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The New Crowdfunding Law: What Does it Mean?

March 24, 2012 · Leave a Comment

March 23, 2012
FOR IMMEDIATE RELEASE

  3 Entrepreneurs, 579 days, 1 Crowdfunding Law

Now, What Does it All Mean?

(Washington, DC) – The Jumpstart Our Business Startup Act (JOBS Act), H.R. 3606, passed the U.S. Senate on March 22, with overwhelming support (73-26). So what will the impact be, particularly as it relates to the CrowdFund Investing measure, for America’s entrepreneurs and small businesses?  According to the three entrepreneurs who developed the crowdfunding framework, which was the basis for the legislation, it means a new source of funding, more jobs and a greater chance of success for small businesses.

The U.S. House passed the Jobs Act on March 8 (390-23), and the U.S. Senate amended the legislation before its passage on March 22.  House Majority Leader Eric Cantor (R-VA) said he plans to schedule a vote on the amended package early next week. This means the legislation could be signed by President Barack Obama next week, if the House passes the Senate amended bill (which it is expected to do).   

More small businesses will get funded

“With the passage of this legislation, entrepreneurs will be able to post their businesses on SEC-registered CrowdFund Investing (CFI) websites and the community will step in to fund only those ideas they have fully evaluated and made an informed decision about,” says Jason Best co-author of the CrowdFund Investing Legislation that passed both chambers.   Entrepreneurs will use Facebook, Twitter and other social media tools to reach out to their customers and say, “If you like our business so much, why not become an investor?”

Investors (who must first take a short quiz to make sure they understand that investing in a business is a highly risky endeavor with no guarantees) will pick apart the entrepreneur, the idea, the business model and the investment opportunity in an open manner with other members of the community.  Until 100% of a funding target is met, no money will be transferred, but once it is, an entrepreneur will have not only cash, but also a loyal customer/investor base.

With the collapse of the markets in 2008, the traditional means of financing for startups and small businesses – credit cards, home equity lines, bank loans and venture capital – disappeared.  Interest rates increased, home equity lines disappeared, and banks stopped lending to Main Street.  Venture capital shifted to larger, more secure deals.  A funding void ensued ($0 to $250,000 in financing) that no one has yet filled.  According to the Small Business Administration (SBA), this is the most critical seed and early-stage growth capital necessary for success and the number one reason why startups fail in the first five years. 

More startups and successful businesses means more jobs

More jobs will be created once startups and entrepreneurs have access to capital. According to the Kauffman Foundation, the majority of new jobs in the U.S. over the past 30 years have come from small businesses that are less than five years old.  Sherwood Neiss who co-authored the crowdfunding framework with Best observed: “We are entrepreneurs who prior to the 2008 financial collapse were able to access capital to launch Inc500 businesses that created over 150 direct and countless more indirect jobs.”

According to Neiss, “cash is king” and following the 2008 collapse it became exceedingly scarce.  “We were left trying to figure out how to launch new businesses and create jobs without access to capital. So we merged the principles of seed financing and crowdfunding together to develop a framework.”

The framework will allow friends and family to invest up to $1 million into an entrepreneurial enterprise, but individual investments are capped below $10,000.  The capital will either go directly into hiring people or into the purchase of products or services. 

More successful enterprises, and a healthy entrepreneurial ecosystem

The crowdfunding platforms will lead to more community investing and more successful local businesses because people will have a vested interest in the success of these entrepreneurs.

“Five years from now we are going to look back on the impact CrowdFund Investing has had on the world,” remarks Zak Cassady-Dorion Co-Founder of Startup Exemption. “We are going to see more vibrant communities where the residents aren’t just consumers but are also owners helping to drive the success of their local entrepreneurs and communities.” 

And why is this important?  “Because a strong entrepreneurial ecosystem depends on access to capital.  Freeing up new sources of capital – as the JOBS Act will do through crowdfund investing – will strengthen our nation’s small business sector, and add to their job creating capacity. Being accountable to community investors will enhance success,” says Karen Kerrigan, president & CEO of the Small Business & Entrepreneurship Council (SBE Council).

As for investor protection, says Neiss, “Under the CrowdFund Investing model, we believe it is going to be easier to expose fraud with social networking and the real-time Web.  At the community level the people investing will be investing in people and businesses they know or have carefully evaluated.  With the transparency of the social Web, fraud can be exposed before it can take place.  We have seen this work on donation-based sites to great effect.”  

