Startup Exemption

Entries tagged as ‘SEC regulations’

VIDEO – What Does Crowdfunding Mean?

November 21, 2011 · Leave a Comment

Thanks to Congressman McHenry’s staff for putting together this amazing video on the Rally 4 Crowdfunding

McHenry Addresses Crowdfunding Rally

 

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Categories: Congressman Patrick McHenry · Crowd Fund Investing · Jason Best · Sherwood Neiss
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Post Rally Update – Progress and Backlash by Special Interests

November 19, 2011 · Leave a Comment

Dear Crowdfund Investing (CFI) Followers,

The rally was a HUGE success.  How do we know?  The regulators have launched a full-frontal assault against us in the Senate and are trying to kill Crowdfund Investing for good in the next 6 weeks.  Here’s what you need to know in 3 sections: 1) What you can do now, 2) What’s happening next week (SENATE HEARING Dec 1st!) and 3) Highlights from last week:

WHAT YOU CAN DO NOW:

o   Click this link to identify your Senators, call them and tell them “I support HR2930, the Crowdfunding Bill as a solution to getting capital flowing to community entrepreneurs so that we can create jobs!” It may sound crazy but grass roots calls are powerful.

o   We need your financial support to help offset the mounting costs (travel, marketing, additional rallying, etc.) of getting the message to the Senate.

o   We need you to recruit other supporters!  Please send this to your friends, family and community and say, “I NEED YOU TO HELP ME STOP THE REGULATORS THAT REFUSE TO JOIN THE INTERNET AGE.  WE HAVE A SOLUTION TO THE JOBS CRISIS BUT THE REGULATORS ARE STAGING A TURF WAR THAT DRAMATICALLY HINDERS ENTREPRENEURSHIP. ONLY THE VOICE OF THE PEOPLE CAN CHANGE THE LAW TO MAKE IT EASIER FOR ENTREPRENEURS TO ACCESS CAPITAL, INNOVATE, AND HIRE AMERICANS!”

WHAT’S HAPPENING NEXT WEEK:

o   The Senate Banking Committee is holding a hearing on December 1st for which they still haven’t guaranteed us a seat at the table (crazy how you can bring this stuff to Washington and not be included in the hearing on the subject).

o   We plan on hosting a luncheon for Senate Staffers the beginning of December to walk them through how CFI works and answer any questions/fears they might have about letting entrepreneurs raise capital from their social networks.

o   We MUST push for a vote before the end of the year!  If we do not get a vote by the end of 2011, it is unlikely the laws will change because next year is an election year.

HIGHLIGHTS FROM LAST WEEK:

–       NPR, The Wall Street Journal and Fast Company covered the event.   Much thanks to everyone who came to the rally, everyone who sponsored the rally and Representative McHenry & Maloney for speaking at the rally.

–       We confronted our most vocal opponents at the SEC Small Business Capital Forum.

o   Heath Abshure (Arkansas Securities Dept.) told us while they are in favor of crowdfunding (funny how this isn’t what he says in the media) their number one concern is ‘investor protection’ and market confidence.

o   We responded with 2 questions that fell on blank stares:

1) If investor protection is so important, why haven’t they brought anyone to justice for the 2008 financial meltdown?  

2) If fraud leads to the collapse of the markets due to lost confidence, why haven’t the financial markets ceased to exist with the 2008 financial meltdown?

o   NOTE: If the broader markets are where the fraud is being perpetrated why isn’t the SEC focusing their energies on combating and stopping fraud there while letting the crowd take over in their community?

–       We met with 9 Senate offices.

o   Republicans are in favor of the legislation from a Jobs perspective and cutting the bureaucratic tape which inhibits access to capital for entrepreneurs.

o   Democrats (including the President) are in favor of Jobs and democratizing the financial market so that not only the rich are allowed to participate.

o   Both sides understand that the Internet has fundamentally changed the way we do business and hence it only makes sense that it should change the way we also do financing in the future.

–       HOWEVER, State Regulators and special interests are throwing a full-frontal assault to stop our progress and KILL CROWDFUND INVESTING.

o   They are using nonspecific cases of fraud to halt our progress because fraud, like sex and war, sells newspapers.

o   They are doing this because they think we are encroaching on their territory and money.

o   They are detracting from the conversation (JOBS via access to capital) without taking time to understand the advances in technology, the Internet, and how social media has led to transparency and accountability.

o   They want you to think there will be millions of cases of fraud when the bigger issue is failure. The hedge against failure is portfolio diversification.

o   Less than 40% of CFI ideas will ever be funded, and those that are funded, will be by people who know the entrepreneur (true investor protection at work).

o   They want you to focus on fraud because they don’t understand that Crowdfund Investing is based on many-to-many communication between an entrepreneur and many investors in a open dialog as opposed to one-to-one fraud.

o   They want to distract you from the benefits of this bill because they know that January 1st starts an election year and this bill will die if it isn’t passed into law before then and focus shifts to election politics.

