NEW YORK (March 20, 2013) – The Crowdfunding Professional Association (CfPA) will host its 2^nd Annual Crowdfund Investing Innovation Forum on August 8-9, 2013 in Orlando, FL.  The forum has established itself as the must-attend conference for leaders, entrepreneurs, investors and policy makers who are committed to fostering capital formation and job creation. Presented by top crowdfunding pioneers, expert financial services professionals, and innovative services providers, current issues will be addressed through intimate discussions and breakout sessions.

The CfPA is the industry’s pioneering, nonprofit trade organization established by the thought leaders who founded the crowdfund investing movement in the United States, those who wrote the framework for President Obama’s Jumpstart Our Business Startup Act (JOBS Act) and the dedicated individuals who lobbied for its passage, which was signed into law on April 5^th, 2012.

The Forum, sponsored by CrowdClear and Ellenoff Grossman & Schole LLP, will address key topics through a unique and interactive format, including crowd investing and Wall Street, the legal and regulatory environment and the crowdfunding ecosystem and innovative technologies. Luan Cox, CfPA Governing Board Member and Founder of Crowdnetic, states, “Our vision is simple, yet ambitious—we want to educate the crowd on how to raise capital, spurring job growth for startup and emerging companies. We are committed to redefining success for businesses and the economy through a dynamic crowdfunding community that flourishes globally.”

CfPA’s 2^nd Annual Crowdfund Investing Innovation Forum will spark change, challenge and debate conventional thinking and unleash new perspectives in the pursuit of real solutions. A full list of presenters can be seen at http://events.cfpa.org/.

Location:            

Caribe Royale Orlando

Orlando, Florida

Date:                          

August 8 – 9, 2013

Price:               

$395 – Early Bird Special for the first 200 attendees

$489 – Post Early Bird

About the Crowdfunding Professional Association

The Crowdfunding Professional Association (CfPA) is dedicated to facilitating a vibrant, credible and growing Crowdfunding community while 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. To learn more visit www.cfpa.org.

# # #

Attention Media:

To Schedule on-site or phone interviews with forum presenters, contact:

Doreen Clark

(763) 458-9923 or DoreenClarkPR@hotmail.com

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Who can invest in start-ups once the general solicitation ban is lifted? That’s the 64,000 dollar question – or to be more “inflationary precise”, the 540,963.63 dollar question.

I’d gladly relinquish the half million+ dollars for a different answer. Because even though the removal of the restrictive solicitation ban helps smaller issuers raise capital, it does absolutely nothing to benefit smaller investors. Once the new law is implemented, private companies will be permitted to advertise to the general population so long as they only accept money from accredited investors.  Soon, non-accredited investors will be able to view a television commercial for a hot private growth stock. Too bad they won’t have the capability of investing in it until after it goes public at an over-inflated valuation. This is about as cruel as forcing diabetics to watch Hostess Twinkie ads.

While the unions are helping to ensure that Hostess won’t be around to tease any more diabetics, who’s looking out for America’s retail investor?  Frankly, no one is. That’s why it is up to “We the People” to make sure that the investing public receives its fair share of growth opportunities. It is more than our responsibility, it is our right as U.S. citizens to voice our discontent and help effect legislative change. The accredited investor rule is not only unjust; it is exacerbating America’s wealth divide and impeding economic growth. Thus, it needs to be repealed immediately. Below is an excerpt from a recent article I published on the subject. The complete piece which be found at http://nowstreetjournal.com/2012/11/26/todays-america-nothing-ventured-everything-gained-at-least-for-some/. 

While America has made great progress eradicating religious, gender and racial persecution, it continues to allow discrimination based on net worth and income levels. Presently, only “accredited investors” – those persons possessing a net worth of at least $1M excluding the value of one’s primary residence or have annual income of at least $200,000 (or $300,000 together with his or her spouse) – are legally permitted to invest in private companies. Unaccredited investors are forced to wait until companies register with the SEC and begin trading on public stock exchanges.

20 years ago when companies went public as young emerging businesses, smaller investors weren’t put at a disadvantage by having to wait for an IPO in order to invest. In fact, 99% of Microsoft’s stock appreciation was realized after it had gone public. Conversely, by the time most of today’s companies go public, the bulk of their growth is long behind them. Case in point, 100% of Facebook’s stock appreciation was realized in the private markets prior to its IPO where only accredited investors were afforded the opportunity to partake in its dramatic climb.

