Tag Archives: RocketHub

A Small Business Started From Scratch. Surf And Tacos.

 

You can do this.

This guy rounded up the funds to start this thing long before there were Crowdfunding sites springing up everywhere. Here is a simple little idea that evolved to the employment of 16 people working to create taco lunches for people in Rockaway Beach, an urban beach in Queens, New York, aka the Irish Riviera. He makes tacos.

And, only a few months out of the year. The rest of the time? He surfs in IndonesiaAustralia, and Mexico.

Does this sound better than hanging around unemployment lines hoping for one of those stupid jobs they advertised? Of course it does. Figure out what moves you, what you can do and what will make people come to you to get it.

Then, post your project on RocketHub or Indiegogo or Kickstarter and start your own business. In a year or two, you too will be surfing in Mexico, and having a great time doing what you love, when you are “working”.

Here. Watch this:

(I apologize, but WordPress has serious support issues for video, so you will have to watch it on a Pinterest site):

http://pinterest.com/pin/238831586459640111/

And, don’t forget to come back to this blog site when you are done.

 

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Pennsylvania Fearmongers Attack Crowdfunding.

Hopping Mad as Commissioners Go Over the Line.

This is a re-post by David Drake of LDJ Capital & The Soho Loft.

A shocking press release hit the net last week, purportedly from the Pennsylvania Securities Commission. The link to the “advisory” goes to http://www.psc.state.pa.us, but that site doesn’t seem to host a copy. Even so, if the press release is accurate, it amounts to an unfair characterization of the JOBS Act and new Crowdfunding regulations.

Crowdfunding under the Act is portrayed as creating a Wild West style free-for-all that will attract fraud and con artists of all stripes. They cite the current lack of hard and fast rules to govern the sector and then assume no rules will be in place before next year’s launch. That’s nuts.

Here’s a typical quote:

Commissioner Steven Irwin summarized, “The way the new law was written, it’s pretty much ‘Buyer beware.'” He added, “It’s not that we don’t need new incentives to attract more investments in startup companies. It’s just that the lax oversight implicit in the new law is likely to attract people trying to game the system and scam people out of their hard-earned money.”

Excuse me?  RocketHub has had zero fraud incidents since launch in 2009. 

The plain fact is that we do need a new structure to help start-ups. Crowdfunding and micro-financing is an ideal way for new investors to participate and energize our sluggish economy. Small entrepreneurs find themselves shut out of the game. A game that already has its critics.

Take a look at the analysis of VC opportunities as they exist now – you have the WSJ exposing a scheme where GP’s rake in the major profits while late-comers to an investment bear the burden of more risk and lower rewards.

A history of overblowing risks!

It seems the PASC takes their watchdog role very seriously. They did a similar warning back in 2010, only then it was another piece of federal legislation: PA Regulators Warn: Investor Scams, Like Flu Virus, Will Mutate to Adapt to New Federal Financial Reform Bill. Here are some of the entries on their top ten list of investment traps then: ETFs, forex, gold and precious metals, “green” investments, and oil and gas.

It seems their motto is, “panic first.” And that may be their charge. After all, as a state run commission, they should have one eye on regulations and another looking out for scofflaws. But this latest hit piece goes too far.

Of course there needs to be rule-making to regulate the Crowdfunding market. Everyone agrees on that.

Of course disclosure and investor protections have to be front and center.

And read what Pennsylvania Securities Commission Chairman Robert Lam had to say in their Spring Bulletin: “The Internet is a powerhouse, and maybe – just maybe – Crowdfunding will be a good thing once it matures and we have some ground rules in place.” Somehow Mr. Lam moved from cautious optimism to fear monger – while the rules are still being written at the SEC. At the risk of being repetitive – That’s nuts.

Our real concern isn’t about one small department in one state. Our concern is that this mischaracterization of Crowdfunding will catch on without those in authority positions doing their homework. Crowdfunding is worthwhile and it offers something no other framework can – access to funding for those too small to interest VC players.

