Category Archives: Social Media

Crowdfunding Update.

David Drake of LDJ Capital and TheSohoLoft.com continues today with his sixth article on his series regarding CrowdFunding for equity solutions, reprinted here with his permission.

Perhaps it was no surprise when Mary Schapiro, Chair of the Securities and Exchange Commission, told a House subcommittee that the Securities and Exchange Commission will not meet the July 4, 2012 deadline imposed under the JOBS Act to implement rules for lifting the general solicitation ban under Regulation 506, Section D (advertising rules).

Ms. Schapiro explained to the House Committee on Oversight and Government Reform on June 28, 2012 that the JOBS Act mandates that the SEC create rules that will require issuers to verify that they are accepting investments only from accredited investors who are responding to a general advertisement. Creating such rules are difficult and will require more time. “We want to create something that is workable and usable,” she said. The SEC Chair expects that general solicitation rules will be issued “this summer.”

The SEC’s commitment to provide general solicitation rules this summer is encouraging and badly needed. Representative Patrick McHenry probably summed up the urgency for the rules the best by advising Ms. Schapiro: “Entrepreneurs are waiting and we urge you to move forward with that.”

As the SEC develops rules for general solicitations, issuers must understand that they will need to move cautiously if the plan to use general advertisement to solicit offerings. The JOBS Acts require that issuers verify that they are accepting investments only from accredited investors under the SEC Act. The SEC rules ultimately will determine what verification process is needed and whether any safe harbors are available. We suggest that issuers looking forward to make general solicitations stay apprised of developments as the SEC formulates its rules, so that issuers are prepared to move forward when the rules go public.

The Securities & Exchange Act in 1933 required that only accredited investors could be solicited for investments and non-accredited investors could not be unless they had an exemption through Reg A, Reg D, a Direct Public Offering or a registered security being traded on an exchange.

Under the 1933 Act, the accredited investor was considered someone who made $200,000 per year the previous 2 years and expected to make $200,000 the following year or a couple making $300,000.  Under a later amendment adopted in 1982, another criteria that would allow you to qualify as an accredited and sophisticated investor would be that you had a net worth of $1,000,000.

While the Dodd Frank Act was under consideration, the SEC pushed for a high net worth amount for an accredited investor. This was highly opposed and removed. What was accomplished out of the Dodd Frank Act was:

a) The equity of your primary home would not count towards your net worth.

b) Debt surpassing your equity would count against your net worth.

c) The equity in your summer / vacation / secondary home would count towards your net worth.

The Dodd Frank Act also prohibited the SEC from adjusting the net-worth threshold for a natural person for four years.

If you take inflation into consideration, the $200,000 per year salary in 1982 would be the equivalent of approximately $1,000,000 today, and the net worth requirement set in 1982 would represent a net worth of approximately $10,000,000 today. Wow, that would not leave many people to invest. Another argument would be that are only rich people entitled to invest in private and exciting deals? Are the select few that made money on Facebook the only ones to ‘give it’ to the less rich?

Granted, $200,000 makes you rich today but I was alluding to the rich just like their counter parts in 1933. Remember, the SEC 1933 & 1934 Act was created to protect the non-accredited investors from fleecing but also to assure that they did not leverage their home 99% and spend all their money on stocks that would not only be worthless but put them jobless and homeless. The 1929 crash that led to the great depression was extreme.

While the status quo remains for determining the financial threshold of an accredited investor, a fundamental change is approaching on solicitation. Currently, any issuer intending to rely on Rule 506 of Regulation D cannot engage in any general solicitation or advertising to attract investors. The Jumpstart Our Business Startups Act (JOBS Act) directs the SEC to remove this prohibition, which the SEC expects to implement during the summer of 2012.

Here is a little history on the non-solicitation rule. Be reminded that there was no TV or internet in 1933. The ban on solicitation to non-accredited investors forced brokers and companies to only talk to ‘rich’ people for investments, that is, the accredited investors. The JOBS Act asked the SEC change the writing in 90 days – that is July 4th, 2012 – Independence day – at which point advertising online, via email to millions or on TV would allow you to advertise you wanted capital for your stock to the general public.

Note, you still could only take money from accredited investors but the monumental change is that you can freely advertise wildly. Yet again, you would lose your exemption status under Reg D 506 if you took one single non-accredited investor and they decided to sue you later for loss of capital — a rare occasion but a legal premise that may hold true. So, will this amendment be implemented by July 4th and we will see media go bananas with everyone with their mother advertising stocks of private companies you can buy?

No, the SEC will not allow such madness as they will implement a safe harbor to assure that the ‘accreditation” of an investor through this means is verifiable and not necessarily just self-monitored by the issuer.

