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!!
On September 14, 2011, Dylan Ratigan interviewed Startup Exemption Chief Advocate, Sherwood Neiss. The interview took place in advance of the 9:30am hearing on September 15th on Capitol Hill regarding Crowdfund Investing.
Sherwood spoke to Dylan about the importance of young businesses asjob creators, the need for capital to help fund these companies and how the Startup Exemption is a framework under which the SEC can allow equity-based crowdfunding to take place.
Sherwood discussed how under the Startup Exemption framework entrepreneurs that pass the muster of the crowd can raise equity capital. How the model accounts for investor protection and how by working together not only can we get capital flowing but we can help those entrepreneurs with the best ideas succeed.
The Startup Exemption was just endorsed in President Obama’s American Jobs Act and it has been promoted by Republican leaders of Congress as a way to promote business and capital formation for our nation’s net job creators.
The framework for the Startup Exemption has the ability to create 500,000 new companies over the next 5 years employing over 1.5M Americans.
Last night President Obama delivered a speech to the nation in front of both houses of Congress. During his speech he laid out his plan to create jobs and jumpstart our economy.
He had the following to say: “Everyone here knows that small businesses are where most new jobs begin. And while corporate profits have come roaring back smaller companies haven’t.” “Ultimately our recovery will be driven not by Washington but our businesses and our workers. We can help.” “I agree there are some rules and regulations that do put an unnecessary burden on businesses at a time when they can least afford it.” So “we are … planning to cut away the red tape that prevents too many rapidly growing startup companies from raising capital and going public.” “We should have no more regulation than the health, safety and security of the American people required. And every rule should meet that commonsense test.” “We should be in a race to the top and I believe we can win that race.” “And it has been the drive and initiative of our workers and entrepreneurs that has made this economy the engine and envy of the world.” “Members of congress it is time for us to meet our responsibilities”
Today his Jobs Act was released with the following paragraph pursuant to his speech.
Reducing Regulatory Burdens on Small Business Capital Formation: As part of the President’s Startup America initiative, the Administration will pursue efforts to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection. This includes working with the SEC to explore ways to address the costs that small and new firms face in complying with Sarbanes-Oxley disclosure and auditing requirements. The administration also supports establishing a “crowdfunding” exemption from SEC registration requirements for firms raising less than $1 million (with individual investments limited to $10,000 or 10% of investors’ annual income) …. This will make it easier for entrepreneurs to raise capital and create jobs.
The bolded line comes directly from what the Startup Exemption has been advocating within its networks in Washington, DC! Sherwood Neiss, the entrepreneur and Chief Advocate for the Startup Exemption said, “It is AMAZING to see Washington come together over this issue. Crowdfund Investing (CFI) is an AMERICAN opportunity. It has the ability to get capital flowing to our nation’s struggling entrepreneurs so that they can grow and hire. Our zero-cost government initiative has the ability to create over 500,000 companies and 1.5M net new jobs over the next 5 years.”
President Obama is pushing congress to enact the Jobs Act. If passed, the crowdfunding changes advocated by the Startup Exemption will be the first changes to the security laws in the past 20 years.
The White House and The SBA launched the Startup America website with the goal of promoting entrepreneurship in the USA. To help them understand the problems and issues facing entrepreneurs, they asked this simple question:
To date there have been over 200 replies. Over 25% of those replies have to do with capital formation! No other issue adds up to as high a percent as that. And the suggestions range from access to capital to tax credits to regulatory changes.
Now is the time! Our idea is part of the solution! Thank you all for your support and let’s tell Washington to make it legal for the average American to take a few dollars and invest it in our community entrepreneurs!
Every week we see further proof of the ability of crowd funding to get cash flowing and our economy growing. The SEC, however, has yet to make any changes that would make equity-based crowd funding (aka Crowd Fund Investing) legal. The latest proof came when Michael Migliozzi II and Brian William Flatow started a crowd funding campaign to purchase Pabst Brewing Co. They created an online campaign and used the their social media channels, Facebook and Twitter, to spread the word. Amazingly, they were able to get 5 million people to agree to pony up $200 million!
The SEC found out about the money raise and put a stop to it. According to reports, Migliozzi and Flatow neglected to register the offering with the SEC. They also targeted unaccredited investors and did so in a public fashion. And 5 million people is a tad bit more than the 35 unaccredited investors the SEC currently allows under its existing exemptions.
Granted, what these gentlemen were doing was in excess but it proves a point. There is an interest on the part of the average American to support ideas they believe in. Not only that, they are willing to part with a few dollars to make it happen. While raising $300 million on the Internet isn’t probably the most smartest thing, allowing entrepreneurs to raise a limited about of seed or growth capital via crowdfunding platforms is.
That is what the Startup Exemption is all about. We have developed a framework that will allow entrepreneurs to raise up to $1 million from their community. The Pabst campaign while worthy would not be allowed under our framework because of the size. Our goal is to help fund the ideas that will lead to great companies and use the collaborative know-how of the crowd to not only provide financial support but critical knowledge and experience.
It is important to note that the SEC was able to easily stop this campaign because of the transparency of the media and the internet. The more information (aka transparency) there is out there the less chance there is for fraud. By design, the internet is open for all to see. Fraud will never be eradicated but with transparency it will be greatly reduced. When the SEC puts our framework in place Crowd Fund Investing platforms will have safeguards to ensure the danger of fraud is kept on par with similar classes of investment.
With the interest from the masses, the time is ripe for the SEC to implement our suggested framework.
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…)