CFWS Interview Highlights 1
Here are some highlights from more of our interviews from CrowdfundingWorldSummit.
Daniel Gorfine: New Capital Access Tools for Individuals in Business
- Title II deals in private capital markets and accredited investors while Title III legalizes crowd funding
- Under Title II, 506© requires a more formal accrediting process, beyond the previous self-accredited network of investors.
- Angel List is an accredited-only investment platform for entrepreneurs and investors.
- Title II is a relaxation to appeal to those who are accredited (not crowd funding.) Title III is crowd funding.
The Milkin Institute is an independent, nonprofit, non-partisan think tank.” They aim to expand and regulate the financial market while providing financial tools to solve global issues.
A few of the key tools being discussed right now are Title II and Title III legislation, which are part of the Jobs Act. Title II deals with private capital markets whereas Title III legalizes crowd funding. Both of these are meant to stimulate investment in small businesses and entrepreneurial pursuits at earlier, notably riskier, stages of development.
Title II deals with capital markets and accredited investors, notably lifting the previous ban on “general solicitations on private offerings sold to investors.” This allows “companies, issuers, and funds to mass market private offerings to the general public as long as the investors are accredited.
Title III is “public securities crowd funding” which looks at “how the accreditor/investor marketplace develops.” Unlike Title II where you can mass market to the general public, title III requires an intermediary. Title II allows issuers to appeal directly to a broader audience, but only about 2% of the population can participate. Title III allows 98% of the population to get involved in investments, however an intermediary regulating system moderates the transaction between issuer and investor.
The Milkin Institute aims to educate investors and to help people better understand the value and risk involved in investment decisions. Explaining the new tools for individuals in business is the first step.
David Schweikert: Crowd Funding and Real Estate
- Ideally, crowd funding will expand the real estate market and communal investment in new projects.
- Crowd funding is intended to create Proof of Concept, garnering enough money and smaller investments to legitimize a larger investment.
- Crowd funding allows for a communal focus and for entrepreneurs who would otherwise be overlooked by big investors to find local support and “proof of concept” for future growth.
- Crowd funding will create a standardization process, making new ventures more approachable for investors
David Schweikert has a background in real estate, finance, and government, and through crowd funding he is bridging them all. Scheidert believes crowd funding will play a key role in the real estate investment market’s future with the introduction of smaller, entrepreneurial investments, rooted in the project’s immediate community.
Equity crowd funding for real estate is currently capped at three million dollars. For big investors, three million is quite small, but for the general public, it’s just enough to garner “proof of concept.” Proof of concept is the idea that through a community driven and supported investment, an entrepreneur can display the project’s value for bigger investors. The risk is counteracted by local support and local investments.
Another feature incorporated into crowd funding is the standardization of investment. A standardized process allows for an investor to take on differing ventures while finding the same process and security in the paperwork process. As the investment process becomes smoother, investors are less intimidated to support new ideas.
With the investment market changing, Schweikert says we should be optimistic about the future. As the potential for investment expands to include more experts and innovative thinkers, “how we invest, what we invest in, and how we build our financial futures will change.”
Doug Ellenoff : Getting the World Ready for Crowd Funding in Title II and Title III
- 506© gives entrepreneurs more reach in the search for investors!
- The Curated Deal Flow allows investors to endorse and garner more support for an investment.
- Title II allows people to directly advertise to a broader audience.
- Direct Issuance vs. Broker Dealer vs. Funding Platform: Compensation & Responsibility
There are new ways for entrepreneurs to raise money by making potential investors more approachable.
As of September 23, 2013, general solicitation is open to acquaintances without a preexisting established relationship under 506c. This expands the marketing capability for investors. For example, entrepreneurs can announce that they’re raising money on social media, making an offer to the entire US population, and receive offers from accredited investors.
Practically speaking, advertising isn’t the breakthrough of 506©. The important part of this law is the Curated Deal Flow. This means that lead investors, who endorse an investment, can get others to invest as well without a preexisting established relationship. While 506© widens the spectrum of who can invest, it is still most likely that investors will be acquaintances of the entrepreneur.
