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CCA 2012 Year End Summary

Greetings from Dubai Crowdfunding Colleagues!
 
What an amazing year 2012 has been.  A year ago we were fighting the good fight in the US Senate to legalize Crowdfunding, now we have a tremendously bi-partisan Crowdfunding Law thanks to President Obama, the House and Senate, a vibrant industry forming and a book about Crowdfund Investing!  Here's our year-end summary:

Late breaking news:

  • Both Jason and Sherwood are presenting at the Global Entrepreneurship Summit and the GIST-CDRF in Dubai, U.A.E. this week.  They will be discussing how to utilize the Crowdfund Investing Framework which was the basis for the Crowdfunding section of the JOBS Act and modifying it for their cultural and regulatory needs in ways that will enable countries to build a robust early stage finance and entrepreneurial ecosystem that promotes jobs, innovation and economic stability.
  • The CCA team was awarded a groundbreaking project by the World Bank, "Crowdfunding: Unlocking early-stage financing innovative developing country entrepreneurs."   This engagement will create original research into the current state of crowdfunding in both the developed and

  •  developing world as well as models for the future of the industry globally.
  • Sherwood and Jason are co-founders of the new University of California, Berkeley Program on Innovation in Entrepreneurial and Social Finance Program. This Program will be the global "center of gravity" for rigorous academic research on early stage finance with an early focus on crowdfunding and crowdfund investing.
  • Jason was appointed as Entrepreneur-In-Residence for Berkeley’s Center for Entrepreneurship and Technology.
  • A new piece research by UC Berkeley, CCA & Thunderbird looks at the size of the crowdfund investing market over five years, based on an original algorithm and sensitivity analysis.  You can request a copy of this white paper that will be providing an academic analysis on what expert-VC Fred Wilson calls a $300 billion market.
  • On October 16, Sherwood and Jason were asked to present at the Richard Newton Distinguished Innovator Lecture Series for the Haas School of Business and the College of Engineering at UC Berkeley.  They told their story of how they helped to make one of the largest changes in securities laws in over 70 years as well as providing guidance for students in how to become effective change agents in their careers and businesses.
  • On November 3, Jason delivered a TED talk at TEDx San Miguel de Allende, Mexico.  His topic was being unreasonable in order to make rational change.
  • On November 8th, Sherwood and Jason spoke at the UC Berkeley Global Venture Labs, an association of academic accelerators and incubators at over 40 of the top universities in the world on 5 continents.  The topics included strategies to utilize crowdfunding that increase effectiveness in outcomes and ability to successfully exit the accelerator.  
  • On November 15th, Jason spoke at the White House.  The event celebrated Global Entrepreneurship Week.
  • On November 30th, Sherwood spoke at the US Treasury.  The event was to determine how the government can use currently stored data to deliver value to citizens and businesses.  Sherwood was named the Chairperson of the committee to create a mechanism to easily verify accredited investors.
  • We are excited to announce 3 new strategic advisory relationships:
  1. Ellenoff Grossman & Schole - With over 20 years of private and public capital market experience, EGS is the industry-leading securities law firm that has the most robust crowdfunding practice of any firm in the U.S.  Doug Ellenoff has been a skilled advocate for the industry and an amazing advisor.
  2. EarlyIQ - We are all concerned about crediting a credible and viable crowdfund investing marketplace.  EarlyIQ is going to help the industry by providing additional intelligence about issuers to support effective investment decisions. 
  3. WorkDistrict - Their motto is "work, grow, crowdfund."  This Washington, DC-based accelerator is the future of incubators that pull innovative companies together, provide them the infrastructure and mentorship to grow and adds on the power of crowdfunding to give them the capital to succeed.  CCA will be delivering strategic advice on how this accelerator can effectively harness crowdfund investing to enable their companies to transition to self-sufficiency.
  • We are very excited to welcome our newest team members: Ilona Major, Director of Operations and Robert Mitchell, Director of  Business Development and Strategic Partnerships.

Phase one of our book is now available! 

