Monthly Archives: April 2012

Three Dangerous Myths.

I think someone said this a long time ago, but for some reason Andy Rooney gets credit for it, “People will generally accept facts as truth only if the facts agree with what they already believe.”

Somehow, the American public has gotten three “facts” into their brains and they have become the bedrock on which way too many decisions, fear, paranoia, political beliefs and prejudices are based.

Those “facts” are:

1)      Most of America’s oil comes from the Middle East. Therefore, we are held hostage by rich Arabs.

2)      Most of what consumers buy is made in China. We buy nothing made in America anymore.

3)      China owns most of America’s debt. They bought it on purpose to control us.

Now, I know the following actual facts are going to surprise those who are reasonable, anger those who are not, and confound and confuse those who distrust government statistics, but nonetheless, here they are:

1)      Only 9.2% of oil consumed in America comes from the Middle East.

Fact: The U.S. consumes 19.2 million barrels of petroleum products per day (USEIA). 49% of those 19.2 million barrels (9.4 million) is produced domestically. The rest is imported. Where from? The Persian Gulf region has created and imported 9.2% of the total petroleum supplied to the U.S. in 2011. Back in 2001, that number was 14.1%. So, we are less dependent on Middle Eastern oil every year.

The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. But, this is still not good – it means we are dependent on other countries for over half our oil. Just not the Arabs, whom everyone seems to think controls our oil supply. But, I have never heard anyone curse the damned Mexicans or Canadians for holding us hostage to their oil.

Second inconvenient, yet actual fact:

2)      Only 2.7% of what we personally consume are goods made in China. Almost 90% of US Consumer spending goes to goods made in America.

Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services. Now, of course, no one believes this as they can plainly see that almost everything in Wal-Mart is made in China. Remember that Wal-Mart generates $260 Billion in US revenue annually, but our total spending is close to $14.5 Trillion.

The Bureau of Labor Statistics tracks average American consumer spending in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA). Want more proof? The U.S. is on track to import $340 Billion worth of goods from China in 2012, which is 2.3% of our $14.5 trillion economy.  That’s it.

And while we are on the subject, most of the skeptics will point to this equally wrong-headed notion that America’s manufacturing sector has been in steep decline. Another inconvenient fact is that America’s real manufacturing output is at an all-time high. What IS in decline is the number of manufacturing jobs required to create that output. Because we have figured out how to use technology, we now produce far more stuff with far fewer workers than we have done in the past. Sixty years ago, it took 30,000 people to produce 6 million tons of steel. It now takes 5,000 to produce 7.5 million.

All those jobs that have disappeared overseas? It seems they have disappeared in the exhaust of technology instead.

Third inconvenient actual fact:

3)      China only owns 7.8% of U.S. government debt. We own almost all the rest.

Fact: As of August of 2011, China owned $1.14 trillion of Treasuries. Government debt stood at $14.6 trillion that month. That’s 7.8%.

The largest holder of U.S. debt is the federal government itself. Various government trusts like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion. Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is remitted back to the U.S. Treasury. In other words it is free debt.

The rest is owned by state and local governments ($700 billion), private domestic investors ($3.1 trillion), and other non-Chinese foreign investors ($3.5 trillion). In fact, the combined holdings of Japan and the UK are bigger than China’s holdings. I have never heard anyone say that we are owned by Japan or the UK, have you?


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.

Whack A Mole!

Bankers’ whack-A-Mole. As Congress keeps whacking them down, bankers pop right back up some other place. Such is the latest example in the case of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009.

Jim Hawkins, an assistant professor at the University of Houston Law Center, just produced a study based on surveys of 500 students at the University of Houston and Baylor University in Waco, Texas, that found that banks have developed a variety of tactics to evade tough new federal restrictions on the marketing of credit cards to college students .

Their techniques include:

  • Work-arounds to mail credit card offers to students.
  • New programs to offer “tangible” gifts to prospective collegiate credit card customers.
  • And, most provocatively, policies that allow college students, including those younger than 21, to include loans as a component of the income they cite to qualify for credit cards.

In the end, Hawkins said, not much has changed when it comes to the aggressive on-campus or near-campus marketing of credit cards. Countless college students, many of them financially or chronologically unprepared for the burden of credit card debt, are still being bombarded by offers.

