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Ryan Feit and Sherwood Neiss

New York City – August 10, 2012 – Crowdfunding could be a $6.2 Billion US market in 2013, CfPA Chair Sherwood Neiss told participants at a live webinar today sponsored by New York’s General Assembly. More than 100 participants heard Mr. Neiss and Ryan Feit, co-founder and CEO of SeedInvest, LLC, provided an overview of crowdfund investing and other forms of crowdfunding in a program called “Essentials of Crowdfunding.”

Mr. Neiss,  a principal of Crowdfund Capital Advisors, explained why crowdfunding is a game changer for the US economy. Only 2.5% of startups currently are funded by venture capital, according to Mr. Neiss. Equity-based crowdfunding may fill a gap for small businesses seeking up to $250,000.

At least half of all jobs in the US are generated by startups and small businesses, Mr. Neiss observed, but raising capital for such small businesses has dried up since the 2008 recession. “The new jobs come from entrepreneurs themselves,” he said, “if we can’t get capital to create jobs, how can we get out of this recession?”

There were more than 1.2 million crowdfunding projects in 2011. Citing a study by Gartner Research, Mr. Neiss maintained that crowdfunding can be over a $6.2 billion market in the US in 2013.  Last April 2012, Congress passed and President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act). The Act, among other things, will enable small businesses to raise capital from small investors through online crowdfund investing portals.

The JOBS Act, Mr. Neiss told participants, changes US securities law by:

  • Giving  small businesses the ability to advertise an equity-based crowdfund project,
  • Allowing anyone to invest (with a potential market of 200 million Americans), and
  • Avoiding a limit on the number of shareholders.

“The best thing is that you don’t have to register your offerings,” Mr. Neiss added. The Securities and Exchange Commission must formulate regulations before any business can engage in crowdfund investing.

Why is crowdfunding a “game changer?” Mr. Neiss replied:

  • There will be more funding for startups and small businesses.
  • Existing customers can become investors.
  • You can generate a following.
  • You can rely on the crowd for market research.

Sherwood Neiss

“Startups and small businesses can get feedback from a large audience on ideas, products and services before investing in development, production or sale,” Mr. Neiss said. Moreover, crowdfunding does not preclude a business from going to other sources to raise capital. “I guarantee that this is going to an on-ramp to more traditional financing,” Mr. Neiss emphasized. Investments by crowdfunding may help get a business and product off the ground, which will enable the businesses to show lenders and venture capitalists evidence of a company’s financial potential and customer base.

Debt financing through crowdfund portals may be attractive to small business owners who may wish to expand but do not want to give up control or ownership of their business, or who do not want to sell their business. “What is the exit strategy for my investors,” Mr. Neiss urged businesses to consider before deciding what type of investment to offer through crowdfunding.  Although regulations to govern crowdfunding is not expected until 2013, Mr. Feit urged businesses to “find out what you need to do today in order to offer equity in 2013.”

Article by A. Brian Dengler

 

 

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Jason Best and Sherwood Neiss spearheaded the efforts to legalize crowdfunding and helped author the JOBS Act. They founded Crowdfund Capital Advisors and are currently co-authoring Crowdfund Investing for Dummies. They are executive board members of the Crowdfunding Professional Association.

Jason Best and Sherwood Neiss

Messrs. Best and Neiss began a series on TechCruch to prime entrepreneurs for crowdfunding. In their newest article, the authors include the following advice:

  • Don’t be pushy. If people are not interested don’t keep pushing, as you never know their reasons for not kicking in.
  • Never allow people to invest more than they would be comfortable losing.
  • When you use crowdfunding to fund your business, you need to plan for ongoing communication with your donors and investors and set their expectations early

The authors conclude that by spending a bit of time in preparation and communicating clearly with your investors in scalable ways—you can harness the power of the crowd and not be overwhelmed by it. The entire article — and its useful advice — can be found here.

