November 2012 – Crowdfunding Professional Association

Why Fraud Won’t be an Issue in Crowdfund Investing

When Crowdfund Investing starts in 2013, some regulators would have you believe that the Wild West of securities fraud will be perpetrated on the American people. Give the regulators a break. All they see, all day long, is securities fraud. They don’t understand that 99.9% of the markets function just fine. That fraud is a minute part of any efficient market and that markets don’t stop operating because there are bad actors. Remember, people still invest in the public markets despite Worldcom, Enron, Bernie Madoff and even Facebook. People still use credit cards despite identity theft. eBay never went out of business because of a few bad deals but introduced rating systems to provide clarity and credibility based on reviews.

Here are the steps a perpetrator will have to take to commit fraud within the Crowdfund Investing legislation and framework. Please note, fraud committed outside of the legislation and framework is fraud. It isn’t “crowdfunding fraud.” Just fraud. With that said, here’s what conniving fraudsters need to know.

1) Stay Hidden & Stay Situated: I asked an FBI securities fraud agent at a self-direct IRA conference in Scottsdale, AZ recently how many fraudsters self identify themselves. He said “none.” Unfortunately within Crowdfund Investing before anyone begins he has to submit to a background check. What does this mean? Well it means validating that he is an actual person at a valid address and he don’t have a checkered past. Know how else to prevent fraud? Look for people who have resided at an address for over 4 years. Fraudsters are on the move, average Joes aren’t.

2) Come up With a Brilliant Idea with a Great Revenue Model: Be creative here and realistic. This pitch is going up on a SEC-registered websites and it really needs to engage the crowd. All of this will be overseen by portals, regulators and the crowd. At the end of the day a fraudster’s idea needs to entice people to come to his pitch page and then he will need to defend why this is such a good investment to people who are going to be posting comments like, “This is a scam.” The backbone of crowdfunding is the dialog that takes place between the entrepreneur and investor. That dialog either builds confidence and trust or not. If a fraudster can’t win over the crowd in this open, many-to-many dialog then he won’t get funded.

3) Build a Large and Strong Social Network of People You Wish to Swindle: For Crowdfund Investing to efficiently operate one’s social network will be the center point of success. After a fraudster has loaded his amazing idea up to that SEC-registered website, he will connect his Facebook, LinkedIn, Twitter, Google+, etc friends. This is how he will market his pitch within the Crowdfund Investing regime. So make he needs to have lots of friends that believe in him AND his idea. Because those first-degree people are the ones he will need to take advantage of. That’s correct, those closest to him! And finally,

4) AIM for 100%: The legislation requires that a shyster hit 100% of his funding target or no money is exchanged. So he will need to aim low. He doesn’t want to put a pitch up there for $250,000 and only get commitments for $249,000 and fail. It is mandatory that in this open platform users win over the confidence of their community, get them to commit funds that go into an escrow account (the funds don’t get released until 100% of the target is reached and, if the target is reached in less than 21 days since the pitch went live, the issuer MUST WAIT 21 days to get his money. So let’s hope no one blows his cover).

And there you have it! If a shyster has a lot of time to waste building a real social network and has the ability to develop a smart business idea that will garner lots of small dollar investments from those people who trust him, and he can convince all of them to help him hit 100% of his funding target, AND no one blows his cover as has been shown with pretty much every fraud that’s been perpetrated on crowdfunding platforms to date, then voila he’s done it! Seem like a lot of work for probably a little amount of money? It is. In reality fraudsters look for quick and easy ways to make a buck. Crowdfund investing won’t be that for fraudsters and unfortunately either for sincere entrepreneurs who aren’t prepared to use this powerful tool.

The way to prevent fraud is not by preventing people from investing but educating them. Our job (everyone’s job that is) is to make sure that people understand if something sounds too good, it probably is too good. Our government needs to start a nationwide campaign featuring the Nigerian Prince, the Abducted Nephew and the Securities Fraudster saying, “if you don’t know me, don’t believe me.” It will cost both our nation and our economy far less money then the amount of money gullible people currently lose to these shysters.

Conclusion, “Just say NO, to people you don’t KNOW!” This doesn’t just go for investing in crowdfund securities down the road but people who randomly call you on the phone telling you about the next Facebook and how you can invest through them. Or asking you for donations or to bail your nephew out of jail. Or just investing in something you don’t know or understand. Heck it goes back to what our parents taught us as children, “ don’t taking rides from strangers or trust candy from that suspicious people!”

Sherwood Neiss is a Principal at Crowdfund Capital Advisors. CCA is a strategy and technology advisory firm that works with Governments and NGO on implementing a CFI infrastructure.

What are the Global Implications for CFI

What are the Global Implications for CFI?

