Tag Archives: Investment

Congressman McHenry Promotes His Crowdfunding Bill And Trashes Competing Senate Legislation.

Congressman McHenry promotes his crowdfunding bill, trashes competing Senate legislation

© Image: Eric Blattberg / Crowdsourcing.org

Representative Patrick McHenry (R-NC), the driving force behind the H.R. 2930 crowdfund investing bill currently under consideration in the U.S. Senate, discovered crowdfunding the same way many of America’s college frat houses sate their thirst: through Pabst Blue Ribbon.

Scrolling through his twitter feed, McHenry stumbled upon a tweet by advertising executive Michael Migliozzi II asking people to invest in Pabst Brewing Company for as little as $5 dollars. By the end of February 2010, roughly five million Americans had pledged over $200 million dollars to own a stake the ailing brewing company. Of course, the five million funders ever-so-slightly surpassed the U.S. Securities and Exchange Commission’s 35 unaccredited investor limit, so the SEC put a stop to the purchase — but for McHenry, the PBR experiment demonstrated the massive potential of crowdfund investing.

In an economic environment where the dollar faces increasing pressure, where bank lending is scarce and expensive, where 25 million Americans are out of work, we cannot afford to “operate under the same rules and regulations … we used in the era of the rotary telephone,” said Representative McHenry Monday at the SoHo Loft Capital Creation and Crowdfunding Conference in Manhattan.

Representative Patrick McHenry, left, chats with event attendees (Photo: Eric Blattberg)

Onerous regulation is holding back businesses seeking to raise capital, argued McHenry, and nowhere is that more apparent than in state regulation. Under current state regulations on securities registrations, for example, “If you raise [capital] from 30 individuals in the state of Connecticut, you’re limited to only five in the state of Colorado,” scoffed McHenry.

After listening to testimony from the folks at Startup Exemption, McHenry drafted H.R. 2930, “The Entrepreneur Access to Capital Act.” Based largely on Startup Exemption’s proposed  crowdfund investing framework, the bill creates crowdfunding exemptions for firms and businesses seeking to raise up to $2 million dollars through online platforms — or “portals,” as McHenry calls them. It also includes a threshold of $10,000 or 10% of income as the individual investment cap, removes the ban on general solicitation by preempting the Blue Sky Laws, and overrides state regulatory authority. McHenry feels that “light-touch regulation” from the SEC is sufficient, though he failed to specify precisely what actual mandates the organization plans to enact.

McHenry’s original H.R. 2930 proposal changed as it continued its journey to become law — he originally proposed a $5 million investment cap, compared to the modified $1 million limit (or $2 million if a company audits its financials) — but such is the nature of lawmaking. House Republicans and Democrats worked together to amend the bill, originally one and a half pages, to its the current dozen-page format. A result of rare bipartisan cooperation and compromise, the bill sailed through the House with an overwhelming 407–17 majority vote. It even garnered a statement of support from the Obama administration. “To get a bipartisan bill through the House of Representatives — and to get President Obama to sign on — is kind of the equivalent of getting [JPMorgan Chase CEO] Jamie Dimon down to Zuccotti Park to play in the drum circle,” joked McHenry.

Some senators weren’t satisfied with H.R. 2930, however, opting to introduce their own competing legislation. Jeff Merkley (D-OR) proposed S. 1970, and Scott Brown (R-MA) put forward S. 1971 (more details here). Even if H.R. 2930 flounders and dies in the senate — as McHenry worries it might — he would not support either of the senators’ proposals in their current forms. “They don’t open the space up enough,” said McHenry of the senators’ crowdfunding legislation. “They don’t preempt Blue Skies, they don’t allow enough dollar raising … and the Merkley bill still demands state regulation.”

As previously mentioned, H.R. 2930 is currently awaiting review in the Senate. “Most good things go to the Senate to die,” declared McHenry. “We have to make sure this legislation does not die so we can free this space up and actually get capital flowing. That’s what it’s all about.”


We Can Crowdfund A Politician, But Not An Entrepreneur.

Somehow, it was OK to crowd fund Obama’s election in 2008, but it is not OK to crowd fund a couple of college kids who might be capable of creating the next Google.

Yes, by all means Congress, please stand in the way of enabling job growth and innovation while continuing to allow everyone to blow their paychecks on Lottery tickets, para-mutual wagering, slot machines, craps, roulette, blackjack and college football games.

Recently, the Senate Banking Committee, one of the most powerful committees on Capitol Hill held a hearing called, ‘Spurring Job Growth Through Capital Formation While Protecting Investors.’ It should have been called, ‘Why We Need to Stop Americans From Investing $1,000 into their Community Entrepreneurs.’