“The CARD Act doesn’t seem to be working as its proponents had hoped,” Hawkins said. “Students under 21 years old are still reporting that they’re getting credit card offers in the mail and that they see credit card companies on campus and giving out tangible items at pretty high frequency.”

Another study  found that 70 percent of American college students have credit cards, but 84% of them don’t know their cards’ interest rates, late payment charges or over-limit fees. 90 percent of college students are carrying monthly card-related debt. The average credit card debt for a college senior was $4,100 in 2009. And, the average interest rate on the cards was 32.3%.

Of course the banking lobbyists and their representatives have come to the rescue, “There was nothing in the CARD Act that was intended to prevent students from getting credit cards,” said Nessa Feddis, vice president, senior counsel and a retail banking expert at the American Bankers Association, which represents credit card issuers.  “Credit cards are useful to everyone, including students, especially in times of emergency,” Feddis said. “They also help young people build up a credit history.” Bwahaha.

The study found that:

  • 58% of responding students under 21 years old said they received credit card offers, including so-called “prescreened” offers, in the mail during the past year.

The CARD Act tried to make it more difficult for issuers to obtain student addresses and to prevent the big-3 from issuing credit reports unless specifically requested by borrowing students. However, the CARD Act does not prohibit colleges and universities from sharing student mailing addresses with credit card companies. So, what’s the point? Why does Congress bother with legislation like this?

  • 40% of responding students reported seeing representatives of credit card issuers hand out promotional gifts to students.

The CARD Act prohibits card issuers from marketing activities on campus or within 1,000 feet of a college campus or at school-related sporting events, concerts, etc. Those regulations also forbid the distribution of “tangible” items such as gift cards and T-shirts. But, the credit card companies are not taking these rules very seriously, because enforcement is difficult.

  • 27% of responding students under the age of 21 said they were allowed to list their student loans as part of the “income” to qualify for their credit cards.

The CARD Act went to great lengths to require students to prove they had sufficient income to repay their credit card debts or had a co-signer for those cards. According to the Fed, those sources of income could include salary, wages, tips, bonuses and commissions from full- or part-time jobs and self-employment as well as income from interest, dividends, child support, alimony payments, retirement benefits and public assistance. But, there was no mention of student loans as income.

On the other hand, there is no language that explicitly prohibits the inclusion of loans, an apparent loophole that card issuers are exploiting. Is Congress that stupid, … or?

Feddis said it’s not a loophole at all. If loans are a MINOR component of a student’s income or ability to cover credit card debts, there simply is no problem, she said. She also emphasized that credit cards and college students are not necessarily a formula for financial disaster. HAHAHAHA.

“There never was an intent in the CARD Act to discourage or prohibit students from getting credit cards,” she said. Really?

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:


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?


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?


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!


It is not surprising that most big banks are working hard to offload their least profitable segment of customers, those with one banking product and maybe $1,500 in their checking or savings account.


Most banks struggle with the value of “profitability and scalability” when looking at financial services for the underserved.  The current environment underscores some of the frustration for traditional bankers: consumer backlash to increasing fees on existing products and a hostile regulatory environment for small dollar credit products. Traditional banks would seem to have two equally undesirable choices: be a mercenary or a missionary.  There may be another path – be a visionary.

Traditional banks should do a better job at data analysis and a much better job of understanding their customer’s behavior.  Combining a basic segmentation analysis of their accounts with a look at their “whole wallet” of financial transactions can…

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The Housing Market Continues.

About one out of ten home loans made during the past two years are now underwater.

You might wonder what these people were thinking buying in this market, but here they are. That represents more than 1 million Americans who have taken out mortgages during that period. Most of those were Federal Housing Administration loans that required only a small down payment.

If you’re looking for sobering indicators that the U.S. housing market remains deeply troubled, you need look no further.  Home values continue to fall in many parts of the country, and suddenly it raises the real question of whether low-down payment loans backed by the FHA are contributing to putting another generation of buyers at risk.

As of December 2011, the latest figures available, 31 percent of the U.S. home loans that were in negative equity – in which the outstanding loan balance exceeds the value of the home – were FHA-insured mortgages. 31%!!!