Another benefit of Title II is that it allows you to directly advertise. Investments do not need to be done through an intermediary, unlike in Title III. This being said, entrepreneurs need to know the difference between a direct issuance, investment through a broker/dealer and the use of a funding platform. Issues such as compensation and responsibility vary depending on the method used.
Title II and Title III have the potential to be incredible assets for your business. With the right connections, and an understanding of general solicitation and investment relationships, crowd funding has the potential to fuel entrepreneurial innovation.
John Harthorne: More Optimism, More Growth and More Jobs
- Mass Challenge works to “restore creativity through business by bringing out the worlds most innovative ideas and provide them with the resources needed to find success”
- Investing in start-ups is an investment into the community.
- The intent is to create something of value and to capture value.
- Value and solutions will create profit.
John Harthorne is one of the creators of the Mass Challenge, the largest start-up accelerator with no strings attached. Camaraderie and access to an encouraging, mentoring pool, and funding will be provided to help foster selected start-ups to fruition.
Boston, home of Mass Challenge, has become a hub for many startups, from Microsoft to Facebook. Why Boston? With dozens of colleges in Boston, and over a hundred in Massachusetts, there is a “concentration of knowledge and technical talent”. In addition, the state and corporate companies have become invested in this aspect of the community, providing grant money to businesses with innovative ideas. Mass Challenge was funded by a state grant, as were many of the start-up academic competitions Harthorne participated in years before.
This climate is being recreated on a micro level through Mass Challenge. Bringing innovators together, into a collaborative environment, ideas are constantly shared and challenged. Selected start-ups are provided with office space and materials to test their ideas while being provided with mentors to help guide them to success. Investment is required for innovation, and through Mass Challenge, Harthorne hopes to create “more optimism, more growth, and more jobs.”
The promotion of start-ups is not just a business investment, but also a communal one. As Mass Challenge is looking to expand this community, allowing start-ups to drive innovation on a national, if not international, level.
Johnson & Bekiares: State Crowd Funding Exemptions
- There are two approaches that states can use to put a crowd funding exemption into place: regulatory action and legislative action.
- Whether the exemption is passed as a rule or piece of legislation has little effect on startups ability for crowd funding.
- Crowd-funding’s appeal is that it creates local investors, fueling local businesses and creating local jobs.
- State exemptions only apply to residents of the state, and cannot be used for interstate investments.
Crowd funding has been proven to work through companies such as Kickstarter. With the recent Job Act more people can become involved in startups and invest in local innovation. Spark Market hopes to serve as a platform for this development, taking its start from the opportunities of the Georgia exemption rule.
Slowly, states are starting to see crowd funding as a source of local stimulation. Specific rules for how crowd funding may be used within the state, whether through regulatory additions or legislative action are being created to enact exemptions from the general national legislation. Given that the crowd funding process only takes roughly thirty to ninety days, the exemption benefits small businesses and entrepreneurs as both a rule and piece of legislation. Platforms however are eager to see exemptions made into legislation, as rules are easier to revoke than laws.
It is important to note that these exemptions only apply to residents of the state where they were issued, and do not work for interstate investments. Local businesses will depend on local support to fuel local jobs. With platforms such as Spark Market in place, both accredited and non-accredited investors can be connected with nearby startups to stimulate intrastate innovation.
Michael Crosson: The Potential of Social Media Groups and Networks for Real Estate Startups
- Social media allows businesses and individuals to expand their network while learning new skills to further their company’s reach.
- Groups versus Networks: gaining industry knowledge and personal contacts.
- “Crowd funding and social media will intersect to facilitate protection of property value as a communal investment.”
- An active group of brand ambassadors and a content oriented advertising base can help garner attention and interest in a product or investment.
The Real Estate market is expected to be one of the biggest proponents of equity based crowd funding. As such, the demand for effective social media techniques will be key in garnering local support as well as regional and national investors.
To successfully crowd fund, groups should develop both groups and networks.
