Category Archives: Marketing

Crowdfunding Update!

David Drake of The Soho Loft (a holding company of LDJ Capital), has weighed in with some comments about the changes concerning general advertising with respect to Crowdfunding, resulting from the implementation of the JOBS Act this and next year.

David is one of the founding organizers of the SOHO Loft Crowdfunding Conferences.

These changes fall under the Advertising for Investment Funds section of the Investment Company Act of 1940, which are part of a large body of rules that will be overthrown when the Crowdfunding bill gets implemented.

In what may be an unforeseen consequence of the JOBS Act, funds will be able to advertise to the public as early as July 4th of this year. This comes as changes to Regulation 506 kick in, 90 days after Obama signed the measure into law on April 5th, 2012.

Part of the Act changes the general non-solicitation ban that has been in place since the 1933 SEC Act became law, 79 years ago. Removing this ban allows public advertising for firms applying under Regulation 506 with one stipulation – they may advertise to the general public, but can still only accept capital from accredited investors (today).

Since a previous ruling by the SEC under the Investment Company Act of 1940 (rule 3(c)1 and 3(c)7) identifies those private offerings as Regulation 506 offerings, the same relaxing of the rules will apply to funds as well. Secondly, the JOBS Act provides that offerings under 506 will not be a public offering for purposes of “other federal securities laws.” The 1940 Act would fall under that exemption, essentially making the Regulation 506 changes apply to funds as well.

The SEC will need to address this issue. They may stall and ask for an extension. Alternatively, they could rescind the original ruling that bound the 1940 private offerings under Regulation 506. They could argue that the intent of the JOBS Act was not to affect private offerings. But this is dangerous ground, and it risks lawsuits if the SEC is seen as making what amounts to an unconstitutional change to legislation duly enacted into law.

So, what all of this actually means is that Crowdfunding sites should be preparing to advertise for capital to the general public. As early as this coming Independence day (appropriately enough).

They could say publicly that they have opened Fund I (for example) and they are raising $50 million for the purpose of investing in companies developing “Green Technologies” (for example). There will probably need to be caveats explaining that the offering is only open to “accredited investors”. But, this is the biggest change yet to the SEC Acts of 1933, 1934 and 1940.

Removing the non-solicitation ban introduces a powerful new force into the marketplace. And, it will be followed by laws enabling non-accredited investors to participate in February of 2013 (see below).

The JOBS Act also includes several other significant changes affecting both public and private companies.  For example:

• The JOBS Act will allow certain private companies to raise up to $1 million per year via “Crowdfunding” without registering the sales of securities with the SEC.  Crowdfunding will permit pooling of small investments from larger groups of investors regardless of whether the investors are accredited or sophisticated.

• The JOBS Act simplifies IPOs by Emerging Growth Companies (EGCs) by, among other things, permitting them to (1) file limited initial disclosures and subsequent reports, (2) provide fewer and less detailed audited financial statements, and (3) reduce disclosures regarding executive compensation.   Companies will cease to qualify as EGCs after either five years have elapsed since their IPOs, or they reach $1 billion in annual revenues.

• The JOBS Act expands the use of Regulation A, as an alternative to a registered IPO, by increasing from $5 million to $50 million the amount of capital that companies can raise under that exemption.

• The JOBS Act increases from 500 to 2,000 the number of stockholders of record a company may have before it must register and file quarterly and annual reports with the SEC (provided that no more than 500 of these stockholders are unaccredited investors).

The SEC will continue to adopt regulations implementing new Crowdfunding rules in the coming months, and we will bring them to you here on this blog as fast as they break.  Please drop any questions you might have in the comments section below or send me an e-mail to steve@ipeoplefinance.com, and we will do the best we can to provide answers.

 

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Collaborative Consumption!

And, now for something completely different.

Collaborative Consumption is a phenomenon that describes a lifestyle generally associated with the Gen-Y population and has grown out of an ethos of sharing, a sense of community, and a sensibility around reuse, recycling and conservation.

The resulting economic model (and you all know how I love economic models) is based on buying, selling, sharing, swapping, bartering, trading or renting access to previously owned products. Technology and peer communities are enabling these old market behaviors to be reinvented in ways and on a scale never possible before.