Government focused on growing economies focus on creating jobs. Small business and entrepreneurs are the driving force behind every successful economy across the globe. Cultures and governments that embrace and celebrate the entrepreneur are more likely to succeed in both the short and long term.

Although crowdfund investing is not an economic cure-all, it can be an important part of the solution. It allows significant numbers of citizens to make modest investments in high-growth and/or community businesses. And it can benefit your country for the following reasons:

1. Ideas Follow the Money

Fostering an ecosystem that encourages entrepreneurship and innovation requires capital. If the financial markets or regulations in a particular country are such that capital isn’t flowing, businesses can’t get the money they need. Entrepreneurs who are passionate enough about their ideas will go where the money is available to fund them. This is why many Canadian entrepreneurs head to the United States: because capital is more readily available to fund them there. Countries that wait to update their securities laws will create “brain drain” as skilled entrepreneurs head to other countries where they can fund and launch their businesses. An idea that is successfully funded in one country generally stays there and rarely returns back to the entrepreneur’s country of origin.

2. Ideas Turn into Job-Producing Businesses

Ideas launch businesses. Businesses require people to grow. Good ideas can turn into great job-creating businesses. According to the Small Business Administration, all net new jobs in the United States in the past 30 years were created by small businesses. Big businesses employ thousands of people, but tens of thousands of small businesses create a much larger number of jobs. Crowdfund investing allows a community to fund local businesses and, in doing so, to create its own jobs.

3. Job-Producing Businesses Are Tax Revenue Generators

Businesses pay salaries to employees. Employees pay payroll taxes to the government. U.S. payroll taxes fund both Social Security and Medicare. The more jobs there are, the greater the tax receipts. The greater the tax receipts, the more money the government has to cover these expenses and pay for the future health of its citizens. In addition profitable businesses pay taxes on their profits to help support the infrastructure (roads, electricity, water, and so on) without which a business could not operate. Crowdfund investing will encourage more profit-seeking businesses that will generate more tax receipts for governments.

4. Economic Stimulus Is a Byproduct of Entrepreneurship and Innovation

Entrepreneurship and innovation are about creating and sustaining ideas — ideas that provide solutions to problems and are purchased by consumers domestically and globally. The cash that consumers pay to a business is used to purchase goods to make the product or service, to hire employees, and to pay for things like lawyers, marketing services, and rent. This flow of capital is a boost to an economy. The more a government can do to encourage entrepreneurship and innovation, the more capital will flow, and the better off its economy will be.

5. Local Investing Keeps Money in the Community and Country

The vast majority of capital local businesses spends stays in the local communities where other shops reside. That money is spent on chamber of commerce dues, tax attorney services, lawyers, general contractors, landlords, business services (phone, Internet, trash pickup), local advertising, and so on. Businesses also employ people who make a living from a business’s revenue and, in turn, support the local communities further via grocery stores, gas stations, restaurants, and other everyday expenses. Many state and federal governments understand this multiplier and try to make their regions as attractive as possible for entrepreneurs to start businesses.

6. Crowdfund Investing Leads to a Larger Middle Class and Greater Stability

Having a “barbell” economy with a large underclass, a large wealthy class, and very little in the middle is unhealthy. A barbell economy doesn’t offer people in the underclass models for how to improve their circumstances or create better lives for their families. Also large unemployed population is a dangerous situation for political stability. When you have over 15 percent unemployment in a country, and when that unemployment is particularly pronounced in citizens under 30 (who are educated and frustrated because they are unable to work), you have a recipe for unrest. Crowdfund investing provides communities with a way to build businesses that add value and create jobs. Countries must create ways to grow the size of their middle class.

7. The Number-One Source of Net New Jobs Is Small Businesses

Many economic studies show that the number-one source of net new jobs is small businesses. To create new jobs in your country, you need to help small businesses to start and grow. With the legalization of equity-based crowdfund investing, small businesses have a new spigot of capital that they can use to grow their businesses and create jobs. People working in small businesses are already oftentimes wearing multiple hats (sales manager, sales person, marketing manager, social media marketer, advertising manager, and so on). When small businesses grow, they have no choice but to hire more people.

8. The Web Can Get Capital Flowing

Before the Internet, banks or other third parties were the only way for individuals to pool their resources and then provide them (via the banks and their lending guidelines) to other individuals to build businesses. Now, individuals can use the web to connect people who have capital to people and businesses that need capital. Other than face-to-face communication, there is no more transparent communication channel than the Internet. The web supports many-to-many communication that enables people to communicate their needs and allows other people to evaluate those needs and determine whether to provide the requested resources.