About  STARTUP EXEMPTION: 

Startup Exemption is the name 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 three Crowdfunding bills considered by Congress and was endorsed by the President.  It passed the US House in November, 2011, 407-17 and the US Senate on March 22, 2012 as part of the JOBS Act 73-26. The path from idea to law in 579 days can be found at: http://www.startupexemption.com/.

Contact Information:

Sherwood Neiss                                       Jason Best

(202) 247-7182                                 (415) 999-2271

Available  7am to 7pm M-F (ET)           Available  7am to 7pm M-F (PT)

sherwood@startupexemption.com   Jason@startupexemption.com

Other Links:

About The Small Business & Entrepreneurship CouncilSBE Council is a nonprofit, nonpartisan advocacy organization dedicated to protecting small business and promoting entrepreneurship. For more information, please visit: http://www.sbecouncil.org/.

Contact Information:  Karen Kerrigan, (703) 242-5840, kkerrigan@sbecouncil.org

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Crowdfunding Industry Establishes Standards to Help Protect Entrepreneurs and Investors and Spur JOBS Act

March 21, 2012 · Leave a Comment

Crowdsourcing.org and Crowdfunding Industry Experts Launch Crowdfunding Accreditation for Platform Standards (CAPS) Program

LOS ANGELES, CA, Mar 21, 2012 (MARKETWIRE via COMTEX) — Today, the JOBS Act took one step closer to becoming law. On the heels of the JOBS Act passing the Senate cloture vote by a wide margin (with two amendments pending) — which will allow companies to offer securities to non-accredited investors via crowdfunding platforms — the launch of the Crowdfunding Accreditation for Platform Standards (CAPS) program is the first significant milestone adopted by the industry. The CAPS program establishes standards for crowdfunding operations and aims to protect investors from fraud. As the industry begins the process of creating a self-regulatory framework, CAPS — which will govern the accreditation of crowdfunding platforms — will be a key pillar within this framework.

More than 400 crowdfunding platforms were operating in January 2012. As industry leaders recognized that investors would need help and more information when funding ventures through these platforms, the CAPS program was created to ensure a secure and reliable experience. Now CAPS-accredited platforms will display the CAPS badge on their sites to demonstrate they have been accredited based on qualification criteria in four areas:

 

  • Operational transparency
  • Security of information and payments
  • Platform functionality
  • Operational procedures

 

“Now that crowdfunding legislation is gaining momentum in Washington, the future of the industry will be determined by its ability to create a consistent and safe environment,” said founder of Crowdsourcing.org Carl Esposti. “As the intermediary between investors and entrepreneurs, crowdfunding platforms owe fundraisers and investors a high degree of transparency and the ability to facilitate secure transactions to reduce the risk of fraud. If the industry can deliver in these areas, the potential is unlimited, and crowdfunding can effectively become the backbone of both SME financing and philanthropic donations.”

The CAPS Council, the governing body of CAPS with currently 11 crowdfunding experts, has taken the initiative to establish these accreditation criteria to ensure crowdfunding platforms adequately protect fundraisers and investors. Members of the CAPS Council include:

  • Carl Esposti, founder of The Industry Website Crowdsourcing.org
  • Sherwood Ness & Jason Best, founding members of the Start-up Exemption, and leading lobbyist and advocate for crowdfunding
  • Kevin Lawton, author of Crowdfunding Revolution

Following an initial private invitation-only launch, eight organizations — Crowdcube, Grow VC, Crowdfunder, GreenUnite, HelpersUnite, Symbid, Give A Little and Fundrazr — have been accredited by the CAPS program and another 20 organizations are currently undergoing the process. More than 200 crowdfunding platforms are expected to apply for accreditation in 2012.

“Crowdfunding is the future of seed and growth financing for startups and entrepreneurs,” said Sherwood Ness, founding member of the Startup Exemption. “It uses the web, social media and advances in technology to allow an entrepreneur to raise a limited amount of capital from his friends, family & community under a framework that provides for investor protection. Establishing high platform standards is the clear next step to not only protecting investors but also to ensure continued success and growth of the industry.”

Journalists interested in speaking to a CAPS Council member or learning more about the program can contact Jennifer Moebius at jennifer@moebiusink.com.

