After initial rejection from Hollywood studios, the creators of canceled TV-show ‘Veronica Mars’ turned to Kickstarter to fund a film version.
Crowdfunding for equity is a hot topic right now. Much of the discussion centers around the JOBS Act, which is currently under deliberation by the U.S. Securities and Exchange Commission (SEC). Across the pond, however, equity-based crowdfunding has already taken off.
Last week, we spoke with Alysia Wanczyk, marketing director for the U.K.-based crowdfunding platform Seedrs, to learn about the company’s progress and plans for the future. The first part of that discussion is available below; part two will be live on Crowdsourcing.org later this week.
Eric Blattberg, Crowdsourcing.org: Could you provide a brief introduction to the platform for our readers?
Alysia Wanczyk, Seedrs: Seedrs started in 2009. Our cofounders met while studying at Oxford in the UK. One is Jeff Lynn, our CEO. His background was in securities law, [first] in the U.S. and then in the U.K. And the other cofounder, Carlos Silva, was an ethical financial services hacker, so he’s very well versed on security and finance. It was really Carlos Silva’s idea to open up investing to the masses. So with his and Jeff’s background, they thought, “Actually, yeah, let’s give this a go.” So they started embarking on the Seedrs journey.
They spent about 18 months preparing for Financial Services Authority (FSA) authorization. They wanted to open up investing in private companies to the masses, and when you’re opening up securities, you need to be regulated. So they underwent that in 2009, and then once they submitted the application, it took another 13 months to receive authorization. So in May of 2012, we became the first crowdfunding platform in the world to receive regulatory approval. Essentially, in July of last year we launched to the UK, allowing anyone to invest as little as £10 pounds into the seed stage startups on our site, and allow those seed stage entrepreneurs to raise up to £150,000 pounds of capital from their friends, family, another independent investors.
Not to get too off track, but what does being an ‘ethical financial services hacker’ entail?
Well Carlos [Silva] tries not to talk too much about it, but essentially he found flaws in financial institutions’ websites and then let them know, so that he could set up meetings with them to fix them. So he didn’t do it for evil, he did it for good.
Well that’s good! (laughs) So what benefits does being FSA-certified offer Seedrs and its investors?
The authorization itself offers some credence and prestige to what we’re doing; it shows that we’re legitimate platform. We very much took the approach when launching that our main focus of driving growth was going to be investors, and so to build up the relationship of trust and credibility with them, we had to be authorized.
[The authorization] was very hard to get, but we’d very much love to see more and more platforms become authorized to really help develop the marketplace. And actually, while there’s so much going on in the U.S. with the JOBS Act, the U.K. is really forward thinking and ahead of the curve on equity crowdfunding. There’s us and there are a few other platforms coming up with FSA authorization, and we think that’s great for developing the marketplace. The securities regulations in the U.K. are flexible enough to make authorization easier than it is in the U.S.
Crowdfunding for equity is a hot topic right now. Much of the discussion centers around the JOBS Act, which is currently under deliberationby the U.S. Securities and Exchange Commission (SEC). Across the pond, however, equity-based crowdfunding has already taken off.
Last week, we spoke with Alysia Wanczyk, marketing director for the U.K.-based crowdfunding platform Seedrs, to learn about the platform’s progress and plans for the future. The first half of that discussion can be read here; the second part is available below.
Eric Blattberg, Crowdsourcing.org: So imagine I’m a potential investor. Walk me through the Seedrs investment process. What’s it look like from beginning to end?
Alysia Wanczyk, Seedrs: It’s relatively straightforward. First you sign up; in the beginning, all we need is your name and e-mail address. From there, you can either self-certify as a high-net-worth or sophisticated investor, or [complete a questionnaire] which demonstrates to us a level of financial understanding and sophistication that is just a bit different than those who are high-net-worth or sophisticated investors. It demonstrates that startups are risky, you should have a diversified portfolio — just a basic appreciation for financial management. Once you complete the survey, you are welcome onto the platform. You can browse all the different listings, ask questions of entrepreneurs, or just poke around. It’s really quite easy. If you find the start up you like, you can invest as little as £10. You have up to 48 hours to deposit money into your Seedrs account, and from there we’ll keep you posted. If the startup reaches its goal, will guide you through the process and let you know how it’s going. If it doesn’t reach its goal, we’ll let you know that as well, and refund your investment.
So once I have invested, how do I track the business and potentially sell my stake?
Once you invest and we complete all of the paperwork, we actually become the nominee shareholder. So all of the investors technically own their shares, but they own the benefits of the shares and we manage them. So if a startup needs votes or consents — if they want to sell their company, for example — all they have to do is come to us. They don’t have to reach out to potentially hundreds of investors; they just come to us as the sophisticated manager, and we can approve or disapprove anything that we need to. At the same time, we also make sure through our shareholder agreements that were giving the shareholders rights, so that somebody who owns, say, one percent of a company has majority rights. That’s to protect the investors.
Once we’ve completed the deal, we allow the entrepreneur to engage with their investors however they like: through quarterly reports; perhaps they need to reach out for mentors, an accountant, or beta testing, etc.; and at the same time investors can go on and ask questions of the startup, find out about meetings they’d like to attend, or even have a coffee with the entrepreneur. All of that can be managed online through the Seedrs site.
Wouldn’t it be difficult to have a coffee with potentially dozens or hundreds of people?
