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 and 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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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, 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.

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Only 5 Days Left to Support K-HERO’s Fight Against Cancer

Chicago, Ill – April 1 2013 To celebrate the end of it’s crowdfunding campaign  effort “The KHERO Project”,  K-HERO clothing along with the Q Bar is proud to present Blind Reflexx Live,  Saturday April 6th at 7pm.  Money raised will go to Cancer research, walk the Red Carpet with celebrity guests, 11p toast in honor of Cancer survivors and at 9pm watch Blind Reflexx.  All in support of raising money for K-HERO’s fight against Cancer.

In an interview on Fox News Radio Show the BOSS Business Brief K-HERO Clothing Company founder Brent Magnussen discusses how he was inspired by his mother Karen Magnussen who fought stage 4 cancer for 4 years. Her heroic fight motivated Brent to Join the fight cancer in the same way she did, with courage and determination, never quitting. Sadly in 2009 Karen Magnussen lost her fight with cancer.  Listen Here

Moved and determined, Brent decided to make it his life mission to continue her struggle and fight cancer to honor his mother.  In 2009 Brent left a good paying job and started K-HERO Clothing Company with borrowed money and credit cards, he has never looked back. Every year K-HERO gives thousands of dollars to cancer research, and works with helping kids with cancer and their families.

With the funds raised K-HERO will increase it’s inventory and purchase professional equipment to print its own shirts.  Many of these shirts will be new designs for men, women, and kids, designed by young designers who just finished school or have not had a chance to shine in the industry. K-HERO also has plans to open a retail store in the Chicago area we further plans to open a second retail location in Las Vegas in 2014.

“The more t-shirts K-HERO sells, the more money it can give to the people doing the most important research to cure cancer. Wear a statement, and make a difference and JOIN THE FIGHT against cancer!” -Brent Magnussen

Some people just can’t contribute money, but that doesn’t mean you can’t help K-Hero reach it’s goal. Spread the word; tell your friends and co-workers about The K-HERO Project. Tell anyone you know that has been affected by cancer and make some noise about our campaign.  Tweet it, post a message on facebook, or simple use the indegogo share tool.

Happy First Birthday JOBS Act

By Ryan Caldbeck

It’s hard to believe that it was almost one year ago (April 5,2012 to be precise) that President Obama signed the JOBS Act into law. At the time, Obama noted, “Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors—namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.” Equally hard to believe for me personally is that it’s been almost one year since we launched CircleUp, which has quickly grown into the largest equity-based crowdfunding website in theUS.

However, while the one year anniversary of the JOBS Act is upon us, the law’s key provisions, namely Title II (general solicitation) and Title III (equity crowdfunding for unaccredited investors) are still not written. As a quick refresher, the general solicitation provision will allow companies raising money to broadly advertise their raise to customers, consumers, suppliers, etc. Unaccredited equity-based crowdfunding will allow investors making less than $200,000 per year to invest a limited amount of money into private companies in exchange for equity.

With unemployment still well above 7%, we recognize the urgency of implementation of the JOBS Act; it will provide a much needed boon to the U.S. economy by giving early stage companies access to capital. We are also fervent believers that the financial services industry needs disruption. The primary technology still used in most private company capital raises is email and Microsoft Excel. Fundraising usually takes the lion’s share of an entrepreneur’s’ attention for 6-12 months at a time when her company needs her attention the most.

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CrowdClear Launches New Regulatory-Compliant Platform for Crowdfunding Sites

CrowdClear, a provider of technology, regulatory and compliance services to crowdfunding portals, today announced the launch of its highly scalable, regulatory-compliant technology platform. A division of Bendigo Securities, LLC, a registered broker-dealer, CrowdClear provides funding portals with all of the technology and services to offer Regulation D securities to accredited investors.

Using CrowdClear, leading funding portal RockThePost launched its investment platform this week, connecting high quality entrepreneurs with accredited investors interested in new startup opportunities. RockThePost has been in the reward crowdfunding space for over two years, raising hundreds of thousands of dollars for startups and registering more than 6,000 companies on its portal.