9. People Want to Support Their Country

Don’t underestimate the power of national pride. People want to support the country and culture they know. People want to invest in people, products, and services they know. In a lot of countries it’s hard for people to invest in businesses that their fellow countrymen are starting and growing. Rather they have to send capital to other countries where it is easier to find a return on their investment. National pride is one reason, but savvy and successful businessmen and women also understand that the better off their country’s economy is, the better off their own businesses will be. This is one reasons we believe crowdfund investing will increase the flow of diaspora money. Today, literally billions of diaspora remittances are already flowing back. With crowdfund investing, countries create the opportunity for additional capital flows to not only support basic needs but also to make real investments in high value and potentially high-growth businesses in the countries to which people feel deeply connected.

10. You Don’t Want to Be Left Behind!

Crowdfund investing is the dawn of Web 3.0, where the social web meets capital formation. It’s a true disruption of the private capital markets. For the first time, both existing Main Street businesses and startup businesses can seek capital via the same channel and can leverage the power of their communities. More and more countries are exploring this opportunity and working to legalize versions of crowdfund investing that are appropriate for their culture and capital markets. This is another step in making the world a smaller and more connected place. Don’t be left behind!

Sherwood Neiss is a Principal at Crowdfund Capital Advisors. CCA is a strategy and technology advisory firm that works with Governments and NGO on implementing a CFI infrastructure.

Investor, Thrillseeker and Entrepreneaur Peter Shankman Opens Crowdfunding Bootcamp

Peter Shankman will be the opening keynote speaker for the Crowdfunding Bootcamp October 9, 2012 at the Ravella in Las Vegas, NV.

Peter Shankman is an entrepreneur, author, speaker, worldwide connector and small business evangelist. Peter is best known for founding Help A Reporter Out, (HARO) which in under a year became the de-facto standard for journalists looking for sources on deadline, offering them sources around the world looking to be quoted in the media. HARO is currently the largest free source repository in the world.

He is also recognized worldwide for initiating new ways of thinking about social media, PR, marketing, advertising, creativity and customer service. To launch an effective Crowdfunding campaign, you must start with a clear message that can be used to attract potential investors. Who better to teach this vital principal than Peter Shankman, the master of “Networking through Social Media.”

You Need the Crowdfunding Bootcamp

Immerse yourself in the best practices of the new regulations for Crowdfund Equity Investing. Be a part of the Crowdfunding Bootcamp(TM)and first annual CFPA Convention to The event takes place on October 9 through October 11, 2012 in Henderson, NV.

This is an innovative conference and bootcamp that bridges the best of a conference with practical hands-on access to lawyers, accountants, social media and PR experts and other resource professionals essential to being able to raise capital using equity based crowdfunding.

Start understanding the intricacies of the compliance requirements as stipulated in the JOBS Act for Crowdfunding while connecting with the world’s most sought-after community of Crowdfund Investing thought leaders, and developers of new and emerging funding portals, and other service providers.

Six Major Crowdfunding Platforms Join Forces with CfPA

Washington, DC — 07/19/2012 — Six crowdfunding platforms and affiliated companies, representing half the board of the National Crowdfunding Association (NLCFA) have left to join forces withCrowdfunding Professional Association(CfPA).

Maurice Lopes, of Early Shares, joined NLCFA’s board early in its inception “I didn’t know there was another organization, until later, particularly one founded by Sherwood Neiss and Jason Best, the chief advocates and crowdfund investing framework authors who I worked with during the fight to legalize crowdfunding.”

Lopes was joined by RennéCaputi (Early Shares), Luan Cox (Crowdnetic) and Sang Lee (Return on Exchange). They all play an active role in the crowdfunding industry and work closely with CfPA’s sister organization the Crowdfund Intermediary Regulatory Advocates (CFIRA).

“Both myself and Renné decided that our efforts would be better on the board of the CfPA” said Lopes. “In recent weeks, we tried very hard to unify both associations and establish a single voice, but it was clear that wasn’t going to happen without NLCFA’s Founder David Marlett changing roles. This seemed an impossible task, so we decided to resign.”

Neiss, co-chair of CfPA said, “Having worked with these crowdfunding advocates across association lines, we were thrilled when they mentioned the thought of merging the two organizations. While they couldn’t make that happen, having them on board allows us to speak with a more powerful collective voice. We are happy they see value in being part of the organization that has the support of Washington, DC.”

“Our priorities are education, advocacy and awareness” says Neiss. “In my opinion, the CfPA and CFRIA are more engaged in the process and investor and policy maker collaboration and education. That is the kind or organization I want to be a part of.”

About Crowdfunding Professional(CfPA)
The Crowdfunding Professional Association is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards. The association’s collaborations and insights are shared broadly to avoid onerous, stifling bureaucracy that can endanger innovation, idea generation and job creation. For more information visit www.crowdfundingprofessional.org

Media relations contact: Joy Schoffler, 512-271-9489 ext. 7

Take Survey: How Much Do You Know About Crowdfunding Investing?

