Woodie is another one of those â€œType-A, I can do anything I put my mind toâ€ personalities.Â He is an ambitious entrepreneur who just won Miamiâ€™s â€œStartup Weekendâ€ with an idea to use smartphones for instant polling.Â He was also in the June, 2006 INC cover story â€œFrom the Heartâ€ where he helped start and grow a 3-time, INC 500 company that solved the problem of getting kids to take yucky tasting medicines.Â (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.Â â€œThis capital is critical for startups and small businesses to grow and hire Americans,â€ he says.Â While government is focused on trying to fix the current system, he thinks the solution goes back to our roots.Â Roots?Â Yes indeed, but not the kind you find on vegetables.
â€œYou see,â€ says Neiss, â€œwhen our Nation was born there werenâ€™t big corporations, large banks or even private equity & venture capital.Â For example, there were businesses like the blacksmith and his customers who needed tools.Â Customers purchased his products, which paid for his employees and helped fund his growth.Â Â And they were his neighbors.Â Only today do we identify a problem; then come up with a solution (aka product) and think, â€œok now letâ€™s find some Venture Capital.â€
â€œNot so,â€ says Neiss and he is so determined to take us back to our roots that heâ€™s launched a full-scale campaign to change the antiquated laws that are prohibiting Americans from investing in entrepreneurs.
The story is easy to understand. The banks arenâ€™t lending, credit card financing isnâ€™t an option because their interest rates are insane, Venture Capital wants to give you $5M when all you need is $50,000 and Private Equity and Angels are chasing the same few deals.Â This leaves the other 98% of all startups looking at each other saying, â€œdâ€™ohâ€ (said with a Homer Simpson voice).
And if youâ€™ve ever tried to raise capital you know that almost 80 years ago Congress enacted legislation designed to prevent big business from taking advantage of the little guy.Â These are the same rules that today equate the risk of 1 person investing $1M into a business as 1,000 people investing $1,000 into a business. Â Â â€œNot quite the same degree of risk,â€ says Neiss.Â Not only that, but these laws require prohibitively costly compliance measures.Â Measures that, lo and behold, big businesses can afford to pay but the little guy canâ€™t.
Companies like Kiva and Kickstarter are trying to address the problem. People with ideas need money to fund them.Â They go to the â€œcrowdâ€ and thousands of people fork over millions of dollars for t-shirts or tokens or nothing but warm tingly vibes.Â â€œDamn thatâ€™s great!â€ says Neiss.Â â€œHowever, what if we could earn a return on our investment?Â Wouldnâ€™t that help foster the ambition?â€
That brings us back at the same stumbling block.Â Unless you can self-fund, have friends with deep pockets or just won the lottery, thereâ€™s really nowhere to turn.
Thatâ€™s why Neiss is fed up and he does make a good point.Â Startups donâ€™t have an interest in Washington, DC.Â They are cash strapped, focused on their business, and fragmented as a group.Â Hence, they are rarely paid attention to in Washington other than the usual bipartisan political lip service.Â However, everyone in DC is talking about them as if they are the saviors of our economic crisis.
So Neiss took it upon himself to take the argument to Washington, DC.Â Instead of talking about the problem, he crafted a solution that he says, â€œis in the spirit of the law and contains investor protection and restriction.â€Â At the end of January he headed to the Securities & Exchange offices and pled his case.Â Then he flew to New York, won the support of Whoopi Goldberg, launched www.startupexemption.com and now has Whoopi talking about it.
Together Neiss & Goldberg are pushing for a new exemption to the Securities laws that would:
a)Â Â Â Â Â Â Â Â Â Â Â Â Create an exemption for small business offerings (debt or equity) of less than $1,000,000.
b)Â Â Â Â Â Â Â Â Â Â Â Limit the maximum contribution by any one individual to no more than 10% of their prior yearâ€™s Adjusted Gross Income or up to $10,000/individual, whichever is less.Â ($10,000 is also in line with banking, foreign exchange, and other established financial limits).
c)Â Â Â Â Â Â Â Â Â Â Â Â Require a set of standardized and automated procedures for these financing offerings to reduce time and expense for all parties while maintaining transparency.Â (He suggests using a modified SCOR form.Â Especially for those companies that are just ideas and donâ€™t have financials yet).
d)Â Â Â Â Â Â Â Â Â Â Â Have investors complete an online form/test on the risks involved in private offerings before being allowed to invest.
e)Â Â Â Â Â Â Â Â Â Â Â Â Allow the creation of channels or sites where ideas, individuals, companies and investors can meet, be vetted by the organizations hosting those channels and entrepreneurial funding can take place.Â (The SEC could even go so far as to require the registration of these channels/sites for transparency purposes).
Whatâ€™s the goal of this?Â â€œTo kickstart those ideas that otherwise would never have left the kitchen table.Â To provide access to capital from their peers.Â To provide entrepreneurs with tools to hold them accountable.Â And to help form businesses that will eventually provide tax revenue as well as rehire Americans.â€
Does this compete or replace Private Equity or Venture Capital?Â â€œNoâ€ says Neiss.Â â€œPrivate Equity and Venture Capital arenâ€™t focused on these deals.Â We want to help germinate ideas that will be funded in the future by PE or VCs.Â However right now we are unable.Â As a â€œType-A, I can do anythingâ€ personality, heâ€™s determined to change the rules of the game.Â And you know what?Â If heâ€™s successful, he just might be one of the reasons why our economy emerges on top.
About STARTUP EXEMPTION.Â Startup Exemption is an initiative spearheaded by Sherwood Neiss and a group of cash-strapped entrepreneurs.Â Mr. Neiss came across the problem when trying to help crowdfund one of his startups.Â The lawyers made it clear that the rules for raising capital where complicated and required costly compliance measures.Â Understanding the importance of startup capital, as well as the need to focus on the idea, he set about to change the way the law oversees investing in Startups.Â Their goal is to add an additional exemption to the Securities & Exchange laws based on â€˜Crowdfund Investing.â€™Â Online petition and more information can be found at: www.startupexemption.com.
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