Because new issue upside has been dramatically curtailed, today’s average public market investor is left assuming more capital appreciation risk than ever before. It sickens me to think about all of the middle class wealth that might have been created from September 2004 to May 2012 when Facebook grew from a mere $5M in market capitalization to its IPO valuation of $104B.

America desperately needs to reopen its financial markets and allow capital to flow back to its smaller investors and issuers. This is precisely what the Jumpstart Our Business Startups Act (the “JOBS Act”) was designed to accomplish. Even though it is one of the most economic restorative pieces of legislation in modern history, if you’re not reading political or financial trade publications, you’ve probably never even heard of it. And because it passed with an overwhelmingly bipartisan majority; the JOBS Act received limited main street media coverage. It is utterly shameful that the policies which divide us get more attention than the legislation that unites us.

The JOBS Act helps emerging businesses access capital by improving the “on-ramp” and making it easier for smaller companies to go public. And since, according to Forbes, small businesses generated over 65% of new jobs during the past 17 years, it is imperative that America’s capital markets serve as a conduit to small-cap funding, not as a barrier.

Unfortunately, facilitating the IPO entrance is simply not enough. The truth is, it is far less challenging for companies to become public than it is for them to stay public, particularly in a marketplace dominated by high frequency traders and inadequate aftermarket support. According to research conducted by David Weild IV, Head of Capital Markets at Grant Thornton and CEO of Capital Markets Advisory Partners, U.S. stock markets have lost 43.5% of all listed companies since 1997.

Without re-establishing an ecosystem to support companies being public at smaller valuations by enthusiastic investors as opposed to detached traders, the demand will never be strong enough to meet the supply in the marketplace. Hence, unless the “highway” is completely renovated, the public markets will remain dysfunctional.

The “Crowdfunding” component of the JOBS Act provides the most viable and democratic solution. Its community-style, social investing methodologies furnish built-in aftermarket support. “Crowdfund Investing” not only grants the 99% with the same investing freedoms as the 1%, it fortifies the relationship between investor and investment, encourages longer term investing principles and ultimately helps restore appropriate risk/reward ratios.

Although it was signed into law on April 5th, “Crowdfund investing” won’t be officially legal until the SEC implements the new rules (currently in the 270 day rulemaking period). Given its history of failing to meet deadlines, it is most likely that the SEC will far exceed its Government mandated January 1, 2013 deadline. We simply cannot allow this to happen, for as long as one class of citizens continues to receive superior investment opportunities and better investing odds, there will never be true equality in the United States.

Our nation will never collectively prosper if our capital markets remain prejudiced. I urge you to write your local legislators and insist that they hold the SEC accountable for implementing the overwhelmingly bipartisan JOBS Act in a timely fashion. Demand that legislation be introduced to remove the unconstitutional Accredited Investor Rule 501(a) of Regulation D under the Securities Act of 1933. The future of America is at stake. Don’t let it go down with the Twinkie.

Together we can bring equality to the capital markets and return them to the lifeblood of our economy: America’s small businesses and retail investors.

Dara Albright

Founder, Now Street Journal

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So do you think that your company is the next LuLu Lemon, Skype, LinkedIn?  I know, you have an idea that is so unique and no one else will ever think of it or be able to compete!  We have all been there but when seeking capital to make your fantastic idea real, convincing the angel groups, venture capital firms that their money will be well spent is a big challenge that most entrepreneurs face. 

The investment trail can lead to a series of questions but the one question that seems to stump the most well thought out entrepreneur is, What is your companies valuation?  First, the entrepreneur gives a look like the deer caught in the headlights syndrome, then the laser quick $10m, $20m or the lean back in the chair “let me get back to you later” gurgles humbly from the lips.   

The short answer to the question should be a reply from the entrepreneur to the investor, “What is the investor asking about, pre-money or post money valuation?”  The truth is, knowing this answer will allow you the opportunity to provide the possible best answer because the answer differ based on the timing of valuation. Both pre-money and post-money are valuation measures of companies. Pre-money refers to a company's value before it receives outside financing or the latest round of financing, while post-money refers to its value after it gets outside funds or its latest capital injection. Pre-money valuation refers to the value of a company not including external funding or the latest round of funding. Post money valuation, then, includes outside financing or the latest injection. It is important to know which is being referred to as they are critical concepts in valuation.

Let's explain the difference by using an example. Suppose that an investor is looking to invest in a hi-tech startup. The entrepreneur and the investor both agree that the company is worth $1 million and the investor will put in $250,000.