How much do you know about crowdfunding?

The Crowdfunding Professional Association is asking entrepreneurs, investors, intermediaries and crowdfunding portals to take a survey to see how much they know about — or understand — the upcoming changes for crowdfunding provided under theJumpstart Our Business Startups Act. The JOBS Act will enable businesses to seek up to to $ 1 million in equity per year from small investors through online crowdfunding portals. The Act requires the Securities and Exchange Commission to implement regulations that will govern crowdfunding by December 31, 2012.

The purpose behind the survey is to find out what businesses and individuals really know or understand about crowdfunding, what they find most exciting about crowdfunding, and how they plan to take advantage of crowdfunding once the SEC implements the rules for such investments. The CfPA plans to award an Apple(R) iPad 3 to one of the first 500 individuals who respond to the survey. The winner will be randomly selected.

Take the Survey

Image (c) Crestock

Crowdfunding Pioneers Launch Professional Association in Concert with Regulatory Advocacy Group

Sister organizations dedicated to representing rapidly developing Crowdfunding industry and supporting SEC, FINRA during rule making period post JOBS act

New York City, May 7, 2012 – A group of top debt and equity crowdfunding platform and industry experts today announced the creation of the Crowdfunding Professional Association (CfPA), which will operate as a complementary sister entity to the Crowdfund Intermediary Regulatory Advocates (CFIRA) organization. Both non-profit organizations have been formed as a result of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law on April 5th. By creating a legal framework for “crowdfund investing,” this historic act unleashes the potential for a much larger and expanded global crowdfunding community. The goal of the Crowdfunding Professional Association is to facilitate a vibrant, credible and growing global crowdfunding community while advocating for an industry view versus personal interests or a single company perspective. The complementary CFIRA organization is focused exclusively on channeling industry expertise to support the Securities & Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities, including state regulators, in the establishment of industry regulation, standards and best practices.

“Having worked over the past two years in developing the framework and foundational elements of the acts that passed both houses of Congress and ultimately the JOBS act signed by our president, I am thrilled to join with a broad coalition of crowd pioneers in the creation of a truly crowd-sourced professional association,” said Sherwood Neiss, co-author of the CrowdFund Investing Framework in the JOBS Act, co-founder of Startup Exemption and a founding member of the leadership group behind both non-profit crowdfunding sister entities. “In addition to its formation, we are announcing the appointment of the association’s first executive committee chair, and a governance structure and founding team. As challenging as it was to enact this law, we as industry participants recognize that the difficulties in developing the industry have only begun and that we must collaborate to ensure that crowdfunding is both preserved and developed to achieve its maximum potential in terms of credibility, transparency and best practices.”

Berkeley Geddes, CEO of Grow America Insight and DooBizz.com, has been elected chair of the Crowdfunding Professional Association Executive Committee and Governance Board. The Crowdfunding Professional Association’s Executive Committee will work closely with Mr. Geddes to build a lasting network and organization that will provide advocacy, foster integrity and champion the burgeoning global crowdfunding industry and vast ecosystem. For more information on the governance structure visit http://crowdfundingprofessional.org/leadership/

“America needs to get this right,” said Mr. Geddes. “As a nation, we need to lead and restore our seed funding markets in support of good people with good ideas, chasing their dreams. As members of the crowd, we can build a powerful and credible crowdfunding coalition that fuels the creation of new ideas, new businesses and jobs. We look forward to supporting the evolution of this community and harnessing the experts, entrepreneurs, pioneering platforms and visionary investors across the globe.”

The Crowdfunding Professional Association’s core principles are designed to achieve the following objectives:

Establish the highest ethical industry standards to ensure the successful expansion of the crowdfunding industry
Develop broad crowdfunding training and certification programs to solidify the implementation of necessary ethical standards and practices
Create ongoing industry trade show summits, symposiums and sub committees to further develop an ecosystem of industry experts, best practices, and leadership and mentoring opportunities
Represent the industry through media and government relations to ensure major thought leaders understand and have access to the fundamental industry facts/research, crowdfunding experts and platform leaders

“We welcome the creation of this industry body, which we view as strategic to not only fostering new forms of crowdfunding investments, but also to preserving the unique innovations and progress achieved by the early adopters and founders of the industry,” said Brian Meece, co-founder and CEO RocketHub. “Having an organization that represents the industry is essential and we look forward to supporting the efforts of the Crowdfunding Professional Association and the development of this vital industry.”

