Tag Archives: HR 2930

The Commonsense Crowdfund Investing Compromise

Posted on February 13, 2012 | Leave a comment

Great progress has been made to legalize Crowdfunding in the US with 3 bills before Congress.  We have seen Crowdfunding gain traction in the US with 2 donation-based projects raising over $1.5M each on Kickstarter.  In addition, the UK is accelerating it’s push to encourage Crowdfunded Investments by offering a new tax credit.  Now is the time to push Crowdfund Investing legislation over the finish line here.

As we move the Crowdfund Investing legislation forward it is important to keep the following in mind.  1) It has to be written so a market can successfully be formed, within the confines of the regulations.  (i.e., Trying to crowdfund $250,000 in increments under $1,000 is going to be nearly impossible if entrepreneurs are forced to raise 100% of their funding request in order to be funded).  2) It has to be easy to understand from an entrepreneur’s, an investor’s and intermediaries point of view.  3) It needs to be fair, without needless bureaucracy and costs where the advances in the Internet and technology can offer enhanced security and streamlined process and 4) It needs to be done in a way that our Nation’s Job Creators can start capitalizing on its effectiveness NOW… without getting bogged down by lengthy SEC rule making.

In order to help advance this legislation, the Startup Exemption,which represents over 5,000 active crowdfunding followers (including entrepreneurs, investors, intermediaries, security lawyers, authors, and security experts) sought a consensus on the 3 bills.  The goal was to take the best of them and consolidate it into one that would provide access to capital without undue bureaucracy.  It is important to keep in mind that the technology built into today’s Internet can allow both the transfer of information between entrepreneurs and potential investors as well as intermediaries and regulatory agencies without lengthy and costly bureaucracy — all in a transparent and accountable fashion.

 We hope the compromise ideas (click here for the full PDF) we put forth in these pages are helpful as you  push this legislation across the finish line.
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Posted in crowdfund investing, crowdfunding, Jason Best, Sherwood Neiss, Zak Cassady-Dorion

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Obama Pressures Congress for Crowdfund Investing!

Posted on January 25, 2012 | Leave a comment

In tonight’s State of the Union Address the President said the following to a loud round of applause: “It means we should support everyone who wants to work and every risk taker and entrepreneur who espires to become the next Steve Jobs.  After all innovation is what America has always been about.  Most new jobs are created in startups and small businesses.  So let’s pass an agenda that helps them succeed.  Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.  Expand tax relief to small businesses that are raising wages and creating good jobs.  Both parties agree on these ideas.  So put them in a bill and get it on my desk this year!”

Crowdfund Investing is the zero-cost government initiative he is discussing that can create millions of jobs!  The President gets it.  The House of Representatives gets it!  Now we have 2 bills in the Senate.  Let’s get this on the desk of the President NOW so that we can get back to innovating and creating jobs!

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Posted in Crowd Fund Investing, crowdfunding, Sherwood Neiss

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You Can Crowdfund a Politician but you Can’t Crowdfund an Entrepreneur

Posted on January 25, 2012 | Leave a comment

On Tuesday January 24, 2012 President Obama delivered the State of the Union Address.  He highlighted the challenges our economy faces and the direction in which we need to take the country.   One of our nation’s biggest challenges he focused on is unemployment.  Crowdfund Investing (CFI) also known as equity-based crowdfunding, is a solution to the jobs crisis.  We originally pitched this idea to Washington a year ago. CFI allows the community to fund their local entrepreneurs to spur innovation, launch businesses and create jobs.  And it is one of the solutions the President supports.   Our framework is the basis for all the bills before Congress (HR.2930, S.1791 & S.1970).  And until we legalize it, we can’t help fund our nation’s net new job creators.

Politicians use crowdfunding daily.  It is how they fund their campaigns.  They go out to thousands of supporters and say, “Hey give me as much money as you can afford (capped, of course).  Collectively it will add up to something substantive so that I can talk about my goals, build my team, market my message and get elected (or re-elected).”  Entrepreneurs do the same thing (take an idea, make a proof of concept, build a company, and hire employees to market and grow) but only with accredited investors.  Here’s the ironic part.  It is legal for politicians to go to the masses but illegal for entrepreneurs to do the same thing.

