Leonhardt Ventures News
What You Need to Know About the New Crowd-Funding Bill
December 12, 2011, 4:37 pm
By Jeff Steele at TheWrap Sun Dec 11, 2011 8:19pm EST The U.S. House overwhelmingly passed its first significant crowd-funding legislation, in the form of H.R. 2930, the Entrepreneur Access to Capital Act. The bill (now in the Senate) amends the Securities Act of 1933, by allowing entrepreneurs to crowd source (online) up to $2 million per year in investment capital directly from individuals without having to register the investors with the SEC. However, the commencement and completion of the raise do need to be filed with the SEC. Entrepreneurs (the “issuers”) must provide potential investors with audited financial statements in order to qualify for the $2 million cap, otherwise you are capped at $1 million. Individual investments from crowd-shareholders are capped at $10,000 (or 10 percent of their annual income), whichever is less. To be clear, this is not free money; these are bona fide investor-securities for which they will receive a return on their investment as well as ownership interest in your enterprise, be it film, music, games, art, books, inventions, startups, etc. Many filmmakers have raised funding for films on popular gifting sites like Kickstarter and IndyGoGo. These sites have found success raising free money for ultra low budget films and other projects through crowdfunding models where people can pledge as little as $1 and as much as they like to a variety of different projects. That is free gift-money that cannot be paid back, so project benefactors have no financial interest in your film, nor can they take a charitable deduction on their gift (though some sites have contrived charitable workarounds.) H.R. 2930 specifically amends the “Requirements with Respect to Certain Small Transactions” (Section 4A of the Securities Act), by providing for registration exemptions for certain crowdfunded securities -- the details of which are summarized at the end of this article. Some important points worth highlighting are: >> The $1m/$2m funding caps and the $10,000 investment cap are pegged to the Consumer Price Index for all Urban Consumers, so they can be adjusted over time (this prevents the caps from becoming outdated.) >>A requirement that the issuer or broker use a 3rd party for cash management (this keeps prying fingers out of the cookie jar.) >>A requirement that the issuer or broker raise at least 60% of the target offering to take possession of the funds (this is a good because it keeps the issuer from collecting money for a project they can’t afford to finish.) >> Raising crowdfunds does not preclude issuer from raising capital by other means (this allows crowdsourced equity to participate in traditional capital structures alongside (other equity investors, tax credits, collateralized and mezzanine loans, etc.) >> Background checks are required for issuers and brokers/intermediaries. >> Crowdfunded shares cannot be resold for 1 year, unless the shareholder is an accredited investor or the issuer. >> The act does not specify which enterprises can be crowdfunded and which enterprises will be banned, if any. So that remains to be seen. >> The act does preempt state “blue-sky” laws, but still allows for state enforcement. >> Massachusetts has the most representatives that voted against it (5 out of 10). Curious. >> The initial funding cap was $5 million, but was quickly lowered to $2m/$1m. >> The Act spells crowdfunding as one word, which will hopefully alleviate the 1 word vs. 2 words vs. hyphenated discrepancies. The bill has met some backlash by politicians claiming that crowdfunding measures would lead to speculative, risky offerings that could translate into heavy losses for small investors. This argument has merit and should be carefully considered by the Senate and SEC. It’s ironic that given the potential fraud risk and rampant financial abuses of the past 10 years that the House Republicans voted (in a strict partly-line vote) to kill an amendment that would have required intermediaries to disclose to potential investors how they are compensated. This issue has plagued charities that outsource fundraising to 3rd party companies that, in turn, take a hefty percentage of the donations they raise. Perhaps the Senate will re-introduce it. During the Senate Banking Committee’s December 1st hearing on spurring job creation through access to capital, Senate Banking Committee Chairman Tim Johnson said in his opening statement that they will hear from witnesses who will “provide insight on proposals to expand the scope of Regulation A offerings, to permit general solicitation of investors in Regulation D offerings, and to allow individuals to solicit and sell small amounts of stock over the Internet through crowd-funding.” Johnson continued, “They will address the size of a private offering and the amount of money that a crowdfunder should be able to risk without full regulatory protection. They will discuss the types of markets where these securities should trade. They will also describe the existing investors’ safeguards, such as disclosures about the business and financials, and how current proposals would affect those safeguards.” Summary of H.R. 2930 (PDF): The amendments to Section 4A are as follows: ‘‘(6) transactions involving the offer or sale of securities by an issuer, provided that— ‘‘(A) the aggregate amount sold within the previous 12-month period in reliance upon this exemption is— ‘‘(i) $1,000,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, or less; or ‘‘(ii) if the issuer provides potential investors with audited financial statements, $2,000,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, or less; ‘‘(B) the aggregate amount sold to any investor in reliance on this exemption within the previous 12-month period does not exceed the lesser of ... ‘‘(i) $10,000, as such amount is adjusted by the Commission to reflect the annual change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics; and ... ‘‘(ii) 10 percent of such investor’s annual income; ‘‘(C) in the case of a transaction involving an intermediary between the issuer and the investor, such intermediary complies with the requirements under section 4A(a); and ... ‘‘(D) in the case of a transaction not involving an intermediary between the issuer and the investor, the issuer complies with the requirements under section 4A(b).’’ H.R. 2930 goes on to describe the statutory Requirements to Qualify for Crowdfunding Exemption, for issuers and brokers, which includes cautionary language, background checks, website requirements, etc.
