Wednesday, November 28, 2012

Impact of SEC Leadership Change on Crowdfunding

The crowdfunding provisions of the JOBS Act are one of the most exciting developments in the world of finance this year. The ability of companies with innovative products and services has already been proven. This effectively disintermediates venture capital firms and banks from a process they have been purposefully obstructing, the process of providing small businesses and entrepreneurs with start up capital. 

As I mention in several blog postings (http://under30ceo.com/ignore-the-naysayers-the-job... and in my book (The JOBS Act: Crowdfunding for Small Businesses and 
Startups http://www.amazon.com/The-JOBS-Act-Crowdfunding-Businesses/dp/143024755X) 
I understand that this is a complicated question, but it is also a critical one. 

Here is what I think the SEC must do now: 
  1. Broaden the base. At its November 15th Forum on Small Business Capital Formation, the SEC did not have a single African American on any of the panels. (I guess the SEC needs binders full of brothers.)  They can ask for suggestions all they want, but it is important to get participation and perspectives from a wide range of communities. 
  2. Disintermediate the lawyers. Securities lawyers are another group that may potentially be disintermediated by crowdfunding, and they are fighting to keep their place in the small business capitalization process, to the detriment of small businesses. 
  3. Do not sweat the details. This is a time for flexible, open and market based crowdfunding portal standards. If they want to know what these are, they can call me. 
  4. Disintermediate the interest groups, including the Chamber of Commerce, FINRA and SIFMA. They will only get in the way. 
The law is clear. So is the task before the SEC. Let's not make this more complicated than it needs to be.

Sunday, November 25, 2012

Raise a million, spend $900,000. Keep $100,000.

Interesting blog post by someone (AFP and The Grand Theft Orchestra) who raised a million on Kickstarter. Read her blog posting for more detail. She describes where the money went:

Old bills and paying back bank loans $250,000.00
CD book manufacturing and shipping costs $105,000.00
Vinyl production costs $30,000.00
Art books $80,000.00
Art book production costs $15,000.00
Neil and Kyle books $30,000.00
100 Turntable packages $15,000.00
Arts and Crafts 7 inch packages $30,000.00
Six City Tour $10,000.00
House parties $10,000.00
Art party visual artists $20,000.00
Commissions $150,000.00
Four or five music videos $80,000.00
Kickstarter and Amazon fees $75,000.00
TOTAL $900,000.00

The first thing to note is the first item. What old bills? Bank loans? $250,000? That 25% of the raise. Commissions? $150,000? Most startup company crowdfunding campaigns will not have these expenses (I hope...). The other line items are marketing, production and pledge fulfillment expenses.

Several of these line items are, well, interesting, but, so what? There is no need to nitpick. This person energized her fan base, ran a marvelous campaign and got a significant amount of money to do what they truly love.

Bravo.

The final thing to note is this: they still have $100,000 left over. Most people living in the United States would welcome a bank account of this size.

And remember, every dollar raised gave this band an opportunity to do what they love. Most people would welcome this, too.

My book on Crowdfunding: See: http://www.apress.com/9781430247555

Friday, November 16, 2012

Minorities and the SEC Forum on Small Business

On November 15th, the SEC held a Forum on Small Business Capital Formation. The Forum, held at SEC Headquarters, covered the following:

9:00 a.m.- Call to Order - Gerald J. Laporte, Chief, Office of Small Business Policy, SEC Division of Corporation Finance - Introductions of Chairman and Commissioners
Meredith B. Cross, Director, SEC Division of Corporation Finance - Remarks
Chairman Mary L. Schapiro, Commissioner Elisse B. Walter, Commissioner Luis A. Aguilar, Commissioner Troy A. Paredes, Commissioner Daniel M. Gallagher

9:50 a.m. Panel Discussion: JOBS Act Implementation- Moderators: Meredith B. Cross, Director, SEC Division of Corporation Finance, Gregory C. Yadley, Partner, Shumaker, Loop & Kendrick, LLP.
Panelists: Sara Hanks, Co-Founder and CEO, CrowdCheck, Jean Peters, Board Member, Angel Capital Association; Managing Director, Golden Seeds Fund LP, Michael Lempres, Assistant General Counsel & Practice Head, Silicon Valley Bank, William Beatty, Director of Securities, Washington State Department of Financial Institutions

11:20 a.m. - Panel Discussion: Small Business Capital Formation Issues Not Addressed by the JOBS Act
Moderators: Meredith B. Cross, Director, SEC Division of Corporation Finance, Marty Dunn, Partner, O'Melveny & Myers LLP.
Panelists: John Borer, Head of lnvestment Banking, The Benchmark Company, LLC, Professor Robert Bartlett, University of California, Berkeley School of Law, Ann Yvonne Walker, Partner, Wilson, Sonsini Goodrich & Rosati.

2:00pm - Breakout Groups Assemble to Develop Recommendations
~ Exempt Securities Offerings Breakout Group
Moderator: Gregory C. Yadley, Partner, Shumaker, Loop & Kendrick, LLP, Tampa, Florida
~ Crowdfunding Breakout Group Moderators: Sara Hanks, Co-Founder and CEO, CrowdCheck, Vincent Molinari, Co-Founder and Chairman, GATE Technologies, LLC'
• Securities Regulation of Smaller Public Companies Breakout Group
Moderator: Spencer G. Feldman, Partner, Greenberg Traurig.

