Friday, October 30, 2015

Securities and Exchange Commission says "Go ahead, make my day..."

As we forecast, today (10/30/15) the US Securities and Exchange Commission (SEC) voted 3 to 1 to allow small companies to raise up to $1 million online. Small firms and startups can now solicit anyone, regardless of their location, net worth or wealth, thereby giving small investors a chance to own what may be the next Facebook or Google (or not). 
More likely, it means the day care center or restaurant down the street can now offer ownership stakes, or shares of stock, to their most supportive customers and clients. This is great news for women and Black-owned firms, which tend to be small and capital starved. The SEC vote approving rules implementing Title III of the JOBS Act means greater opportunity for minority, women and veteran firms to obtain equity funding.
In addition to allowing firms to raise capital from anyone via a crowdfunding platform (a Financial Industry Regulatory Authority or FINRA registered internet website set up specifically for this purpose), the SEC also approved rules making it easier for companies to sell stock in small or startup companies to potential investors residing in the state in which the startup (or small firm) is located. This is another potentially beneficial capital raising option for Black owned firms, which tend to be hyper-local.
The new rules are not without drawbacks, however. Crowdfunding platforms will be allowed to accept stock in lieu of payment for capital raising services provided, so small firms will have to watch out for crowdfunding platforms that charge, say 50% of your stock to help you get funded. Given the lack of brokerage firm ethics we saw in the years leading up to the financial crisis, this is serious issue, but the potential for good far outweighs the downside.
Raising equity, or selling ownership shares, is a very difficult and complicated task, mainly because of the convoluted rules governing how you can do so. Today's SEC action makes it a little easier to get the capital needed to launch (or enlarge) your firm.

Tuesday, October 27, 2015

SEC to vote on Title III of the JOBS Act this Friday!

"Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold an Open Meeting on Friday, October 30, 2015 at 10:00 a.m., in the Auditorium, Room L-002. The subject matter of the Open Meeting will be:

The Commission will consider whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act. http://www.sec.gov/news/openmeetings/2015/ssamtg103015.htm "

Having said, in March, 2015 that the SEC wasn't going to do Title III, we changed our minds last week and declared that the SEC was going to approve Title III after all.
https://www.linkedin.com/pulse/sec-poised-implement-title-iii-jobs-act-cunningham-am-mba?trk=pulse_spock-articles

We think they will also announce new policies that allow them to move quickly when equity crowdfunding misconduct is identified.

Thursday, October 22, 2015

SEC to implement Title III of the JOBS Act

Yesterday, the U.S. Securities and Exchange Commission (SEC) announced "that it will hold its annual Government-Business Forum on Small Business Capital Formation at its Washington D.C. headquarters on Nov. 19, 2015. The morning session of the forum will feature panel discussions on exempt and registered offerings occurring after the passage of the JOBS Act." You can register for the forum here
We think the SEC will use this opportunity to release the final Title III crowdfunding rules. As I describe in my book on the JOBS Act, small businesses and startups will be able to raise up to $1 million in equity (or debt) funding online via what are called Crowdfunding Platforms―online communities and websites. Imagine an eBay-like site that allows you to post your idea for a commercial venture online and then allows investors to purchase equity shares or stakes in it. 
Recently,  two state securities regulators (Montana and Massachusetts) brought a suit in the United States Court of Appeals for the District of Columbia Circuit against the SEC to block the rules implementing Title IV of the JOBS Act. Title IV allows companies to raise up to $50 million. We were recognized as a "Friend of the Court" in the action, and suggested the Court vacate the Title IV rule, subject to the SEC immediately implementing Title III of the JOBS Act.
I think they will use the Forum as an opportunity to do so. Now, I am not suggesting that just because I urged a Court to tie their Title IV decision to Title III, the SEC will act. (I don't have that kind of influence AT ALL.) 
On Wednesday, September 16th, I spoke at a roundtable on crowdfunding at the Embassy of Italy in DC:  
Also speaking was the Special Counsel for the SEC in charge of implementing Title III. He did not say anything that could be directly interpreted as supporting my statement, but he did acknowledge that the SEC is very, very late with implementation: under the JOBS Act, they were to have Title III regulations in place by 12/31/2012. 
I also noticed that the summary of the Title III rule on Reginfo.gov has a date listed for the implementation of final rules governing Title III: Final Action  -10/00/2015.
I think this means they will announce the final rules on the 19th of November, but, of course, I could be wrong.

Wednesday, October 14, 2015

Wayan Brothers Come to Howard University...

I attended a HowU Innovate panel on how to raise money for your startup. The invitation encouraged people to "Come out and hear from some of the best minds in the field."


While not super well attended, I did find it interesting. There was much good information, but it seemed a less edgy, more conventional rehash of a talk I gave at Howard in April and of the talk I gave at the 2015 National Black MBA Association Washington DC Chapter (NBMBAA-DC) Entrepreneurship Expo. My talk, titled “Black People and Venture Capital” is on video below.


One person sent me the photo at left in response to a photo I tweeted out during the meeting. 


Now, that's a little harsh, but I understand why they sent it. Much of the advice was super conventional and rests on the fiction that Black people can actually get money from VC's.

At one point, the person on the panel who works for a VC referenced the small number of Black professionals he knows, implying that there were only a handful of Black people working for VC firms. This is false. According to our database, there are probably 250 Black men and women in the field now. The issue is not having one more Black person with a job at a VC firm. The issue is performance. One study found that "while less than 1 percent of venture-capital-backed company founders were African American and 12 percent were Asian, 83 percent had a racial composition that was entirely Caucasian."

Someone reminded me of the speech Lyndon Johnson gave at Howard 50 years ago: "Johnson spoke of a widening gulf between blacks and whites in unemployment, infant mortality and economic opportunity. 'It is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates,' he said.

VCs are widely regarded as one way to walk thru the gates of opportunity, but we know, given the statistics cited above, this is false. 

Wednesday, October 7, 2015

Obama Turns to Crowdfunding to Aid Fleeing Syrians

As the New York Times reported, "Syrian refugees continue to flee the violence at home, President Obama is turning to the modern tools of Silicon Valley entrepreneurship as a supplement to the more traditional means of humanitarian relief. At the request of officials from the White House Office of Digital Strategy, the crowdfunding website Kickstarter has begun its first social service campaign aimed at raising money for the United Nations refugee agency on behalf of Syrian refugees." 

Here is my 10/7 talk on NPR's Press Play with Madeleine Brand: http://www.kcrw.com/news-culture/shows/press-play-with-madeleine-brand 

How effective is this? They raised $700,000 in six hours. Six hours. For more, visit the links below. 

http://www.nytimes.com/2015/10/07/world/middleeast/obama-turns-to-crowdfunding-to-aid-fleeing-syrians.html?_r=0http://qz.com/519438/kickstarter-just-crowdsourced-a-million-dollars-for-syrian-refugees/http://www.huffingtonpost.com/entry/kickstarter-syrian-refugees_5613f2e5e4b022a4ce5f90adhttp://www.theguardian.com/world/2015/oct/06/kickstarter-pairs-with-unhcr-to-help-syrian-refugees-after-white-house-callless