David Drake is a founding board member of CFIRA. Crowdfund Intermediary Regulatory Advocates, or CFIRA, was established following the signing of the Jumpstart Our Business Startups (JOBS) Act. CFIRA is an organization formed by the CrowdFunding industry’s leading platforms and experts. The group will work with the Securities & Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities to help establish industry standards and best practices. For more information, visit http://www.CFIRA.org. Connect with TheSohoLoft at facebook.com/TheSohoLoft and sign up for newsletters at www.thesoholoft.com, or contact Donna Smith, Communications Manager, for more information at 212.845.9652 or via email at donna@LDJCapital.com.


The Wrong Day to Quit Sniffing Glue or to Make Your IPO Debut.

And now, with permission from my buddy Dara Albright, Founder of NowStreet Journal, we have her insight to the FB IPO:

Some call it a cultural phenomenon. Others label it a colossal waste of time. No matter the sentiment, all attention was on Facebook’s IPO entrance on Friday. Well, except for NASDAQ, who was too focused on repairing its malfunctioning technology, oh, and the European Union, who was busy worrying about its looming financial collapse.

Instead of skyrocketing, as was widely predicted among analysts on the Street, Facebook closed up a mere $0.23 cents, not even gaining 1%. News circulated during the day that even Facebook’s bankers had to jump in and support the stock from breaking its offering price. A far cry from LinkedIn’s IPO entrance, almost exactly one year ago, which nearly tripled its offering price during its first trading day.

The most anticipated IPO of the decade and largest technology offering in history had a less than stellar IPO debut. Yikes. What does this say about America’s capital markets? What does this mean for its economic future?

If we’ve learned anything today, it’s that timing is everything and no one, not even Wall Street’s finest, can predict the ideal day to go public. Sometimes you just “pick the wrong day to quit amphetamines”. But, bankers can sometimes price an offering correctly. And this was one of those times. Had Facebook’s stock price shot through the roof, Friday’s headlines would have read something like, “Once Again Wall Street Bankers Underprice a Deal & Screw the Issuer”.

Facebook’s underwriters should be commended. But I do not want to give them too much praise for fear it will go to their heads and result in the creation of yet another destructive derivatives product. “There’s no reason to become alarmed, and we hope you’ll enjoy the rest of your flight. By the way, is there anyone on board who knows how to fly a plane?” Sorry, once you start quoting the movie, “Airplane”, it is almost impossible to stop.

Facebook’s lackluster IPO performance also affirmed what we all know but most don’t like to confront – the public markets are significantly broken. It is challenging for companies to thrive in a trader-centric marketplace where fundamentals are rendered practically meaningless and company stock prices are at the mercy of extraneous events. Last week, Europe sneezed and Facebook caught the flu.

Unfortunately for Facebook, not too many traders came to the realization that Europe’s bleak financial future and rising unemployment actually benefit Facebook’s business. Look how many more jobless people will now have time for Facebooking. Does anyone see the irony here?

Facebook, say goodbye to the autonomy of the private markets. Now, instead of being valued on your own merits, you’ll be assessed based on the accomplishments and failures of those who have nothing to do with you, subject to the second-by-second mood swings of those judging you. Welcome to public market hell where you will now be viewed as a ticker symbol as opposed to the global innovator you are.

Don’t worry, “FB”, many considered the IPO of “GOOG” to have been a great disappointment too. Contrary to “GOOG”, at least you were not forced to slash the price and size of your offering. And remember Webvan’s hot IPO? Its stock price more than doubled during its first trading day. Perspective.

So just where was Facebook’s aftermarket love on Friday? This leads me to the final and most important lesson of the day. Even the most grandiose of companies have trouble thriving in a marketplace that lacks the aftermarket support derived from long-term investors who are more interested in funding companies rather than trading tickers. These long-term investors are a company’s clients, its customers, its users, its partners and its supporters. In Facebook’s case, they are the 900 million across the globe sharing updates, photos and videos every day. If each user bought just one share of FB, it would equate to $34.2 billion in pent up demand.

I don’t doubt that Facebook will ultimately achieve success in the public markets. It is one of maybe a handful of companies on the planet, including AAPL and GOOG, who can provide its own aftermarket support by harnessing the crowd. According to Gene Massey, CEO of MediaShares and leading expert in Direct Registration methods, “Once Facebook has been public for 12 months, it can offer a direct stock purchase option to its massive user base. By doing so, it will not only gain stock support, but Facebook will also add valuable shareholder demographics to its existing database enabling it to become the world’s most powerful marketing and fulfillment company in history.”

Unfortunately, the vast majority of companies entering the treacherous public markets do not have a support group of 900 million. Unless something is done to fix the aftermarket deficit, more and more publicly traded companies will find themselves dying a slow painful death. This will only result in additional long-term investors fleeing the public markets in search of greater stock appreciation.

