Saturday, May 31, 2014

Real Estate Crowdfunding just took another BIG leap ......

The Washington Post reported that Ben Miller, the co-founder of Fundrise.com, said that his firm has received $31 million in financing from tech and real estate investors led by Chinese social media giant Renren and executives from New York developer Silverstein Properties. Other investors include Scott Plank, formerly of Under Armour, and Rich Boyle, former chairman and chief executive of Loopnet.
http://www.washingtonpost.com/news/digger/wp/2014/05/28/fundrise-lands-31-million-in-financing-led-by-chinese-social-media-firm/

Wednesday, May 28, 2014

Real Estate Crowdfunding by State

The picture below shows states where real estate crowdfunding transactions have occurred.
We agree "crowdfunding" is one of the latest buzz words, but the fact that Merriam-Webster's Collegiate Dictionary recently added Crowdfunding speaks to the fact that crowdfunding is here to stay. 

While the full impact on the U.S. real estate market has yet to be determined, if the past year is any indication, real estate may be one of the biggest segments of the crowdfunding marketplace.

In twenty-three (23) states (plus the District of Columbia), project sponsors have successfully funded multiple real estate and property transactions.  These states, shown above in blue, and listed in alphabetical order, are: Alabama, Arizona, California, District of Columbia, Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri,  New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Utah,  Washington, and Wisconsin.

We will watch this sector of the marketplace carefully for continued growth. 

Saturday, May 24, 2014

State-Level Crowdfunding Exemptions....So Far

The picture below shows states that have enacted equity crowdfunding (green).
The states that have legalized equity crowdfunding as of today (7/22/14) are listed below:

Alabama
Colorado
Georgia
Idaho
Indiana
Kansas
Maine
Maryland
Michigan
Tennessee
Washington
Wisconsin

Others are in the process of enactment...and moving fast! The first thing to note is the way states with equity crowdfunding exemptions are clustered. Alabama/Georgia, Colorado/Kansas, Washington/Idaho. This is no accident. If a state nearby has equity crowdfunding and you do not, it is marginally more likely that startups and other companies looking for capital will move to the state with crowdfunding. Therefore, it makes sense for your state to adopt a crowdfunding exemption. States understand the potential equity crowdfunding has and refuse to wait for SEC JOBS Act Title III regulations to be finalized.

Probably the most notable state on its way to allowing equity crowdfunding is California. Why? Companies like Apple, located in Silicon Valley, were once simple startups in garages looking for money to help get them off the ground. Over time they began to garner more and more funding, eventually going public. Today, there are companies started by people with great ideas that need funding and are continually turned away by accredited investors. Any one of these companies and ideas could be worth billions. This is where equity crowdfunding comes in.

Let me say again that this process is happening very quickly. Just last year only 3 states had passed crowdfunding exemptions. By September, 2014 we project that at least 15 more states will have official regulations on equity crowdfunding. Only 2 of the 20 states that have considered crowdfunding exemptions have rejected the idea. There is no need for alarm here....

They will eventually realize their mistake.....