Good ideas and good companies deserve a chance to present their case to the public, and the public deserves a chance to reap the rewards.

A turf war between federal and state regulators shouldn’t have the ability to libel an entire market. Should it?

One editorial comment: The very essence of crowdfunding, aka the crowd, is the built-in protector acting on behalf of all the investors, aka the crowd. The crowd will quickly, in fact virtually instantly, call out the fraudsters and the system gamers before any crowdfunded offering gets off the ground. Um, that is the whole idea behind crowds.

So, my question is, would you rather place your $100 in the hands of a Wall Street banker to invest in, I dunno, Proctor and Gamble? Or, would you rather place it in the hands of the next Facebook, with the support of 1,999 others (aka a crowd)?


The Crowdfunding Market Nearly Quadrupled in a Year.

$123 Million Year-over-year, Report Says

Earlier last week I posted with enthusiasm that the Senate passed a version of the House bill HR2930, but that we still had some work to do to get it passed. Since then, I have seen some pretty remarkable numbers related to the growth of Crowdfunding, and it isn’t even “legal” yet.

A report was published recently by the Daily Crowdsource that was based on an evaluation of eight reward-based crowdfunding platforms (where a donor receives a reward of value in exchange for a cash contribution) and six investment-based platforms (where investors receive equity or interest on their investment). All platforms evaluated in the latter category were based outside of the US, where they are in fact legal today. The rewards-based platforms evaluated are all US companies and are legal, as long as they don’t offer investors an equity or interest based position in the outcome, and include the popular fundraisers Kickstarter, RocketHub, and WeFund.

In 2011, crowdfunded businesses and projects raised $102 million on rewards-based platforms, including $85.4 million raised by projects that reached their total funding goal. Over 2010 figures, “this signifies a 266 percent increase in the total amount donated and a 263 percent increase in the amount donated to projects that received their full funding,” according to the authors.

They attribute the explosion to the “increase in the number of projects that are being posted online.” More than 31,000 projects sought crowdfunded donations in 2011, up from just under 12,000 in 2010.  The Daily Crowdsource reports that not only are more projects being launched, but the number of projects achieving their full funding goal is also increasing, “indicating the market is becoming more efficient at allocating resources.” The Daily Crowdsource says its research on the nascent crowdfunding industry was conducted over three years, and is based on data collection and interviews with leadership at all 14 crowdfunding platforms evaluated.

Investment-based crowdfunded projects raised a collective $20.5 million in 2011 – five times more than was raised the previous year. And, these aren’t projects that would have ever seen the light of day in front of traditional venture investors. These are projects like Duality of Bell, a short film about Bell, a teenage girl struggling to preserve her youthful innocence with some new-found whatevers, or Build a Greener Block (BABG), a community of Las Vegans looking to take over an empty block in downtown Las Vegas on April 28th and 29th, and for this one weekend they’re transforming the block into a living community, where instead of empty stores there will be a restaurant offering healthy food, a boutique, a café, a flower shop.  Well, you get the idea.

Can you imagine what this space will look like once Congress get’s this bill approved? How about Pandora, which was turned down 300 times by some super-smart Venture Capitalists? Or, Skype. Turned down 40 times before getting funded and going on to a massive exit.

Or, better yet, a little company in Mountain View, that in the early months of 1999, its founders Sergey and Larry, still students at Stanford University at the time, wanted to sell the project they named Google and focus on education. They approached George Bell, the CEO of Excite for a $1 Million buyout. This was rejected by George. There were a number of negotiations that almost led to a $750,000 buyout offer. This was rejected by Sergey and Larry and, according to George Bell (circa 1999) they asked for an investment instead. George said that he rejected the counter offers and let the idea drop. About five months and 22 venture presentations later, Kleiner Perkins Caufield & Byers and Sequoia Capital invested $25 million in Google, and the rest is as they say, history.