The fact is the mass exodus has already begun. The fastest growing companies no longer reside on NASDAQ. They are found in the rapidly expanding marketplace for private company stock (PCM).

Facebook has inspired a new generation of social businesses poised to capitalize off its extraordinary media platform. Many of these micro and small cap companies are already enjoying spectacular revenue growth. Historically, most of these companies would have been public at this point in their life cycle, creating wealth for public market investors. However, it makes no fiscal sense for these companies to be public today.

These private companies are all thriving, in part, because their investors consist of long-term shareholders who believe in their products, their businesses and their visions. Don’t all companies deserve the right to attract investors whose interests are more aligned with their own? Shouldn’t all investors have the opportunity to invest prior to a company’s greatest growth spurt? Shouldn’t all investors have the freedom to invest their own money as they see fit?

224 days, 16 hours, 38 minutes, 16 seconds until the democratization of the US capital markets.


High-Yellow Trash.

Now that Obama has come right out and said he supports Gay marriage, the Republican Party must be beside itself. The issues that they want to keep front and center,i.e., “Economy and Jobs under Obama’s Presidency.” have taken a back seat for at least the last couple of days and now seem destined to remain there, in the wake of related equality stories emerging everywhere.

It seems we need to discuss whether marriage has ever meant anything other than between one man and one woman. We have religious leaders reminding us that the bible has stated clearly that the definition of marriage is one man and one woman, but fail to account for the Old Testament, where it states clearly its preference for many hundreds of wives and concubines for a man and often many husbands for a woman.

It also spells out very specifically that if the man refuses to care for his wives, they are free to leave, but of course, without any compensation. Clearly, this “law” wasn’t written in California. But, to be fair, the same law applies to women who refuse to care for their men. I actually think it is a Nevada law; do not get divorced in Nevada.

I guess all of these men of the cloth have chosen their own version of the bible when it comes to specific issues. And, Romney’s church? I think his own Grandfather had a few wives and Mitt, denounced this practice as barbaric, in a separate interview, forgetting apparently that his own family … oh well.

In January, a coalition of some 40 religious leaders, encompassing several faiths, released an open letter warning of the peril of legalizing same-sex unions. And this week, as we have seen, conservatives celebrated a victory in North Carolina, where voters banned same-sex unions by a 3-1 vote. Many of these voters were African-American, who generally share strong views against same-sex marriage. Bishop Harry Jackson, the African-American founder of the High Impact Leadership Coalition, says gay marriage is not a civil rights issue, but fundamentally about redefining the institution of marriage. He thinks the president has miscalculated his clout with the black faith community, which tends to skew conservative on social issues like gay marriage.

“We are concerned that this is a bridge too far. I think it will backlash on the president,” he said.

But not all black religious leaders agree. Bishop Leonard Goin, who heads a Pentecostal congregation in Philadelphia, said in published reports that although he doesn’t support the president’s views on same-sex marriage, he doesn’t think it will give black voters cause to vote against Obama in November.

The bottom line, says Tony Evans of Oak Cliff Bible Church in Dallas, is that the fight over gay marriage goes much deeper than equal rights or political maneuvering. It’s about the fundamental building blocks of the country.

I wonder whether he, like so many of his Southern brethren are referring to the similar fundamental building blocks illustrated so vividly in the history of his region’s racial past. Maybe this passage from James Lee Burke’s Half of Paradise would be a good reminder of some fundamental building blocks that his ancestors used to build the South as we know it today. The same South that just overwhelmingly passed a constitutional ban on Gay Marriage.

                 “Who are you running against?” J.P. Said.

                “Jacob Arceneaux from New Orleans,” Lathrop said. “He’s French and he’s Catholic, and he’ll take most of the parishes in the southern part of the state unless we swing them              over.”

                “How are you going to do that?”

               “Nigger politics,” Virdo Hunnicut said. “Arceneaux has a reputation as a nigger lover. He hasn’t tried to stop the nigger kids from getting in the white schools, and it’s going to hurt him.”

                “We’re running on the segregation ticket,” Lathrop said. “We’re going to show these people in southern Louisiana what will happen when Arceneaux gets in office. Their children will be mixing with the colored children, and pretty soon they won’t be able to tell one from another. The future generations will be one race of high-yellow trash.”

 

There are some of those fundamental building blocks for you. High-yellow trash. This is the actual genesis of the anti-gay-marriage vote, for those of you having trouble understanding how this can happen in a country where 50% of those polled support gay marriage. Fear and ignorance are just as frightening today as they were back in 1957. It’s the same board, just different players. But, we make progress. Sort-of.


Get A Job. Sha-na-na-na. Sha-na-na-na-NA.

The weak job numbers are there for a reason: There are NO jobs!

