Tag Archives: small business

Crowdfund Investing – The Future of Startup Financing

21 Nov

Want to learn everything you need to know about crowdfunding to be a success?  Click here or click the image below.

Keys to Success with Crowdfunding

Buy our Book!

Buy our Book!

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!

 

Share

Legalize Equity-Based Crowdfunding to Create Jobs

3 Sep

Next week President Obama will be talking about a plan to create jobs in America.  Finally a subject both parties should be able to agree upon; jobs! The premise behind his action is correct, however his focus is not.

While we are in favor of improvements that advance our education system and infrastructure to keep us competitive in the world, the real long-term opportunity to pull us out of this recession lies in the hands of our nation’s entrepreneurs and the confidence we as a nation have to help them succeed.

Both the SBA and the Kauffman Foundation for Entrepreneurship will tell you that the bulk of net new jobs (those jobs created less jobs lost) during prior recessions came from small businesses and entrepreneurs.

So logically, helping foster the entrepreneurial engine in the USA will foster innovation, businesses and jobs; undoubtedly in a multiple of what our government can do through public stimulus.

However, the traditional capital that our nation’s entrepreneurs used prior to the financial meltdown has disappeared – I know I tried to raise capital for 2 ideas I have and I’m a seasoned three-time INC500 entrepreneur.

There’s a solution gathering support and it only exists today because of advances in the Internet and Technology.  It is based on Crowdfunding where entrepreneurs pitch their ideas to average Americans and let them decide which ideas they would back with a few dollars in exchange for an equity stake in the company.

This form of investment is illegal in the USA because it breaks 80 year-old Security Laws on public solicitation and accreditation.  However, American’s today are more sophisticated than they were 80 years ago, they have seen the financial crisis firsthand and are more skeptical than ever before freely giving away their hard earned cash.  Go ahead, try and ask a group of 1,000 people for $50 each and see how successful you are.

If we can update the security laws to make equity-based Crowdfunding (aka Crowdfund Investing) legal, then we can put the power in the hands of the American people to decide which of their community entrepreneurs they want to back and those that they do not.  The ones that rise to the top will not only have access to a small amount of critical seed capital that doesn’t exist in the markets, but knowledge, experience and marketing power from their supporters.  Think about it. If you own Apple stock chances are you have an iPhone and rave about it.  Subsequently, if you want to back your friends Korean BBQ Food Truck or Internet Startup, chances are you will not only be a consumer but an advisor and marketing agent for them as well.

Direct ownership will not only increase the chance of success (as social networks have time and again shown the ability of the crowd to rally behind an idea) but first-hand ownership will help entrepreneurs succeed thru shared knowledge and experience.  More small successes will lead to an increase in consumer confidence, which is a direct economic indicator.

We are on the verge of a double dip recession.  No one trusts our government.  Let’s put something on the table that is good for the country that both side should be able to agree upon; a zero-cost framework that provides a limited amount of capital flow to entrepreneurs that has the ability to stimulate innovation and jobs, in a fashion that both mitigates risk and provides for investor protection.

Share

Our Congressional Testimony: Reversing the Decline in Capital Formation

9 May

“Reversing the Decline in Capital Formation”

 

Testimony of

 

Sherwood Neiss

Entrepreneur

Sherwood Speaks, LLC

Miami Beach, Florida

May 10, 2011

Before the

Committee on Oversight and Government Reform

United States House of Representatives

The Honorable Darrell Issa, Chairman

The Honorable Elijah Cummings, Ranking Member

Introduction:

 

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…)

Share

Peer-to-Peer Community Investment Presented as a Solution to the Capital Crunch for Startups & Small Businesses

9 May

Washington, DC –On May 10th the Government Oversight and Reform committee is meeting to discuss Capital Formation and Investor Protection.  Namely, they are meeting to review aspects of our country’s securities laws that inhibit capital formation.  One of the most important aspects of the meeting will focus on access to capital for startups and community-based businesses.

Sherwood Neiss a Small Business and Entrepreneurship Council member in conjunction with SBEC’s President, Karen Kerrigan, crafted a framework called Crowd Fund Investing (CFI) that was presented to the SEC for review and is building support among Americans.