A group is intended to bring people together to learn more about a common interest. With LinkedIn and Facebook groups, for example, companies can discuss current trends and stories relevant to an investment opportunity. This will attract innovative thinkers on a local and international scale to become involved in a discussion or following with just the click of a button.
Networks are more contact oriented, with one on one interaction. These people are likely to become ambassadors or fans of a product/investment, creating a community for supportive interaction. Networks can be used to draw attention to a social media group and in turn, one’s network is likely to expand and grow as a result of a group. The more people there are talking about an investment or idea, the more people can get involved. Twitter, LinkedIn and Facebook can help this happen.
Real Estate draws interest from the immediate community as well as from outside investors. With social media, startups can connect with a larger audience base, appealing to locals for initial interest and proof of concept, while also drawing in outside interest with constant updates and opportunities for involvement.
Randy Williams: Using Networking to Connect Crowd Funders and Investor Organizations
- Networking is key to startup success as it connects you with the right investor(s).
- If you meet your crowd funding milestones, you are more likely to succeed.
- You need to have relationships wherever you pitch your idea, with a champion in place to help promote your idea.
- Communities should work together to create better-educated investors and connect them with the right startups.
Investment forums allow startups to connect with interested startups. Chapters of Keiretsu Forum work both regionally and internationally to make form these relationships, connecting entrepreneurs with funding and guidance.
Investors are expected to dedicate time and money to their startups, supporting the business to fruition. With monthly meetings, investors and potential investors/community members can join to see regional opportunities. Data, experience and funding are then shared with desirable startups. Keiretsu provides a network to sustain and grow investments as well as communities, developing local ecosystems.
This begins when four companies, selected from 50 applicants, are accepted to present their investment opportunity to the Forum. Once among these four companies, there is a 50% chance of funding. A benefit to Keiretsu, is once these companies pass their screening test, they are able to advertise to the Forum based on where their ideal consumer base is located.
Having a champion greatly increases a business’s potential for success during the application stage. A champion is an investor that helps promote a business within the greater investing network by providing a founded interest in the startup.
With a network connecting investors with startups, Investment Forums like Keiretsu work to help promote budding businesses to success through both guidance and funding. With champions and investors seeing startups to fruition, businesses are able to grow and communities flourish.
Rodney Sampson: The Church as an Epicenter for Crowd Funding
- Crowd funding is a way for local investors to stimulate the local economy.
- The new crowd funding laws will be a “game changer for underrepresented, under served, and minority communities.”
- “The internet offers connecting points for entrepreneurs and investors to meet and share information.”
- Look at preexisting local social hubs, such as churches, to start bringing together entrepreneurs and investors with a vested interest in the community.
A key way for local communities to make use of crowd funding is through preexisting organizations, such as churches. Churches are already a hub of social interaction and can be seen as “ a symbol of education, success, and social stability.” Also, faith based organizations, given their reach and dependence on local funding, are already tied into local communities and state and government systems. They are able to connect with members on a local, regional and national level, and as a platform for crowd funding within a community; these epicenters may prove pivotal to startup success.
Churches and other community driven organizations are funded throw crowd funding already, though the term is rarely applied. Local investors tithe and provide donations to keep the organization running. The local investors have a vested interest in the community, and the church may be able to tap into this to create a greater investment initiative. As local interest in projects rises, and community members are willing to invest their own time and money into startups, larger external investors will find the security necessary to get involved.
For all of this to happen, and with a system already in place through local community hubs, people need to now become educated and exposed to crowd funding. The infrastructure for local stimulation in place, it is now up to communities to invest.
Roger Royse Interview: The Legal Side of Startups
- Startups should get legal advice immediately!
- Check out Roger Royce’s book: “Dead on Arrival: How to Avoid the Legal Mistakes that Could Destroy your Startup”
- Title II focuses on advertising relaxation. All investors must be accredited.
- Title III allows for general solicitation however there is a limitation on how much an investor can invest, how much money can be raised and how often as well as how investments can be done (there must be a portal.)