Crowdfund Investing for Dummies abridged e-book is now available (nook or kindle) and makes a great holiday gift! You can pre-order the full 360-page book to be released in March 2013 here

We are regularly asked to contribute to a number of publications and prepare CCA industry whitepapers. We have prepared crowdfunding country summaries following our engagements in Mexico, Italy, Canada & Colombia.  If you would like to stay up to date on the rapid evolution of this vibrant industry please visit the CCA website  regularly. For copies of the country reports email  This email address is being protected from spambots. You need JavaScript enabled to view it. .  


Here is where you can see us over the next few weeks:
December 11-12, 2012 - Dubai:
We will be speaking about Crowdfunding at the third annual Global Entrepreneurship Summit hosted by the U.A.E. government, the U.S. State Department’s Global Entrepreneurship Program in coordination with the White House and several U.S. agencies, and in partnership with Entrepreneurial Ventures of Arabia (EVA).

January 8, 2013 -Austin, Taxas:
We will be keynoting Startup Texas and speaking about crowdfunding  along with other industry leaders.
 
February 6, 2013 -San Francisco:
Sherwood and Jason will be presenting with investment adviser Bob Hunter at the Western Association of Chamber Executives. There, several chamber of commerce presidents will be attending the event where CCA will explain the roles of chambers in the crowdfunding process and how crowdfunding in general can stimulate the local economy.

February 17 - March 7, Asia Tour
Sherwood and Jason will be traveling to Asia to present on Crowdfund Investing in Singapore, Malaysia, Hong Kong and Sydney.  Send an email if you are in the region and you wish for us to stop by.
 
March 8-12, 2013 - Austin, TX:
We will be leading the panel "Global Fight to Democratize Access to Capital" at this year's annual South by Southwest Conference in Austin, TX.

THANK YOU!
Last week marks the eight-month anniversary of the signing of the Crowdfund Investing bill into law. We wanted to take a moment to thank you for your support and hard work in creating the crowdfund investing industry.

During the past eight months we have had the opportunity to work with many of you in forming this brand new industry from a simple piece of legislation. We have come together from around the world, leveraging our unique talents, assets and hard work into this groundswell of unified strategic action to define what the crowdfund investing industry will look like and to ensure that the implementation of the JOBS Act goes smoothly.

Together, we are creating “Web 3.0” where the social Web meets capital formation to solve the funding void for our nation’s job creators, Main Street small businesses and startups. The movement is now global!

For more information regarding CCA and our services, please contact Robert Mitchell at  This email address is being protected from spambots. You need JavaScript enabled to view it.  

WHAT DO WE DO?           
Many of you have asked us, 'what do you do?  Who are your partners and who do you advise.'  Here's the answer:
 
Crowdfund Capital Advisors
We incorporated Crowdfund Capital Advisors and work with Crowdfunding industry professionals and government agencies.  We advise businesses and individuals globally and our clients include:

  • Small and large investors and organizations seeking to understand and invest in this new asset class.
  • Governments seeking to implement Crowdfund Investing to spur entrepreneurship, innovation and job.
  • Crowdfunding platforms and professionals looking to launch and grow profitable crowdfunding businesses within the regulatory framework.
  • We spoke at major Crowdfunding events in Washington, New York, San Francisco, Washington, Las Vegas and Chicago. Internationally, we traveled to Colombia, Canada, Mexico, Italy, Turkey and Sweden... and now, Dubai.
  • We met and forged relationships with entrepreneurs, angel investors, financial advisors, funds, local chambers, startup community leaders, and journalists, banking experts, lobbyists, development banks and government officials to collaborate and expedite the creation of the Crowdfund Investing industry.
  • The Crowdfund Capital Advisors team is growing and seasoned industry experts are joining the team to provide you with high value, concierge style advisory and consulting services to maximize your Crowdfunding endeavors success. 
Crowdfund Industry Advocates

We are Council Members for The Crowdfunding Accreditation for Platform Standards (CAPS) program.  It is an initiative by Crowdsourcing.org to promote the adoption of best practices for the operation of crowdfunding platforms globally.

Crowdfunding Professionals Association (CfPA) – We are founding board members of this 800+ member global trade association focused on educating entrepreneurs & investors, representing intermediaries, and providing a networking environment.

Crowdfund Intermediary Regulatory Advocates – We are founding board members of this advocacy group led by an amazing team (Candace Klein – Somolend, Vince Molinari – Gate Impact, DJ Paul and Freeman White – Launcht). 

