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The Regulations That Ate Crowdfunding

By Candace Klein

Friday, April 5 marks the one-year anniversary of the signing of the Jumpstart Our Business Startups (JOBS) Act into law.

Unfortunately, key provisions of the act have yet to go into effect, thanks mostly to the political quagmire resulting from turnover within the leadership of the U.S. Securities and Exchange Commission.  The departure of Mary Shapiro as Chairman of the SEC on November 15 was followed by the appointment of Elise Walter to replace her on December 11. Now Mary Jo White waits to take over for Walter. Combine this with significant SEC staffing changes and the fact that SEC Commissioner Paredes is about to run up against his term limit, and you have one heck of a bottleneck.

It’s been surprising to me that the regulatory process has been so hard to navigate and has taken so long. Because the legislative work of getting the JOBS Act passed was remarkably smooth and speedy.

My own involvement began with my work with Senator Jeff Merkley (D-Ore.) on the audit requirements section of the Entrepreneur Access to Capital Act. I felt like I was really on the inside-;but my company was about to run out of money.

I had been running SoMoLend, a debt-based crowdfunding company, since May 2011.  I raised some seed funding in September 2011, but it was a challenge, to say the least. Most of my potential investors didn’t believe that debt crowdfunding would ever be legalized.

In January 2012, at an event in New York, I met Congressman Patrick McHenry (R-N.C.), Jason Best, a principal at Crowdfund Capital Advisors, and Vince Molinari, the CEO of Gate Technologies.  Each of us had been working on similar legislation independently. We started working together and began to make some real progress.

FULL STORY HERE

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SEC now says Social Media OK for Company Announcements

The announcement is considered a big win for equity crowdfunding by some equity crowdfunding investors.

Yesterday, the SEC recognized social media as an acceptable way to distribute information to shareholders. In the press release the SEC referenced the company Netflix in which spurred the question of whether or not it was ok to submit company announcements via social media. So what could this mean for equity crowdfunding investors?

Although Netflix is no longer a start up company. The news from the SEC to allow companies to submit company announcements via social media is a great step forward for investing in equity crowdfunding and equity crowdfunding sites. Virtuous Vodka a startup that received funding from the equity crowdfunding site “Funded by Me” out of Sweden currently has a private Facebook group for all equity crowdfunding investors. Below highlights the Pros and Cons of investing in equity crowdfunding companies that utilize social media.

Pros:
– Distributing company announcements via social media can be much cheaper for the company. (no one reads snail mail anymore these days anyway)

–  Quicker distribution. It doesn’t take much to write a facebook post. The CFO could even post from a cell phone to alert all equity crowdfunding investors)

– Additional collaboration with stakeholders all together in one place on the internet can produce ideas, suggestions, and additional resources for increased company success, as an equity crowdfunding investor this can be huge especially in small startup companies.

– Equity crowdfunding sites will bring a lot more investors. Social media announcements could get you the information faster than the competition.

Cons:
– Not every equity crowdfunding investor has a Facebook or wants one either.

– With easy access to investors, companies can send information overload. (Not that we don’t want to hear about the CEO’s grand daughters dance competition, but that might be information overload)

– Security issues can easily arise. While Facebook is actually somewhat secure. It wouldn’t take much for information to get in the wrong hands with that savy equity crowdfunding investor leaves his social media account open on a public computer and forgets to log out.

Full Story Here

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LEADING THE WAY IN FILM CROWDFUNDING

Crowdfund leader launches film crowdfunding management services, starting with eight films and top indie film companies such as MadChance.

 LOS ANGELES, April 2, 2013 /PRNewswire-USNewswire/ — Today David Marlett , working under his banner BlueRun Crowdfund, a division of BlueRun Media (BlueRun), announced the recent launch of the world’s first full crowdfunding services firm for the film industry,including announcing some of BlueRun’s current clients and eight ongoing or soon-to-start crowdfund campaigns.
“The success of Veronica Marswith crowdfunding has certainly placeda megawatt spotlight on the power of this funding source for somefilms,” said Marlett, a filmmaker, attorney and one of the leaders of thecrowdfunding industry. “It’s great to be helping our clients tap into thisexciting new resource and connection with their audience, especiallynow that we’re seeing a movement toward major talent involvement.”
“It’s great to be helping our clients tap into this exciting new resourceand connection with their audience, especially now that we’re seeing amovement toward major talent involvement.”
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As Crowdfunding Takes Off, SEC Greenlights AngelList’s Investment Platform

The Securities and Exchange Commission is making way for a number of startups and online investment platforms to enable startups to crowdsource investment. Early last week, Y Combinator-backed FundersClub received notice from the SEC that the agency would not pursue action against its crowdfunding platform. But it wasn’t alone: a few days later, AngelList received a similar letter from the SEC. [hat tip to Danielle Morrill]

The regulatory response came after AngelList requested its own assurance from the SEC that the agency wouldn’t pursue enforcement action against its investment platform, AngelList Invest.

In its letter to the agency, AngelList noted that it was going to form a limited liability corporation that would serve as investment advisors, and would operate a platform through which accredited investors would be able to put money into startups. Like other crowdfunding investment platforms that are popping up, under AngelList’s plan, the company would introduce individual investment vehicles for each portfolio company that its users invested in.

According to the filing, AngelList Advisors would determine whether to create an investment vehicle for particular startups, then negotiate the terms of the investment for the larger pool. It would also exercise all voting rights for the investment vehicle and decide on whether it should distribute cash and marketable securities to investors, subject to any lock-up agreements or similar restrictions.

Already, AngelList is being used to help raise funds for some companies and funds, through itsinvesting tool. Open only to accredited investors, the tool lets users put as little as $1,000 each into startup companies that it’s created an investment vehicle for.

The whole idea is to allow a larger number of individual investors to make small investments in interesting startups, but to do so in a way that reduces the friction of most funding rounds today. Under current SEC rules, startups can’t advertise or announce that they’re raising funding, which means that investors might not even know that they can put money into a certain company. And, in a sense, to increase the efficiency with which startups can get funded.

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Push for crowd-funding growing

A group of Arizona lawyers and a congressman are growing impatient with federal regulators tasked with loosening restrictions on small-business investing, the group said Monday.

Two key provisions of the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, would boost Arizona’s economy significantly if allowed to take effect, Rep. David Schweikert, R-Ariz., said during a panel discussion Monday at Arizona State University’s SkySong in Scottsdale.

One provision of the 2012 law lifts a long-standing federal ban on general advertising for private-business investment opportunities. The other would allow startups and other small businesses to seek investors through crowd-funding sites on the Internet.

Thus far, crowd-funding via websites such as Kickstarter.com and Indiegogo.com has been limited to participants simply making donations or preordering products that a venture intends to produce if its fundraising drive is successful.

The JOBS Act allows what is commonly referred to as equity crowd-funding, in which the participants become equity shareholders in the venture.

Despite the law’s passage nearly a year ago, the provisions have not yet taken effect because the U.S. Securities and Exchange Commission first must issue specific rules for their implementation.

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