About  STARTUP EXEMPTION:

Startup Exemption is the name 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 three Crowdfunding bills considered by Congress and was endorsed by the President.  It passed the US House in November, 2011, 407-17 and the US Senate on March 22, 2012 as part of the JOBS Act 73-26. The path from idea to law in 579 days can be found at: www.startupexemption.com.

Contact Information:

Sherwood Neiss                                          Jason Best

(202) 247-7182                                          (415) 999-2271

Available  7am to 7pm M-F (ET)                 Available  7am to 7pm M-F (PT)

sherwood@startupexemption.com             Jason@startupexemption.com

Other Links:

About Crowdsourcing.org

Founded in 2010, the industry website Crowdsourcing.org is a neutral organization dedicated solely to crowdsourcing and crowdfunding. As one of the most influential and credible authorities in the crowdsourcing space, Crowdsourcing.org is recognized worldwide for its intellectual capital, crowdsourcing and crowdfunding practice expertise and unbiased thought leadership. Crowdsourcing.org is an initiative by massolution, a unique research and advisory firm specializing in crowdsourcing and crowdfunding solutions for private, public, and social enterprises. More information at www.crowdsourcing.org .

Media Contact
Jennifer Moebius
Email Contact
Phone: +1-617-922-8004

www.twitter.com/Crowdsourcing_

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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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Startup Exemption & SBE Council to Hold Crowdfunding Briefing for Senate Staffers

December 10, 2011 · Leave a Comment

Crowdfunding Briefing, December 15, 10:00 a.m.
December 7, 2011

Please Join SBE Council for this Briefing Event

Crowdfund Investing: A Modern and Transparent Platform to Help Entrepreneurs Access Capital

December 13th
10:00 a.m. -11:00 a.m.

 Featuring

Woodie Neiss, Co-FounderStartup Exemption

Freeman White, CEO & Founder, Launcht.com

Karen Kerrigan, President & CEO, SBE Council (Moderator)

Crowdfund investing legislation passed the U.S. House 407-17. Now, the U.S. Senate is considering similar legislation that would modernize SEC regulations and allow entrepreneurs to raise and identify new sources of capital through crowdfunding platforms. How will these platforms work to help entrepreneurs raise capital while protecting investors?  How do startups use crowdfunding currently?  How would startups and startup investors like to use crowdfunding in the future?  What about fraud? Experts on crowdfunding and advocates for reform legislation will answer questions about this transformative approach for raising capital.

Briefing will take place at:

 Jones Day
• 51 Louisiana Avenue, N.W.     • 
Washington, D.C. 20001-2113

  

Rsvp: (703)-242-5840, or mvaught@sbecouncil.org

  

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Categories: crowdfunding · Sherwood Neiss
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Frustrating Day for Crowdfunding at the Senate

December 1, 2011 · Leave a Comment

Today was a frustrating day for Crowdfunding.  The Senate Banking Committee, one of the most powerful committees on Capitol Hill held a hearing called, ‘Spurring Job Growth Through Capital Formation While Protecting Investors.’  It should have been called, ‘Why We Need to Stop Americans From Investing $1,000 into their Community Entrepreneurs.’

Anyone attending today’s hearing could tell it was to listen to special interests and regulators talk about the risks inherent in investing under the current system and why we need to protect consumers.  There was no discussion about protecting people from spending their $1,000 paycheck on a lottery ticket, gambling it on Red in Vegas, nor spending more than that on their credit cards and being locked into interest payments upwards of 36% on the balance.   For some reason, the only area they feel we need to provide prudent consumer protection is when a person is making a decision where they want to invest their money.  Why?  Because the expectation is different.  Yes, we expect to win the lottery.  Oh wait, no we don’t.

What’s the point of having a hearing about small businesses and capital formation if there isn’t one panelist that is an entrepreneur, small business owner or crowdfunding expert?  How do you have a balanced discussion of crowdfunding if there is no one on the panel to discuss how crowdfunding works, the merit of allowing the community to back their local entrepreneurs, how the crowd will only fund those ideas they collectively decide are worth and how the social media connectivity will expose fraud and foster winning ideas.  More importantly, if you don’t have a crowdfunding representative on the panel, how do you expose the blatant misrepresentations from the other panelists about crowdfunding?