From enormous marketplaces such as eBay and Craigslist, to peer-to-peer marketplaces such as Tradepal, Fiverr, emerging sectors such as social lending (Zopa), peer-to-peer travel (CouchSurfing, Airbnb and Onefinestay), peer-to-peer experiences (GuideHop), event ticket sharing (unseat.me) and car sharing (Zipcar or peer-to-peer RelayRides), Collaborative Consumption is disrupting outdated modes of business and reinventing not just what people consume but how they consume it. Collaborative Consumption is sort-of the opposite of Conspicuous Consumption, where instead of choosing to drive a new BMW, the status achievement is more associated with driving a used 1970s Volvo.

Collaborative Consumption sites are proliferating on the web, with new platforms announcing their launches on almost a daily basis. These platforms are pioneering new spaces, and while they are all tapping into the Gen-Y zeitgeist, they press human behaviors to such an extent that they are all experiencing a certain amount of initial resistance due largely to inertia.

Getting people to try an idea that might be perceived as ‘risky’, like sharing your home with a stranger, is difficult to actually accomplish over the web.

This foray into the world of Collaborative Consumption raises interesting behavioral and technical questions.  How do we use technologies to enable trust between strangers? Is it even possible? What’s the best approach for building critical mass?  How do we know when and how to scale? How do we design a user experience that gets to the essence of what people want? How do we build a trusted brand in the community?

Almost all Collaborative Consumption marketplaces depend on matching what people want with what other people have. Obviously, this raises the issue of building a critical mass of inventory (users, products or services) on both the supply and demand sides of the equation, but which side should one focus on first?

Many of these sites seem to lean on the supply-side in order to create a sufficient number of choices to both entice and retain users who are shopping for stuff. Easy to talk about, but hard to do.

One of the not so obvious pitfalls is to try and be everything to everybody, which will usually result in chaos. It is far better to limit the number of choice variables while you build up a controlled market of supply and demand. If you were offering ridesharing services, you may initially limit your offering to certain streets and routes and only during certain hours of the day. Known commute corridors during peak commute times for instance.

If you were offering to match up weekend accommodations, you might limit the locations to areas within walking distance of common tourist attractions in a given city. Or, near main subway or bus stops that serve the entire city.

This is why these marketplaces happen mostly on a local or neighborhood level, as people share working spaces (for example, on Citizen Space or Hub Culture), gardens (Landshare),experiences (GuideHop) or parking spots (on ParkatmyHouse). However, Collaborative lifestyle sharing is beginning to happen on a global scale, too, through activities such as peer-to-peer lending (on platforms like Zopa and Lending Club) and the rapidly growing peer-to-peer travel (on Airbnb and Roomorama).

In order to build a community of trust that will engender sharing and overcome the barriers associated questions like “do I really want to share my apartment with a stranger?”, successful sites will have reached out to their target community during launch and asked what the community wants the site to do and what they would like to see when they engaged. This is the first step in building a brand within the community that will support growth and expansion, based on complete transparency and honest communication.

In future blog posts, I will address the growth of the Collaborative Consumption online markets and the specific issues of critical mass, scale, user experience, trust and branding in detail. If you are interested in this topic and learning more, please drop a line to steve@ipeoplefinance.com. I am really interested in hearing about your experiences with peer-to-peer sites. Thanks.


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.


We Don’t Need No Education!

 

We don’t need no education

We don’t need no thought control

No dark sarcasm in the classroom

Teachers leave them kids alone

Hey! Teachers! Leave them kids alone!

All in all it’s just another brick in the wall.

All in all you’re just another brick in the wall.

I just watched 60 minutes. They did a couple of segments that were interesting, not so much in what was revealed, but rather in the apparent unintended irony of airing both segments on the same program.

We had on the one hand, a piece about Peter Thiel’s Fellowship Program, which awards $100,000 to applicants who compete for one of twenty such scholarships each year, in order to pursue their dream over a two year period. This often requires that applicants drop out of school to focus full time on their aspiration.

On the other hand, we saw a segment devoted to the world tour of one of my rock idols, Roger Waters, as he and his fellow musicians (not including any members of Pink Floyd) re-construct his monumental opus, The Wall, in a grand, operatic, concert-style production. This tour is essentially about performing a double album that was first recorded on vinyl 33 years ago. Roger is the lyricist, bass player, and creative force behind the legendary rock band Pink Floyd.