Friday, May 23, 2014

The Big Dog Weighs In...California House Passes Equity Crowdfunding Bill

According to an analysis if the proposed law, "this bill is closely modeled after the recent enacted equity crowdfunding exemption established in Maine..and will allow small businesses to raise up to $1 million in capital by selling small amounts of equity to individual investors. Small businesses will need to register with the California Department of Business Oversight, as well as, set a fundraising goal and deadline. This bill will allow individual investors to purchase up to $5,000 in equity from a single business."
Bill AB-2096 Highlights (click on the link at left to go to the bill)
"A) The aggregate amount of securities sold to all investors by the issuer within any 12-month period is not more than one million dollars ($1,000,000).
(B) The aggregate amount of securities sold to any investor by the issuer, including any amount sold during the 12-month period preceding the date of the transaction, (is) five thousand dollars ($5,000)...
(ii) For..offering amounts of one hundred thousand dollars ($100,000) or less,..the issuer must file:
(I) Income tax returns for the most recent year...
(II) Financial statements..certified..by the CEO to be true and complete.
(iii) For offerings of more than one hundred thousand dollars ($100,000), but not more than five hundred thousand dollars ($500,000), financial statements reviewed by a public accountant who is independent of the issuer..
(iv) For offerings of more than five hundred thousand dollars ($500,000), audited financial statements.
(E) The issuer must have a separate bank account for all funds raised as part of the offering to be held until the time that the minimum offering amount is reached. If the minimum offering amount is not reached within one year of the effective date of the offering, the issuer shall return all funds to investors."
One thing to note: "the U.S. Treasury just gave the California State Treasurer $55,218,250 in federal funds from the JOBS Act to provide access to capital to small businesses through the California Pollution Control Financing Authority and the California Infrastructure and Economic Development Bank. This is the second of three disbursements."

Saturday, May 17, 2014

How to successfully manage a crowdfunding campaign

We have worked on a number of crowdfunding projects and can offer the following guidelines. 
It is helpful to think of a crowdfunding project as a long-duration project, even if it is only three months long. Given this, "it is critical there be a continual flow of accurate information from team members, managers, partners, and the crowd concerning your project. Yet, our experience is that, almost invariably, bad news concerning how a crowdfunding project is tracking doesn't get to noticed until it is too late to do anything about it.
Most projects are run by one or two people, so this might be seen as surprising. Why is this? If we're talking about a project with a one or two-month duration, the temptation to ignore bad news is great. "Surely, the self-justification goes, we can work really hard, send a few emails, and things will come back on track. Surely, we can send some better tweets and make it up. Surely we can grab some attention somehow." 
So how best to deal with this? First and foremost, recognize the human realities of crowdfunding. Then develop and follow a plan to recognize and deal with bad news. In particular:
  • Never kill the messenger. Whatever the source of information (project managers, friends, email comments, tweets, blog postings) read them. Forward them to your team. Talk about them. "If you allow yourself to vent frustration and disappointment on the tool/person who brings a developing problem to your attention, nobody will."
  • Always ask specific questions. "If the core of your (crowdfunding) project status review meeting consists of 'So, how are we doin'?', the answer will almost always be 'Doin' great!' Instead ask questions like, 'What do we need to do to make a compelling video? Hell, have we completed the video? Have we gotten all of our emails out inline with our email plan? How is that tweet I sent yesterday doing? How can I make it better?'
  • Make it a habit to follow up initial broad questions with several more detailed and specific ones. Even if the answers to the above questions are yes, do not leave it at that. Instead, follow up with something like, "Does that mean the tweets are being favorited? How many emails did we send?"
  • "Do not wait for major milestone dates to arrive before asking for project status information. Treat every duration between milestones as if it were a project in itself, with the upcoming milestone as the terminal date. This minimizes the tendency for you to think you have plenty of time to make up for schedule slippage and budget overrun(s)."
  • "Do not throw fits when you get bad news. No matter how you're really feeling, keep a calm outward appearance and concentrate on developing workaround plans...Maintain an air of, 'We're all in this together', not one of, 'Get this straightened out, or get ready to hit the road!' "
  • Do not rely entirely on your crowdfunding project managers to evaluate project status. Spend time (hours) every day on the campaign page in order to see for yourself what is happening and what isn't. (This assumes, of course, that you understand what you're looking at.)
"None of these suggestions will be entirely new to you. Indeed, you can probably add several more to the list on your own. The suggestions are, however, worthwhile to refresh in one's mind from time to time, because they are too easily forgotten, or at least ignored in the day-to-day press of issues and problems." 
By following them religiously you will increase the chance of crowdfunding success. (Taken from an article titled "Why Executive Management Doesn't Get Bad News Until It's Too Late to Do Anything About It" by Phil Freidman.)