Live Your Passion
September 14, 2011, 3:46 pm
By: Melissa Kong on May 2nd, 2011 at 8:00 am
Source: Student Branding
By showing the world what people think about you, your “vouches” help establish professional and personal credibility while strengthening self-confidence and your personal brand. What I love most about VouchBoard is that, at its core, the site is a “feel good” endeavor. People enjoy compliments, recognition and recommendations, and VouchBoard.com is a service service that allows people to attain and highlight all three. So, if you haven’t joined VouchBoard yet, now is the time! It’ll be a huge asset to your personal brand in the future.Turning now to the co-founder, Michael Gursha graduated Magna Cum Laude in 2010 with a dual major in Television, Radio, Film and Entrepreneurship and Emerging Enterprises at Syracuse University. Michael has worked for major companies such as: Google, Time Inc. and Curemark. Given his diverse work experience and insatiable entrepreneurial drive, I think you’ll enjoy the interview below- ripe with perspective on what it means to truly live one’s passion.
MK: Tell me about Vouchboard.com. Where did the idea come from?
MG: My friend Andrew and I came up with the idea while at Syracuse University. We saw this huge hole between social media and social networking. We wanted to bridge the gap between the professional and social networking sites. We realized that people loved receiving recommendations on LinkedIn, friends writing on their Facebook walls and getting re-tweeted on Twitter. We wanted to create a service that utilized these favorite social media components to make something meaningful.
MK: What do you see Vouchboard.com going in the near- and long-term future?
MG: I think in the next year, the site will change a lot. As we grow the site, I know that we will get a lot of feedback. We will incorporate all of those changes to build the best website possible. Simultaneously, we want to make sure we spend time building the right team. We want to make sure we have a great group of people working to produce a great social networking site for our users.
Vouchboard.com is a site built for people to have a positive experience and get affirming feedback. Long-term, the site would extend not just to individuals, but also to businesses, non-profits, products and services. It would be a site that readily displayed how much people like other people, products and ideas.
MK: Where do you see social media going in the next 5 years?
MG: I think a lot of it is going towards what we are trying to do at VouchBoard. People want to be social. They want their inner circle’s opinions about everything they do, from who they are personally to the products they buy and places they visit. If you think about it, a lot of what we do is based on the feedback and recommendations we get from our close networks. Social media is in just the beginning stages right now. I think current sites will get even more interactive. You’ll be doing things based on what your friends are doing all the time. That’s the big point about life- doing things you love with people you love being around. Social media will facilitate our ability to do that.
MK: What mistakes do you think college students make when it comes to their early careers?
A lot of people go into school not exactly sure what they want to do. I think you do have to try different things in the beginning. I always knew what I wanted to do, so I was fortunate. But for those who don’t know, you just have to try as much as possible to figure out what you really like. Try everything. Even though I knew I wanted to be an entrepreneur, I still tried working in corporations in different industries. You need to discover what you don’t like before you hit upon what you like. You will learn something from every experience, regardless of whether you ultimately enjoyed it.
MK: What is the key to “Living Your Passion”?
I think it’s about just following what you really want to do. If you don’t like what you are doing, you won’t be successful in it. I don’t mind working on the weekends or at nights because I’m really enjoying myself. If you don’t like what you are doing, you are not going to be putting your full self into it. And surround yourself with people that you work well with and support your growth.
MK: What do you think are the 3 common traits among people who are exceptional at what they do?
1.) You really have to be passionate about what you are trying to do. It’s not about money or clout. It’s about passion and belief in an idea.