The Wall has its roots in Roger’s non-relationship with his biological father and describes the process by which he begins to build a mental wall between himself and the rest of the world, so that he can live in a constant, alienated equilibrium, free from life’s emotional troubles. Every incident that causes him pain is yet another brick in his ever-growing wall: a fatherless childhood, a domineering mother, an out-of-touch education system bent on producing compliant cogs in the societal wheel, a government that treats its citizens like chess pieces, the superficiality of stardom, an estranged marriage, even the very drugs he turns to in order to find release.

The wonderful hook between this story and Peter Thiel’s Fellowship Program is the reality of an out-of-touch education system bent on producing compliant cogs in the societal wheel, even in that pre-historic era of 1979.

Morley Safer’s generally combative and disrespectful interview of Thiel, promotes the idea that Thiel is quirky, cavalier and out of touch with reality. His plan is characterized as paying college students to develop their promising concepts instead of attending to school. And, of course Morley misses the whole connection between The Wall and a Fellowship Program that is designed to put an end to educational snobbery, enormous wastes of money and time, with nothing to show for it at the end. Now, I have nothing against old guys or the wisdom of age, but whose boat would you hitch a ride in, Safer’s or Thiel’s? 

Thiel’s critics include Vivek Wadhwa, a self-important, and successful bureaucrat-entrepreneur* turned professor who teaches at Duke and Stanford, who told Safer, “Peter Thiel has made so much money that he is out of touch with the real world. He doesn’t understand how important education is for the masses.”

“What I worry about is a message that’s getting out there to America that it’s okay to drop out of school, that you don’t have to get college. Absolutely dead wrong.”

What I think this says about Vivek Wadhwa, is that he is more worried about his career as a college professor, than he is about young entrepreneurs’ ability to follow their dreams.

Every college student interviewed for the program said essentially the same thing, “Yes, we are being challenged at school, but not in ways we want to be.”

Thiel is best known as a co-founder of PayPal. He is also the Silicon Valley investor and entrepreneur who made early stage investments in companies such as Facebook, LinkedIn, and Yelp. Now he’s investing in college students, awarding fellowships of $100,000 each to youth under 20 years old, essentially encouraging them to drop out of college to become entrepreneurs. See >>> http://thielfoundation.org/index.php?option=com_content&id=22

In tonight’s interview, Thiel tells Safer that his program is a viable alternative to what he sees as a largely ineffective university system where costs far outweigh benefits. It’s not for everybody, but if a young person is excited about creating something, she should have an avenue to go and do that.

“We have a bubble in education, like we had a bubble in housing…everybody believed you had to have a house, they’d pay whatever it took,” says Thiel. “Today, everybody believes that we need to go to college, and people will pay — whatever it takes.”

While he acknowledges that college degrees are necessary for those careers requiring a formal credential, like doctors, lawyers, accountants, etc., he also notes that a college degree is not necessary to land a high-paying job. “There are all sorts of vocational careers that pay extremely well today, so the average plumber makes as much as the average doctor,” Thiel tells Safer. I think some guy named Obama just said the same thing.

And, to his critics who say that most of his fellows will fail, Thiel says, “Sure. That’s possible. But, they will be so much better off having gone through the experience, and better prepared for the next one. In any case, they can also return to college if they find that the entrepreneurial life isn’t what they thought or hoped it would be.” (Roughly what I think he said)

This of course, reminds me of Sal Khan, who I wrote about in an earlier blog, who believes he can transform education worldwide, and his approach is now being tested in American schools. Along the way, the former hedge fund analyst has won the support of Google Chairman Eric Schmidt and Microsoft co-founder Bill Gates, who calls Khan “a teacher of the world.” He has revolutionized classroom teaching in Los Altos and Palo Alto, California. See https://isellerfinance.wordpress.com/2012/03/12/dont-all-fifth-graders-know-calculus/

What is heartening to me is that these little steps forward have the support of many of the giants in my industry, and almost every day, I run across an event or story that suggests we are moving to the Startup University state faster than I would have ever hoped or imagined. And, that is a really great thing.