Many borrowers, even since late 2010, who thought they were buying at the bottom of a disastrous housing market, seem to have been caught by a continued decline in prices across wide swaths of America. Even for loans taken out in December 2011 (less than four months ago, and the last month for which data is available) nearly 44,000 borrowers, or about 7.5 percent of the total new home loans, now find themselves under water.

“The overwhelming majority of the U.S. is still seeing home prices decline,” said CoreLogic senior economist Sam Khater. “Many borrowers continue to be quickly wiped out.”

The problem is not uniform around the country. In some areas, such as Washington, D.C., Miami and parts of northern California, prices are on the rise. CoreLogic predicts the overall U.S. housing market will finally bottom out this year, but I continue to project that the bottom of the US housing market will not occur until sometime in 2014.

Khater said that since October 2010, average home prices have fallen 7.4 percent. Overall, CoreLogic data shows that 11.1 million, or 22.8 percent, of U.S. residential properties with a mortgage are in negative equity, unchanged from the summer of 2010. According to the S&P/Case-Shiller 20-city composite index, which tracks home values in 20 major U.S. metropolitan areas, U.S. home prices were down 3.5 percent in February from a year earlier and are now at their lowest level since late 2002. Over the past 12 months, 15 of the 20 major metropolitan areas monitored saw declines.

“This is creating a new wave of underwater borrowers,” said Gary Shilling, a veteran financial analyst and well-known housing market bear. “We have all three branches of government trying to keep people in four bedroom houses who can’t afford chicken coops.”

My projection stands.

Crowdfunding. Who’s In? Who’s Not?

More on the Jumpstart Our Business Startups (JOBS) Act.

As you probably all know by now, the JOBS act legalizes Crowdfunding for small businesses, and before it becomes law in February of 2013, the SEC has several months to craft specific rules around the bill and the ways in which investors and entrepreneurs can work within the framework to invest in and fund their companies. Among the purposes described as the impetus behind the passage of this bill were the creation of new jobs, the easing of access to capital for entrepreneurs, and the inclusion of everyday Americans in an opportunity to own part of the next Facebook or Google.

Those of us with vested interests are hoping of course, that the SEC capitulates with the majority interest and creates an exception to the rules that govern the investing in and trading of securities, creating essentially a broker-dealer-light path to handling these funds and reporting for compliance purposes. This might mean that these platforms would have to register as broker-dealers, but that they might be exempted from the larger fees and more stringent oversight required of a traditional BD like a Charles Schwab, for example.

In our view, the rules should be in alignment with the amount of money being placed at risk. In this case, we will probably be limited to $1 million per deal, and individual investors will probably be limited to $10,000 or 10% of their annual salary per deal. The requirement for advice should also be limited in terms of liability, as the platforms would only be offering a common investment vehicle through which an individual investor may take an equity position and would not be in any position to recommend or warrant the investment in any way.

The new Crowdfunding rules should also apply evenly to online platforms seeking to create a lending marketplace for investors who are interested in spreading their risk by lending say, $10,000 across a multiple of loans in say, $50 increments. The only difference in this example is that instead of taking an equity position in several companies with their $10,000, the investor would be expecting to be re-paid their $10,000 loan with principal and interest over time. Similar to Crowdfunder’s model.

So, which existing sites are best positioned to benefit from the implementation of the JOBS act, and which were designed to serve the markets the bill intends? And, where will all of these potential investors go to shop for deals?


Kickstarter, though perhaps the earliest US entrant into the space may not decide to jump into the equity share space at all. They have been so successful as a platform that lets makers of things like video games, magazines and quirky products raise money, they might opt to not change a thing. Kickstarter backers don’t receive a financial stake in the projects they fund, but instead get other incentives and rewards, like a tee-shirt or a coffee mug or a copy of the book they funded.

The company has repeatedly declined to comment to media outlets on the effect the JOBS Act will have on its business, so who knows?


Crowdtilt is one of the buzziest companies to emerge from the latest crop of startups at incubator Y Combinator. The brand-new Crowdtilt focuses on “groupfunding”, which is to say, private projects among people who already know each other. Friends can raise money for a common goal, like a week at a beach house, a wedding gift or a community gardens. Crowdtilt founder James Beshara has said on numerous occasions that he’s not sure if the company will expand to offering equity.