2.) You need to be a little crazy. Because it’s not an easy path to do something that other people consider to be crazy.
3.) You need to be persistent and just do it, despite the roadblocks that stand in your way.
MK: What advice do you have for other budding entrepreneurs out there?
Just do it. If you have a great idea, it’s all about execution and getting it done. You can write up a business plan, but the biggest hump to get over is actually acting on it. Just try it. If it fails, so be it. You’ll learn a lot in the process about business and yourself. You have nothing to lose. Just put yourself out there a little bit.
MK: What is the biggest career lesson you have learned thus far?
Surround yourself with good people who you can trust and will help you move forward. A lot of success has to do with the people you meet and surround yourself with, as well as the people you choose to have working relationships with. You find out quickly that surrounding yourself with good people makes all the difference in the world. Make sure you work with people who will encourage you to do new things, be creative and think outside the box. Otherwise, you’ll get stuck. Don’t let anyone tell you that you cannot do something you want to do. Make sure the people around you are positive ad encouraging.
MK: What is your advice to students in college right now?
The best thing about college is that you get to meet such a wide variety of people. Just try and put yourself out there as much as possible. You’d be surprised at who you meet a long the way that will become a significant part of your life. Put yourself out there, try everything and meet as many people as possible.
When it comes to entrepreneurship or exploring a new idea, keep going for stuff. People are going to tell you “no” all the time. They’ll tell you that it’s a dumb idea all the time. People aren’t always as encouraging as they can or should be. But what I’ve learned is that you can do absolutely everything. Don’t be afraid. There’s no downside. If you really want to do something, whatever it is, you can do it.
Our new Full Page ad in the Bohemian
March 5, 2011, 11:04 am
Startup America alliance to incubate innovation in U.S.
February 7, 2011, 3:12 pm
Riding on the coattails of U.S. president Barack Obama’s State of the Union speech urging America to prioritize innovation, the White House on Monday announced the creation of the Startup America Partnership.
Chaired by AOL co-founder (and Case Foundation chairman) Steve Case, the alliance is intended to foster coordination among the private sector to increase the development of “innovative, high-growth” firms in the U.S.
What that means is that the partnership will serve as a place for entrepreneurs, startup investors, CEOs, university presidents, foundations and others to meet, greet and start (or develop) companies. In essence, it’s the public-private-nonprofit incubator the president and others have looked to as the answer to innovation acceleration.
“America’s story has been forged in large part by entrepreneurs who have against great odds created innovative products and services that have changed the world — and created millions of jobs,” Case said in a statement. “Our nation once again looks to these creative risk-takers to unleash the next wave of American innovation.”
Case elaborated in a blog post:
I know from my days at AOL that government can open doors and help spark new ideas. It can convene leaders and influencers from different worlds and put them in the same room to share ideas. It can challenge people and companies to do better, to do more. It can invest in and shape ground breaking research, and then, at its smartest, move aside and let innovation take hold.
But government can’t do it alone. Businesses need to take up the challenge and help to create an ecosystem that nurtures the creation and growth of new enterprises, companies that are “built to last” and will be the cornerstones of tomorrow’s economy.
Kauffman Foundation CEO Carl Schramm will serve as a founding board member.
More than a dozen firms and organizations have already joined the partnership, including some big names: Intel, HP, IBM and Facebook.
In 2011:
- Intel Capital will commit $200 million in new investment in U.S. companies.
- IBM will invest $150 million to fund programs that promote entrepreneurs and new business opportunities in the U.S.
- HP will invest about $4 million in a global program to educate and provide technological assistance to entrepreneurs and small business owners.
- Facebook will launch Startup Days, a series of 12 to 15 events around the country designed to provide entrepreneurs with access to expertise, resources and engineers.
The partnership will focus on three distinct areas:
- Acceleration and scale. Replicate successful programs; encourage an increase in experienced mentors; encourage partnerships with large companies.
- Education. Identify resources to help expand high-impact entrepreneurship education throughout the country.
- Commercialization. Increase the number of colleges and universities committed to commercialization outcomes, via regional ecosystem development, faculty engagement and streamlined technology licensing.
Do you think this venture will make an impact? Writing at ZDNet, SmartPlanet editor-in-chief Larry Dignan says in the pursuit of a high-technology, entrepreneurial economy,we shouldn’t ignore teaching trade skills:
It’s not as sexy as creating the next Facebook, but anyone who has tried to find a plumber, electrician or contractor knows the idea could be powerful.
By Andrew Nusca | Jan 31, 2011
smartplanet.com