I watch the ripples change their size

But never leave the stream

Of warm impermanence and

So the days float through my eyes

But still the days seem the same

And these children that you spit on

As they try to change their worlds

Are immune to your consultations

They’re quite aware of what they’re going through

 

Ch-ch-ch-ch-Changes

(Turn and face the strange)

Ch-ch-Changes

Don’t tell them to grow up and out of it

Ch-ch-ch-ch-Changes

(Turn and face the strange)

Ch-ch-Changes

Where’s your shame

You’ve left us up to our necks in it

Time may change me

But you can’t trace time

*Bureaucrat-entrepreneur: one who used the corporate capital of his employer on an internal project that was successful enough for its own application, that external applications were discovered in similar businesses and presented a commercial opportunity. Very different from, and not to be confused with a startup. In Wadhwa’s case, he began his career at the New York–based investment banking powerhouse, CS First Boston (CSFB), where he was Vice President of Information Services.  There he spearheaded the development of technology for creating computer-aided software-writing systems that was so successful that CSFB decided to spin off that business unit into its own company, Seer Technologies.  As its Executive Vice President and Chief Technology Officer, Wadhwa helped grow that fully funded startup into a $118 million publicly traded company, and leveraged that success to his current teaching roles at Duke and Stanford. Thiel or Wadhwa? You decide.


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!

 


Toothpaste Tube Economics.

Mr. Lebowski: “The bums will always lose…”

http://www.youtube.com/watch?v=EEz-Czt69IU

The Big Lebowski, 1998

Posted here with permission by the author, our CEO, Tim Handley. Enjoy!

It is no surprise that there has been and continues to be a populist uprising in the Middle East known as the ‘Arab Spring’.  In the United States, we have a similar uprising on scales not seen since the Viet Nam war, and this is known as the ‘Occupy’ movement. The ‘Arab Spring’ and the ‘Occupy’ movement are quite analogous.  In both regions where revolution is either percolating or has boiled over, political and economic power is concentrated in the hands of a very few, and large numbers of people think that this isn’t just, but the few that hold the power are loathe for it to be relinquished.  You say you want a revolution?  Well, you know…  get ready because when on an unsustainable path, often there are shifts, sometimes seismic in nature.  As with plate tectonics, as pressure builds when one mass wants to move one way and another mass stands in opposition, there will be a rupture, and how cool is it that this is one letter away from rapture?  The next thing you know, there are people on the streets, tear gas canisters hitting and injuring veterans, and a bloodthirsty extreme right wing cheers as rotund police officers spray defenseless Sonoma State students point blank with mace.

This is quite predictable and should be expected to intensify.  None other than Alan Greenspan himself in his book, The Age of Turbulence, wrote that the only problem with unchecked capitalism is the tendency for a growing wealth divide – to which he offered no functional remedy – but did forecast that the logical outcome of this, historically, was a populist revolution.   And a populist revolution would likely be a substantial impedance to continued economic prosperity for our country, and unfortunately, one that could not be remedied by lowering some interest rates.  So, he thought toothpaste tube economics  (squeezing from the bottom to keep the top fat with the end result being the very top receiving the reward from the effort), could ultimately disprove the perfect nature of the capitalistic model.  I think Greenspan’s attempt at a solution had something to do with shareholder empowerment as a more viable alternative to government regulations as a way to ward off revolutions and other seismic shifts.  And since his book came out, he has testified before Congress how mystified he was at how little accountability to which the average shareholder held the average board of directors.  Oh how I used to hang on his every word!

About the wealth gap:  According to Robert Reich, the top 1 percent of income earners went from 8% of the total annual income in the mid 1970’s to 23% in 2007.  So today, 15+% of the country’s income now goes to a place where it doesn’t get circulated back into the economy with any scale.  In a best case, the rich guy stuffs his excess cash in his mattress (metaphorically speaking, of course, we’ll call the mattress ‘The Caymans’), but more typically, purchases assets which fuel asset bubbles, such as real estate, oil futures, etc.  Conversely, the middle class circulates its income back into the economy via rent, food, braces, shoes for their kids, etc., thereby sustaining merchants, vendors, contractors, restauranteurs, etc, and creating the multiplier effect that marks a robust economy.  As the middle class goes, so goes the whole economy.