One of the most frustrating parts of the hearing was when John Coffee the anti-crowdfunding law professor from Columbia said crowdfunding could lead to a situation where unlicensed, nefarious salesmen “who look like Danny Devito,” could set up shop in a bar or coffeehouse and peddle risky offerings to unsophisticated investors. And “In its current form, [Senator Brown’s] bill could be called the Boiler Room Legalization Act of 2011,” Boy does this drama sell.  His fabrication immediately became the cover story for Investment News.

If you are reading this, you understand that the Crowdfund Investing framework we put together is based on a few main principles:

  1. Social Networking – you are raising capital from your friends, family and community.  Your 1st degree connections.
  2. Communication – you must clearly articulate to your friends, family and community what you are doing, why you need this money, why they should trust you to do what you say and why this is a good investment opportunity for the crowd.
  3. All or nothing financing – using the principles of lean startup, you should set the minimum amount of money that you need to accomplish the milestones that you set out to your investors.  If you don’t hit that funding target, you aren’t funded.

You also know that the very first thing we advocate is a fraud/background check to keep unsavory people from participating.  That Crowdfund Investing platforms will need to be registered with the SEC and that we advocate for communicating who (including name, address, social security number, etc) is raising money on crowdfunding platforms and sending that information to both the SEC and the State Regulators.

What the panelists were discussing today was another form of Reg D offering without the safeguards that we’ve been advocating for 11 months.  Not one of the panelists today acknowledged how crowdfunding works or any of the principles above. Obviously, just looking at them, it is clear that none of them have a Facebook page, have tweeted or blogged to a community that follows them.  No wonder they don’t understand how crowdfund investing would work.

Why is it that the people who are crafting the rules under which entrepreneurs can raise capital are the same people who benefit from the rules not changing or changing in their favor?

At the end of the day, why not focus on what we do know.  Crowdfunding has been around for over 5 years now.  Over half a billion dollars has been given away and while we still expect people to do what they say with their money, no one has complained of fraud.  It’s worked well enough up to now, under our framework it will continue to work well but have the added benefit of spurring entrepreneurialism and JOBS!

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More Proof that Crowdfund Investing is Less Risky than the Special Interest Opponents Say

November 22, 2011 · Leave a Comment

The following is an excerpt from Kevin Lawton, the author of the Crowdfunding Revolution.

I recently re-ran a quick study of the risk-vs-reward profile of penny stocks vs initial angel investments in startups (data from the Kauffman Foundation’s AIPP).  See below.  It’s yet another confirmation that early stage investments are actually less risky and have better returns than “penny stocks” (which the public has access to without limitation).

Fraud has been trotted out as the ad naseum bogeyman, but it’s been nothing but a red herring.  Failure is the issue.  Given any degree of risk, a portfolio is necessary to mitigate against investment failure.  So far, I can not find a person (at least one who has any wealth left) who does not have a portfolio.  And thus, for any high-risk asset class where one can lose 50% of the time, having 1% of fraud is a tiny and noisy component in investment failure.

The issue has always been an education thing (i.e. the portfolio).  Beyond that, if a system suppresses crowdfunding in a futile attempt to fight the 1 unit of fraud, it will not only suppress the 99 units of investment, but often a 3x .. 10x economic multiplier (so up to a 1000 units).  Most of the crowdfunding projects tend to have a geographic locality component.  And as Amy Cortese points out in Locavesting, local businesses have a strong local economic multiplier.

But I’m most curious why we are starving private equity of some serious profits and deal flow.  Please see my brief post about how I applied a black-box hedge fund technique to amp up Venture Capital IRR from 30% to 46%.  Allowing crowdfunding platforms to flourish, opens up the door for some bigger players to access investments in smaller companies, and frankly eat some of the VC pie.

Crowdfunding platforms will include crowdsourced diligence & fraudster detection, which will rival the response time and accuracy of anything that Venture Capital has ever seen. We just need the government to get the heck out of the way…

-Kevin Lawton

Author of The Crowdfunding Revolution and serial entrepreneur

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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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Entrepreneurs to Rally – Will Urge Senate and SEC Action on Crowdfund Investing

November 10, 2011 · Leave a Comment

Startup Exemption and SBE Council to Host a Crowdfunded Rally in Support of H.R. 2930

Washington, DC – The Startup Exemption and Small Business & Entrepreneurship Council (SBE Council) announced today they will hold an event to call attention to the need for the U.S. Senate and U.S. Securities and Exchange Commission (SEC) to act on a common sense proposal that would permit crowdfund investing. The rally coincides with Global Entrepreneurship Week and the SEC’s annual meeting on small business capital formation on November 17th. The event will be held on the Capitol grounds between Union Station and the Capitol building at 8:00 a.m.