For a complete overview of membership, leadership and sponsorship opportunities visit http://crowdfundingprofessional.org/join/. Basic membership is free for the first year.
“Crowdfunding’s promise for igniting new, early-stage ventures is revolutionary,” said Alan E. Hall, a founding sponsor of the Crowdfunding Professional Association and founder of Grow America SpringBoard and Mercato Partners. “We look forward to supporting this groundbreaking development through the Crowdfunding Professional Association. It is our desire to help drive and mold this new capital creation model from its very foundation to ensure that it develops efficiently and safely. Managed properly, crowdfunding can fuel the involvement of hundreds of thousands of additional entrepreneurs, and allow many more investors to participate in the creation of companies and jobs that our economy so desperately needs.”

“We look forward to coordinating our efforts with the Crowdfunding Professional Association and are committed to complementing their mission with our laser focus on ensuring that a crowdfunding investment framework thrives in the U.S. so entrepreneurs can innovate and create new jobs,” said Candace Klein, co-chair of CFIRA and founder and CEO of Bad Girl Ventures and SoMoLend. “During this critical 270-day rule-making period and beyond, we will serve as a voice of the industry with the appropriate regulators and provide continuing regulatory education to the industry. CFIRA and CfPA will closely collaborate to make this happen.”

“Fostering the adoption of best practices for the operation of crowdfunding platforms globally is essential to the success of our industry,” said Carl Esposti, founder of Crowdsourcing.org and leader of the CAPS Accreditation Program for crowdfunding platforms and a founding Crowdfunding Professional Association executive committee member. “The Crowdfunding Professional Association is a critical piece of the puzzle and central to establishing accessible Crowdfunding Accreditation for Platform Standards, which is why I’ve worked to support the creation of this association and am pleased to serve on the executive committee.”

“Over the past year, we have hosted crowdfunding summits around the world to raise awareness, share best practices and to foster a coalition of crowdfunding industry participants,” said David Drake, Co-Founder of The SoHo Loft Capital Creation Events and a founding member of the leadership group behind both non-profit crowdfunding sister entities. “We are delighted to be a part of the formation and launch of the Crowdfunding Professional Association and view its function as central to the success of our industry.”

“As a founding supporter of the Crowdfunding Professional Association, our law firm is committed to not only establishing a thriving industry association, but also 100 percent behind this innovative new capital creation model,” said Daniel DeWolf, Co-Chair of the Venture Capital and Emerging Companies practice group of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. “We look forward to helping build a strong foundation for the industry and its varied ecosystem of participants.”

“The potential applications of crowdfunding are just beginning to break the surface,” said Steve Cinelli, Chief Executive Officer of PRIMARQ and a founding Crowdfunding Professional Association executive committee member. “Real Estate equity share finance empowered by crowdfunding platforms is emblematic of the diversity of this industry. Whether crowdfund investing in companies, participating in real estate price movement or other alternative asset classes, the Crowdfunding Professional Association will play an important role in addressing capital formation in key segments of economies both at home and abroad.”

About Crowdfunding Professional Association

The Crowdfunding Professional Association is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards. The association’s collaborations and insights are shared broadly to avoid onerous, stifling bureaucracy that can endanger innovation, idea generation and job creation. For more information visit www.crowdfundingprofessional.org.

About CFIRA

Crowdfund Intermediary Regulatory Advocates, or CFIRA, was established following the signing of the Jumpstart Our Business Startups (JOBS) Act. CFIRA is an organization formed by the crowdfunding industry’s leading platforms and experts. The group will work with the Securities & Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities to help establish industry standards and best practices. For more information, visit www.CFIRA.org.

New Research Shows Optimism For Crowdfund Investing Continues To Rise

This week the Crowdfunding Professional Association (www.crowdfundingprofessional.org) in conjunction with the co-founders of Crowdfund Capital Advisors, Sherwood Neiss, Jason Best and Zak Cassady-Dorion, are releasing additional information based on a comprehensive survey of 442 entrepreneurs, investors, and intermediaries about their interest in Crowdfund investing as the enactment of the JOBS Act, signed April 5, 2011, allows for equity based crowdfunding in the United States beginning in 2013.

This means a business could raise up to $1 million per 12-month period from both accredited and nonaccredited investors over the Internet or through family, friends and business contacts. It will allow average investors to access the same kind of high-growth investments once available for only the wealthy. For entrepreneurs, it provides a highly valuable feedback mechanism on prospective offerings while allowing them to access capital much more readily than traditional vehicles including SBA loans, VCs and Angel investors.

What the Heck is Crowdfunding?

Crowdfunding: the process of raising money to help turn promising ideas into business realities by connecting investees with potential supporters. Often using the Internet to reach possible investors, the process involves offering goods, such as a key chain or t-shirt, in exchange for a contribution to help a business get started. This process gives entrepreneurs a chance to test the marketability of their venture. They can set a deadline for reaching a fundraising goal. Some make, even exceed, their goals, others don’t. They can gauge the potential for a successful start-up of the business based on the public’s response to the request for support.

