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11/15/2013 McKinsey & Co - Why crowdfunding appeals to the Middle East
12/20/2013 Gulf Times - Silatech Hosts Seminar on Crowdfunding in Cairo 12/19/2013 Kiplinger - Investing in...

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How Governments, Multilaterals, and Development Organizations Focused on Building Entrepreneurial Capacity can Leverage Online Co-investment Vehicles to Maximize their Efforts

In our World Bank report on the potential for equity and debt crowdfinance in developing economies, CCA created new models for governments, multilaterals, and development organizations to use in reaching their goals of entrepreneurial and SME development.  These organizations are focused on building entrepreneurial capacity and many times, the topic that is most difficult to deal with is access to finance, because it is often simply not available from traditional means, or organizations suffer from “the last mile problem” of being able to efficiently know which entrepreneurs are the “best” entrepreneurs to fund. Screenshot 2015-06-01 12.15.03

Now with online vehicles to raise capital (including P2P debt and equity crowdfinance) investors, multilaterals, governments and development agencies can leverage crowd-diligence to support decision making and increase the volume of grants/co-investments to targeted SMEs/entrepreneurs. A crowdfunding co-investment vehicle is a matching fund program that essentially states, “If an entrepreneur can raise x% of the funding target from the crowd, the institution will co-invest the remainder from the funds (up to their funding target)”

In order to enact this type of program, governments, multilaterals, and development organizations should partner with local enablers that are focused on building entrepreneurial capacity like incubators, accelerators and co-working spaces and offer the funding in conjunction with a crowdfunding campaign on a verified debt or equity crowdfunding platform.  Such a program allows the crowd to validate which ideas and which entrepreneurs they believe are worthy of funding. They vote on this with their own money. Data indicates that entrepreneurs/SMEs need to generate 25-30% of their funding need from people they are closely connected to (e.g. first and second degree LinkedIn connections) before loosely affiliated and/or unaffiliated individuals will invest. This “social proof” that is generated via crowdfunding, allows governments, multilaterals, and development organizations to narrow the focus of their diligence efforts on only those businesses and those entrepreneurs that have the support and validation of their own crowd.  To further the opportunity, companies that get the backing of the crowd and receive the backing of the government/NGO could syndicate the deal out to private institutions/investors focused on building entrepreneurial capacity as well via parallel investment vehicles or other pooled vehicles.

In CCA’s first World Bank report we write: “Countries with limited experience with technology and high-growth-potential start-ups can increase investor confidence by marrying the launch of [crowdfunding] to accelerators or incubators, such as Climate Innovation Centers – that is, to companies that have been vetted, trained, and screened. Syndication of the deal by a lead investor who is well known and trusted in the country will help attract additional capital. Co-investment strategies by governments or development organizations to partially or fully match crowdfunding targets of companies will help to build confidence for both professional and individual investors.”

We then provide the following case study:

“THE UNITED KINGDOM’S CFI CO-INVESTMENT SCHEME. In December 2012,  the U.K. government and Funding Circle announced that £20 million (about US $32 million) would be lent by the U.K. government to individual businesses via the Funding Circle in a co-lending facility. The government would contribute the last 20 percent of every loan that reached 80 percent of its goal from the crowd. By funding the last 20 percent of loans, the government was able to pursue its goals to put capital into the hands of businesses while not adversely affecting the loan bidding process on the Funding Circle platform. In September 2013,21 as the U.K. government announced a £900 million (about US$1,455 million) decline in business lending during June-July 2013, Funding Circle was able to report £14 million (about US$23 million) in successfully funded loans for the same period, an increase of 20 percent over the previous month and 250 percent over the previous year.”

If you wish to learn how you can structure such a co-investment vehicle that is stand alone, in conjunction with the crowd, and/or syndicated with enabling organizations or private investors feel free to contact us.

How to Build a Business Case for Debt and Equity Crowdfunding in Your Country

While crowdfunding might be all the buzz, all forms (donation, rewards, debt and equity) are not available globally. This is leaving many entrepreneurs asking, “why are we only limited to donation and rewards crowdfunding?”
Screenshot 2015-05-30 10.49.07

The reality is debt and equity are promises of future returns on investment. This promise is otherwise known as a security.  Securities are highly regulated by governments. Why? To protect investors, to deter fraud, and to control the capital markets so they are efficient and trustworthy places to transact business.  Crowd securities are not legal in most parts of the world because the law says you cannot “publicly solicit people for investments.” Without going into a ton of detail “public” means “online aka the Internet” and “people” means “the general masses that are not rich.” 