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By Sara Hanks

I’m a proud Brit and a proud Virginian (version 1.0) and I see no contradiction there. But it’s as a Brit I’m blogging today. I watched the Olympic Opening Ceremony on Friday night with some Indian and English friends (also Americans 1.0) and a couple of token Americans and I loved the CROWDFUNDING GAMES.

The Beijing ceremonies were huge and impressive and breathtaking. And organized. Boy, were they organized. Everything went off just as planned, and people did exactly what they were supposed to do, in lockstep and as directed. Amazing. But London, with its theme ”It’s for everyone” was equally amazing. It was inclusive: all those kids, all those nurses, all those volunteers. The faces of every community that makes up New Britain. And Britain in all its imperfections and passions. It was majestic and cozy and meaningful and ridiculous (and sometimes downright weird: that giant baby) all at the same time.

So it is with crowdfunding. Investment crowdfunding is going to be the exact opposite of organized and perfect. It’s going to make room for people who care about monetary returns (the dancing industrialists), people who want to invest in their passions (the jitterbugging nurses), people who care about the environment and impact investing (the happy multicultural villagers prancing round the maypole) and whatever the crowdfunding equivalent of that monstrous baby is. There are going to be missteps and a certain amount of chaos but in the end we’re all going to jitterbug/jive/bhangra all the way to our own individual medal ceremonies.

Less than two months after the precision-drumming Beijing Olympics, the organized financial sector took us down in flames. A few months after the inclusive, human-scaled London Olympics, crowdfunding will be legal.

Is there a message there? I don’t know. But in the words of Sir Paul at the end of the ceremony:

All together now: Then you’ll begin to make it better…

About Sara Hanks

This article is reprinted with permission by CrowdCheck.biz. Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with 30 years of experience working in the corporate and securities field and a leadership team member of the Crowdfund Intermediary Regulatory Advocates. She recently stepped down as the General Counsel of the Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP), which was chaired by Professor Elizabeth Warren.

Image credits

Article image and feature image by Shimelle Laine under Creative Commons license 2.0.

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Sen. Jeff Merkley

Washington, D.C. (June 27, 2012) Equity crowdfunding needs “smart, effective rules” Senator Jeff Merkley (D-Oregon) urged the White House today in a statement.  Senator Merkley co-sponsored Senate Bill 1970, which became part of the Jumpstart Our Business Startups Act. The JOBS Act will permit entrepreneurs to raise up to $ 1 million per year from small investors through online crowdfunding portals.

The SEC currently is in the early stages of formulating rules for crowdfunding. In the statement, Sen. Merkley pointed out that the Act was designed “to provide a streamlined and simplified crowdfunding process, as well as critical investor protection.” Sen. Merkley added that “consistent, conscientious oversight by the Securities and Exchange Commission” is needed if crowdfunding is “going to take off.”  Sen. Merkley offered the following suggestions for regulations:

  • Funding portals should benefit from streamlined regulatory treatment and must be neutral platform toward investors.
  • Funding portals should be able to exclude prospective issuers from their platform, which could be based on the size of offering or the type of security or the subjective quality of the issuer.
  • Funding portals should be able to assist entrepreneurs by providing standardized forms and checklists.
  • Funding portals should be able to highlight for investors, such as through search, profile matches or email alters, issuers with investors based on an objective criteria such as industry or geography.
  • Funding portals should be able to provide relevant factual information from third parties.
  • Disclosures to investors should be tailored specifically for the crowdfunding market.

“I am excited about the potential of this new market, but also cognizant of its risks,” Sen. Merkley wrote. “It won’t be without hiccups in the short run, but done properly, I believe this framework has the potential over the long run to help millions of new startups get the funding they need to grow their business and create jobs, and provide investors with opportunities for meaningful returns and community involvement.”

The entire statement can be reviewed below:
2012-7-26 Statement for the Record – Crowdfunding

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Immerse yourself in the best practices of the new regulations for Crowdfund Equity Investing. Be a part of the Crowdfunding Bootcamp(TM)and first annual CFPA Convention to  The event takes place on October 9 through October 11, 2012 in Henderson, NV.