But crowdfunding is about to go to a whole new level.

“The current model is effective for the right projects,“ says Mark Hagar, a primary partner of First Break Funding LLC. “But the landscape is changing.”

Hagar says that as a result of the April 2012 JOBS Act, entrepreneurs can soon crowdfund their businesses using equities rather than goods in exchange for money.

New Data Released by CfPA Shows Suprising Results

How much do you know about Crowdfunding? This was the context of a survey conducted by Crowdfunding Professional Association in conjunction with Crowdfund Capital Advisors. They asked 442 entrepreneurs, investors and intermediaries about their interest in crowdfunding, and also about themselves. What they discovered was encouraging as to the level of interest and how much capital they wish to invest, but there still is confusion about all the “CF” buzz words and how specifically equity-based crowdfunding platforms will differ from things like the popular platform Kickstarter.

Since the survey was hosted by Crowdfunding Professional Association, many of the responders (68 percent) were already very familiar with crowdfunding. However, when asked to rank their understanding on a scale of 1 to 10 as to the difference between what is allowed under current crowdfunding, and how it differs from what we will have in 2013 under the JOBS Act, 36.64 percent ranked themselves as a 5 or less, showing there is a real opportunity to educate the public. Fortunately, a majority of those sampled self-reported a high level of understanding of the implications of this new law, with a full 20.14 percent ranking themselves as having an understanding of 10.

“The general awareness of investment crowdfunding has increased substantially since April but there is still a meaningful opportunity to help entrepreneurs and investors better understand both the nuances of the JOBS Act and early-stage investing in general,” said Ryan Feit, CEO of SeedInvest, an equity-based platform and a leader within the Crowdfunding Professional Association. “Both of these objectives are critical in order to ensure that the investment crowdfunding industry takes off with the massive potential it possesses.”

Distinguishing between token crowdfunding and equity or debt-based crowdfund investing could pose a challenge for new investors, and it is important that people understand these differences if they are to meet their investment objectives. Token crowdfunding, the current model, only allows crowdfunding campaigns to reward donors with gifts, free

samples of their product , or other perks. In contrast, under the JOBS Act, the crowd will be able to be full-fledged investors with an equity stake in the company and a right to a share of the profits. A third popular kind of crowdfunding is debt-based, which allows investors to provide small loans to entrepreneurs similar to the kind of micro lending we have seen used for international development from people like Dr. Muhammad Yunus’ Grameen Bank.

One issue with debt-based crowdfunding is the loans are often unsecured by collateral, meaning investors take on the same level of risk as they would with equity-based crowdfunding, but the upside potential of a company taking off is removed as investors would only receive their loan repayment plus interest. However, statistics are showing low or no default rates, particularly on debt-based crowdfunding platforms like SoMoLend.

As for concerns within the crowdfunding space, respondents were generally enthusiastic and did not, on average, place one concern over another (on a scale of one to five). The respondents were more concerned about lack of business prowess (3.07), lack of entrepreneurial education (3.07) and fraudsters (3.05), than they were about the investor’s level of sophistication (2.98) or whether they will be overloaded with information (2.84). Interesting enough, ‘investors only’ ranked their concern over fraud a bit lower (3.02) than ‘entrepreneurs only’ (3.11) — surprising many who assumed investors would be markedly more concerned.

However, seeing fraud not at the top of the list is good news for the industry considering that crowdfunding in the UK has over the last two years produced a sterling record when it comes to fraud. Similarly, crowdfunding has been legal in Australia for seven years with no incidence of fraud. One widely reported incident of fraud involving a Massachusetts company was falsely associated with crowdfunding in the U.S. by the North American Securities Administrators Association, a major regulator of the traditional securities market — however they failed to point out that this particular incidence of fraud did not actually involve crowdfunding; it took place in 2010 long before the crowdfunding law was under consideration by Congress, and furthermore, all under the watchful eye of the old (and current) securities regime. The current securities laws, for several reasons, allow more secrecy in small investments (e.g.: they don’t require background checks) and make them harder to do (because of legal/compliance fees) and hence less common.

While we don’t like to harbor on fraud because the markets do operate at 99.9 percent efficiency, the truth is that there has been much more fraud in the traditional regulated market than there has been in crowdfunding. “We believe this is due to the community-based system,” says Sherwood Neiss, co-founder and principal at Crowdfund Capital Advisors. “Committing fraud within the crowdfund investing (CFI) framework is going to be hard to perpetrate. In CFI, all deals will have to flow through SEC-registered portals. These portals will be regulated and the offerings policed by the crowd. If there’s one thing we’ve seen come from social media, is it is nearly impossible to pull the wool over thousands of watchful eyes on the Internet.”