And when I go back to the house
I hear the woman’s mouth
Preaching and a crying,
Tell me that I’m lying ’bout a job

For the second month in a row, there are no jobs. This unsettles both the White House and Wall Street. Why? I don’t know. It would appear they both live in this fantasy world where everything will be all right again just as soon as this economy gets going. Well, guess what? The economy has been going for months and still there is no job growth.

The reason for that is best illustrated by this fact: In 1950, it took 30,000 people to produce 5 million tons of steel. Today, it takes 5,000 people to produce 7.5 million tons of steel. Which part of that doesn’t Wall Street and the White House get?

The numbers are just stupid. More gist for the fantasy mill. In April, employment grew by just 115,000. That followed a disappointing job gain in March. Together, the March and April average was only about half the 250,000 jobs added monthly in December, January and February. Half of a WHOLE QUARTER.

The real reason: “For the last couple of months we have a situation where the unemployment rate is still declining, but that’s because people are leaving the workforce,” says Gary Burtless, a labor economist at the Brookings Institution. He says it’s usually good news when the unemployment rate drops, because lots of people are getting hired, but that wasn’t the case in April.

Some people might have left the workforce because they reached retirement age, and it’s possible they weren’t replaced by young people, who may have decided to stay in school because the job market is still dicey. Or, because WE DON”T NEED PEOPLE TO DO THOSE JOBS ANYMORE!

“I’ve been feeling very dejected and depressed,” says one woman who has stopped looking for work. She’s 61 years old and she kept being told that “Someone else was getting chosen because they fit the culture better and I recently realized that that was code for I’m older and it doesn’t fit the image that they want to project,” she says. My shocked face goes here.

“It was somewhat humiliating and very depressing,” she says. “It was a shock to realize this isn’t working, because I tend to push on and push through and last week when I just decided to stop, it was an emotional change for me. I realized I have just given up.”

Repeat this story about 500,000 times and you have today’s job market. Here’s the nasty combo:

  1. Workforce is in their 50’s and 60’s – nobody wants to hire – benefits too costly – undesired optics – businesses want young and vital, not old and tired
  2. Skilled jobs are now automated – factory as well as service force
  3. Competition for unskilled jobs is from workforce in their 20’s – mostly college degreed job seekers willing to trade down through the job types
  4. Only turnover in public sector jobs are pensioners with contracts too expensive to replace
  5. Same story in private sector union jobs – no replacement workers
  6. Housing market stalled for like, … ever, depressing related construction, engineering, architectural, building supply, manual labor and maintenance jobs
  7. No credit for small to medium business, so no business expansion jobs
  8. Austerity, coupled with high gas prices subtracts spending on tourism, so no seasonal  tourist industry jobs
  9. Home grown austerity measures focused on discretionary spending, so no restaurant, entertainment, upgrade on existing appliance, auto, home improvement related service sector jobs
  10. Even Microsoft, who used to create 6 service sector jobs in and around Redmond for every employee hired, now creates only 1, as employee benefits are substantially reduced

All of those jobs that we fantasize about are simply never going to come back. That’s why people have stopped looking. The “people stop looking for work” bubble is huge and growing. As Paul Krugman said yesterday, unless we can kick this economy into a much higher gear and forget all about the negatives related to unemployment and the workforce and austerity, we are on a path to become the Greece of the New World.

Of course, my solution is always around initiatives like Crowdfunding and Startup University, which have the greatest chance of creating NEW employment of anything we have done so far. But, the Obama White House still hasn’t called. 


You Say You Want A Revolution?

The JOBS Act – what it really means for the future of Crowdfunding.

So, my assumption here is that you already know about Crowdfunding, either because you have been following my blog or just because. But, maybe everyone on the planet doesn’t know. In case that’s true, let me explain. Crowdfunding is a mechanism that takes advantage of the reach of the Internet to offer opportunities to invest in startup enterprises to anyone with Internet access and a credit card or a PayPal account.

The whole idea is to bring the world of startup investments to ordinary citizens who would like to gamble some of their money on what might become the next Google. In addition, it provides a simple platform for entrepreneurs to post their business plans and raise money to launch their businesses. The JOBS Act is legislation that was passed recently in the U.S to kick-off a startup economy. The Securities and Exchange Commission has 270 days to examine and propose regulations that will support this legislation when it becomes law in February of 2013. The JOBS Act will have thrown 80 years of SEC laws relating to securities under the bus, so the SEC needs this time to temper the Congressional zeal for this passage.

The original driving energy really came from the credit markets that are still broken and would appear set to remain that way for a long time to come, and the regulatory requirements governing most businesses, which usually come later in the lifeline of a startup project. Congress seems to have wanted to find a way to reduce the regulatory oversight while still offering a modicum of risk management by establishing rules that govern the offerings of startup businesses on these Internet platforms. In early discussions, the SEC seems focused on education and not so much on risk warnings. In fact, the JOBS Act turned out to be the result of a conflation of six separate bills, all trying to put forward the same rough objectives.

