Category Archives: Jason Best

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

Posted on May 9, 2011 | Leave a comment

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  Today we have technology that has leveled the playing field and increased investor sophistication making these rules outdated.” Continue reading →

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Posted in Crowd Fund Investing, Funding Gap, Investment, Jason Best, Sherwood Neiss, Woodie Neiss, Zak Cassady-Dorion

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O’Reilley’ Radar Blogs About Crowd Fund Investing

Posted on May 7, 2011 | Leave a comment

** From http://radar.oreilly.com/2011/05/crowdfunding-exemption.html **

Improving the landscape for organic startups

A congressional committee will hear a “crowdfunding exemption” proposal next week.

by: Paul Spinrad

Next Tuesday, May 10, entrepreneur Sherwood Neiss will be testifying before U.S. Congressman Darrell Issa and the House Committee on Oversight and Government Reform to advocate a regulatory change that I have been working to support: a small offering exemption, aka “crowdfunding exemption.” It’s a simple change that the SEC has the authority to make, and which I believe would spur grassroots innovation and empowerment the way the NSF’s revision of the internet backbone’s Acceptable Use Policy did back in the early 1990s. (Remember that one?)

The background (which I didn’t know until fairly recently), is that any investment where the return does not depend on the investor’s active, day-to-day involvement is considered a security. And securities, no matter how small, are either regulated by the SEC or state securities departments. There are no de minimis exceptions; shares in a lemonade stand would require registration, which I’m told costs $50,000-$100,000 or more (federal) or $20,000-$50,000 (state), mostly legal fees. For VC-free startups based on people doing things that they care about, these costs are prohibitive. Continue reading →

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Posted in Crowd Fund Investing, Funding Gap, Investment, Jason Best, Petition, Sherwood Neiss, Woodie Neiss, Zak Cassady-Dorion

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In the News: Startups seek new form of microfinance

Posted on April 28, 2011 | Leave a comment

The Startup Exemption was highlighted again in the April 28th edition of the Washington Times: http://www.washingtontimes.com/news/2011/apr/26/startups-seek-new-form-of-microfinance/

We will be testifying at a hearing on Capitol Hill in Washington, DC on May 10th!

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Posted in Crowd Fund Investing, Funding Gap, Investment, Jason Best, Petition, Sherwood Neiss, Woodie Neiss, Zak Cassady-Dorion

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How to Provide Investor Protection in Crowd Fund Investing

Posted on April 13, 2011 | 4 comments

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)

 

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Posted in Crowd Fund Investing, Funding Gap, Investment, Jason Best, Petition, Sherwood Neiss, Woodie Neiss, Zak Cassady-Dorion

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