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CROWDFUND INVESTINGInnovation Napa Valley
October 17, 2012
Our Financial System is Broken
U.S. Savings AllocationU.S. Savings Allocation U.S. Jobs/GDP by Business SizeU.S. Jobs/GDP by Business Size
Although half of our jobs and output comes from startups and small businesses, essentially all of our savings go into Fortune 500 companies
1%99%
Startups & SMBs Other
50%50%
Large Businesses Small Businesses
WHO WE ARE
Jason, Zak & Sherwood•3 entrepreneurs, co-founders of the Startup Exemption•Co-authors of the Crowdfund Investing Framework•Inc. 500 award recipients – Fastest growing private companies in US•Together raised over $80M in VC/PE capital•Authors of Crowdfund Investing book (Wiley) November 27, 2012•Co-Founders and Board members of CfIRA and CfPA•Co-Founders Crowdfund Capital Advisors
DEFINITION
CROWDFUND INVESTINGA large number of unaccredited investors making modest investments in a small business in exchange for equity or debt securities.
CROWDFUND INVESTING
CURRENT CROWDFUNDING
CURRENT BUSINESS NEED
DONATION-BASED EQUITY FUNDING
•Small businesses & start-ups• Up to $1M
GAP
THIS IS WHERECROWDFUND INVESTING
COMES IN
Everyone we talked to said it would never happen…“The House and Senate will never agree”
“Don’t waste your time”
“You’re crazy…”
“What can 3 regular guys get done in Washington?”
“Who’s gonna pay for this?”
WHAT WE DIDJanuary 2011 Jason, Zak & Woodie have an idea to make it
easier for small businesses to raise capital
Summer 2011 Testify in front of House Committees
November 2011 House passes the first version of the law
November 2011 Rally in D.C.
February 2012 Participate in Senate Committee hearings
March 2012 Senate passes the final version of the law
April 2012 President Obama signs JOBS Act
460 DAYS
AND ON THE 460TH DAY…
HOW IT WORKS1/ THE BIG IDEAStart up or small business owner has a high-potential idea
2/ WEB 3.0Leverages social media for community financing
3/ CROWDFUND INVESTINGCrowdFund Investing provides funds at a crucial growth point
4/ GO PROSuccess attracts professional investment
5/ THE CYCLE CONTINUESMore entrepreneurs follow, transforming Main Street through ‘localvesting’
LEGISLATIVE FRAMEWORKSMALL BUSINESS
OWNERS•Raise up to $1M per year with ‘all or nothing’ terms
UNACCREDITED INVESTORS
Invest at 1 of 2 levels:•Lesser of $2K or 5% income (<$100K income)•Greater of $100K or 10% income (>$100K income)
• Regulate websites for all CrowdFund Investing• State registration pre-emption
SELF-REGULATING ORGANIZATION
• CfIRA, CfPA Boards• Engaged with FINRA• SEC negotiations• NASAA engagement
SEC
CROWDFUND INVESTING FRAMEWORK
THE FUTURE OF CFI April 2012JOBS Act signed into law
December 31 2012General solicitation begins for accredited investors
January 2013 - DelayedSEC rulemaking process continues
March 2013FINRA rulemaking begins
July 2013 (best guess)Crowdfund Investing begins
2012
2013
INDUSTRY BEST PRACTICES
1/ Criminal and securities background checks
2/ Easy to understand T&C, investor agreements and disclosures
3/ Robust investor education
4/ Social connectivity tools
5/ Investor communication tools
LET’S TALK ABOUT FRAUD
1. Background check before starting2. Still need to market a smart idea3. Need to post it on a funding portal4. Need to have a strong network of people
you want to take advantage5. Need to be able to respond to their
potentially exposing inquiries … fast6. Must hit 100% of your funding target
within the time frame
CROWDFUNDING IS GLOBAL 1/ Use social media to create a transparent market
to connect entrepreneurs with capital
2/ Possible solution to “gap financing” problem
3/ Geography, Interest and Origin Communities
4/ Crowd validation + entrepreneur execution = positive signaling for follow-on capital
5/ Investor and Entrepreneur education required
WHAT WE LEARNED
1/ PUT A STAKE IN THE GROUND
2/ SHOW UP
3/ SELL WHAT PEOPLE ARE BUYING
4/ STAY ON POLICY & OUT OF POLITICS
5/ SUCCESS HAS MANY FATHERS
More Funding, Much More Funding
Gartner estimated market size in 2013
Friends and Family investing
will shift to crowdfunding
“Just a 1% Shift to Startups & SMBs =
$300 Billion”- Fred Wilson
$6.2 Billion
$60 Billion in Friends &
Family
$30 Trillion in Total U.S.
Savings
Estimated equity crowdfunding market size is in the billions
18
The Crowdfunding Professional Association (CfPA) is dedicated to facilitating a vibrant, credible and growing crowdfunding community while also advocating for an industry view versus a single company perspective. Uniting a broad-based coalition of industry participants, the association is committed to ensuring the credible development of the industry, including a commitment to the highest ethical standards.
www.crowdfundingprofessional.org
Donation/Equity/Debt Platforms
Examples of Donation-Based Crowdfunding Platforms:•www.rockethub.com•www.kickstarter.com
Platform Links
Examples of CrowdFund Investing Platforms:•www.seedinvest.com (equity based)•www.crowdfunder.com (equity based)•www.somolend.com (debt based)•www.gatetechnologies.com (broker dealer platform)
REGULATORY UPDATES
Startup Exemption Framework: www.startupexemption.com/exemption-framework#axzz1vANkx2lL
SEC JOBS Act Comments Page:www.sec.gov/spotlight/jobsactcomments.shtml
SEC FAQ for Crowdfunding Platforms:www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm
Crowdfunding Professional Association (CfPA) Launch Release: www.prnewswire.com/news-releases/crowdfunding-pioneers-launch-professional-association-in-concert-with-regulatory-advocacy-group-150451405.html