Congress did what Congress always does, and ended up with a compromise bill that reduces the burden of some of the regulations found in the Sarbanes-Oxley act while still inffusing the new act with some form of  regulatory relief. As is always the case, we never get a pure solution to a simple problem from these guys. It isn’t in their DNA.

The main issues are around education, risk management and the scope of these offerings. Congress tried to reduce the reporting requirements and corral the size of individual and overall investments in a single project, by suggesting some limits for investors and some basic reporting requirements by the businesses. Presumably, the Obama administration and the SEC will take the narrowest possible interpretation of the reporting requirements, so it doesn’t become another source of opaque business practices of the sort that led us into the worst recession since the 1930s. I mean, really sophisticated investors clearly had no idea what they were buying when they purchased the top-trench of a collateralized CDO in the mortgage market, yet they were heavily vetted and qualified as to their level of “sophistication”. We know where that led. So, the SEC argument to focus on the education component of these investments rather than the risk disclosures seems silly, and I hope they see the light before they implement something that failed so miserably on Wall Street only five years ago.

If anything, the financial advice the SEC should require should be along the lines of “Do you understand that most startups fail and that you could lose all of your investment?” And, “It is a really good idea to spread your investment across a broad portfolio of startups, so that if a few fail, you are protected by the one or two that might succeed.”

One of the cool things that has happened in the CrowdFunding space as (I believe) an unintended consequence of the Kickstarter phenomenon, has been this notion of aggregating a built-in customer base WHILE one is in the process of creating product, and the result, which is often squeezing out the failed attempts through the initial market response inherent in the project funding. So, in other words, if your project gets over-subscribed, there is probably a market for what you are trying to produce, and if everyone hates the end-result, you get instant market feedback long before you have committed lots of capital to a failed design.

And, to be clear, Kickstarter is NOT a CrowdFunding platform, even though at first glance it may appear as such. Kickstarter helps aggregate donations for projects. If in return for your donation, you get a coffee mug or an invitation to a film party, then cool. It does not raise money for people to build companies. That indie film is not being produced in a distribution environment. Kickstarter is very careful about which projects it approves. And, it may never choose to participate in the SEC-regulated Crowdfunding space next March. If it ain’t broke, don’t fix it and who wants the SEC breathing down your back?

So, at the end of the day, I think the SEC will err on the side of education vs. risk management, there will be far greater funding restrictions than the JOBS Act intended, the Crowdfunding space will look really different in 24 months than we envision it today, with perhaps far more entertainment related endeavors (games, music, video, films, TV pilots) getting funded in much the same way as the music business became more indie in the last 10 years, and the venture capital community will basically remain unaffected one way or another, as entrepreneurs learn how difficult it is to round up all the devils in all the details.

There is a unique opportunity for the VC community to form an incubation-like support structure to provide infrastructure nourishment for all these startups, but I would be surprised if that happens. It seems more likely to me that the platforms themselves will look to provide these sorts of services as part of their service suite. There is also an opportunity to form a “Startup University” to prepare young entrepreneurs for this new “industry” in much the same way as MIT prepared young software engineering students for the computer technology evolution.

And, lastly, the nascent industry’s attempts at self-governance, while really well-intentioned will likely have little or no real impact on the space. People tend to do what they want.

Whatever forms all of this takes, I think we will have lots of job creation, a new rapid-development technology revolution, and the beginnings of an expansive and exciting world of commerce within the U.S. economy. And, it is really cool!


Gas Prices. Who’s Your Daddy?

If you listened to Romney’s stump speeches, you would think he is the “people’s” champion for lower gas prices.

Who ARE these people?

His supporters like “Drill-baby” McCain, have been trying to convince us for years that the simplest and fastest way to lower gas prices is to drill everywhere we can fit an oil rig in the U.S. His message is that Obama is a weak leader, influenced only by his elite, leftist, Harvard-educated friends, and that left to his devices, we will continue to kiss environmentalist behinds and keep the price of gas in the $4-5/gallon range forever.

Because after all, $5 gas is no sweat to Obama and his friends. McCain and Romney are only looking out for you, the little guy.

It turns out that high gas prices aren’t actually a problem for Romney either. They are in fact a a boon to his political fortunes.

Using the little guy’s pain at the pump for political purposes, is not the only way he and McCain et al, benefit from high gas prices. Big oil interests are among his most reliable and significant supporters — and when gas prices are high, so are their profits.

These record profits give oil executives even more cash than usual to spend on advancing their political agenda — and that begins with electing Romney. In fact, Big Oil executives pledged more than $200 million to aid Romney’s campaign, and to defeat Obama.