Entrepreneurs, ideas, capital, businesses and jobs.  You can have many entrepreneurs with thousands of ideas but you’ll NEVER HAVE ONE BUSINESS NOR JOB WITHOUT CAPITAL.  We need to pick up where Wall Street and the Banks have left off.  The Regulators are standing in the way simply because they don’t stand to earn a commission.  Join the cause.  Spread the word and let’s get Joe the Entrepreneur back to Innovating so that we can create JOBS and get us out of this recession!

Sincerely,

Sherwood, Jason & Zak

 

 

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Categories: Jason Best · Sherwood Neiss · Woodie Neiss · Zak Cassady-Dorion
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What Crowdfunding Opponents Don’t Want You to Know

November 15, 2011 · Leave a Comment

With all the time and attention that fraud has received, we wanted to talk about a much more important issue, failure.  Failure of early businesses happens 50% of the time – that’s just a fact of nature.  If we were to hold that fraud would happen 1% of the time, then failure is 50 times more important in risk mitigation for investors.  And nearly all Americans who invest in the public markets already mitigate against the risk of “losing it all” by way of holding a portfolio.  Diversification has been practiced for centuries, and it’s no different in any asset class, be it public equities, commodities or crowdfund investing.

We believe that prudent risk and fraud mitigation currently in HR2930, along with law enforcement provisions in the bill preserve the power of state and federal officials to aggressively pursue those who commit fraud.  Now, let’s create a plan to help more honest businesses succeed.

KNOWLEDGE & EXPERIENCE

When entrepreneurs talk about failure they talk about the lessons they learned and the experience they gained which is less sexy to the media than fraud.  In crowdfund investing, the entrepreneur has access to his investors to gain knowledge and experience from them in order to attempt to reduce the rate of failure.  The transparency and ease of many to many communication benefits all.

When investors talk about a stock’s failure, they always focus on the critical importance of diversification.  WHY?  Because everyone knows, a diversified portfolio is the best security against loss.  Why focus on educating people about portfolio diversification when it is easier to claim crowdfund investing will open the floodgates to fraud?

So why do we bring this up?  Because the opponents want you to focus on something that will grab the media’s attention (fraud).  This also distracts the debate while trying to prevent regular Americans from supporting entrepreneurs with their own dollars.

There are entrenched interests that don’t want you to focus on how getting capital to entrepreneurs will stimulate innovation.  They clearly don’t talk about alternative solutions.  AND most importantly they don’t want to lose jurisdiction over the business and revenue they are currently generating.  These are areas we hope the media starts to look into more fully.

Much of our new information economy is based on new ways of connecting people.  Preventing entrepreneurs from soliciting financing from their fans and potential customer base, equates to a massive form of economic suppression.  And it’s a suppression of the most powerful human right ever given, the 1st Amendment.

If the opponents took the time to think it through, they’d see that fraud is no more of an issue than in other forms of investing.  With prudent safeguards in place, let’s focus the majority of our energy on the real issues – continued education about diversification.

Think we are wrong?  Please tell us why.  How does one “lose it all” when holding a portfolio of businesses?  How does suppressing platforms which will drive Yelp-like crowdsourced checking & reviews of entrepreneurs help prevent fraud?

 

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Categories: Crowd Fund Investing · Funding Gap · Jason Best · Kevin Lawton · Sherwood Neiss · Woodie Neiss
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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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Categories: Crowd Fund Investing · Jason Best
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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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Categories: Woodie Neiss
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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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Categories: Crowd Fund Investing · Sherwood Neiss · Woodie Neiss
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President Obama Endorses Our Framework and HR 2930!

November 2, 2011 · 1 Comment

When we crafted our framework for Crowdfund Investing in February, 2011 we thought we had a .1% chance of updating the security laws to make equity-based crowdfunding legal.  Now we have HR 2930, the Entrepreneurial Access to Capital Act whose roots come from 2 hearing we’ve had on Capitol Hill and our entire framework!

And this just in from the White House … aaaaaaaah … day by day we get closer to helping entrepreneurs get access to capital to innovate and create jobs!

A TON of thanks for Rep. Patrick McHenry for taking on our cause!!

The Startup Exemption Team!

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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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Categories: Crowd Fund Investing · Sherwood Neiss · Woodie Neiss
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