“CrowdClear is positioned to disrupt the world of early stage financing by helping to bring investors and issuers together in a scalable, regulatory-compliant manner,” said Robert Simmons, CEO of CrowdClear. “We support Regulation D transactions today, with an eye toward supporting future crowdfunding transactions.”

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Crowdfunding Coming Of Age In Cleantech

By Dallas Kachan

With early stage capital for cleantech innovation becoming increasingly scarce, crowdfunding sites like Kickstarter, Indiegogo and a new crop of clean/green ones are beginning to emerge as significant sources of funding for selected next-gen clean technologies.

Hurdles remain, particularly for investors seeking returns, but I’m more optimistic about these sites’ usefulness to cleantech entrepreneurs than I used to be.

Asked a year ago by a publication about how significant crowdfunding was likely to become in fostering disruptive cleantech innovation, I wasn’t exactly effusive. As GE’s Ecomagination Magazine wrote, “’When it comes to the tens and hundreds of millions of dollars needed for new breakthrough science, that still best comes from institutional investors,’ says Kachan. Kachan says big investors like to get seats on a company’s board and hope to get a sizable chunk of profits. Clearly, someone who plunks down a small pledge on Kickstarter has different motivations.”

Today, a year later, a lot has changed. Cleantech venture investment worldwide in 2012 was two thirds of what it was the year previous, with early stage funding particularly hard hit. And now with good, relevant success stories like Adapteva and BioLite, at least some startups are starting to find today’s crowdfunding options emerging as a source for the equivalent of friends & family seed capital. While it’s unlikely to ever produce the millions that institutional or corporate deep pockets will continue to provide, it may—just may—serve entrepreneurs seeking early stage money in a time when early stage money has become harder to come by than ever.

And then there’s new, fledgling policy support. In America, today is coincidentally the one-year anniversary of House passage of a bill known as the JOBS Act, which is intended to make it easier for companies to raise money through crowdfunding. Charities have used crowdfunding for years to raise money. The new bill is to streamline the process of companies raising up to $1 million a year in equity, not the simple donations as in today’s crowdfunding, but U.S. Securities and Exchange Commission (SEC) regulations to govern the process are still forthcoming as of this writing. Today, small businesses wanting to raise money from more than 500 investors have to go through a long and often expensive process of registering documents with the SEC.

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LAUNCH Festival to Attempt First Live Crowdfunding Event

For the past few years Jason Calacanis’ LAUNCH festival has been one of the premier venues to — you guessed it — launch a hot new startup in the hopes of attracting serious investment dollars.

When the JOBS Act was signed into law last year, Calacanis saw an opportunity to broaden the potential sources of those investment dollars by incorporating a real-time, live crowdfunding campaign into the annual event.

LAUNCHFest 2013 kicks off Monday, and we still don’t have an official equity crowdfunding system in place for non-accredited investors, but Calacanis and Company have found a way to move forward with their live crowdfunding experiment anyway.

MicroVentures, LAUNCH and SourceBits teamed up to develop a special app for the festival, which runs March 4 – 6 in San Francisco.

“At the event, accredited investors can use the app to show interest in investing in the 50 startups (launching) on stage. If you make a commitment, it’s a non-binding show of interest,” explains Calacanis via an e-mail. “Your contact information is sent to the startup, and you two can get coffee in one of our Davos-style offices.”

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What Entrepreneurs Need To Know About Equity Crowdfunding

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.

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While waiting for SEC regulations, crowdfunding leaders focus on investor education

By Mohana Ravindranhath

Some crowdfunding industry leaders are using the lull before the fundraising practice is publicly viable to develop educational material for people who may soon be making their first investments.

The Securities and Exchange Commission is currently drafting rules to allow start-ups to sell stakes in their companies to the general public, potentially raising large sums from crowds of small investors.

Until now, selling equity stakes has been limited to so-called accredited investors, people who presumably have the wherewithal and sophistication to know what they are getting into.

Crowdfunding opens the field to the general public, and critics worry the newcomers may not adequately understand the risks involved in sinking money in a untested company.

Enter crowdfunding supporters such as the Crowdfunding Professional Association, a trade group for entrepreneurs, lawyers and investors. The organization is preparing to launch a Global Crowdfunding Education Network, intended to provide online classes and legislative updates for investors and entrepreneurs looking to participate in crowdfunding.

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