Since the data revealed 41 percent of responders had a desire to help companies get capital where they couldn’t before, 44 percent wanted to be part of something bigger than themselves, and 35 percent wanted to make a difference in the life of an entrepreneur, it seems investors are not afraid to roll up their sleeves and really look into what a company is doing to judge the viability of the investment themselves. The community aspect comes into play within the portals where current and prospective investors will be able to rate and comment on the activities of the various investments and hold management’s feet to the fire if things are being mismanaged. Such open dialog on a medium like the Internet, where thoughts and comments are recorded for history, leads to transparency and accountability.

In the seven years crowdfund investing has been legal in Australia and in the two years it has been legal in the UK, no cases of successful fraud have been discovered. In donation-based crowdfunding in the US, fraud has been caught rapidly, and always before funds are distributed, as social networks uncover the truth. Experience has already shown that potential sponsors are able to collectively crowdsource a startlingly effective due diligence machine far better than the eyes of a single Wall Street analyst. They are able to shed light on every aspect of the business. This is very different from the market of the early 2000′s when people bought and sold derivatives products blindly without looking at the underlying assets or what the original investment actually was. This type of community driven investing means people will have intimate knowledge of the activities of the few crowdfunded ventures in which they are able to participate before they reach a legal cap based on their income and net worth. This is a system by which friends, and friends-of-friends, get together to grow an idea they understand and personally support.

One major industry that will be big in crowdfunding is technology. A full 30 percent of the entrepreneur responders were in the technology sector with 10.3 percent in media and entertainment, 9.87 percent in finance, and 9.44 percent in consumer goods. 19.47 percent were in the catchall “Other” category, which included ideas such as Space and Robotics , Energy, Health, Beauty, Medical Devices and others. Crowdfunding seems to have natural allies among the tech sector innovators of Silicon Valley, as they are constantly starting new ventures and they understand the power of social media. “What they don’t have access to is the capital that only resides within 60 miles of Silicon Valley — which is where CFI steps in. It allows tech companies in Anytown, USA to raise capital for their ideas locally,” says Jason Best, co-founder and principal of Crowdfund Capital Advisors.

Where will the entrepreneurs gravitate to fund their ideas? The largest portion, 34.67 percent of respondents, said they would go to the most visible portal or platform to help raise the most capital, while another 34.34 percent were interested in industry-specific platforms. We surmise the interest in industry-specific platforms is based on a belief those platforms might better target more savvy investors interested in funding innovative technical niche ideas. The thinking driving that statistic might be that industry-specific ideas may not get traction from the average investor looking at returns alone on some other platform with more ‘generic’ offerings, despite the platform’s visibility. “

Since a large portion of the respondents were in technology and a sizable portion were interested in industry specific portals and platforms, it is likely that there will be room for several tech industry crowdfunding platforms to become successful in the new market.

Are these all zero revenue companies? Surprisingly, they are not. The respondents were generally small companies. Of the 122 that responded to the question about 2011 revenues, 81 percent reported under $100K. 15.7 percent reported having 2011 revenues between $500K and $1 Million. 1.65 percent had 2011 revenues between $1 million and $5 million, with another 1.65 percent reporting 2011 revenues of over $5 million. Don’t let their small sizes fool you, these entrepreneurs have big dreams! Although 36 percent of respondents were looking to raise capital for the first time, 35 percent have been part of a startup before, showing they have experience with startups.

While 15.88 percent of respondents had only an idea for a startup, 33.48 percent had a formal business plan, 27.04 percent had a product or prototype, and a full 23.61 percent were already operating and bringing in revenue. Those figures show the error in the notion that anyone and everyone with an idea will be throwing it up on CFI platforms, as the majority of respondents had much more than simply an idea.

36.64 percent of entrepreneurs were looking to raise under $100K in capital from portals to fund their venture. 35.34 percent wanted to raise between $100K to $500K. 16.81 percent wanted to raise between $500K and $1 million, while the remaining 11.21 percent were hoping to raise more than $1 million. With 88.79 percent of the respondents looking to raise amounts under the $1 million dollar threshold set out by the JOBS Act, it is clear that this new asset class will find an under-served market. It wouldn’t make sense for these companies to go though the red tape and regulatory burden of an IPO or formal Reg D to raise such a relatively small sum of capital. An exorbitant percentage of that raised capital would be taken up in attorney and investment bank fees under the traditional IPO process.