Even though Crowd Fund Investing (CFI) is taking place in the U.K., Holland, India & China, in the U.S. it is not permitted because it breaks the Security & Exchanges’ accreditation and solicitation rules. According to Neiss, “These rules were written at a time when only 4% of Americans invested in the markets.  Today we have technology that has leveled the playing field and increased investor sophistication making these rules outdated.” (more…)

Share

How to Provide Investor Protection in Crowd Fund Investing

13 Apr

Creating prudent investor safeguards is an important part of enabling a vibrant and effective crowd fund investing ecosystem.  With this in mind, we propose a series of steps to increase transparency and accountability while limiting the opportunity for fraud and abuse.

How to Provide Investor Protection in Crowd Fund Investing

 

Creating prudent investor safeguards is an important part of enabling a vibrant and effective crowd fund investing ecosystem.  With this in mind, we propose a series of steps to increase transparency and accountability while limiting the opportunity for fraud and abuse.

 

Investor Risk Proposed Rules to Mitigate Investor Risk
How do you prevent large scale fraud? Limit the maximum amount any one entrepreneur/company can raise via crowd fund investing platforms to an aggregate of $1 million
How do you keep large corporations from using this as a loophole for cheaper financing? Limit the types of companies that can utilize the platform to those that are less than 50 employees (and not a majority owned or wholly owned subsidiary of another entity) with less than $5 million in revenue in the previous calendar year
How do you prevent someone from swindling all of Grandma’s retirement? Limit the amount that anyone can invest to either $10,000 or 10% of their prior year’s Adjusted Gross Income (whichever is lower)
How do you prevent limited disclosure requirements from increasing risk? Have the crowd vet the entrepreneur.  Create a standards based set of data that each entrepreneur must complete in order to attempt to seek funding.  Then enable a communication channel for investors and entrepreneurs to communicate about their questions, ideas and solutions.  Investors only invest in entrepreneurs that have complete information and a product or service that the investor believes in.  Connecting this service to social media groups whereby the entrepreneur and investors are part of the same group, the investors can ask questions of the entrepreneur and the entrepreneur can solicit the investors for help, experience, contacts, etc.  Investors can rate the entrepreneur following their investment and entrepreneurs can rate investors.
How do you protect against professional scam artists? Just like when financing a major purchase or renting an apartment, Crowd Fund Investing entrepreneurs must agree to credit checks that match their name, social security number and receive a credit score that the crowd can view.  Make the initial money loans that the entrepreneur is personally responsible for.  If he/she defaults it appears on their credit report.
How do you prevent someone from attempting to raise funds without proper planning? Crowd Fund Investing must be an all or nothing platform.  If the entrepreneur doesn’t raise all the requested funds within the specified timeframe, the funding round closes and the investors keep their money.  By limiting the amount of money individuals can contribute, an entrepreneur has to be careful about how much money he is asking for (if he asks for too much and doesn’t reach his funding target, he doesn’t get funded).
What about nondisclosure/lack of transparency? Make the entrepreneurs fill out standards based information about themselves and how they will use the capital.  Have them attach links to their “social proof” from various online communities (LinkedIn, eBay, Amazon, Facebook, etc) profiles that show how the “crowd” views them.  Most of these investments will be made to individuals that are already known to the investors via social media platforms.  Investors will be provided with standards based agreements and this information will be stored within the community, and a data set of relevant investor and entrepreneur data will be transferred to the SEC on a quarterly basis. Examples of this dataset might include:  company name, entrepreneur name, funding rounds attempted, funding rounds successful, number of investors, total investment raised, investor names, etc.
How do you prevent people from “underwriting” & “reselling” the securities? Restrict the shares and mandate that shares must be held a minimum of 1 year by the acquirer.  Let people know that they are buying restricted shares and there is no secondary market to them.  Make sure they understand that unless the company is sold, merges or goes public they will not see a return. (Shares can be transferred to family)

 

Share

Hong Kong Invests in US companies where Americans can’t

9 Mar

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.

Share