When it comes to crowdfunding, entrepreneurs are held to a different standard than politicians. Yet politicians constantly look to them as the solution to our economic woes.  Why are there rules on how much money one has to make in order to give to an entrepreneur but there are none when it comes to politicians?  Do you know that 100% of Americans can give to politicians of their choice but only 5% of Americans can invest in entrepreneurs that can create jobs?   In full disclosure, the rationale (according to the opponents to Crowdfund Investing) is that Americans aren’t sophisticated enough to understand the risks inherent in investing in startups.  They don’t understand that there are bad actors in the marketplace.  They are gullible and believe the first thing anyone says.

If they don’t think people are sophisticated enough to decide how to invest a few thousand dollars in a venture, why do they think they are smart enough to choose the right candidates?   Why do we allow people the freedom to use their money as they wish when it comes to crowdfunding politicians but we don’t give them the same freedom to use their money as they wish when it comes to investing in startups and entrepreneurs?  Are we to assume that there’s no fraud in politics?  Should the supporters of Representative Weiner or Presidential Candidate Herman Cain get refunds?

This election season half a billion dollars will go to fund the campaigns of many a politician.  Imagine the impact we could have on our economy if those same dollars went into starting new business ventures?  Businesses create jobs; jobs provide income, which consumers spend in order to live.  Increased consumer spending stimulates the economy. This will get us out of the recession.

Our conclusion is simple.  If people are deemed smart enough to invest in the right politician, shouldn’t they be able to do the same, freely, in a business?   The time is now to change the security laws that were written 80 years ago.  The Internet can allow us to identify those ideas we deem worthy and fund them with the same dollars we spend on political campaigns. Crowdfund Investing is the mechanism to allow it all to happen.  Join our cause to make Crowdfund Investing legal in 2012!

Ps – Our statisticians performed some analysis on entrepreneurship based on data from the Census, the SBA and the Kauffman Institute.  If we legalize Crowdfund Investing over the next 5 years we can launch over 500,000 jobs that have the potential to create 1.5M jobs!

 

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Answers to the Arguments Against Making Crowdfund Investing Legal – Part 1

Posted on January 5, 2012 | Leave a comment

There are two sides to every story.  The same can be said for those who support and those who are against Crowdfunding.  The proponents tend to be entrepreneurs, innovators, and America’s jobs engine.  They are the ones advocating in favor of allowing entrepreneurs to raise a limited amount of capital from their friends, family & community.  They are a fragmented group by nature, heads in the sand, focused on their businesses without deep pockets or the backing of special interests.  The major opponents to crowdfunding are the SEC, FINRA and NASAA.  They are government bureaucratic agencies with a vested interest in the current system, widespread oversight and deep pockets.  Their job is to protect and regulate the large, often complex, public markets.  However they tend to do so at the expense of small businesses.  Overly bureaucratic rules, we see time and again, have a trickle-down effect on small businesses that hamper growth.

The following chart summarizes the arguments for and against Crowdfund Investing.

 