However, these laws were written at a time when no one knew what the Internet was and how the technology it is built on can tackle the challenges of trust and transparency that governments seek.  But now governments that are focused on entrepreneurship, innovation and jobs are revisiting these law to see how they can bring their securities regulation to the Internet Age.

This doesn’t happen on its own. It takes the will of a group of individuals and you can be the spark much like we were in the USA.  Here’s what you need to do to get started:

1) Understand if you have all the variables (cultural, social, regulatory, and technology) necessary for your country to succeed with crowdfunding and what changes might be necessary. Start by taking the Crowdfund Readiness Survey.

2) Meet with all the ecosystem players in your country (we’ve identified 15 strategic organizations to talk to) and understand what is and what is not working for them in the startup and SME financing arena.

3) Drill down into the local regulations that both foster and inhibit investment into startups and SMEs.

4) Run a fit/gap analysis to clearly show where the holes are and how crowdfunding can help (follow a proven methodology).

5)Provide a list of summary recommendations that satisfy the needs of the regulators with the desires of startups and SMEs.

There are many stakeholders interested in crafting such policy. Identify those in your country and begin the process.  

5 Reasons This Small Country Could Win Big With Crowdfunding?

…and what country is it?

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  1. They have ‘Kasmoni’ a rotating savings and credit system for people who don’t have access to the banking system. (a kind of traditional crowdfunding) 

  2. This country experiences the same problem we see all over the world with a lack of access to funding for small businesses and start-ups – and they want to do something about it.

  3. There is strong ties to Holland, a country that is already using debt and equity crowdfunding, to help entrepreneurs and create jobs.

  4. Entrepreneurship and small business ownership come naturally to this ethnically diverse society.

  5. There is high social media usage and a willingness to connect with broader communities online – including the diaspora. (people from this country that live abroad)

What country is this? Suriname! Is the small Dutch speaking nation on the north-eastern side of South America. I traveled there to deliver a series of lectures and speeches on the value of entrepreneurship and the potential of crowdfunding to create jobs and inclusive economic growth. I had the chance to meet with business leaders, academics, students and entrepreneur’s in a series of events hosted by the U.S. Embassy in Paramaribo, the capital.

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FHR School of Business

I was there on behalf of the U.S. State Department for Global Entrepreneurship Week and was happy to be greeted by engaged and interested audiences at the various events around the capital. I learned that Suriname experiences the same challenges in getting funding to the most promising small businesses and entrepreneurs that we face here in the US. Because Suriname experiences many of the same problems that we experience with funding entrepreneurs, they were interested in hearing what I had to say about democratizing access to capital for all worthy small businesses. People there are working hard to help entrepreneurs create jobs and build better lives for themselves and their community. They want to learn as much as they can about what we are doing with Crowdfunding in the U.S. – not because they want to implement the same system of crowdfunding there, but because they want to take our lessons to create a uniquely Surinamese solution to the problem. The diverse country is full of opportunity for its people who are working hard to expand entrepreneurship and jobs. 

R Mitchell STVS Jrnl 20nov14 Suriname TV News   YouTube

Interview with STVS Channel 8

Because the ideas behind crowdfunding are so familiar to people in Suriname, and there is heavy social media usage there, they are well positioned to be leaders in crowdfunding by getting community based capital to small businesses and entrepreneurs in the country. I realized how much interest there was by the media coverage which included a piece on the evening news and a front page story on the national newspaper. I spoke at three universities and met with business leaders who are interested in what crowdfunding has to offer.

A highlight was the chance to meet with Apura NetWorks which is an online ecosystem for Suriname and its people abroad. They connect Surinamese people from around the world with each other with their technology and are now launching a crowdfunding platform to give the diaspora and those interested in Suriname the opportunity to support project’s in the country. They could make a huge difference for Suriname.

Apura is the first crowdfunding platform in the country but probably not the last. Suriname has many of the key ingredient needed to create a thriving crowdfunding ecosystem. (and some obstacles) Could they be the next leaders in the crowdfunding revolution?

 

Robert MitchellRob Mitchell heads up Success With Crowdfunding and is a Partner at Crowdfund Capital Advisors. He’s passionate about democratizing access to funding for small businesses and entrepreneurs, both at home and abroad, and is focused on helping them create successful crowdfunding campaigns. Rob Mitchell is part of the team responsible for the crowdfunding framework (Title III) of the JOBS Act signed into law by President Barack Obama. He is a serial entrepreneur who speaks frequently at crowdfunding and entrepreneurship focused events around the world. Recent speaking engagements include Stockholm School of Economics (Riga), Stanford University (AMENDS Conference), UC Berkeley (Berkeley Method of Entrepreneurship Boot Camp), Corvinus University (Budapest), and FHR School of Business (Paramaribo, Suriname). Robert is also a contributing author of ‘Crowdfunding’s Potential for the Developing World,’ a report written for the World Bank by Crowdfund Capital Advisors and is t

