in agreement.  Solving the funding problem faced by our nation’s job creators is a smart thing.  Crowdfund Investing (CFI) is a great idea but it has to take place in a marketplace that is transparent and accountable.  However, without a Senate passed bill, Crowdfund Investing won’t exist.

When the Senate takes up the bill on Tuesday, it is important that if you support Crowdfunding in any shape or formyou do the following:

  1. Call your Senators and tell them “I support the JOBS Act and Senator _______ should vote in favor of it.”
  2. Rally your supporter, followers, friends and family to do the same thing.  Tweet, Facebook post, Linkedin update, etc about this!  The opponents to Crowdfunding are outnumbering proponents in calls to the Senate.  If Crowdfunding fails here, it dies and history proves that its chances of being resurrected again are near zero.  Here’s a tweet you can use: 2 Directions #Crowdfunding can go in Tuesday’s Senate Vote & What You Need to Do http://wp.me/p1JYwD-48 PLEASE RETWEET! #JOBSAct.

Kevin Lawton, author of The Crowdfunding Revolution said it best in the Huffington Post, “We are on the precipice of a historical moment for entrepreneurs, and for America to set the precedent for innovation again. Crowdfunding is not only a win for the 99%. Allowing it is a veritable 1st Amendment for American business owners. We need your support, now!”

It is CRITICAL THAT THE SENATE VOTE IN FAVOR OF THE PRESIDENT, JOBS AND CROWDFUNDING!   If the Senate votes against the JOBS Act, Crowdfunding will probably never see the light of day!  It is important that if you support Crowdfunding you have your voice heard Tuesday!

We are back in Washington, DC and working tirelessly to see this through!

All our best,
Woodie, Jason & Zak

Contact us:  Got a comment?  Need to speak to us?  Here’s how …
Sherwood Neiss, sherwood@startupexemption.com, 202-247-7182
Jason Best, jason@startupexemption.com
Zak Cassady-Dorion, zak@startupexemption.com

 

 


 

 

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4 Things You can do to Legalize Crowdfunding Today

March 11, 2012 · Leave a Comment

After returning from several days of lobbying for Crowdfund Investing in Washington, DC, we have this small window of opportunity to make Crowdfund Investing legal over the next several weeks.  Here’s what you need to know and what you need to do to help Legalize Crowdfunding today.

The House passed our Crowdfund Investing Bill (HR 2930) back in November.  The Senate has been sitting idly even though a few Senators have tried to push Crowdfunding forward.  However both Senate Majority Leader Reid (D-NV) and Banking Committee Chairman Johnson (D-SD) refused to act until now.

On March 8th, the House took 6 of the Capital Formation bills that passed with almost unanimous bipartisan support (including our Crowdfunding bill), packaged them together into one (called the JOBS Act) and passed it again with overwhelming bipartisan support.  The President came out and endorsed this Republican-led initiative and now they are calling the Senate’s bluff.  Either sit and do nothing and come election-time Americans will know that the Senate is the cause of the gridlock in DC or bring the bill (or their own version of the bill) to the floor to vote and act on our country’s behalf.

Here are 4 things you can do to help Legalize Crowdfunding today:

  1. Now more than ever we need people calling both Senate Majority leader Harry Reid (D-NV) at (202) 224-3542 and Senate Banking Committee Chairman Tim Johnson (D-SD) at (202) 224-5842 and let them know that America’s Entrepreneurs need Crowdfunding.
  2. Click the links, download, complete these form letters with your information and send them to both Reid and Johnson.
  3. Tweet, Facebook Status Update, Google+ & Linkedin Post about this page to your followers to spread the word.
  4. If you are an entrepreneur or if an Investor who would use or back some on a Crowdfund Investing website, then register on LegalizeCrowdfunding.org. (You can get there on your cell phone by texting “HR2930″ TO 83432).

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Categories: Congressman Patrick McHenry · crowdfund investing · crowdfunding · Sherwood Neiss · Woodie Neiss
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Crowdfund Investing’s Window of Opportunity to Become Law

March 8, 2012 · Leave a Comment

This was a busy week for Crowdfunding in Washington, DC.  Sherwood Neiss, Chief Advocate for the Startup Exemption spent the last weekend working with and prepping Tim Rowe Founder and CEO of the Cambridge Innovation Center for Tuesday’s Senate Banking Committee Hearing on Capital Formation.  Mr. Rowe was the expert panelist speaking about the benefits of Crowdfund Investing (CFI) not only for the 450 startups in his innovation center (including Crowdfund Investing platform Wefunder) but for the thousands of entrepreneurs that don’t have access to Cambridge, Silicon Valley, or Wall St.