This is an innovative conference and bootcamp that bridges the best of a conference with practical hands-on access to lawyers, accountants, social media and PR experts and other resource professionals essential to being able to raise capital using equity based crowdfunding.

Start understanding the intricacies of the compliance requirements as stipulated in the JOBS Act for Crowdfunding while connecting with the world’s most sought-after community of Crowdfund Investing thought leaders, and developers of new and emerging funding portals, and other service providers.

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Do you want to know more about crowdfunding? CfPA is taking part in two leading crowdfunding conferences that can help you.

Simply Crowdfunding

August 8 – 9, 2012 – Boulder, CO

If you need capital for your business, help people get capital or want to invest, you need to know about this. There is only ONE event in all of Colorado, called “Simply Crowdfunding,” that is targeted solely to entrepreneurs and small businesses with ONE goal: Teach YOU everything you need to know from the ground up about the future of financing known as Crowdfunding, how Social Capital is the new currency and all the small steps in between necessary to get your venture funded and on its way to success.
The event takes place on August 8 and 9, 2012 in Boulder, Colorado. Visit www.SimplyCrowdfunding.com for more details and get registered today! There are only 250 seats, so make sure YOU are one of them! You cannot afford to miss out on this information first-hand!

Crowdfunding Bootcamp

October 9-11, 2012 – Henderson, NV

The Crowdfunding Bootcamp(TM) and first annual CFPA Convention will immerse entrepreneurs in the best practices of the new regulations for Crowdfund Equity Investing.This is an innovative conference and bootcamp that bridges the best of a conference with practical hands-on access to lawyers, accountants, social media and PR experts and other resource professionals essential to being able to raise capital using equity based crowdfunding.

Start understanding the intricacies of the compliance requirements as stipulated in the JOBS Act for Crowdfunding while connecting with the world’s most sought-after community of Crowdfund Investing thought leaders, and developers of new and emerging funding portals, and other service providers.

 

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The chair of the Securities and Exchange Commission (SEC) and SEC staff members publicly committed to create rules to govern equity crowdfunding by December 31, 2012 under the federal JOBS Act. However, the SEC faces a daunting task. The issues are complex and the procedures that govern the entire rule add obstacles to the aggressive deadline. In the following article, Brian Knight of Crowdcheck.biz explains the rulemaking process and how it could affect the SEC’s ability to meet the December 31 deadline.

By Brian Knight

One of the best parts of my job is talking to entrepreneurs, both the entrepreneurs whose businesses are considering securities-based crowdfunding and the entrepreneurs who are starting crowdfunding platforms.  The one question I hear the most from both camps is “When are we going to be able to start?”.  Unfortunately, the only answer we can provide them is a bit unsatisfying: “When the SEC says you can.”  This lack of clarity is arguably suppressing excitement for crowdfunding and leading to dark rumors of a conspiracy to cripple crowdfunding before it can even start.  While I don’t know when the SEC will fire the starting gun for crowdfunding, I can hopefully provide some information to help you understand the process the SEC has to follow in creating the rules and better anticipate and prepare for the beginning of what will hopefully be a revolutionary new way for companies to raise money.

Brian Knight. Courtesy crowdcheck.biz.

Part of the problem with people being confused is that we are witnessing an interesting clash of philosophies in the crowdfunding space, with the “ready-fire-aim” disruptive entrepreneurial culture and the risk-averse, “make certain it is 100% right before you let it happen” securities law culture forced into an uneasy alliance to make securities-based crowdfunding a reality.  One culture is dominated by engineers and evangelists, the other by lawyers and economists, so it isn’t surprising that expectations are not going to align.  This frustration has manifested itself in many ways; including concerns that crowdfunding is being sabotaged or hijacked to benefit the established financial system. While it is impossible to disprove those rumors, it appears that many of them are grounded in a misunderstanding of how the rulemaking procedure works and that the far more likely explanation is simply that the SEC is following the laws that govern it, which unfortunately move slower than we might like.