The ownership percentages will depend on whether this is a $1 million pre-money or post-money valuation. If the $1 million valuation is pre-money, the company is valued at $1 million before the investment and after investment will be valued at $1.25 million. If the $1 million valuation takes into consideration the $250,000 investment, it is referred to as post-money.

As you can see, the valuation method used can affect the ownership percentages in a big way. This is due to the amount of value being placed on the company before the investment. If a company is valued at $1 million, it is worth more if the valuation is pre-money compared to post-money because the pre-money valuation does not include the $250,000 invested. While this ends up affecting the entrepreneur's ownership by a small percentage of 5%, it can represent millions of dollars if the company goes public.

This topic gets very important in situations where an entrepreneur has a good idea but few assets. In such cases, it's very hard to determine what the company is actually worth and valuation becomes a subject of negotiation between the entrepreneur and the investors.

Usually, a company receives many rounds of financing (conventionally named Round A, Round B, Round C, etc.) rather than a big lump sum in order to decrease the risk for investors and to motivate entrepreneurs. Pre- and post-money valuation concepts apply to each round.

The post Valuation, What is it? How to calculate it? appeared first on CfPA - Crowdfunding Professional Association.

It’s 2013. The crowdfunding regulations are finalized and effective. You have invested in your first crowdfunded company and you are now officially an owner of that company. What’s next?

Traditionally, an investor’s role after they have invested in a company is determined by the amount and type of ownership the investor has in that company. Equity-based crowdfunding will likely change this, but not how you would expect. In most cases, crowdfunding investors will contribute collectively to fund up to twenty percent of a crowdfunded company. That fact coupled with the investment limitations set forth in the JOBS Act (the greater of $2,000 or 5% of the investor’s annual income or net worth if either the investor’s annual income or net worth is less than $100,000) will limit the size of each crowdfunding investor’s ownership in companies that utilize the exemption. By traditional standards, that would tend to indicate that the role of the investor will be quite limited. It’s a good thing that equity crowdfunding unshackles traditional investor roles!

Equity crowdfunding thrives on every crowdfunding investor playing a critical role in the success of a company regardless of how small the investor’s ownership amount may be. The role is not just a financial role, but also a spirited role that injects adrenaline into the crowdfunded company’s brand. Crowdfunding investors realize that they are playing a substantial part in jumpstarting a business. They aren’t investing $100 into a blue chip company like IBM or Coca-Cola. Their investment is quite different because the crowdfunded company depends on their support. Further, the investors’ vigor and representation of the brand will strengthen the crowdfunded company’s chances of becoming that blue chip company.

Another way for a crowdfunding investor to contribute to their new company’s success is to let the company’s employees work hard to get them a return on their investment. Investors want the entrepreneurs to be busy driving their business forward as opposed to managing hundreds and hundreds of crowdfunding investors. The best way for a crowdfunding investor to participate in generating a return on their investment is by actively promoting the companies that they have invested in. The communication from crowdfunded company and investor will come from the market (or perhaps the Securities and Exchange Commission “SEC”) ironing out the process. For example, if a funding portal requires that companies seeking funding through their site must provide crowdfunding investors a quarterly update on how things are going and that requirement is favorable to all parties involved then that standard could be adopted by the industry. This will hold true for other investor roles as well.

As far as the law goes on what an investor’s role is post funding, the JOBS Act is virtually silent. However, one thing that investors can count on is reports of the results of operations and financial statements of the company they funded at least once a year. The content of those reports is up to the SEC to decide; so that leaves the investor hardly any information at this moment in time on what to expect post funding. Like many other parts of the JOBS Act, the rules by the SEC will shed light on how an investor’s role after a successful funding campaign. Additionally, market participants will also play a large part in the idiosyncrasies of the relationship between crowdfunding investors and crowdfunded companies.

Jason Burmer, JD
VC Relations

EarlyShares.com
Mobile: (813) 690 4804

Office: (786) 565 3344
Fax: (786) 565 3346

The post Crowdfunding, I Have Invested, What’s Next? appeared first on CfPA - Crowdfunding Professional Association.

The language of crowd funding technology, capital formation, the requirements and the rules and regulations has been centered on Funding Platforms for the Intermediaries (Brokers and Register Funding Portals). However, some thought leaders in the industry have been listening and speaking a different language and realized that in order for crowd fund investing to be sustainable, the physical components of interrelated systems that provide the framework, commodities and services to the market place is essential to enable, sustain, and enhance the physical and organization structures for the crowd funding ecosystem to function properly. 