Unlike prior hearings that were hostile towards Crowdfund Investing, this hearing had a growing list of bipartisan supporters including once vocal opponent, Senator Charles Schumer.  In his remarks he stated, “Given the level of bi-partisan support… passage in the Senate appears not to be a matter of if, but of when. I expect a comprehensive Senate proposal to be announced in the coming days.”  With two Senate Bills on Crowdfunding, a compromise solution advanced, and Republicans and Democrats lining up, perhaps the guys at LegalizeCrowdfunding.org will see the light of day soon.

The Senate is under pressure to act or be portrayed as out of touch with Americans who want action in Washington.  The House crafted, marked up and voted on six capital formation bills all meant to spur innovation, entrepreneurship and employment.  All received overwhelming bi-partisan support, including the Crowdfunding bill H.R. 2930 (the basis of which comes from the Startup Exemption framework) that was approved 407-17.   All have been sent over to the Senate where Senator Reid who controls the calendar has refused to act until now.

In a direct affront to the gridlock that exists in Washington, DC, the House decided to show America where in fact the bottleneck in Washington resides – with the Senate.  Today the JOBS Act, a compilation of all the already passed, aforementioned Capital formation bills (including Crowdfund Investing) were grouped together in one bill and passed again by the House.  This tremendously bi-partisan bill addresses the challenges that are preventing our nation’s job creators from getting capital that they need to innovate and hire Americans.  By grouping them together, one bill will be sent to the Senate to take up rather than several.  It either keeps the Senate from debating and stalemating on each one or forces them to come up with their own JOBS Act (which is hard since they haven’t taken up and passed any of the bills from the House to date). To further point the finger, the President came out and publicly endorsed the Republican championed legislation.

Backed up against the wall, Senator Reid announced that the Senate will move forward on these capital formation bills.  How he will do it is up in the air.  The choices are in Committee or on the floor of the Senate.  If it is done in Committee then both sides can work out their issues and come to a compromise.  If Reid decides to take it directly to the floor then he opens it up to Amendments that historically prove to derail the process and reinforce the gridlock.

Now is the time for entrepreneurs who need access to capital to call both Senate Majority leader Harry Reid (D-NV) at (202) 224-3542 and Senate Banking Committee Chairman Tim Johnson (D-SD) at (202) 224-5842 and let them know that America’s Entrepreneurs need Crowdfunding.

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The Startup Exemption Headlines Crowdfunding Conference on March 13, 2012 in Los Angeles

February 25, 2012 · 1 Comment

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.

THE AGENDA:

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 dsa@thesoholoft.com. 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.

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Obama Pressures Congress for Crowdfund Investing!

January 25, 2012 · Leave a Comment

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!

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You Can Crowdfund a Politician but you Can’t Crowdfund an Entrepreneur

January 25, 2012 · 2 Comments

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!

 

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Answers to the Arguments Against Making Crowdfund Investing Legal – Part 1

January 5, 2012 · 3 Comments

There are two sides to every story.  The same can be said for those who support and those who are against Crowdfunding.  The proponents tend to be entrepreneurs, innovators, and America’s jobs engine.  They are the ones advocating in favor of allowing entrepreneurs to raise a limited amount of capital from their friends, family & community.  They are a fragmented group by nature, heads in the sand, focused on their businesses without deep pockets or the backing of special interests.  The major opponents to crowdfunding are the SEC, FINRA and NASAA.  They are government bureaucratic agencies with a vested interest in the current system, widespread oversight and deep pockets.  Their job is to protect and regulate the large, often complex, public markets.  However they tend to do so at the expense of small businesses.  Overly bureaucratic rules, we see time and again, have a trickle-down effect on small businesses that hamper growth.

The following chart summarizes the arguments for and against Crowdfund Investing.

 