Lobbyists Against CFI

Advocates for CFI
1) CFI will undermine important investor protections and prevent State Securities Regulators from enforcing meaningful parts of state investor protection laws. 1) CFI provides the same enforcement at the community level with hundreds of people, that the highly bureaucratic and costly process of only a few eyes does at the state level. Both State Regulators and users of CFI will actively be regulating the CFI industry: making sure the entrepreneur is real and making sure the investment opportunity is sound. Unless hundreds of people agree together no business will be able to raise their funding round. In addition, CFI users will provide something that State regulators can’t: the ability to decide pre-funding if an idea is worthy through an open dialog between and among the investors and the entrepreneur. Regulators can determine if enough information is disclosed but they cannot control the conversation that will either foster or deter investments. This conversation among the participants is the key element of investor protection that will be handled better by the participants, who have a vested interest in finding the truth, rather than the State Security Regulators.
2) Provisions of the Crowdfunding Bills would preempt the states’ authority to review offerings of “crowdfunded” securities 2) Current State-based regulations do not fit into the way business is done in the internet age.  The SEC will have strong regulatory power over all Crowdfund Investing Websites and only SEC-regulated sites will be able to conduct CFI.  This will limit who can crowdfund and provide a filter of crowdfunded securities.  If startups and small businesses are forced to file with all states, they would spend all of their time and the majority of the funds they raised in filing fees and regulatory process.  Streamlining the process with SEC oversight, while preserving the enforcement powers of states to pursue bad actors is what CFI proposes.  This will lead to more organization and structure for those companies that go on to larger, more traditional rounds of financing that require state review.
3) It is crucial that the states retain full authority to review securities offerings in this area, given the significant fraud in this segment of the market. 3) Before any entrepreneur can use any CFI platform they will have to submit to a fraud/background check.  No other form of current capital raising makes this mandatory.  Unless an entrepreneur’s fraud/background check comes out clean (we also advocate for having a minimum credit score), he won’t be able to raise capital on CFI platforms. The opponent’s argument misses the transparency and speed that the social Web provides in investor protection. If you are confused about transparency think of all the data we emit on the internet on a daily basis.  Any false moves can and will be uncovered and disclosed.  For easy examples think of what happened with Representative Weiner and actor Alec Baldwin – their actions were immediately discussed on the internet: this is the nature and power of Social Media.  Our framework also proposes a “one-touch” filing mechanism so that states can receive a “unified dataset” on a regular basis. This is the same data that they would seek in their review, and much of the same data found on a SCOR filing form. State Regulators fighting to be the ones to control this process will only make the process longer, more bureaucratic, and end up costing more for the same effect.
4) Protections provided by state review are even more essential because companies offering exempt securities under the Crowdfunding Bills will not issue ongoing reports like true public reporting companies. 4) We agree, there is nothing more transparent than communication. The reporting and communication that takes place for public companies is required because of the complexity of their organizations and broad spectrum on their investors.  Public companies need to file public reports so investors can see what they are doing. (Albeit we’d love to see a report of how many investors are reading a corporate’s 10k’s). Because CFI is based on community financing, the social interactivity between the entrepreneur and investors will provide the communication and transparency about what is happening with the company and money invested.  All this information will take place on CFI platforms, which will be open to the community investors as well.  Again, a degree of transparency much more acute than that of public companies. Because of the open nature of the SEC regulated CFI platforms that we are proposing, when one investor has a question, all investors will be able to see the question and the answer. Today, if an investor has a question about a public company chances are it will go unanswered or only addressed at an annual meeting.  CFI will provide immediate and continual reporting.
5) Further, as crowdfunding centers on community investment, the oversight should be vested in the regulator with the most direct interest in protecting that community. 5) Agreed, regulators need to provide the oversight for complex organization for which there is no other advocate for the investor.  In CFI platforms those most directly connected to the community are the entrepreneur and those investing in them.  The difference is now the community has a ‘role’ to play in Crowdfund Investing.  And that role is oversight.  Today more than ever, people aren’t haphazardly throwing money away.  They have seen too much fraud taken place in the “regulated” markets to make them overly optimistic and confident about what someone says they are going to do, nonetheless someone they aren’t directly related.  The oversight is going to be better regulated by individuals that know the entrepreneur and expect him or her to live up to what they say than a 3rd party regulator who is not related to the entrepreneur at all.  Community banks tend to have lower default rates because of the relationship between the banker and the lendee.  The same will be said for crowdfunding.
6) Strongly oppose provisions of the Crowdfunding Bills that would expand the registration exemption under Rule 506 of Regulation D by requiring the U.S. Securities and Exchange Commission to remove the long-standing prohibition against the general solicitation of these offerings 6) Prohibiting general solicitation had a time and place prior to the advent of the Internet and advances in Technology.  Before these advances it was easier for one-to-one fraud (the majority of fraud) to take place.  By restricting the communication channel down to two people it is easier to take advantage of unsuspecting individuals.  By opening up the field of communication to regulated CFI platforms where general solicitation can only take place we still maintain how people are solicited and restrict it to these platforms.  Controlling who and how general solicitation takes place this way will provide the investor protection that the ban on general solicitation was put in place to protect.