True to the tenants of crowdfunding, the group is crowdfunding the costs of the event with a pitch on IndieGoGo.

The goal of the rally says Sherwood Neiss, Chief Advocate of the Startup Exemption is to “put a face to Joe the Entrepreneur and Jill the Innovator and call for action by the Senate and the SEC. Representative Patrick McHenry used our framework for H.R. 2930, the ‘Entrepreneur Access to Capital Act.’ The bill recently passed the House in a unique burst of bipartisan support with a vote of 407 to 17. This Act represents a major step forward in solving the capital crisis facing our nation’s job creators while bringing securities laws into the modern era.”

Crowdfund Investing (CFI) builds on the tenants of crowdfunding. While in traditional crowdfunding, a group of individuals “donate” small amounts of money to an idea (for example, an art related project). In CFI, individuals use small amounts of money to buy equity in a business. The goal of CFI is to provide entrepreneurs and small businesses with access to capital that they will use to grow and hire. Individuals are motivated to invest by the desire to support an entrepreneur and her business plan, to be a part of the solution to our economic woes, and for a potential financial return.

Jason Best, co-founder of the Startup Exemption said, “Our proposal is a jobs initiative that everyone can agree on and requires no government spending. Providing this funding option to connect entrepreneurs with the capital they need, will unleash the next wave of American innovation and create jobs. With President Obama officially backing Representative McHenry’s bill, we look forward to quickly advancing this common sense framework in the Senate.”

SBE Council President & CEO Karen Kerrigan observed that the quick pace of the crowdfund investing bill demonstrates that members of both political parties understand capital access is a critical issue for both entrepreneurs and our nation’s economic recovery.

“Crowd fund investing will give small business owners and entrepreneurs access to sources of capital they currently cannot tap into without triggering complex SEC rules. With common sense reforms, more Americans will be able to invest in promising small businesses, which means more jobs and greater economic growth. Reformulating outdated rules while maintaining investor protections will help entrepreneurs identify and connect with potential funders,” said Kerrigan.

She added: “We are very excited that Congress and President Obama are seeking intelligent and innovative ways to help small business owners access capital. Technology and the Internet have leveled the playing field in so many other areas for entrepreneurs, and it only makes sense that they are allowed to tap into its power and the intelligence of the crowd for needed capital.”

Crowdfunding has grown in popularity over the past 5 years with millions of participants around the world. Entrepreneurs see CFI as a way to raise moderate amounts of capital and investors see it as a way to help entrepreneurs in their community. Numerous academic reports discuss how SEC rules block small business’ access to capital. SEC-registered Crowdfund Investing websites will provide the platform for investors to analyze ideas and self-select those community entrepreneurs they wish to support.

According to H.R. 2930, only businesses that reach their funding target will be funded, entrepreneurs cannot raise more than $2M and investors are limited on how much they can invest. The SEC would continue to provide prudent oversight to CFI to mitigate the risk of fraud and protect investors.

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About STARTUP EXEMPTION: Startup Exemption is an initiative spearheaded by Sherwood Neiss, Jason Best and Zak Cassady-Dorion. Mr. Neiss, a 3-time INC500 entrepreneur, came across the problem when trying to help crowdfund two of his startups. While discussing it with Mr. Best, a 2-time Inc 500 entrepreneur, lawyers made it clear that the rules for raising capital were arcane, complicated and required costly compliance measures. Understanding the critical importance of startup capital, these three colleagues set about changing the regulations for investing in Startups. Their goal is to add an exemption to the Securities & Exchange laws based on Crowdfund Investing aka equity-based crowdfunding. Online petition and more information can be found at: http://www.startupexemption.com/.

SBE Council is a nonprofit, nonpartisan advocacy, research and training organization dedicated to protecting small business and promoting entrepreneurship. For more information, please visit http://www.sbecouncil.org/.

Sherwood Neiss sherwood@startupexemption.com
(202) 247-7182

Jason Best
Startup Exemption
(415) 999-2271
jason@startupexemption.com

Karen Kerrigan, (703) 242-5840
SBE Council, 
kkerrigan@sbecouncil.org
Mabel Vaught: mvaught@sbecouncil.org

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Categories: Crowd Fund Investing · Jason Best · Sherwood Neiss
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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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