Lobbyists Against CFI

Advocates for CFI

1) CFI will undermine important investor protections and prevent State Securities Regulators from enforcing meaningful parts of state investor protection laws. 1) CFI provides the same enforcement at the community level with hundreds of people, that the highly bureaucratic and costly process of only a few eyes does at the state level. Both State Regulators and users of CFI will actively be regulating the CFI industry: making sure the entrepreneur is real and making sure the investment opportunity is sound. Unless hundreds of people agree together no business will be able to raise their funding round. In addition, CFI users will provide something that State regulators can’t: the ability to decide pre-funding if an idea is worthy through an open dialog between and among the investors and the entrepreneur. Regulators can determine if enough information is disclosed but they cannot control the conversation that will either foster or deter investments. This conversation among the participants is the key element of investor protection that will be handled better by the participants, who have a vested interest in finding the truth, rather than the State Security Regulators.
2) Provisions of the Crowdfunding Bills would preempt the states’ authority to review offerings of “crowdfunded” securities 2) Current State-based regulations do not fit into the way business is done in the internet age.  The SEC will have strong regulatory power over all Crowdfund Investing Websites and only SEC-regulated sites will be able to conduct CFI.  This will limit who can crowdfund and provide a filter of crowdfunded securities.  If startups and small businesses are forced to file with all states, they would spend all of their time and the majority of the funds they raised in filing fees and regulatory process.  Streamlining the process with SEC oversight, while preserving the enforcement powers of states to pursue bad actors is what CFI proposes.  This will lead to more organization and structure for those companies that go on to larger, more traditional rounds of financing that require state review.
3) It is crucial that the states retain full authority to review securities offerings in this area, given the significant fraud in this segment of the market. 3) Before any entrepreneur can use any CFI platform they will have to submit to a fraud/background check.  No other form of current capital raising makes this mandatory.  Unless an entrepreneur’s fraud/background check comes out clean (we also advocate for having a minimum credit score), he won’t be able to raise capital on CFI platforms. The opponent’s argument misses the transparency and speed that the social Web provides in investor protection. If you are confused about transparency think of all the data we emit on the internet on a daily basis.  Any false moves can and will be uncovered and disclosed.  For easy examples think of what happened with Representative Weiner and actor Alec Baldwin – their actions were immediately discussed on the internet: this is the nature and power of Social Media.  Our framework also proposes a “one-touch” filing mechanism so that states can receive a “unified dataset” on a regular basis. This is the same data that they would seek in their review, and much of the same data found on a SCOR filing form. State Regulators fighting to be the ones to control this process will only make the process longer, more bureaucratic, and end up costing more for the same effect.
4) Protections provided by state review are even more essential because companies offering exempt securities under the Crowdfunding Bills will not issue ongoing reports like true public reporting companies. 4) We agree, there is nothing more transparent than communication. The reporting and communication that takes place for public companies is required because of the complexity of their organizations and broad spectrum on their investors.  Public companies need to file public reports so investors can see what they are doing. (Albeit we’d love to see a report of how many investors are reading a corporate’s 10k’s). Because CFI is based on community financing, the social interactivity between the entrepreneur and investors will provide the communication and transparency about what is happening with the company and money invested.  All this information will take place on CFI platforms, which will be open to the community investors as well.  Again, a degree of transparency much more acute than that of public companies. Because of the open nature of the SEC regulated CFI platforms that we are proposing, when one investor has a question, all investors will be able to see the question and the answer. Today, if an investor has a question about a public company chances are it will go unanswered or only addressed at an annual meeting.  CFI will provide immediate and continual reporting.
5) Further, as crowdfunding centers on community investment, the oversight should be vested in the regulator with the most direct interest in protecting that community. 5) Agreed, regulators need to provide the oversight for complex organization for which there is no other advocate for the investor.  In CFI platforms those most directly connected to the community are the entrepreneur and those investing in them.  The difference is now the community has a ‘role’ to play in Crowdfund Investing.  And that role is oversight.  Today more than ever, people aren’t haphazardly throwing money away.  They have seen too much fraud taken place in the “regulated” markets to make them overly optimistic and confident about what someone says they are going to do, nonetheless someone they aren’t directly related.  The oversight is going to be better regulated by individuals that know the entrepreneur and expect him or her to live up to what they say than a 3rd party regulator who is not related to the entrepreneur at all.  Community banks tend to have lower default rates because of the relationship between the banker and the lendee.  The same will be said for crowdfunding.
6) Strongly oppose provisions of the Crowdfunding Bills that would expand the registration exemption under Rule 506 of Regulation D by requiring the U.S. Securities and Exchange Commission to remove the long-standing prohibition against the general solicitation of these offerings 6) Prohibiting general solicitation had a time and place prior to the advent of the Internet and advances in Technology.  Before these advances it was easier for one-to-one fraud (the majority of fraud) to take place.  By restricting the communication channel down to two people it is easier to take advantage of unsuspecting individuals.  By opening up the field of communication to regulated CFI platforms where general solicitation can only take place we still maintain how people are solicited and restrict it to these platforms.  Controlling who and how general solicitation takes place this way will provide the investor protection that the ban on general solicitation was put in place to protect.

 

 

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Categories: Sherwood Neiss
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