CFIRA is working with the SEC & FINRA during the 270-day rule making period we are in while we wait for Crowdfund Investing to go live in 2013.
 
Invest Crowdfund Canada – We are advisors to the Legalize Crowdfunding movement in Canada.  Also the inaugural global partner to CfPA.

European Crowdfunding Network – We are advisors to the Legalize Crowdfunding movement in Europe.

Partners & Advisors:
As the industry rapidly prepares to go live (in addition to those listed above), we are pleased to partner with these companies that we believe will be winning players in the future of crowdfunding:

  • Crowdfunder – An equity & debt crowdfunding platform based in Los Angeles, CA
  • SeedInvest – An equity crowdfunding platform based in New York City
  • Crowdnetic – Consider them the Kayak.com & Bloomberg of crowdfunding
  • Gate Impact – Consider them the ‘Crowdfunding broker/dealer’
  • IRAvest – A vehicle to create crowdfunding access for self directed IRA plan investors
If it seems like a lot, it is...and YES there are some larger initiatives that you’ll just have to stay tuned to our website to find out as they are announced! 

Thank you for your help and support throughout this process, without your support this could not have been done.  If you want to stay updated on our latest news please sign up for our monthly briefing papers here.
 
If you recall we said, “2012 will be the year we legalize crowdfunding.”  Well, “2013 is going to be the year of the Crowdfunded Entrepreneur & Crowdfunding Investor!”  
 
All our best,
Sherwood & Jason

ps - If you are looking for a job, analysts and consultants to the front of the line.  Send your CV and tell us what excites you about Crowdfund Investing and what you would bring to the table.

WorkDistrict Opens in January 2013

work41

DC’s newest and coolest coworking space, WorkDistrict, will open its doors January 2013. 

Located in a former TV studio and Living Social event space, WorkDistrict will provide low-cost office, conference and event space, plus operational, growth and funding resources for startups and micro-businesses.

WorkDistrict is different, says co-founder Paul Ballas. “Thanks to low overhead, we’re far cheaper than other coworking spaces, allowing us to support a broader range of businesses.  For less than the cost of two lattes a day, our members get collaborative work space, a street address, internet access and office support (and all the free coffee they can drink).”

“Our culture is special,” adds Ballas.  “We’re a membership-driven organization focused on tech, sports and other creative businesses.  Membership is by application only, and new members must be approved by existing members.”

“Additionally, we are the first coworking space in the country dedicated to helping its members source capital through “crowdfunding”, the raising of small amounts of capital from many individuals over the web,” states co-founder Patrick Menasco.  Congress legalized crowdfunding through the Jumpstart Our Business Startups Act (JOBS Act) of 2012.  The Securities and Exchange Commission (SEC) is expected to issue implementing regulations in 2013.  “With the pending SEC action, WorkDistrict’s timing is perfect,” adds Menasco.

To help support its crowdfunding efforts, WorkDistrict has entered into an exclusive strategic partnership with Crowdfund Capital Advisors (CCA).  CCA’s principals were the driving force behind the JOBs Act and remain at the forefront of the crowdfunding movement.

Sherwood Neiss, CCA’s principal states, "It was a matter of time before the tenants of co-working met the practice of crowdfunding.  WorkDistrict is on the leading edge of incubators that will launch the newest innovate ideas with the support of the crowd.  They are setting the stage for how other accelerators globally will operate." 

WorkDistrict is located at 2217 14th Street, NW, Second Floor.  Starting January 2013, WorkDistrict will be open Monday through Friday, 9:00 am to 6:00 pm (24/7 access optional).  Daily, monthly and longer-term memberships are available.  Applications and further information may be found at www.workdistrict.com.

The Crowdfunding Revolution and the Reinvention of Capitalism

hbsabSherwood Neiss will present at Harvard Business School on January 24, 2012.

Don’t Miss the Revolution: A New Economy Is Here!

This seminar will benefit anyone who wishes to raise funds for a project, invest in CF-backed ventures, or learn how crowdfunding will impact the financial services sector. 