 

 

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The 80-20 Rules Applied to Crowdfunding – Why Larger Single Investments Will be Critical

Posted on December 26, 2011 | Leave a comment

According to Wikipedia, The Pareto principle also known as the 80-20 rule states that, for many events, roughly 80% of the effects come from 20% of the causes.  The validity of the 80-20 rule can be seen throughout the economy.

Why is the 80-20 rule important to consider in relation to the Crowdfunding bills that are moving through congress?  Because where Congress sets the Crowdfund Investing limits, will determine if this legislation will create or destroy jobs and innovation. The Startup Exemption framework originally suggested $10,000 or 10% of an investors Adjusted Gross Income (AGI).  Our rationale for the $10,000/10% AGI was to cap the maximum an individual could invest based on their income but also cap the total amount anyone could put into one endeavor at $10,000. This was to provide significant investor protection for unaccredited investors who choose to invest in this high-risk asset class yet allow higher net worth individuals for flexibility to use their cash as they see fit.

The current bills before Congress each limit the maximum amount an investor can risk at different levels.  The $10,000/10% AGI we advocate matches what is in HR2930.  The Senate bills take different and more dramatically smaller positions; between $500 & $1,000.   If these lower caps from the Senate bills are enacted, it will kill the value of this legislation and will dramatically limit or eliminate the possibility of any new jobs or innovation being created via Crowdfund Investing.

Applying the 80-20 rule to crowdfunding, the theory would assume that 80% of the crowd will provide the majority of the count of contributions but the 20% of the crowd will provide 80% of the dollar value of the financing.  If this theory is true, then it is crucial that the 20% of the investors that will provide 80% of the investment dollars are able to provide larger dollar investments.

To prove this, we reached out to several of the major crowdfunding platforms and asked them for statistics on a few of their larger projects.  We specifically asked for the larger projects because we anticipate the average amount entrepreneurs will seek in their initial rounds will be $50,000.  Here’s what the data showed.

On Crowdcube, the UK’s first and largest crowdfunding platform that just successfully funded the first £1 million (approx. $1.57M) project (need we say any more about how powerful crowdfunding will be), the data revealed the following:

  • From a group of projects that raised collectively $280,800, individuals who invested less than $1,000 accounted for 81.2% of the total number of investors.
  • The remaining 18.8% of investors, who invested greater than $1,000, accounted for 93.8% of the total financing!

Indiegogo, one of the largest donation-based crowdfunding platforms which has been around longer was able to pull data from a much larger data set.  (They have funded over 25,000 projects).

  • The data indicated the more money one raises, the more reliant on $500+ contributions one is.
  • For campaigns that raised between $500 – $5,000, 24% of funding came from $500+ contributions.
  • For campaigns that raised over $5,000, 46% of total funding came from $500+ contributions.
  • For campaigns that raised over $10,000, 50% of total funding came from $500+ contributions.
  • For campaigns that raised over $20,000, 53% of total funding came from $500+ contributions.
  • For campaigns that raised over $50,000, 65% of total funding came from $500+ contributions

Profounder, one of the first to try equity-based crowdfunding but forced to augment its model for the time being, was able to share these statistics from all projects funded on their site:

  • 24% of the total number of investors contributed less than $1K.  These individuals delivered just 4% of all funding raised.
  • 76% of individuals who invested greater than $1,000 delivered 96% of all funds raised.
  • The average investment was a little over $1,700/ investor.
  • These statistics closely match what Crowdcube discovered.

The data demonstrates how important it is to allow investors the opportunity to make investment decisions at a level that is appropriate to their income/net worth, while capping the total investment level for all unaccredited investors. $10,000 or 10% of AGI (whichever is smaller) should be that limit.  The larger contributions are critically important to successfully funding companies.  If overly restrictive limits of $500, $1,000 or even $5,000 are enacted it would have a grossly negative impact in the potential for crowdfunding.

What this theory leaves out though is the importance of the small dollar donations from something other than money — a voice and a potential customer base.  While 20% of a crowd might provide 80% of the financing, if it weren’t for the 80% who expressed interest in a company in the first place by pledging small dollar funds, those larger investors would not be stepping up to the plate with 80% of the financing.  There is validity to the voice the 80% puts behind their dollars because it shows that there is interest from the crowd for the product.  Market research like that prior to launching is invaluable and something any traditional financier would look for.