AngelList is a play that connects startups with a roster of high-profile investors and entrepreneurs. It is positioned to enter the space as it already connects more than 110,000 potential angel investors with entrepreneurs seeking funding. They could instantly create a funding COSTCO, but several investors have recently quit the site claiming they were turned off by the herd mentality and the focus on hype. Just what the space doesn’t need.


Crowdfunder has been an active backer of the JOBS Act, since its entire business model is illegal until the legislation kicks in. The company was founded in November (just like iPeopleFINANCE), right after the House passed its version of the bill, HR2930.

Their founder (Chance Barnett) says he started Crowdfunder in order to give startups more options. Backers can choose to invest for more than just straight equity — they could also buy a cut of revenue based on time or percentage return. So an investor could buy 5% of a company’s revenue for three years, or 10% of revenue capped at a 200% return on their investment.

“In equity-based financing, [investors] aren’t guaranteed a return on their money unless the company is sold or offers dividends,” Barnett says. “Revenue lets them get a return. It lets them really share in the incremental growth of a company as it happens.”


Mike Norman says he created Boston-based WeFunder “specifically to respond to the new opportunities the JOBS Act provides.” Norman and his three cofounders are alums of other startups including SoChange, Smartcloud and Crowdly. Lot of Crowd-stuff here.

WeFunder has been running a private beta test, through which nearly 3,800 backers have pledged almost $9.2 million in Monopoly money to startups, the site claims. But until the new laws kick in, that’s all silly, or beta or meta. No actual cash can legally change hands.


Indiegogo is part of the old guard in the CrowdFunding space, at the ripe old age of four. The company says it’s “the world’s largest global funding platform.” Projects can raise cash for pretty much anything they want. Past projects range from a woman’s fundraising campaign to pay for in-vitro fertilization to partial funding for the movie Bully, which was later picked up by the Weinstein Company. In a very pioneering move, back in 2009 Indiegogo created a campaign called “Crowdfunding Campaign to Change Crowdfunding Law” — seeking changes similar to those the JOBS Act provides. Still, their founder has made no commitment to entering his site into the game.


Austin-based MicroVentures is an online peer-to-peer investment marketplace. It helps accredited investors pool their cash together in syndicates and get access to startup funding opportunities that aren’t usually available outside of the traditional venture capital network.

As the law sits today, they are limited only to accredited investors — that is, investment funds and individuals with a net worth of at least $1 million. The JOBS Act could let MicroVentures expand to accept investments from anyone (who qualifies to the lesser extent described above) who wants in. MicroVentures is a registered broker-dealer. That means it’s required to perform due diligence and provide investors with detailed information about the companies on offer. CEO Bill Clark says “he’s still deciding” whether to get in. “It’s not clear yet what our risk would be,” he says. “We have to be very selective, because if a bad deal goes through and due diligence would have caught it, then we’d be on the hook.” Clark estimates that a startup could spend at least $5,000 to get its financials audited, and setting up escrow for the investment funds run another $3,000 to $5,000. MicroVentures today, pays those costs for startups “because we understand they don’t have the money yet,” Clark says. Whether they want to expand their portfolio at the scale the new JOBS act allows is anyone’s guess.


Finally, iPeopleFINANCE is set to launch their site in September of 2012, initially as a pure lending platform targeted to those individuals who are currently underserved by the traditional banking establishment. Everyone who becomes a member will be given a free debit card with mobile cash transfer applications to use as a banking vehicle. In addition, small businesses will be able to get loans and/or investments by individual lenders and investors qualified the same way as the JOBS act requires.

iPeopleFINANCE is a broker-dealer and a registered investment advisor, so it will be in a position to advise customers on the risks involved with the various investments. The difference is that iPeople also provides a personalized credit score that will consider one-time blemishes such as those caused by mortgage defaults, as well as thin-file applicants (those without any credit history), returning veterans of the Iraq and Afghanistan wars and tuition-loan strapped college students looking for financing assistance from alumni.

iPeople’s platform is perfectly positioned to take immediate advantage of the JOBS act implementation. It will be interesting to wee what happens. Stay tuned!