Sunday, May 11, 2014

Proposed Update to the JOBS Act

According to Financial Services Committee Staff, Congressman Patrick McHenry has offered to "strike Title III of the JOBS Act, which was added by the Senate, and replace it with legislation that closely mirrors the House-passed crowdfunding title and makes additional improvements."
The proposed legislation, "entitled  the 'Startup Capital Modernization Act of 2014'(H. R. 4565) is primarily directed towards fixing some of the potentially fatal defects and ambiguities embedded in the original JOBS Act bill...here are some of the highlights:
  • Raises crowdfunding limits from $1 million to up to $5 million.
  • Allows self –certified financials for raises under $500,000 – and independently reviewed financials statements for raises between $500,000 and $3 million – leaving the more onerous audited financials for raises above $3 million.
  • Eliminates the requirement that the SEC promulgate rules requiring detailed, registration statement-like non-financial disclosure resembling a public company report.
  • Eliminates the need for ongoing annual reporting in perpetuity.
  • Allows non-broker-dealer intermediaries (funding portals) to register only with the SEC, avoiding registration with FINRA and compliance with its rules.
  • Allows intermediaries which are not licensed broker-dealers to “curate” crowdfunded transactions, screening out those not deemed suitable for their portal.
  • Removes the more onerous liability provisions for intermediaries and issuers."
While the bill "has a 5% chance" of being enacted, it is important to note current legislative thinking on the matter.

Monday, May 5, 2014

Black people and crowdfunding...

We note with interest recent comments published in Time Magazine and written by Princeton University freshman Tal Fortgang. Mr. Fortgang apparently feels compelled to not apologize for something I don't recall anyone asking him to apologize for, being born white and male at a time when it pays to be both in the richest country on earth. (For an interesting take on Mr. Fortgang, take a look at Slate Magazine's response.) This follows similar statements made by Donald Sterling and Clive (not Al) Bundy, Mr. Bundy seen here with a Clarence Thomas look alike.

Mr. Fortgang believe that his 2 or 3 years of success are due to the investments his parents made in his education. On this, he is partially right. The problem is that investments do not matter, since returns from investments for certain people have been purposefully limited. The fact that he does not recognize this makes him arrogant, selfish and stupid.

Mr. Fortgang's attitude is only possible with a surplus of wealth, not talent. This long term, inter-generational wealth is the privilege to which Mr. Fortgang refers and the benefit of which, apparently, he is unaware. This lack of knowledge insulates him from the real world. This insulation is problematic, however, because the world is moving to be both more competitive and more diverse. Anything that does not synch to the real world is eventually going to cause trouble, like a building out of compliance with not just building codes, but the laws of physics. It will fall down. 

One key issue for Messrs Fortgang, Sterling and (not Al) Bundy is that everyone, I mean globally everyone, is literate now. Add to this the fact that history shows that some people have more to answer for than others (in terms of bad behavior), and this gives rise to fear and massive insecurity, particularly ironic in the face of the wealth surplus I mentioned. (And, by the way, siding with extremists will not save you.)

This links to crowdfunding in several ways. First, crowdfunding will eventually reveal the talent that lies outside the privileged groups, like the laws of physics will eventually reveal the flaws in that building I mentioned earlier. This will generate good business ideas and good businesses. Secondly, the control mechanism aspects of the capital allocation process which gives rise to most of the privilege Mr. Fortgang refuses to apologize for, are removed by crowdfunding. Just as with voter registration rules, the only way for privileged groups to control the political sphere now (with literary and diversity both growing rapidly) is to limit access to the ballot, but the only way to do this in a democracy is unethical. This syncs into and adds one more incident to the list of things Mr. Fortgang will not apologize for.

Messrs Fortgang, Sterling and Bundy are proof that that years of active discrimination have damaged perceptions. These perceptions limit the ability of Black people in the US (and worldwide) to obtain business financing. 

The bottom line is this: crowdfunding works to make the country better, fairer, to unleash suppressed creativity, to allow people to earn for themselves. Crowdfunding will facilitate the realization of this potential.