3:30 p.m. Breakout Groups to Develop Recommendations

5:00 p.m. Plenary Session to Develop Next Steps
Moderators: Gerald J. Laporte, Chief, Office of Small Business Policy, SEC Division of Corporation Finance, Gregory C. Yadley, Partner, Shumaker, Loop & Kendrick, LLP.

The first thing to notice about this lineup is that it includes no African Americans. None.

I think this is reflective of the Agency's stance in a number of ways. We have written about this before, specifically on Aug 13, 2012, when I submitted a "Friend of the Court" brief in a case currently pending before the United States Court of Appeals for the Second Circuit. 

The case concerns the rejection, by a Federal Judge, of a settlement agreed to by the United States Securities & Exchange Commission (SEC) and Citigroup Global Markets Inc. (Citigroup), the latter accused of securities fraud.

As I noted in my brief, on July 9, 1993, Mr. Cunningham wrote to Mary Schapiro, the current Chair of the SEC, when she was a Commissioner to notify the Commission about a certain, specific investing "scam." A timely warning was not issued to the investing public. That letter to the SEC, dated July 3, 1993, described correspondence to Mr. Cunningham dated July 2, 1993 from an “officer” of the Nigerian Ministry of Finance. The SEC acknowledged receiving this warning, in a letter to Mr. Cunningham dated October 29, 1993. Several American citizens were, in the interim, "taken" by these scam artists.

This may indicate a pattern of hostile behavior toward African Americans on the part of the Agency. The Agency’s behavior and lack of diversity led it to ignore warnings of the financial crisis originating from those outside the majority community. It was unconcerned about unethical market behavior at very large financial service providers, since those behaviors initially impacted the African American community. Now, with Crowdfunding, a tool that is of particular relevance to the minority community, the Agency does not include representatives from an American community in the discussions concerning the law.

Title VII of the JOBS Act "requires the Commission to provide online information and conduct outreach to inform small and medium sized businesses, as well as businesses owned by women, veterans and minorities, of the changes made by the JOBS Act."

Given the lack of diversity in the speakers at Thursday's meeting, the Agency may have already violated the law.

Crowdfunding News 11/16/12


Crowdfunding News 11/16/12
Crowdfunding Gains Traction in UK
Wall Street Journal (blog)
As founders of escapethecity.org, a website that helps high-flying executives leave the rat race of corporate life, Rob Symington and Dom Jackman didn't want to rely on City financing when they needed money to expand their young company in London.
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CrowdFund Investing: Emphasis Turning to Implementation and Entrepreneurs
Forbes
I had the chance to catch up this week with Alon Hillel-Tuch, the Founder and CFO of Crowdfunding platform RocketHub (www.RocketHub.com), in New York. As we near the JOBS Act's legalization of CrowdFund Investing(CFI) in 2013, allowing loan and ...
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Forbes
Why We Chose Crowdfunding For Our Product (Should You?)
Forbes
In reality, there are many things to consider when jumping into one of the hottest trends in the world of entrepreneurs, both positive and negative. Whole companies have launched through the interest and generosity of strangers who believe in a company ...
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Crowdfunding Platform Waives Fees to Facilitate Social Media Disaster Relief ...
HispanicBusiness.com
Crowdtilt, a startup company that offers a simple-to-use platform where individuals and groups can fundraise, collect, or pool money online, today announced that the company and its payment processor Balanced are waiving their fees to enable ...
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St. Louis children's hospitals partner with Fundly in crowdfunding campaign
Bizjournals.com (blog)
SSM Cardinal Glennon Children's Medical Center and St. Louis Children's Hospital, in partnership with Fundly and the Children's Miracle Network Hospitals, are part of a national campaign to launch a crowdfunded hospital gift catalog. The catalog ...
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12 Secrets for Success in Crowdfunding for Social Entrepreneurs
Forbes
This week I've polled a variety of people with experience in crowdfunding to identify the secrets for success for social entrepreneurs. I've talked to people who've tried to raise money using crowdfunding and have raised absolutely nothing. Others have ...
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Forbes
Through lemonade stand, crowd funding, Austin girl buys 25 dolls for kids with ...
Austin American-Statesman
Scarlett Milling is like many 7-year-old Austin girls. She loves gymnastics, cheerleading and the online game Minecraft. She also loves dolls, specifically American Girl dolls. When her mother, Mary Moore, who writes essays for the Huffington Post ...
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Portland rush-hour trumpeter Kirk Reeves' fans start crowdfunding campaign for ...
OregonLive.com (blog)
A group of current and former Portlanders have banded together to crowdfund a memorial for deceased rush-hour trumpeter Kirk Reeves at his regular spot on the west end of the Hawthorne Bridge. Ultimately, the GoFundMe campaign hopes to build a statue ...
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OregonLive.com (blog)
Art Effects owner turns to crowdfunding to raise needed funds for his business
Wichita Business Journal
Elliot's company helps restore old buildings through decorative painting, and to help him continue his work, he's taking the admittedly different approach of turning to "crowdfunding." He has a campaign running on the website Launcht.org, and he has a ...
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Crowdfunding firm SoMoLend making marketing push in St. Louis
L.A. Biz
Evan Weese: Web coordinator- Business First: Email | Google+ | Twitter | LinkedIn · SoMoLend, a Cincinnati-based crowdfunding company, is expanding in St. Louis with a contest aimed at bringing in new borrowers, the Cincinnati Business Courier reports.
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