The quid pro quo? Big oil gets to keep its billions in special tax breaks every year. So not only does the little guy pay once – at the pump – but he gets to pay twice through his income taxes, some of which goes to subsidize an industry where the top 5 companies earned $137 billion in profits last year!

In keeping with a time-honored tradition, Big-oil has managed to get Harold Hamm, a billionaire oil executive appointed as Romney’s top energy adviser. This is the same Harold Hamm who declared in 2009 that cheap oil would be a “disaster,” and that “clean energy is a magical fantasy”.

Romney actually gets passionate about oil and gas prices. At a recent town hall meeting, he responded to a question about high gas prices by asserting that efforts to reduce the billions in tax breaks for big oil companies are “dangerous”, and described Paul Ryan’s budget which protects the oil subsidies while eliminating clean energy investments as a “bold and exciting effort.” This was followed by a Fox News debate in which he said that oil and gas executives tell him they had it “a whole lot better” under fellow oilman George W. Bush. You think?

It gets better. Instead of tapping American ingenuity to make our cars go farther on a gallon of gas, Romney has continually blasted improved fuel-efficiency standards — including the higher standards that Bush signed into law as president. He has declared that U.S. clean energy sources — like wind and solar power — are not “real energy,” and that burgeoning green technologies are nothing more than “expensive fads.” He thumbed his nose at the U.S. auto industry by mocking Chevy’s hybrid electric Volt as “an idea whose time has not come.”

Looks pretty cool to me!

Romney’s mutual admiration relationship with Big Oil comes down to this: Oil company executives see high gas prices as an opportunity to profit financially. Romney sees that high gas prices represent an opportunity to profit politically.

Rachel Maddow had an interesting chart on her “Chart Imitates Life” segment last night which depicted the relationship between income inequality and political partisanship in Congress as two lines almost hugging each other from the 1940’s until now.

    

The next time you slide your credit card into that gas pump, give a thought to that chart and to Romney’s true sympathies. He may want to bet you $10,000 that gas won’t go to $5/gallon this year. If Obama’s ahead in the polls, take it!

 


Startup University.

So, while reading all of the doom and gloom over the mounting student loan debt, it occurred to me that maybe we are on the wrong track entirely.

Maybe we have dug so deeply into this mental trench of “higher education” that no one has stopped to think for decades that there might be another model. I don’t mean two year industrial education or skill programs, where we turn out machinists or bartenders or hotel managers, but an entirely new way to look at education.

What if instead of the $25,500 (average reported student loan debt in 2011) and the estimated $60,000 in expenses, we substituted an entrepreneurial educational program that begins in high school instead? Not for everybody, but for those who think they might have an interesting idea and who aren’t interested in the conventional college student track.

Here’s how one would work and how it might make much more sense than what we have now. Public high schools would implement an elective  program in the sophomore year that would trace the history of entrepreneurship in this country. Maybe it supplants American History for that year. Much more interesting and relevant anyway.

Juniors and seniors would be able to choose an entrepreneurial curriculum instead of American History, Industrial Technology, Math, Language or Art. I mean, have you ever learned anything useful or relevant in history, math, language or art? Courses would concentrate on topics like starting a business 101, investment and funding, marketing, consumer behavior, general accounting, equity, sales, law and economics. Lecturers could be successful entrepreneurs from the world of high technology and consumer marketing. In addition, students would begin lab projects in their junior year, focused on creating the infrastructure for their future businesses. Upon graduation, students could elect to go on to a traditional four-year college or university or opt instead to enter a startup university. They would be encouraged to take their projects with them. Where else does that happen?

The startup university could be a joint venture between our Federal government, which could divert the funds it spends on educational subsidies ($30B), the leading venture capital funds who would invest a small percentage of their new funds, and the top universities in every major city that together, could create an open-ended program that would serve as an incubator for these entrepreneurs and their start-ups. Then, high school graduates who are ready to pursue their dreams of creating their own businesses, while skipping those years of dubious value that they would otherwise spend in college, could get right down to the business of business without any student loan burden or the distractions of college campuses. Because the program would be open-ended, it would self-select winners and losers, just the way the markets do in real life. No degrees. Just startups. Like, I don’t know, one of these guys:

The experience, connections and exposures would be invaluable. The VCs and perhaps the universities would take small seed-round positions in each startup and A round stock would be available to everyone involved, including teachers, mentors, VCs, universities and incubation administrators. Students who fail in their initial attempt would be well-positioned to try again. These kids won’t need jobs.

I am sure this notion is too radical for entrenched educators and politicians to even acknowledge as a possibility, but then what does that say about our educators and politicians? Too risky. Too controversial. Too much investment at stake.  Too radical. Things are fine the way they are. The system is working. Really?