Companies like the Funding Roadmap, Crowdnetic, CrowdBureau, Gate Technologies and CrowdCheck have banded together to create solutions that span the life of a company, from idea to sustainability. Viewed functionally, the crowdfunding infrastructure facilitates the production and maintenance of compliant equity and debt based offerings that will eventually list on registered funding portal platforms that will serve as conduits of salient information for the investors.  These services cover reporting, real-time market data, ratings, research, anti-money laundering, compliance, escrow services, clearing and settlement.

Infrastructure companies play a significant part in evolving the crowd fund ecosystem, both in terms of where the interconnections are placed, made accessible and in terms of how much information can be carried and how quickly. As required in crowd investing, security, transparency and information will be required in order to help investors, “the Crowd,” make informed decisions. Crowd intelligence along with aggregated data and research services that track the lifespan of an issuer’s capital raising efforts make the provision of these services unique and absolutely necessary to the long-term health and sustainability of the crowd investing industry.

Every day debt and equity raises are being conducted on pioneering sites like TheFundersClub and CircleUp that allow investors to invest relatively small amounts in start-ups and operating companies, alike. While these sites cater to accredited investors, defined by the Securities and Exchange Commission as anyone making over $200,000, individually, or $300,000 jointly per year, or who have a net worth (minus their primary residence) of $1 million, that’s a lot of individuals. The JOBS Act, Title III caters to the non-accredited investor making the landscape that much larger.  The reality is the JOBS Act, even if the SEC delays their rulemaking, opened America’s eyes to the fact that laws already existed that allowed emerging companies to gather investments from a large group of investors. The use of the internet for this activity is now a means to reach more investors efficiently.

It is critical to observe that equity and debt based crowdfunding is not the Kickstarter model, which is reward/ donor based and allows ideas like video games and gadgets to be pre-sold to the masses. Equity and debt based crowdfunding, allows for shares of a company to be sold to non-accredited investors whereby transactions are facilitated on a funding portal and will be a welcome and new critical component to the traditional capital markets. What self-directed investing, vis a vis online brokers like eEtrade and Schwab, did for the masses in the ‘90s crowd investing will do for the private placement market.

With 2013 quickly approaching, it is important for the ears of the “Crowd” to become fine tuned to the language that the crowdfunding industry speaks. Realizing that this new way to create capital formation is not solely dependent on having a great idea or the Funding Portals, but rather the infrastructure, information and ancillary services that will enrich the end-to-end experience of the entrepreneurs and the investors.  Third party service providers like the Funding RoadMap, Crowdnetic, CrowdBureau, Gate Technologies and Crowdcheck to name a few will continue to make steady strides in developing a healthy ecosystem that will support capital formation, lend a helping hand towards education and further advance the crowd investing  industry.

Luan Cox

Kim Wales, 

The post Crowdfunding is Here and so is the Infrastructure appeared first on CfPA - Crowdfunding Professional Association.

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.

The post Why Fraud Won’t be an Issue in Crowdfund Investing appeared first on CfPA - Crowdfunding Professional Association.

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.

The post What are the Global Implications for CFI appeared first on CfPA - Crowdfunding Professional Association.

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.

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Experian surveyed 300 small and medium enterprises (SME) and found that awareness of different types of business finance is very low among SMEs, with most continuing to rely on traditional bank overdrafts or personal sources of cash for additional funding. Alternative sources of finance are yet to have made a significant impact.  ”Of the various forms of business funding options, crowd-funding was the least well-known among respondents, with 69 per cent never having heard of it,” Experian reported. “Meanwhile, angel investment, business cash advances and government grants also scored poorly in terms of awareness.”

When questioned about the first thing they do when thinking about additional financing, the respondents disclosed:

• 42 per cent of them would go to their personal bank.
• One in ten said they would try all the major banks first.
• Seven per cent said they would search the internet for the best deals.
• Six per cent said they would speak to a broker.

The findings also reveal that 60 per cent of respondents had sought some form of extra funding in the last 12 months and the need to alleviate short-term cash flow problems was by far the biggest reason for applying for extra cash (58 per cent). This outstripped activities for growth, such as expanding their product portfolio (20 per cent) or hiring more staff (12 per cent).

Experian also found that only one in four (27 per cent) SMEs definitely planned to apply for some form of extra funding in the coming year.

Image (c) by Crestock

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