One important thing to keep in mind is that establishing the regulations for crowdfunding is a big job.  Title III of the JOBS act, (.pdf) the part that puts securities-based crowdfunding on a path to legality, requires the SEC:

  • create the regulations under which crowdfunding will operate,
  • decide how to regulate funding portals,
  • create the infrastructure (rules, forms, assignment of the registration process to an office within the SEC) for registration and oversight of portals  (broker-dealers, who may also serve as crowdfunding intermediaries, are already required to register with the SEC), and
  • empower a Self-Regulatory Organization (SRO), at this point presumed to be FINRA, to oversee the portals; the SRO will in turn have to register portals and create rules for their operation.

Under the statute the SEC has until December 31st, 2012 (270 days from April 5th, the date the JOBS act was signed) to complete this, and SEC Chairman Mary Schapiro recently told Congress that she “does not foresee not meeting the deadline.” (video of hearing – comment starts around the 27 minute mark)  In crafting regulations, the SEC isn’t able to operate with a free hand, creating an innovative and dynamic rulemaking process for a new economy.   Rather, its procedure is itself bound by law, most especially the Administrative Procedures Act of 1947 (APA), which dictates the steps the SEC will take and is part of why things are taking so long.  By understanding the SEC’s procedure we can get a better sense as to how close they are to being complete and when we can start crowdfunding (this may be familiar or painfully boring for some of you, so feel free to skip ahead).

Because the JOBS act directed the SEC to create regulations in areas like the disclosures required of portals and entrepreneurs, the restrictions on sales of crowdfunded securities, and the procedures for funding portal registration the SEC needs to go through the rulemaking process.  At a minimum under the APA the SEC is required to publicly propose rules, allow the public between 30 and 90 days to comment on the proposed rules, and then draft and publish final rules in the Federal Register for at least 30 days before the rule becomes final.

Given the complexity of the rules required for crowdfunding and the large and engaged base of support for it the SEC has elected to pursue a pre-comment period, currently ongoing, in which it solicits the views of the public on what the regulation should look like.  If you  haven’t done so already, this is a great opportunity to provide concise, specific, and respectful advice to the SEC. (For tips on how to do this effectively check out Sara Hanks’s blog post)  The SEC will consider this input, as well as the legal and economic analysis of its staffers, to formulate proposed rules.  The next step the SEC will take is to have a public meeting for the five SEC commissioners to vote on the proposed rules.  This meeting must, pursuant to the Government in the Sunshine Act of 1976, be public and while there will be debate and the Commissioners are prohibited from discussing the matter with each other in private, chances are the Commissioners’ staffs have managed to hammer out most of the details with the staffers doing the drafting beforehand.   At that meeting the Commissioners are expected to vote on and approve proposed regulations.

After the meeting the proposed regulations will be opened up for public comment.  While ninety days is the traditional time allotted for this process, the APA allows the SEC to shorten the comment period to as little as thirty days.  Given the 270 day deadline and the pre-comment period the SEC has pursued it seems reasonably likely that the SEC will shorten the comment period.  This comment period is the last opportunity for the public to directly influence the rules and people interested in crowdfunding should be actively engaged in it.    Once that period is complete the SEC will consider the public comments and possibly amend the proposed rules.

If the SEC makes significant changes to the rules that were not previously suggested as an option, it will need to open a new comment period for a reproposal of the rules.  (It seems unlikely that this would happen in light of the pre-comment process and the statutory deadline.)   Otherwise, the Commissioners will hold another public meeting at which they will vote to approve the final rules.  Once the final rules are approved they will be published in the Federal Register and then go into effect no less than 30 days after publication.

So is that it?  Will we be ready to go 30 days after the final rules are published?  Not necessarily.  FINRA will still need to create rules for funding portals (broker-dealers are already covered by FINRA rules) and portals will need to register with both the SEC and FINRA.  Which might (or might not) be done concurrently with the rulemaking process.