These companies aren’t looking for huge amounts of capital, but they do want to grow. 79.39 percent have three or fewer employees, and of that group 44.05 percent are companies made up of only one individual. They want money to expand, 41.24 percent of the companies want to take their employee count to five or more. “Jobs might be the biggest thing to come out of Crowdfund Investing,” says Neiss. “Capital to fund an idea is just one part of the equation. Having the capital you need to build a successful team to help you grow your business to the next level is another. Getting these entrepreneurs the capital they need will allow them to hire the Americans they want to launch great businesses.”

Small businesses find it difficult to get the eyes and ears of professional investors. With the current economy banks are failing to lend and refusing to take a chance on small businesses, to the point where many people have stopped trying. Out of 124 respondents 18.22 percent tried to get a loan from a traditional bank. Compare that figure with the 20.44 percent that approached Angel Investors, 13.78 percent that went to VC’s and 12 percent that went to private equity. To add further credibility as to why the community will be where these entrepreneurs find their funds, 35.56 percent went to friends and family. Clearly, people are eschewing the institutionalized paths to capital and opting for less formal sources of money that may be more interested in the upside potential of their business or idea rather than concerned about collateral.

From the survey we also learned quite a bit about potential Crowdfund Investors. Most respondents were not accredited investors. 71.43 percent self identified as non-accredited investors while 28.57 percent stated they were accredited. After the passage of Dodd-Frank in the US, the definition of an accredited investor changed to a person with a net worth over $1 million dollars, not including home equity, or a person making $200,000 per year for at least the past two years .This change in definition bumped many investors who were formerly accredited investors out of that class because many had a large portion of their assets tied up in home equity. 8.51 percent of responders had an annual income or net worth less then $40,000, 25.53. percent between $40,000 – $100,000, 42.55 percent between $100,000 and $500,000, 9.55 percent between $500,000 and $1M, and 13.83 percent had a net worth or annual income over $1 million.

According to the legislation, there are restrictions placed on how much each person can invest through crowdfunding, based on income or net worth.. If you make less than $40,000 per year you can only invest $2,000 in to all crowdfund projects. You can put up to 5 percent of your income (or net worth) if you make between $40,000 and $100,000. If you make or have over $100,000 in net worth you will be able to invest 10 percent of your income in crowdfund equities. It was important to look at these numbers from both an accredited and unaccredited point-of-view. Based on the chart below certain things became clear. 1) Accredited investors will be investing larger amounts in terms of dollars (34 percent said they would invest over $25,000), 2) the bulk of the contributions will come from unaccredited investors (71 percent), and 3) the median investments look to be in the $2,000 to $5,000 range.

If we drill down to the data some more and make some (overly) general assumptions that the middle of each of the ranges in the columns above is where the average investment will fall (and no investment will be greater than $100,000) then, on average, it would appear that unaccredited investors will deploy $4,347 per year and accredited investors will deploy $29,987per year. (If we toss out the top 10 percent and bottom 10 percent, the figures change to $26,188 for accredited and $3,635 for unaccredited).

You can see how quickly an entrepreneur who is one of the 72 percent hoping to raise under $500K in capital could meet his benchmark if only he can get the attention of enough of those investors looking to invest $29,987. It also is readily apparent that there is a sizeable group of people who fall outside the accredited parameters but are willing to invest in crowdfunding. The change in the legislation will allow this for the first time.

Since the folks who can invest more than $20,000 in crowdfunded ventures are likely to be accredited investors (if they have earned that $200K for two years or more) then we can see by the fact that we have some respondents wanting to invest $25K, $50K, and even more than $100K in crowdfunded equities, that this industry has tremendous potential.

At the end of the day, the fight to legalize crowdfunding was about democratizing access to capital so startups and small businesses could get back to innovating and creating jobs. Who was more excited? Entrepreneurs ranked it a 3.48 while investors put it at 3.37. Entrepreneurship was second and tied with investors at 3.25, and innovation was third with 2.98 for entrepreneurs vs. 2.87 for investors. What about the excitement over investment opportunities? Well, that’s where the investors came in above entrepreneurs, at 2.78 vs. 2.59. Seems like the investors really are interested!

One part of the survey results stood out from the rest with surprising results. When asked what the biggest driver is to investors in making their investment decisions, while 33 percent said the obvious answer was investment returns, 20 percent said their biggest driver was helping companies get capital where they couldn’t before. Another 20 percent said their main driver was being part of something greater than themselves. 17 percent said the ability to make a difference in the life of an entrepreneur was their biggest driver. Try getting that from the traditional economy.

“I think this survey shows how inspired people are by the unlimited possibilities that can happen with the crowdfunding bill. For once our entire society can play an active role in job creation and help level the playing field for access to capital for entrepreneurs everywhere.The Crowdfund Professional Association will continue to take a leading role in educating one and all, and help to create a strong and solid foundation for this new industry to thrive, ” stated Ruth Hedges, CEO of Funding RoadMap and Founding Governance board member of the CfPA.