I don’t know about you all, but I can hardly wait to get my hands on the next Google, or Facebook, and I am convinced that our buddies in Congress are going to pave the way to make that happen. Of course (shameless plug) iPeopleFINANCE will be the platform on which the next Facebook will promote its first raise, and get funded. A whole new, on-line Silicon Valley for start-ups, funding innovation and creating real jobs. Truly exciting!  


Crowdfunding Bill Stuck in the Senate. We Need Your Help!

In early November, the U.S. House of Representatives overwhelmingly passed the Entrepreneur Access to Capital Act, a crowdfunding bill which permits startups to offer and sell securities via crowdfunding sites like Kickstarter or social networking sites like Facebook.  As I discuss below, this is a game-changer for startups and lifts certain securities law prohibitions that have been on the books since the 1930’s.

The Obama Administration supports the House bill and noted in its Statement of Administrative Policy that: “This bill will make it easier for entrepreneurs to raise capital and create jobs.”  Unfortunately, two very different crowdfunding bills have been introduced in the U.S. Senate, and committee hearings have been surprisingly focused on fraud concerns and other potential problems.  Indeed, it is unclear whether the Senate will even pass a crowdfunding bill (and, if so, in what form).

Background

As the term suggests, “crowdfunding” is funding from a crowd of people — that is, many people provide small amounts of money to finance something.  Crowdfunding has its roots in charitable causes (including the advent of microfinancing to provide financial services to poor people), but has progressed to the online funding of creative and other projects via sites like Kickstarter and RocketHub.

Under current federal and state securities laws, startups are prohibited from selling stock or other securities via crowdfunding sites or social networking sites.  Such laws include:

  • A prohibition against “general solicitation” – which means that a company may not offer or sell securities unless there is a substantive, pre-existing relationship between the company (or a person acting on its behalf) and the prospective investor (see “Can I Raise Money For My Startup Via Twitter?”);
  • Disclosure and state law compliance requirements if the investors are not “accredited investors” — which usually makes the offering of securities too costly and onerous for a startup (see “Ask the Attorney – Securities Laws”);
  • A requirement that any intermediaries (including websites) must be registered with the SEC and applicable state securities commissions as a “broker-dealer” in order to legally accept any transaction-based compensation in connection with the sale of securities (see “Ask the Attorney – Beware of Finders”); and
  • A requirement that any company that has 500 or more shareholders and total assets exceeding $10 million must register with the SEC and file periodic reports.

The House Bill

The crowdfunding bill passed by the House lifts all of the foregoing prohibitions and requirements and allows a company to sell securities via crowdfunding sites and/or social networking sites so long as the company (and its intermediary, if applicable) comply with the following key restrictions:

  • The company may only raise a maximum of $1 million (or $2 million if the company provides potential investors with audited financial statements);
  • Each investor is limited to investing an amount equal to the lesser of (i) $10,000 or (ii) 10% of his or her annual income; and
  • The issuer or the intermediary, if applicable, must take a number of steps to limit the risk to investors, including (i) warning them of the speculative nature of the investment and the limitations on resale, (ii) requiring them to answer questions demonstrating their understanding of the risks, and (iii) providing notice to the SEC of the offering, including certain prescribed information.

The First Senate Bill (the “Brown bill”)

On November 2, 2011, Senator Scott Brown of Massachusetts introduced the Democratizing Access to Capital Act of 2011, a crowdfunding bill which has four significant differences with the House bill:

  • The Brown bill only permits the issuance of securities through a “crowdfunding intermediary”; accordingly, startups would not be permitted to raise funds via social media sites like Facebook, Twitter or LinkedIn (as permitted under the House bill);
  • Under the Brown bill, each investor is limited to investing up to $1,000 per  company for each 12-month period;
  • Similar to the House bill, the Brown bill caps the total amount of capital that may be raised during any twelve-month period at $1 million, but does not raise the cap to $2 million if the issuer provides potential investors with audited financial statements; and
  • Finally, the Brown bill permits some form of registration by the State in which the company is organized and/or “any State in which purchasers of 50 percent or greater of the aggregate amount of the issue are…residents.”  (The House bill preempts State law and, accordingly, there is no State registration requirement.)