We urge the Senate to enact the investment limits from our framework: $10,000/10% AGI (Whichever is lower).

 

 

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Crowdfund Investing: 13 Lessons from the Guys Who Brought Crowdfunding to Washington

Posted on December 20, 2011 | Leave a comment

Image from crowdsourcing.org

This article was originally published on crowdsourcing.org.

A year ago, Jason Best, Zak Cassady-Dorion and I were deep in the trenches either trying to launch, grow or expand our entrepreneurial endeavors. There was a common thread to all our stories: capital was scarce. The trickle-down effect of the global recession was having a negative impact on our ability to innovate. Without access to capital, how could we grow and hire? If jobs were the economic stimulus needed to lift our nation out of the recession, then someone needed to address the capital crisis facing entrepreneurs and small businesses, our nation’s job creators.

With that, we sat down and crafted a framework to allow an entrepreneur to raise a limited amount of equity capital from his friends, family or community using the tenants of crowdfunding. We then embarked upon changing outdated security laws, which were written for a period in time that did not reflect today’s technology, the internet or the flow of information. We further vetted our framework at a symposium we held in San Francisco attended by security lawyers, academics, investors, crowdfunding platforms and entrepreneurs. Buy-in was building from the community at large.

With the help of Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, Washington started to listen. President Obama came out in favor of our proposal to make equity-based crowdfunding legal, then the House drafted the first bill — H.R. 2930, the Entrepreneur Access to Capital Act — and, in a rare burst of bipartisan support, passed it 407-17. Now there are two bills in front of the Senate. All signs are pointing to some version of crowdfunding for entrepreneurs being legal the beginning of 2012.

While we aren’t done yet, our story is one of trial and perseverance, of old vs. new. Many people have asked us what we’ve learned along the way, so here are 13 lessons from our journey to get this legislation passed…

1) Giving up is not an option.
2) When you’re in a recession and you have a solution to the jobs crisis, people listen.
3) There is power in a few voices. Showing up in Washington is more than half the battle. Making your voice heard does resonate and people on Capitol Hill can and have been incredibly gracious with their time, experience and knowledge.
4) The people trying to run the government aren’t bad people. As a matter of fact, the majority of people there work insanely hard for the good of our nation, but the bureaucracy makes it difficult to understand and the media spins public perception of our elected officials.
5) On the Hill, both sides need to feel like they are winning. In order to get to the end goal, you need to present Washington with 100% of something that will be reduced to 25%, whereby each party can add back bits and pieces, bringing it up to 85% or so. We might not get 100% of what we want, but both parties will feel satisfied that they did their job.
6) Fear is the enemy of progress. The special interests have spent countless hours and dollars to derail the discussion from entrepreneurship, opportunity and jobs to focus on fraud. Fraud sells like sex and their message resonates with the media even though it defies logic. We haven’t shut down the markets because of fraud.
7) It is true, money and special interests (lobbies) control Washington in an unhealthy way and eerily so. They don’t try too hard to hide who they represent. You quickly come to understand how the special interests can be nice to your face and stab you in the back. If only you could have been present for some of the nice chats we’ve had with the special interests only to see what they espouse in the media.
8) Believe it or not, there is logic to some of what the opposition has to say. Fraud is an important point. Social media and crowd vetting has shown how we can mitigate this.
9) It is easier for the opposition to focus on the past than craft a working solution for the future. The opposition isn’t focused on helping the American economy and creating jobs. They don’t claim to be. And yet no one asks them, if you see the problems in the capital markets firsthand, why don’t you see the solutions as well?
10) In America, one’s right to use one’s money as he see fit is trumped by the government’s right to tell you how you can invest it. Isn’t there a first amendment case here?
11) Lobbying is exhausting; it takes a lot of patience and you have to get comfortable educating and repeating the same information over and over.
12) Nothing in life is free. This has cost us a lot of personal time, energy and money. We are grateful to people that have supported our struggle and are dismayed by those who stand to benefit the most but not participated materially or financially. It is no wonder why special interests succeed with the endless flow of capital to their coiffeurs. Couch surfing — thank you various D.C. friends — is exhausting and eating up your own financial resources is painful.
13) And once more: giving up is not an option.

