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Startup Exemption is the name entrepreneurs Sherwood Neiss, Jason Best and Zak Cassady-Dorion created to describe their Crowdfund Investing (CFI) framework. The framework is an exemption under Regulation D Securities Offerings that would allow startups and small businesses to raise a limited amount of seed and growth capital from their social networks using SEC-registered websites. Their framework was the basis for the four Crowdfunding bills introduced in Congress and endorsed by the President. Their first bill passed the US House in November, 2011, 407-17 and the US Senate on March 22, 2012 as part of the JOBS Act with a vote 73-26. The path from idea to law in 460 days can be found at: www.startupexemption.com & www.legalizecrowdfunding.org.
Since the President signed the bill into law, they have started Crowdfund Capital Advisors, a strategy and technology consulting firm for investors, entrepreneurs, governments and NGO’s. They can be found speaking globally about the shift crowdfund investing is going to make, how it will spur entrepreneurship & innovation and create millions of jobs!
On May 20th Sherwood Neiss, Chief Advocate for The Startup Exemption decided to test the basis for Crowd Fund Investing by pitching the idea to approximately 150 people at Startup Weekend Miami.
Startup Weekend (funded by the Kauffman Foundation – American’s largest Entrepreneurial Foundation) is a 54-hour event that takes place in 100 cities around the world. It is designed to provide superior experiential education for technical and non-technical entrepreneurs. The weekend events that have launched over 2,000 businesses, are centered on action, innovation, and education. Beginning with Friday night pitches and continuing through testing, business model development, and basic prototype creation, Startup Weekends culminate in Sunday night demos to a panel of potential investors, experts and local entrepreneurs. Participants are challenged with building functional startups during the event and are able to collaborate with like-minded individuals outside of their daily networks.
Friday Night Crowd Voting
There were 60 ideas pitched by the attendees and the crowd voted. Crowd Fund Investing received the 4th highest number of votes. The Top 15 ideas formed teams and started working on their prototypes for the next 50 hours. Neiss’ team consisted of students; front and back end web developers, and business people. They divided the work into functional groups and by Sunday had a Minimum Value Proposition “MVP” to present to the judges.
Neiss’ presentation began by congratulating to all the finalists with a reminder that while great ideas are sparked at this event, no one would go very far without funding. And that’s where their idea came in. With only 5 minutes to explain and demonstrate their proof of concept, Neiss was able to win over the 5 industry experts and VC judges. Winning comes with a variety of prizes that include a month of free social media support and 3 months of free office space at a Miami incubator.
After Winning Startup Weekend Challenge
Maris McEdwards Community Manager for Startup Weekend Corporate had the following to say, “Startup Weekend’s mission is to empower entrepreneurs to create new and innovative solutions to real-world problems. We encourage teams to incorporate customer validation and feedback at every stage of development. Personal experience provided Sherwood years to think about and perfect this funding and investment option for entrepreneurs. Their win at Startup Weekend Miami was not simply due to a great solution; a large part of their success can be attributed to a thorough knowledge of the problem they were tackling. Given the positive response from the Startup Weekend Miami judges and attendees, they have clearly defined entrepreneurs’ needs and are building some serious momentum for Crowd Fund Investing.”
With 3rd party validation about the business model, Neiss will be using this as further evidence that the time is ripe for the SEC to update the Security Laws to include an exemption based on the framework in The Startup Exemption.
Chairman Issa, Ranking Member Cummings and members of the Committee, thank you for holding this hearing today and allowing me to share an entrepreneur’s perspective on improving capital formation through regulatory modernization. My intention is to explain why outdated securities laws — put in place before the Internet age — need to be modernized and overhauled, and how these reforms can boost our struggling economy. By revamping the Security and Exchange Commission’s (SEC’s) position on solicitation and accreditation, we can open the doors to small business growth and prosperity. Allowing for an exemption for Crowd Fund Investing, which includes protections for investors, will spur innovation among your constituents, create jobs, increase consumer spending, and reinvigorate our economy. (more…)
Want to know how we are going to kick start our economy? Follow successful entrepreneur and Miami Beach resident, Sherwood (Woodie) Neiss and you’ll see.
Woodie is another one of those “Type-A, I can do anything I put my mind to” personalities. He is an ambitious entrepreneur who just won Miami’s “Startup Weekend” with an idea to use smartphones for instant polling. He was also in the June, 2006 INC cover story “From the Heart” where he helped start and grow a 3-time, INC 500 company that solved the problem of getting kids to take yucky tasting medicines. (He successfully exited from that company in 2007).
According to Neiss, the traditional means of startup and growth capital are no longer available to entrepreneurs. “This capital is critical for startups and small businesses to grow and hire Americans,” he says. While government is focused on trying to fix the current system, he thinks the solution goes back to our roots. Roots? Yes indeed, but not the kind you find on vegetables.
“You see,” says Neiss, “when our Nation was born there weren’t big corporations, large banks or even private equity & venture capital. For example, there were businesses like the blacksmith and his customers who needed tools. Customers purchased his products, which paid for his employees and helped fund his growth. And they were his neighbors. Only today do we identify a problem; then come up with a solution (aka product) and think, “ok now let’s find some Venture Capital.” (more…)
American companies are having a very difficult time raising the money they need to grow their businesses. It’s not because the money is not there but rather because it is not flowing from the people who have it to the people that can use it to grow our economy. One of the things that has always made America great is our ability to innovate. Unfortunately, innovation is currently being stifled by overly strict SEC regulations. These regulations however are not stoping other countries from innovating and riding off the coat tails of US entrepreneurs.
GrowVC, a Chinese company, has now launched with its intention to fill this funding void by collecting money from investors (including Americans). They already have successful cases of US Startups raising capital from them. What does this mean? First, by being offshore they just worked around the entire SEC process. And second, the future success stories of the USA as well as their technology, Intellectual Property and future profits will be owned/shipped overseas. The one major loophole in these regulations is that if you are not an American or an American company, you are not regulated by these security laws. Clearly, these outcomes were not the intention of the Securities law however it is exactly what is happening. I personally don’t feel that selling our nation’s entrepreneurs to foreign countries is in anyone’s best interest.
By making common sense amendments to the 1933 and 1934 Securities laws we can stop this mass export of US entrepreneurs and get back on track to recovery and innovation.
Small businesses and startups in the United States are having an increasingly difficult time raising the money they need to expand their businesses. During the recent economic downturn funding has become increasingly difficult to find. Banks have stopped lending, credit card companies are tightening up their lending requirements, and there is substantially less Venture Capital and Private Equity available.
The money is out there but there but it is simply not flowing from the people who have it to the people that need it. Making this problem worse is the stringent investment regulations that the SEC imposes on small businesses. Entrepreneurs and small businesses are starting to look outside the US for the capital they need to expand their businesses.
A recent article in the WSJ highlighted just such a situation. A small manufacturing business in Riverside California, has been desperately searching for capital so it can hire more workers and expand its operations. “During the downturn, we went on the hunt for capital, but after 44 presentations we came up short,” says Mr. Williams, 56 years old. (more…)