(We are done with the overview of the process in case you skipped ahead)

As you can see, this is a complex and time consuming process under the best circumstances, but it is that way for a reason.  The APA is designed to prioritize equity and citizen participation in the regulatory process over efficiency or expediency, which means that not only is the process not designed to go quickly, it is explicitly designed to give ample time for the public to read, understand, and comment on the regulations before they take effect (i.e. go slowly).  Further, Congress has charged the SEC with protecting investors and maintaining orderly markets, which means that it can’t tolerate risk and failure the same way entrepreneurs can.   This leads to an agency that is highly risk-adverse and arguably skeptical of innovation in the financial sector, and hesitant to let things happen without double and triple checking it first.  Before we blame the SEC, however we should consider what happens if they get it wrong: people can lose their money, businesses can fail, and confidence in our markets, which we all rely on to keep our economy moving, can falter — heady stuff indeed.

Another reason this is taking a long time is that there is more on the SEC’s plate than just crowd funding.  The SEC has other obligations under the JOBS act, as well as other laws such as Dodd-Frank.  The SEC has already said it will miss the 90 day deadline found in Title II for changing the rules on “general solicitation” for Reg. D raises (though it has announced a meeting on this issue for August 22nd) and has not finalized rules for Title IV.

However, this doesn’t necessarily mean, as some fear, that the SEC will miss the Title III deadline, or that it is intentionally delaying it.  Title II had a much shorter deadline and deals with a more complex issue with more complex policy implications for other elements of the securities law, and Title IV doesn’t have a statutory deadline.  As it currently stands it is entirely possible that the SEC will meet its Title III deadline event.

Of course, the SEC is only part of the battle.  FINRA will also need to draft rules and register portals.  There are reports that the SEC and FINRA have not had any official meetings yet to discuss crowdfunding.  This may well be true, and is disappointing but does make logical sense.  FINRA answers to the SEC, and will want to know how the SEC plans on regulating crowdfunding and funding portals before FINRA begins drafting its regulations, that way FINRA can be certain the regulations will be accepted by the SEC.  It is unclear how long this process will take but we do know that FINRA has been talking to CFIRA, the crowdfunding industry’s regulatory initiative, and has begun a pre-comment period of its own, so at least they will not be starting at square-one when the SEC is done.

Is there anything that can be done to speed the process up?  Not really.  One thing you shouldn’t do is expect Congress to force the SEC’s hand.  The SEC is, by design, insulated from direct pressure by Congress.  The bipartisan Commission’s five members are appointed for a term of years and the agency prides itself on its political independence.  The truth is there is relatively little Congress or the Administration can do to the SEC to make them speed up.  Congress could pass new legislation stripping the SEC of jurisdiction, but this would be a dramatic and likely destructive move for crowdfunding and it is unlikely that there is sufficient political support for such a potentially apocalyptic act.  Members of Congress can ask the SEC questions and make their displeasure known, but their power to make the SEC move quicker on crowdfunding is otherwise limited.

This is not to say however that you shouldn’t talk to your Congressman about how you think crowdfunding should operate, since it is likely there will be further crowdfunding legislation as the country gets more experience and sees what works and what needs to be corrected.  Everyone should also remain engaged in the ongoing regulatory process.  The SEC and FINRA are soliciting public opinion and if you haven’t submitted your concise, respectful and specific suggestion on how the regulations should look, there won’t be a better time to do so.  You should also follow the news and FINRA’s and the SEC’s releases for when they announce their proposed regulations.  This will be the first draft that, barring considerable changes, will serve as the basis for the final rules.  Finally, don’t panic; this is not going to happen overnight, and that is probably a good thing.  Crowdfunding has the potential to be revolutionary, but for the revolution to survive, people, including the regulators responsible for policing the markets, need to feel comfortable with it, and one way comfort is achieved is a thorough rulemaking process where everyone feels that their voices have been heard.

Reprinted with permission by Crowdcheck.biz. Feature photo (c) Crestock.