(laughs) Well yeah, we make it quite clear that it’s up to the parties involved. The entrepreneurs can say, “Listen, we are way too busy building our business,” and our investors know that. But generally, particularly for the investors who have a lot of experience and are perhaps experienced angels, the entrepreneurs really welcome their active involvement, because our entrepreneurs are so early-stage that they’re looking for the guidance and mentorship that can come with those types of investors. But at the same time, they’re not under any obligation to work with them or give them any sort of board seats or anything like that, so it’s really quite informal and flexible.
So can I as an investor sell my shares to Seedrs at any point I want? Are there limits on that?
Essentially, we let investors know they’re going to own the shares for the duration of the investment — until there is an exit. If the opportunity arises that one of the investors wants to sell their shares to somebody else they know, if they find another buyer, we’d be more than happy to arrange all of the paperwork to transfer the shares for whatever cost that they agree on. There is no established secondary market we use just yet, but I’m sure one will pop up that is a good fit for us in the next couple of months or years, but generally the investors know they’ll hold their shares until there some sort of exit.
So they’re really in it for the duration…
Absolutely. And, unfortunately, the reality is most businesses will fail. But hopefully investors have a diversified approach, because those few businesses that do well tend to do remarkably well compared to those that don’t [succeed].
Jumping back a bit chronologically, what’s the screening process look like for Seedrs? Do you do any due diligence on the startups or do you leave that up to the crowd?
Well, we don’t actually vet [whether] businesses are good ideas are not; there’s just a few of us in the office, and what do we know? But we do make sure that every statement that an entrepreneur puts in their pitch is fair, clear, and not misleading — and we need proof that it is true. So we do a bit of legal due diligence at the beginning, and so once we’re happy with all of that, we put it live and let the investors decide for themselves whether the business is worth funding or not. If something is patently nonviable, illegal, or perhaps just a bit shady, we definitely wouldn’t let that on. Otherwise, as long as the entrepreneurs can demonstrate their ability to explain themselves and show that they have a meaningful business proposition, then we let them on for the crowd to decide. And then, once they do secure their investment, that’s when we do further due diligence to make sure that we are happy — we try to backend all of that work so that we are happy to proceed with the investment.
This guest Q&A is by David Drake, founder and CEO of LDJ Capital and The Soho Loft. He recently sat down with Chance Barnett, CEO of CrowdFunder, which enables businesses to raise equity and revenue-based financing.
Drake: How do you feel about the progress the crowdfunding for equity portion of the JOBS Act has taken to date and where are the three industry areas for this new regulation?
Barnett: When I sat down with you at the SEC April 20 to our pleasure and surprise both leadership and the staff expressed their sincere desire and interest to meet the staggered rulings throughout the 270 days timeline.Unfortunately the big boss was not present. While key staffers have worked diligently on crowd funding they have also drafted proposals for commenting on regulation D 506 c which removes the general solicitation ban. Neither of those rulings are making the deadline the SEC had. In an ideal world Walters Chair of SEC would accelerate the ruling on these underlying JOBS Act bills.
What could you ask readers to do to accelerate implementation of the rules?
Reach out to your congressmen and ask how they care for job creation, capital access for small business owners by writing the SEC.
Brenda Lynn says her autistic son Kaleo, 3, hardly speaks, and his inability to express himself frustrates him – except when he’s using his speech therapist’s iPad.
“The iPad really controlled the tantrums and helped him communicate,” said Lynn, 39, of Orlando, Fla. “I tried to get him one, but I couldn’t afford it on my own. I applied for grants, but I wasn’t lucky enough.”
So Lynn, who is unemployed, turned to Facebook and GoFundMe.com, a crowdfunding website that allows people to solicit cash for personal causes. She asked for $500 and raised $620 in 17 hours.
Crowdfunding sites such as Kickstarter, Indiegogo and RocketHub have for years helped entrepreneurs start or expand businesses. Now, people increasingly are using similar sites and social media to raise money for personal wants and needs.
Brian Meece, CEO and co-founder of RocketHub, discusses how to select a crowdfunding platform and run a successful crowdfunding campaign.
Jason Best – All About Crowd Funding – Interview – Goldstein on Gelt
Jason Best and Sherwood Neiss are the owners of Crowdfund Capital Advisors (CCA). Find out what crowdfunding is and how it could help your business on this great show. “Goldstein on Gelt” is a global investment and financial planning radio show designed to educate and entertain its listeners with financial strategies and investment tips. Investment advisor Douglas Goldstein hosts the weekly show and is the director of Profile Investment Services, Ltd., www.profile-financial.com.
Rory Eakin, co-founder of CircleUp, and Erick Mott of creatorbase discuss crowdfunding models, trends and pending S.E.C. rules in support of equity-based crowdfunding. This video was recorded in December 2012 for Search Engine Watch from CircleUp.com headquarters in San Francisco.
Interview from WPRI-TV, channel 12, a CBS-affiliated television station located in Providence, Rhode Island, USA. WPRI-TV is the flagship station of LIN Television Corporation, and also operates Fox affiliate WNAC-TV (channel 64) through a local marketing agreement (LMA).
Interview and Article by Erick Mott,
Since the JOBS Act was signed into law in April 2012, crowdfunding campaigns and platforms have been growing like wildflowers. There are many choices for businesses, entrepreneurs and marketing consultants but also some equity-based crowdfunding uncertainties with pending Securities and Exchange Commission rules. I recently sat down in San Francisco with Rory Eakin, co-founder at CircleUp, to talk about crowdfunding models, funding strategies, and congressional developments on the horizon with the S.E.C. working on new rules that will likely change fundraising and investing forever.