The Brown bill was referred to the Committee on Banking, Housing, and Urban Affairs, and a hearing was held by such Committee on December 1, 2011, with respect to several pieces of capital formation legislation, including crowdfunding.  As noted above, the hearing focused on fraud concerns, including testimony from Professor John C. Coffee of Columbia University Law School that:

“[Early stage] issuers are in effect flying on a ‘wing and a prayer,’ selling hope more than substance.  Precisely because of this profile, however, such offerings are uniquely subject to fraud, and some issuers will simply be phantom companies without any assets, business model, or real world existence.”

The hearing also included this testimony from Jack Herstein, President of the North American Securities Administrators Association (NASAA):

“Main Street investors should not be treated as the easiest source of funds for the most speculative business ventures.  The law should not provide lesser protections to the investors who can least afford to lose their money.”

Indeed, the NASAA, a trade group for state regulators, has been lobbying very hard against the House Bill to prevent the preemption of State law and to reduce the maximum investment amount per investor.  As President Herstein wrote in a letter to House members:

“Any effort to remove or weaken the up-front registration and disclosure process should not happen without adequate alternative safeguards….[The House bill] will create an exemption that will expose many more American families to potentially catastrophic financial harm.”

The Second Senate Bill (the “Merkley bill”)

A second crowdfunding bill, called the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2011 (or the “CROWDFUND Act”), was introduced on December 8, 2011, by Senator Merkley.  This bill veers even further from the House bill and differs in the following material respects:

  • The Merkley bill only permits the issuance of securities through a registered broker-dealer or “funding portal” (which is a new term generally defined as any individual or entity engaged in the business of effecting securities transactions that does not offer advice or recommendations or solicit sales);
  • Under the Merkley bill, each investor is limited to investing up to the greater of (i) $500 or (ii) 1% or 2% of his or her annual income (depending upon the amount of such income), per company for each 12-month period;
  • The Merkley Bill also creates an aggregate annual cap on the amount of all crowdfunding investments by an investor of (i) $2,000 or (ii) 4% of the investor’s annual income if such income is above $50,000 or (iii) 8% of the investor’s annual income if such income is above $50,000;
  • Similar to the House and the Brown bills, the Merkley bill caps the total amount of capital that may be raised during any twelve-month period at $1 million; however, it requires the delivery of audited financial statements to the SEC and investors if the company seeks to raise more than $500,000; and
  • Finally, the Merkley bill grants investors a new cause of action against the issuer’s directors or officers personally in the event of fraud.

At a hearing held on December 14, 2011 by the Securities, Insurance, and Investment subcommittee of the Banking Committee, attorney Mark T. Hiraide testified in favor of the Merkley bill and noted that:

I share Professor Coffee’s concerns that unregistered salespersons may abuse the broker-dealer registration exemption set forth in [the Brown bill].

Conclusion

The crowdfunding bill that passed in the House by a 407-17 vote (and is enthusiastically supported by the Obama Administration) is stuck in the Senate.  Why?  Because of effective lobbying by the NASAA and two hearings designed to highlight the potential of fraud.  The Senate needs to take a step back and focus on (i) the plight of entrepreneurs and their difficulty in raising capital and (ii) the need for job creation in our country. 

Indeed, as uber-entrepreneur and investor Steve Case so aptly pointed out in a recent interview:

“It seems a little crazy to me that you have to be an accredited investor to invest in a company, but you can go to Las Vegas and lose $10,000 at the table in an hour and you don’t have to be an accredited gambler to do that.”

Please write your Senators and beg them to support HR2930, or something close to it. This is indeed CRAZY!!!!