  • The bill legalizing Crowdfunding Investment was one of the fastest bills in US history to pass through Congress. The House passed the bill by an astonishing margin of 407-17.
  • Massolution forecasts that $2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011 and a mere $530 million in 2009.
  • Crowdfunding could shake loose new capital at an unprecedented magnitude. Such a phenomenon has not been seen since the 1960s, when tax treatments for venture capital changed and Silicon Valley transformed.
  • Learn the nuts, bolts and secrets of the Crowdfunding process! See how the Crowdfunding Bill reshapes the economy!
Click here to register...

Sharia Compliant Crowdfunding – Creating a Crowdfunding Ecosystem for the Muslim World

This week, the Global Entrepreneurship Summit took place in Dubai. The Summit, the first of which was launched by the President in 2010, is the premier gathering to promote prosperity through innovation and entrepreneurship and featured entrepreneurs, investors, policymakers, academics and ecosystem players from all over the world. 

Sherwood Neiss and Jason Best, Principals from Crowdfund Capital Advisors spoke about a new trend in startup and growth financing called Crowdfunding and how they are working to create a global framework.  In particular, they discussed how Crowdfunding compliments the principles of Islamic Finance and how Muslim nations can benefit from building a Sharia compliant crowdfunding ecosystem.  Such an ecosystem would build strong relationships among people, promote the socially responsible distribution of wealth, and encourage risk sharing in economic transactions to reduce the risk to any one party.  All core elements of both Islamic finance and crowdfunding.

In 2013 a new form of seed, startup and growth financing will begin in the USA.  It is called "crowdfund investing" where startups and small businesses can seek up to $1 million from their social network on SEC-registered online platforms. It is equity or debt financing.  Requires that 100% of the funding target is met and caps the amount investors can commit based on income or net worth thresholds.  It updates securities laws that prohibited the use of the Internet for raising capital as well as limiting investors to mainly only accredited ones.

“But it changes the financing landscape,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors (CCA). “Unlike normal VC’s who provide money and expect the entrepreneur to do all the work, crowdfunding brings about a new class of stock and a new kind of investor, the “customer investor” who is not only a buyer of the product or service but a crowdsourced volunteer of knowledge and experience and a net promoter of the company since his or her financial return is tied to the performance of the company.”

Crowdfund Investing fills the zero to $250,000 funding gap that exists for startups and small businesses, particularly after the economic crisis of 2008.  Without this capital companies are struggling to survive.  This capital is critical because small businesses provide the bulk of the net new jobs according to the Kauffman Foundation. 

“Our framework details the way in which the transactions will take place,” says Jason Best, co-author of the Startup Exemption and Principal at CCA.  The Startup Exemption was the framework for which the tremendously bi-partisan law passed.  “An entire ecosystem is developing to support the infrastructure and allow for transparency, credibility and market efficiency.  Background checks on the issuers are mandated as well as investor education to make sure investors are informed of the risky nature of these investments.”

Expert Venture Capitalist Fred Wilson, said “if Americans take 1% of the $300 Trillion they have in savings it would create a $300 billion dollar market.”   Crowdfund Capital Advisors in conjunction with UC Berkeley and the Thunderbird School of International Management will be releasing a white paper estimating that in the first year over $3.6 billion will be transacted on crowdfund investing platforms helping fund over 38,000 companies.  

“Islamic countries have tremendous opportunity,” says Neiss.  “Islamic finance follows the rules of Sharia law.  Sharia law is based on the principals of shared risk and reward.  Where social justice is key and wealth is shared.”  Islamic nations produced over $1 Trillion dollars of value.  It is expected to grow to $5T in the next several years.  

If Crowdfund Investing can deliver the shared risk reward profile, it is hoped that it can also unify and stabilize communities and economies.  As communities come together to pool resource to launch a business and share in the risk and the potential.  “By working together we can promote peace and prosperity through entrepreneurship.  That’s something everyone can support,” says Best.

State Regulators Continue Their Misinformation Campaign on Crowdfunding

 

Equity and debt-based crowdfunding (aka crowdfund investing) isn't even live yet and State regulators, rather than engage in effective and productive dialogue with our industry on how to best protect investors, has chosen to continue its misinformation campaign by describing fraud that is NOT crowdfunding, as if it were crowdfunding.