Let’s just say we get this done. Imagine the innovation that would come rolling out of high schools, and a couple of years later. Who invented Instagram? Facebook? Google? Apple? Microsoft? All in their 20′s. All in college. How many jobs? How many countries? How much impact in the world? Facebook would be the third largest country were it a country. 

Think about the simplicity of business models like Pinterest or Instagram. Instagram, a simple mobile app for photo sharing with Twitter-like friends. OK. You can apply 17 filters to enhance the cool-factor of the photo, but so what? A $1B acquisition one year after launch?  15 million subscribers? Pinterest. An online scrapbook for other people’s content? 20 million subscribers? Why would anyone want to go to college?

Upside: Jobs. Education tied directly to student’s goals. No debt. No endless credit, housing or debt bubbles. Banks no longer in control. Innovation. Entrepreneurship. Returning America to the ideals of global leadership, economic growth, individual freedom and the pursuit of wealth and happiness.

Downside: NONE.


Predators In The Mist. Not What You Think.

Do you want some frightening news about college kids? No, it’s not that. And no, it isn’t related to sex, drugs or rock and roll. Or, even student loan debt, now having grown to over $1.2 Trillion, overtaking total US Consumer Credit Card debt.

 

No, the news is that American college students have lots of credit cards, are loaded with credit card debt, use them frequently, and have absolutely no idea what they are doing. And, it’s a growing problem. In 2004, the average college student had $946 in credit card debt. By 2009, the average stood at more than $4,100. That is a 434% increase in credit card debt in just 5 years. Think about that.

These findings are from an academic paper on credit card debt and the larger issue of financial literacy among college students. Results of the survey, conducted by researchers from five American universities, were published this month, coinciding with Financial Literacy Month, and they are shocking.

As I mentioned in an earlier blog post, 70% of American college students have credit cards, 84% of those students do not know their cards’ interest rates, 75% of them don’t know what their late payment charges are and 70%of them don’t know what their over- limit fees are.

Therefore, it’s no surprise that more than 90% of college students who hold credit cards are carrying monthly credit card debt.

And guess which course of study these students were majoring in? Yes. Business.

Nearly all of the 725 students who took the survey in fall 2009 were business majors — likely to be among the most financially astute of their generation. Credit card knowledge and general financial literacy we would suppose are even worse among others of the millennial generation, whether in college or not.

“In America, credit cards on campus have been a disaster, leaving students buried in debt before graduation, often with little hope of paying off the debt before high fees and interest double the amount,” the study’s authors said.

“It’s not just college students — you could also argue that young people out in the work force, from a practical standpoint, should be more educated about this because they see these financial issues in play every day.” ,” said one college professor.

“Some have exclaimed that credit cards are a greater threat on campus than alcohol or sexually transmitted diseases … ,” the study’s authors said. “It is too late to implement a ban when nearly every student already has a credit card.”

“A lot of students have been lured into getting credit cards by companies that often set low initial limits and then start pumping them up. They get into it as a way to enhance their cash flow, but they’re not really thinking too much about the long-term ramifications about what they’re getting themselves into.”

Only 9.4% of credit-card-carrying college students paid off their debt in full each month, a sharp drop from the 32% found by a survey just 5 years ago. The general on-campus ignorance concerning interest rates, late payment charges and over-limit fees shocked the researchers, particularly when it came to interest rates. “Since the interest rate is the primary cost of credit, a financially literate student should know the interest rate he/she is paying,” the study said. “We predicted this amount to be high, since so many credit card issuers advertise these rates as a key marketing tool. We were surprised, but not in a good way.”

The survey was conducted by researchers at the University of Central Oklahoma, Midwestern State University in Texas, Texas A&M University, the University of Texas and Framingham State University in Massachusetts. It was published in the April 2012 edition of the International Journal of Business and Social Science.

“This result may also explain part of our national problem with credit,” the study said. “If our college students don’t understand credit costs, what can we expect from the larger portion of our society without a college education?”

But, this may not be a natural corollary, as there is nothing that says college students should understand how credit works any better than a single Mom of 22 working at a clerical job. In fact, the better question has to go to the quality and content of the education our Business majors are getting in our colleges. Aren’t you shocked that over 70% of Business majors don’t know how much they are paying in interest, how much their over-limit charges are, and how much their late payments fees are?

Is there another corollary here too? Might it be possible that if tested, our business majors might not understand how discounted cash flow analysis works or why and when you might want to use it, or be able to explain the future value formula for calculating the time value of money and compounding returns? Does that scare anyone? What if 70% of all business majors failed that pop quiz?

Business Major.

This, of course leads me to my next blog post which is all about a revolutionary alternative to college, student loans and high school curriculums. I know. You can’t wait.


New Capital Model Needed.