Beware of SEC Enforcement Actions Against Crowdfunding Platforms

The following post comes courtesy of Ellenoff, Grossman & Schole and should be read by all crowdfunding platforms

On November 10, 2014, the SEC announced one of the first enforcement actions against a crowdfunding platform, Eureeca Capital SPC, a company incorporated in the Cayman Islands and based in Dubai, for failure to implement procedures reasonably designed to prevent U.S. investors from accessing and investing in securities through its website. Despite a disclaimer that Eureeca's services could not be used by U.S. persons, users who selected "United States" as their country were allowed to register on the Eureeca website and gain full access to offering materials, and under certain circumstances, deposit funds with Eureeca for the purpose of investing. All visitors to the Eureeca website were permitted access to the names of issuers and amounts of offerings on its site, as well as informational videos; after registering, potential investors could access additional information regarding offerings and were sent automated emails detailing specific offerings. Eureeca did not require users to represent they were accredited investors during registration, its website did not contain any disclaimer or definition of "accredited investor", and communications to investors requesting confirmation of their accredited status did not define or otherwise explain what the term "accredited investor" meant.Screen Shot 2014-12-06 at 10.12.48 AM

The SEC determined that Eureeca had acted as an unregistered broker-dealer and violated the securities laws by generally soliciting U.S. investors prior to the implementation of Rule 506(c) in September 2013 and, after that Rule 506(c)'s implementation, failing to take reasonable steps to verify that purchasers of securities through its website were accredited investors. Eureeca was ordered to cease and desist from committing or causing any further violations of U.S. securities laws and was assessed civil penalties totaling $25,000.

Since the passage of the JOBS Act, the SEC, states and FINRA have been closely monitoring accredited investor crowdfunding platforms, with a particular focus on those platforms that generally solicit investors. In addition to Rule 506(c) compliance, particular issues of regulatory interest include the platforms' reliance on the exemption from broker-dealer registration; the accuracy of representations regarding the issuer's business; and the disclosure of the platform's compensation. Companies intending to form or currently operating crowdfunding platforms should work closely with securities lawyers to draft appropriate language for their websites and strictly adhere to the regulations implemented by the SEC to avoid sanctions.

Recommended action: The ability to respond quickly, credibly and effectively to regulatory inquiries depends upon recordkeeping. Platforms should therefore not only implement and maintain recordkeeping policies but also test that the information is readily available if requested on short notice. Records to preserve should include investor and issuer information in secure format (our intellectual property team can provide guidance on state-of-the art protocols); all agreements among parties, offering materials and subscription documents.

If you need more information regarding this, the team at Ellenoff, Grossman & Schole is available to discuss the information in this Alert with you. Please don't hesitate to contact the attorneys below or the primary attorney with whom you work.

Douglas Ellenoff ( This email address is being protected from spambots. You need JavaScript enabled to view it. )      

Joan Adler ( This email address is being protected from spambots. You need JavaScript enabled to view it. )

David Selengut ( This email address is being protected from spambots. You need JavaScript enabled to view it. )      

Adrienne Ward( This email address is being protected from spambots. You need JavaScript enabled to view it. )                             

Michael DeDonato ( This email address is being protected from spambots. You need JavaScript enabled to view it. )

Use equity or debt crowdfunding to give Ebola funders a vested interest in the outcome

The following was posted on OpenIdea by Sherwood Neiss
Ideas are great but they are nothing without money. Money solves one part of the problem, funding, but not the other, engagement. Crowdfunding has proven it is possible to engage a community of interest in the solution to a problem with funds. Debt & equity crowdfunding is showing that funds given in the form of an investment turn donors from passively involved to actively engaged. This means they become a marketing engine, help to sell a product/solution, help iterate on an outcome, and/or provide introductions to other key players - all because they have a VESTED interest in the success of their investment. This crisis could benefit from incorporating the crowd for their funds and to engage them as investors rather than donors.
How could it work 
Debt Scenario: 
1) Crowdfunding campaign to fund a cure 
2) Funds pledged are given as a convertible loan 
3) If a cure is found, any sales from the product will go to pay back investors 
4) Perhaps put a cap on the return (eg: 10x) 

 

Equity Scenario 
1) Crowdfunding campaign to fund a cure 
2) Funds pledged are given as equity 
3) If a cure is found the profit from any pharma who buys the solution will go to pay back investors 

NOTE: Both scenarios might require a US or UK Entity be the one that receives the money as they have the most established debt and equity crowdfunding markets.  Governments and regulators would have to collaborate under a special "Eboala Exemption"