Crowdfunding, as part of the JOBS Act - a bipartisan bill that was signed into law by President Obama on April 5, 2012, is in the 270-day rule-making period by the SEC. Sometime in 2013 when the SEC and FINRA finish their jobs, communities will be able to come together on SEC-registered platforms to invest in businesses that have been "crowd-checked" and "vetted" by investors using social media. Unless a fraud-free issuer (background checks are mandated) reaches 100% of her funding target no money is exchanged. However a recent Investment News story paints a shady picture.

In the article they point to two examples of issuers being cited by the Commonwealth Secretary of Massachusetts for fraud ... neither of which are actually crowdfunding. In one example, Prodigy Oil and Gas allegedly sold at least $464,000 in unregistered securities to one Massachusetts investor. In another, Synergy Oil LLC of Oklahoma and two of its executives allegedly sold $35,000 of unregistered securities to two investors. Upon further digging in the Boston Herald, we uncovered that an agent was used to cold-call investors in one case and in the other the issuer "was subject to three state securities regulatory actions and had two criminal charges." Not much more is mentioned (e.g.: did they use a broker, were lawyers or accountants involved, were securities and criminal background checks performed, were standards based due diligence documents included) so the fine details are difficult to know. However it is implied that they were crowdfunding.

Here's why neither of these cases are crowdfund investing fraud, and why it is concerning to see state regulators not being more accurate with their statements:

1) Crowdfunding isn't legal yet.  We are still waiting for the rules to be done.  This includes the SEC and FINRA.  So in reality what happened in the story is just fraud that was perpetrated under the current regulatory regime.
2) Crowdfunding, when it does go live (by law) must take place on SEC-registered websites only.  These websites aren't live yet and hence in the story isn't crowdfunding.
3) Crowdfunding requires a crowd and not just one or two people.  It also requires (per the legislation) that issuers direct investors to a funding portal's website (that is regulated by the SEC and FINRA) which per the story didn't seem to have happened. (They don't exist yet).  General solicitation will be limited to driving people to the portal via social media, or "many to many communication". Traditional fraud is one-to-one communication like the example above (calling you on the phone or that email you receive from a princess in a far away land). In crowdfund investing, entrepreneurs will direct people to a portal where many-to-many conversations are taking place about an offering. This is what creates transparency. In fact, it will be far more transparent than has ever existed in the current private capital markets. These conversations and interactions create 'crowd wisdom.'
4) Crowdfunding per the legislation requires an issuer to hit 100% of their funding target that is listed on a SEC-registered website.  If they don't hit it within the offering window, all the money is returned to investors. No reference to that in the story.
5) Platforms must perform fraud background checks (mandated by the legislation) to keep bad actors like the one in the example above out. The rules are still being determined and hence what happened isn't crowdfunding. (We are all in agreement that bad actor provisions are a good thing. Apparently the State Regulators are unaware of this proposed SEC rule on bad actors: http://www.sec.gov/news/press/2011/2011-115.htm
6) When this does go live the legislation mandates that there's a CPA review of the issuer's financials. That doesn't seem to be mentioned in the story. AND
7) This isn't crowdfunding because, when it does go live the legislation mandates that portals ...
(A) ensure that each investor—
(B) reviews investor-education information, in accordance with standards established by the Commission, by rule;
(C) positively affirms that the investor understands that the investor is risking the loss of the entire investment, and that the investor could bear such a loss; and
(D) answers questions demonstrating—
(i) an understanding of the level of risk generally applicable to investments in startups, emerging businesses, and small issuers;
(ii) an understanding of the risk of illiquidity; and
(iii) an understanding of such other matters as the Commission determines appropriate, by rule;

(E) take such measures to reduce the risk of fraud with respect to such transactions, as established by the Commission, by rule, including obtaining a background and securities enforcement regulatory history check on each officer, director, and person holding more than 20 percent of the outstanding equity of every issuer whose securities are offered by such person;

When Crowdfunding goes live in 2013, rather than seeing articles like this, we'll more likely see stories about how hard it is to commit fraud under the crowdfunding regulatory scheme and yes, how we are helping state regulators to do a better job.