Anyone attending that hearing could tell it was to listen to special interests and regulators talk about the risks inherent in investing under the current system and why we need to protect consumers. There was no discussion about protecting people from spending their $1,000 paycheck on a lottery ticket, gambling it on Red in Vegas, nor spending more than that on their credit cards and being locked into interest payments upwards of 36% on the balance.

For some reason, the only area in which they feel we need to provide prudent consumer protection is when a person is making a decision where they want to invest their money. Why? Because the expectation is different. Yes, we expect to win the lottery. Oh wait, no we don’t. What’s the point of having a hearing about small businesses and capital formation if there isn’t one panelist that is an entrepreneur, small business owner or crowdfunding expert? It’s like the Senate panel debate about contraceptives and a woman’ right to choose. The panel was all men. No women allowed. Make sense? Of course not!

How do you have a balanced discussion of crowdfunding if there is no one on the panel to discuss how crowdfunding works, the merit of allowing the community to back their local entrepreneurs, how the crowd will only fund those ideas they collectively decide are worthy, and how the social media connectivity will expose fraud and foster winning ideas? More importantly, if you don’t have a crowdfunding representative on the panel, how do you expose the blatant misrepresentations from the other panelists about crowdfunding?

One of the most frustrating parts of the hearing was when John Coffee, the anti-crowdfunding law professor from Columbia, said crowdfunding could lead to a situation where unlicensed, nefarious salesmen “who look like Danny Devito,” could set up shop in a bar or coffeehouse and peddle risky offerings to unsophisticated investors. And “In its current form, [Senator Brown’s] bill could be called the Boiler Room Legalization Act of 2011.”

God, does this drama sell. His fabrication immediately became the cover story for Investment News. If you are reading this, you understand that our platform is based on a few main principles: Social Networking – you are raising capital from your friends, family and community; your 1st and 2nd degree connections. Communication and Transparency – you must clearly articulate to your friends, family and community what you are doing, why you need this money, why they should trust you to do what you say and why this is a good investment opportunity for the crowd. All or nothing financing – using the principles of the lean startup, you should set the minimum amount of money that you need to accomplish the milestones in your business plan that you have laid out for your potential investors. If you don’t hit that funding target in 90 days, you aren’t funded.

You also know that the very first thing we advocate is a fraud/background check to keep unsavory people from participating. You also know that Crowdfunding platforms will need to be registered with the SEC and that we advocate for communicating who (including name, address, social security number, etc) is raising money on crowdfunding platforms and sending that information to both the SEC and the State Regulators. What the panelists were discussing was another form of Reg D offering without the safeguards for which we’ve been advocating for a year. Not one of the panelists acknowledged how crowdfunding works or any of the principles above.

Just listening to them, it is clear that none of them have a Facebook page, none have tweeted or blogged to a community that follows them, nor any of them have a clue as to the growing power of the social network. These “experts” are dinosaurs who have no business adjudicating a technology-enabled movement that is rapidly, by anyone’s estimates disintermediating almost every channel of traditional commerce while connecting vast and rapidly-formed crowds to like-minded crowds around a topic of interest.   No wonder they don’t understand how crowdfunding would work.

Why is it that the people who are crafting the rules under which entrepreneurs can raise capital are the same people who benefit from the existing rules not changing or changing in their favor? The same people who presided over the great recession of 2008? Why is it that the people who have proven that they are the ones leading evolutionary and technology change, integrating game-changing start-ups into society and changing fundamental cultural behaviors are never invited to these things? Where is Steve Jobs? (yeah, I know. He’s dead.) Where is Sean Fanning, Sergey Brin, Mark Zuckerberg, Marc Andreessen, hell, even Seth Godin?

Instead, we get guys like Roger Wicker, Mike Crapo, Richard Shelby, Mark Kirk, Tim Johnson, Jack Reed, Jerry Moran (I could go on, but I am sure you get my point) all of whom earned undergraduate degrees in Political Science, and graduate degrees in Law and never held a real job in their lives, nor generated any jobs as the result of anything they built, created or innovated.

None of them would recognize innovation if it hit them in the head. They’d be like, “What the hell was that?”, yet they are somehow empowered to sit in judgement over a Senate bill that would open a floodgate of new jobs and an injection of unprecedented economic expansion. I am certain that all of these clowns understand what the Facebook IPO will mean to the California tax coffers. Heck, that is right in their wheelhouse.

There is really nothing to debate. The facts are simple. Crowdfunding has been around for over 5 years in Europe and Asia. Over half a billion dollars has been invested and while the results aren’t in, no one has EVER complained of fraud. It’s worked well enough in this loosely regulated environment and the Senate bill as it stands today should insure that investors will have maximum protection and entrepreneurs will have unlimited opportunity to create exciting new businesses, new jobs and new technologies that will continue to make the point that America’s greatest strength is its ability to innovate.