So if the siphoning of wealth away from the middle class – the segment of the economy which provides the greatest multiplier effect – meant simply draining money from the economy, it would cost about $2.5 trillion dollars per year.   But, asset bubbles also impacts the cost of living for the middle class (gas and housing expenses, for example).  Combine lower income (15%) with higher cost of living, and you have  … downward pressure on the middle class.  At some point, as the middle class continues to shrink and the number of those that are living in poverty grows, they are going to call Bullshit! (revolution), just as has always happened in nearly every society where wealth gets concentrated in such a fashion.

Interestingly enough, the last time that income was as concentrated as it is today was … wait for it … 1928.  2007 and 1928 both saw the richest 1% earning 23% of the total income pie for the country.  In 1928, it didn’t end so well for the economy…  And in 2008, it didn’t either.

Sadly, it is the outsourcing of our jobs to other countries that helped create this wealth gap.  If you can hire for $10 offshore what you were paying $100 for domestically, you get to put $90 in your pocket, if you are the corporation.  Often this discount is enabled because in impoverished countries, you don’t have to spend money on things like, say, worker safety (I’m talking to you Tommy Hilfiger, Kohls, and The Gap… no sprinklers nor fire exits?  Really?) or environmental controls.  There is a win-win potential in this, especially if destitute countries get to enjoy an increased standard of living in the deal, which as a global citizen, I consider a good thing, especially if they use some of their profits for things like smoke alarms.  And of course our corporations win by making more profit.   But much like the impoverished country’s gains are tainted if they do not buy smoke alarms and increase worker safety, our gains are tainted when we fail to retrain the workforce that no longer has marketable skill.   And we are not.  Profits that are enhanced by global outsourcing should be levied, with the proceeds going directly into education.

Sadly, our country is moving in the opposite direction.  Taxes on the top earners and corporations is at a 60 year low, and education spending per capita is not far behind.  And our ranking amidst other industrialized countries reflects this trend, 14th in reading, 17th in science, and 25th in math out of the 34 countries measured by the Organization for Economic Co-operation and Development (OECD).  As the world economy becomes more seamless, we will have to compete for jobs from a larger pool of candidates, and the smartest will get the best jobs.  Further, as education gets squeezed, and teachers get furloughed, which among many other trends increases the chasm between the ‘haves’ and the ‘have not’.  Rich folks educate their kids outside of schools, poor folks can’t, they are too busy holding down two jobs.  Rich folks put their kids in sports and arts that used to be in public schools, poor folks do not, as these programs cost money.  Sadly, they even cost money inside public schools nowadays.  This vicious cycle shows no signs of abating anytime soon.   Extrapolating the trend puts is in a world where only the rich will be able to afford quality education, leaving the rest of the masses to populate the reality TV shows that keep the wealthiest prejudiced against the poor.  Boom times for Jerry Springer and Dr. Phil…

This runaway concentration of wealth is self defeating for the rich.  If they don’t get pinched by a revolution, lynch mobs in their gated communities, or a radical political swing in the other direction away from capitalism, there won’t be firefighters to rescue their cleaning lady, or teachers to teach their pilots’ kids how to do math, or people to police the streets of their chefs, or state services to provide licenses to their masseurs.  Inconvenient!

There is irony in the fact that a well informed electorate is the key to policy changes that would help this situation, and perhaps increment it toward solutions.  But thanks to a web of interrelated schemes that game the system to favor incumbent wealth, many of those that would be fervent supporters of the changes necessary to avoid revolution are channeling their rage at the very policies that would save the country.  (Why do I suddenly want to wear a sun hat with tea bags hanging from the brim?)    Fox news and Citizens United alone are probably enough to keep any meaningful economic reform from happening, but duping the dup-able.  “Those same hippies that want to fix this also want to give gay folks the right to adopt and marry, and want to take away our second amendment rights!  So we can’t have those kinds of people in office, just ask Hannity.  And why do I feel like I am in the bottom of a tube and being squeezed?  Keep the government’s hands off my medicare!”

Oh Fox, do you ever choke on the stench of all the red herrings you toss around?  You can only squeeze a toothpaste tube from the bottom for so long before it is spent.


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.