Capital markets are broken and there seems no end in sight. Housing market stagnates. Credit markets remain frozen. No jobs. No wage increases for 12 years. Trillions in debt. No growth.

While the global financial meltdown and its aftershocks have unleashed a flood of indignation, condemnation, and protest upon Wall Street, the crisis has exposed a deeper distrust and implacable resentment of capitalism itself.

Capitalism might be the greatest engine of prosperity and progress ever devised, but in recent years, individuals and communities have grown increasingly disgruntled with the implicit contract that governs the rights and responsibilities of business. The global economy and the Internet have heightened our sense of interconnectedness and sharpened our awareness that when a business focuses only on enriching investors, it implies that managers view the interests of customers, employees, communities and the fate of the planet as little more than cost trade-offs in a quarter-by-quarter game.

I think it’s time to radically revise the deeply-etched beliefs about what business is for, whose interests it serves, and how it creates value. We need a new form of capitalism for the 21st century, one dedicated to the promotion of greater well-being rather than the single-minded pursuit of growth and profits; one that doesn’t sacrifice the future for the near term; one with an appropriate regard for every stakeholder; and one that holds leaders accountable for all of the consequences of their actions. In other words, we need a capitalism that is profoundly principled, innately moral, fundamentally patient, and socially accountable.

This isn’t a new challenge, but it’s more urgent than ever, not just as an effort to escape reform and regulation from the outside, but to restore the public trust, to repair the moral fabric of the system, and to unleash the innovation required to tackle the world’s most pressing and important challenges.

So, here are the questions we must begin to answer as we think about how we can make each of our companies more principled, more patient and more socially responsible:

PRINCIPLED

Capitalism degenerates into narrow self-interest without a strong ethical foundation.

How do we focus the entire organization on a higher purpose and embed such virtues as generosity and selflessness into everyday interactions, evaluations, and reward systems?

How do we measure the ethical or moral climate of a company, and what is the dashboard look like?

What does it mean for individuals at all levels to act as wise stewards of organizational values, resources, and stakeholder well-being?

What kind of a forum or process could we create that would allow individuals to freely share and discuss ethical dilemmas?

In what ways might extreme transparency preserve and promote the highest purpose of the organization?

PATIENT

Vision and perseverance are critical to value creation and highly vulnerable to short-termism.

How do we stretch management timeframes and perspectives?

What does it mean to articulate and instill a vision compelling enough to inspire sacrifice, stimulate innovation, and hedge against expediency?

How might we re-balance compensation and measurement systems to provide incentives for long-term value creation along with short-term performance?

What tactics or capabilities might we develop to earn some slack from investors?

What kind of incentives and measurement systems could we devise to encourage internal entrepreneurs and nurture a varied portfolio of opportunities?

SOCIAL

Capitalism cannot operate in a social vacuum, and profits and shareholder return can no longer be the only measures of a company’s value-add.

How do we eradicate the pervasive zero-sum mentality in business and embed the positive-sum view of stakeholder interdependence into operations at every level?

How do we build the consideration of social return into every conversation and every decision at every level in the organization?

How could we embed social goals into an organization’s innovation agenda and processes? In other words, how might we encourage not just social responsibility, but social entrepreneurship?

What kind of measurement and reward systems would give significant weight to social impact created by individuals and the wider organization?

These are the questions the management team at iPeopleFINANCE are asking ourselves as we form this new company, which we hope will become the Amazon of social finance. Our vision is the empowerment of individuals, small businesses, communities, organizations and non-profits to fund their enterprises and projects via loans, investments and donations from like-minded individuals wanting to participate in the outcomes and earn substantial returns on these investments, in an open market, crowdsourced, capital environment.

We have a chance to create the kind of business that we idealize, a new capital model for the 21st century. Our team’s shared values are directly locked into the ideals of social responsibility, patient execution and a strong ethical foundation of what we call moral capitalism. Will we be able to walk the walk after we talk the talk? I think we are off to a great beginning. Stay tuned for updates.


Social Media and Sports.

As you all know, I love Infographics, and here’s one that examine’s social media‘s influence on the world of sports. Interesting statistics: More than 80% of sports fans monitor social media sites while watching games on TV, and more than 60% do so while watching live events. While watching live events! Wow. That explains all of those people in those $200+ box seats behind home plate glued to their smart phones.  

Players have capitalized on social media and fueled massive buzz as well. More than 9,000 people per second tweeted about Tim Tebow after he threw an unexpected touchdown pass in last season’s NFL PlayoffsJeremy Lin gained more than 550,000 followers in a single month while taking the NBA by storm earlier this year. And soccer stars Kaka and Ronaldo have leveraged their sport’s global reach to become Twitter’s two most-followed athletes. Enjoy!


Follow

Get every new post delivered to your Inbox.

Join 62 other followers