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Washington, DC — 07/19/2012 — Six crowdfunding platforms and affiliated companies, representing half the board of the National Crowdfunding Association (NLCFA) have left to join forces with Crowdfunding Professional Association(CfPA).

Maurice Lopes, of Early Shares, joined NLCFA’s board early in its inception “I didn’t know there was another organization, until later, particularly one founded by Sherwood Neiss and Jason Best, the chief advocates and crowdfund investing framework authors who I worked with during the fight to legalize crowdfunding.”

Lopes was joined by RennéCaputi (Early Shares), Luan Cox (Crowdnetic) and Sang Lee (Return on Exchange). They all play an active role in the crowdfunding industry and work closely with CfPA’s sister organization the Crowdfund Intermediary Regulatory Advocates (CFIRA).

“Both myself and Renné decided that our efforts would be better on the board of the CfPA” said Lopes. “In recent weeks, we tried very hard to unify both associations and establish a single voice, but it was clear that wasn’t going to happen without NLCFA’s Founder David Marlett changing roles. This seemed an impossible task, so we decided to resign.”

Neiss, co-chair of CfPA said, “Having worked with these crowdfunding advocates across association lines, we were thrilled when they mentioned the thought of merging the two organizations. While they couldn’t make that happen, having them on board allows us to speak with a more powerful collective voice. We are happy they see value in being part of the organization that has the support of Washington, DC.”

“Our priorities are education, advocacy and awareness” says Neiss. “In my opinion, the CfPA and CFRIA are more engaged in the process and investor and policy maker collaboration and education. That is the kind or organization I want to be a part of.”

About Crowdfunding Professional(CfPA)
The Crowdfunding Professional Association is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards. The association’s collaborations and insights are shared broadly to avoid onerous, stifling bureaucracy that can endanger innovation, idea generation and job creation. For more information visit www.crowdfundingprofessional.org

Media relations contact: Joy Schoffler, 512-271-9489 ext. 7

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Washington, DC (June 19, 2012). Six major crowdfunding platforms and affiliated companies have joined forces with the Crowdfunding Professional Association(CfPA), according to a statement released today by the CfPA. Joining forces with CfPA include Maurice Lopes and Renne Caputi of Early Shares, Luan Cox of Crowdnetic and Sang Lee of Return on Exchange. They formerly served on the board of the National Crowdfunding Association.

Maurice Lopes of Early Shares explained that Early Shares originally joined NLCFA’s board early in its inception and that he “didn’t know there was another organization, until later, particularly one founded by Sherwood Neiss and Jason Best, the chief advocates and crowdfund investing framework authors who I worked with during the fight to legalize crowdfunding.”

Neiss, co-chair of CfPA said, “Having worked with these crowdfunding advocates across association lines, we were thrilled when they mentioned the thought of merging the two organizations. While they couldn’t make that happen, having them on board allows us to speak with a more powerful collective voice. We are happy they see value in being part of the organization that has the support of Washington, DC.”

“Our priorities are education, advocacy and awareness” says Neiss. “In my opinion, the CfPA and CFRIA are more engaged in the process and investor and policy maker collaboration and education. That is the kind or organization I want to be a part of.”

About Crowdfunding Professional(CfPA)
The Crowdfunding Professional Association is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards. The association’s collaborations and insights are shared broadly to avoid onerous, stifling bureaucracy that can endanger innovation, idea generation and job creation. For more information visit www.crowdfundingprofessional.org

 

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In a guest column on The Huffington Post, Kiva.org’s Premal Shah observes that “the power to shape economic opportunity belongs in each of our hands.”

Shah emphasizes in his article that:

  • Small businesses can be the cornerstone of economic recover.
  • There could be full employment if 1 in 3 small businesses in the U.S. hires one more person.
  • Individual contribution of at least $25 by Americans to a small business ” the funding gap that stunts job growth and economic recovery would begin to be filled.”

Mr. Shah’s entire commentary can be read here.