- Online tools for startups: Royce Law Incorporator, Online Legal Wizard and Royce Link.
The goal of Royse Lawn firm is to provide startups with a sophisticated level of expertise at an affordable rate with superior service. Given the small scale nature of many startups at their conception, many people rely on verbal agreements and assumed relationships at the beginning. Instead, startups should get legal advice immediately, as these informal transactions grow shaky once investments are underway.
The new Job Act works to make the investment side of startups easier by allowing for advertising expansion and previously unaccredited investments through an intermediary. A key aspect of this new legislation is to “level the playing field in terms of access to capital.” Advertisements can be used internationally, drawing on investors from around the block as well as from around the world. Advertisements can connect a consumer base with talent and money, fueling innovation and investment.
While the Job Act allows for an expansion of opportunity for investments, it is important to consider the effects of taking on non-accredited investors, especially at the early stages of a startup. Having unaccredited investors, in addition to complicated disclosure policies, may limit a company’s relationships with large, accredited investors who want to know that their investments are professional and reliable.
For ultimate success, a start up should begin with legal counsel, smart advertising and a consistent investment pool.
Senator Warner: Crowd Funding – Investing in Local Communities
- Success often only comes from overcoming and learning from failure
- Crowd funding will ideally help people create jobs at home rather than having to move, fueling local economies.
- There are two elements to equity competition: the competition for talent and the competition for funding.
- Crowd funding is becoming an international trend that, while still in its earliest stages, is an opportunity for the United States to promote innovation at home and abroad.
International interconnectivity online has connected businesses across the globe. What does it mean for businesses at home though and the local community? One of Senator Warner’s biggest concerns is making sure people don’t have to leave their home town to find a good job. Crowd funding is a place to start.
Some major cities in the US have already begun to tap into the opportunities of crowd funding. Where there is both talent and capital, investments are made. In small towns and places off the beaten path though, innovation isn’t as readily supported. Crowd funding, through an internet regulating intermediary, will help connect investors to a wider range of talent on a national scale, removing the geographical limitation of previous investment laws.
As more people are able to invest, and investors are able to access a wider variety of startups, new regulations must be put in place. It is difficult to fully protect an investor, and a few models are being suggested to help regulate online investment interactions, through mentorship and risk analysis. A strong model, supported by existing platforms such as Angel, allow less experienced investors to see what others are doing and to follow the trends of successful investors.
Ideally, crowd funding will not only support the next Google but also small startups that thrive on a more local level. There may be a few glitches along the way as the process evolves, but the results of crowd funding have the potential to be powerful and long lasting.
Terry Mollner: The Common Good Comes First
- Three types of investing that are key to the crowd funding initiative: 1. Socially Responsible Investing, 2. Impact Investing, 3. Common good Investing.
- Crowd funding teaches people about investments, both passive and active.
- Crowd funding informs the public of how investments can be instrumental within the local community
- To be part of a society, an individual’s first priority must be the greater good. Crowd funding is a good start.
Three investment strategies already exist to help fuel localized startup economies:
- Socially Responsible Investing demands that one’s highest priority is the company and maximizing the returns for the shareholder. This is done however under the requirement that “companies work well with the environment, their employees and the community.” Civil behavior is key.
- Impact Investing relates to impact behavior for the social good. The goal is to nurture a better relationship with the community. This method creates positive cash flow through investments and grants.
- Common Good Investing “is a natural stage of maturity.” This method demands that when two parties come together, they agree to work towards cooperation rather than competition. All competition must be driven by the desire to enhance communal cooperation.
Initiated by the investor, who would potentially participate in crowd funding, these three strategies work to remind larger corporations of their role within a social context. “If you’re a member of a society, common good is first, profit second.” Long term, stimulation of startups and entrepreneurial ventures will stimulate the larger economy, returning the invested wealth of involved corporations as the community develops.
Crowd funding is an investment initiative that will promote innovation and economic growth in both the local and international business realm. The common good must come first, and profit will follow.