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

Posted on 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-Founder, Startup 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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Post Rally Update

Posted on November 22, 2011 | Leave a comment

We have a problem and we need YOUR HELP. Everyone we met with last week after the rally said the same thing:  “If you don’t get this bill passed in the Senate by the end of the year, you will have no chance of passing it at all because 2012 is an election year.”  If you read no further, please 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.

12 months ago, everyone said allowing an entrepreneur to go to his friends, family and community to raise small amounts of capital to fund their startup or small business would never be made legal.  After the last 9 months of work, we have proven there IS a market for Crowdfund Investing (CFI) and that President Obama, the US House of Representatives, the Small Business and Entrepreneurship Council and the US Chamber of Commerce all agree. Crowdfund investing is a part of the solution to the jobs crisis.

Now the problem, the SEC, State regulators and special interests with DEEP pockets and tons of influence are throwing a full-frontal assault at the Senate to stop our progress and they are using fear mongering by spreading nonspecific threats of fraud!

They are marketing “fraud” because, like sex, it sells newspapers.  They want you to focus on some seemly scary generic issue from the past rather than focusing on how today’s technology, Internet and social media can identify winning ideas and fund them. They don’t want you to focus on how crowdfunding by nature will expose fraud and they are avoiding the basic way all investors are taught to protect themselves against loss, DIVERSIFICATION.  WHY?  To protect their turf and dollars.

How can they claim their number one concern is ‘investor protection’ when they haven’t brought anyone to justice for the financial meltdown?  According to their argument, the financial markets should have ceased to exist with the 2008 financial meltdown because of fraud and loss of investor confidence. However, the markets DIDN’T stop functioning because people understand the risks and rewards of investing, especially over the long-term.  Why then, do special interests treat CFI any different?  CFI will do a much better job at backing winning ideas with money, experience, knowledge, marketing power and investor protection than any one investment an individual makes in a Fortune 500 company or someone they don’t know who comes to them with a Reg D offering.

Fraud historically has been one-to-one.   The principals of crowdfunding are based on many-to-many communication in an OPEN DIALOG where NO investor will partake if an entrepreneur hasn’t won over the confidence of the crowd.  We’d love to think that crowdfunding has the ability to finance 100% of the ideas, but history shows that only 40% of the ideas will be successful in raising money via CFI. Not every idea is great and the crowd is able to determine this.  That’s what we call investor protection at work.

They tell us to our faces they are willing to work with us but their quotes in the media reveal the opposite.  They need to join the Internet Age.  The way we did things in the past is NOT the way we will do them in the future.  They need to look at how we mitigate fraud through crowd-vetting.  Understand that social media is based on connectivity and trust.  And using the principles of crowdfunding we can get a limited amount of capital from our friends, family and community to innovate, create jobs and not be left behind China!

We need more of your support to stop the nonsense.  We need your financial support to help offset the costs (travel, marketing, additional rallying, etc) of getting the message to the Senate (Jason, Zak and I as well as Karen Kerrigan of the SBE Council have been incurring all the costs on our own). We also need you to call your Senators and tell them you are in favor of the Crowdfunding bill that went thru the house, HR 2930.  We aren’t looking for long-term financing.  This bill either passes by the end of the year or dies for good as everyone in Washington told us.  Remember January 1st is the beginning of an election year.  The special interests are banking on the fact that we don’t have the interest, support or money of those that this would most benefit.  We need to prove them wrong!

Please donate here:

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

Posted on 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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Posted in Crowd Fund Investing, Jason Best, Kevin Lawton, Sherwood Neiss

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Crowdfund Investing – The Future of Startup Financing

Posted on November 21, 2011 | 13 comments

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

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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 of 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 data-forward consulting and advisory firm for investors, entrepreneurs, governments, and NGOs. They can be found speaking globally about the shift crowdfund investing will make, how it will spur entrepreneurship & innovation and create millions of jobs!

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Posted in Funding Gap, Petition, Uncategorized, Woodie Neiss, Zak Cassady-Dorion

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