BY Josef Holm,
Editor’s Note: Each week I put a crowdfunding industry thought leader in the spotlight and ask them ten questions to inspire and educate. This week I am excited to interview crowdfunding attorney Kendall Almerico.
Kendall AlmericoKendall Almerico was named the 17th most influential person in the crowdfunding industry by VentureBeat and was the highest ranked practicing attorney on the list. Kendall is a crowdfunding attorney with 25 years of legal experience who is considered one of the top crowdfunding experts and JOBS Act experts in the United States. Kendall and his crowdfunding websites have appeared in USA Today, Forbes, Bloomberg, Washington Post, Washington Times, Huffington Post, the New York Daily News, Business Insider, Fox Business Network and hundreds of broadcast media interviews including CNN, CBS, ABC, NBC, FOX and The Sean Hannity Show. Kendall writes a regular column on crowdfunding for Entrepreneur.com and for Crowdfund Insider. Kendall is the CEO of FundHub.Biz, a crowdfunding compliance site that helps make equity crowdfunding and other private equity offerings affordable and is the founder of Crowd It Forward, a charity crowdfunding site that performs “Random Acts of Crowdfunding.”
Q: How did you get into crowdfunding and what was it that attracted you to this industry?
For years, I helped people start businesses in my law practice. Getting funding used to be easy. I would call a contact at a bank, send my clients over, and a line of credit or loan would be processed. In 2008, the financial crisis occurred and that all changed. Banks stopped lending and a huge funding gap occurred. Small businesses and entrepreneurs could no longer find that first $100K they needed to launch a new business.
My FundHub co-founder Tess Hottenroth had told me about Kickstarter in 2011, and I thought it was an interesting and novel concept, but rewards-based crowdfunding did not seem like something that could work routinely to start a business and help close that funding gap. In order for crowdfunding to be an effective tool for startup businesses to use, I knew they would have to be able to sell equity online through a crowdfunding site. And I thought that Hell would freeze over before the SEC would let anyone do that.
Then, in April 2012, Tess told me about the JOBS Act. I remember thinking, “I better check that thermometer in Hell.” I knew, as soon as I read Title II of the JOBS Act where the 80-year ban on general solicitation was lifted, that this was going to be interesting. And when I read Title III, and realized that a federal law was passed allowing the sale of securities online through a crowdfunding portal, I immediately knew this was the eventual answer to the funding gap problem. I knew this was going to be a game changer for the way businesses start and grow, and I knew I wanted to be at the forefront of this revolution to come.
Q: What’s the most common question people ask you about your job and how do you respond?
“What is crowdfunding?” I estimate that 80% of the people I talk to have never heard the term. When they have not heard of crowdfunding, or of Kickstarter, I have to explain the concept and I get a lot of looks like a dog titling his head staring at a high-pitched noise. But when I am finished explaining, and they understand the concept of going on a website, watching a video about the next Facebook or Apple Computer that is starting up and raising money, and being able to swipe their credit card and buy a piece of “the next big thing” from the comfort of their home, they cannot wait to get involved. It truly is the great democratization of the investment process, and people are excited to see it in action.
As a funny side note, here is another question I have been asked a couple of times when people hear about the VentureBeat article naming me the 17th most influential person in the crowdfunding industry: “Are there only 18 people in the crowdfunding industry?” The first time this happened, I laughed. The second time, I laughed, then explained that they had studied more than 800 people involved in the industry to create those rankings. I now am armed with great data on how huge the crowdfunding industry has become in such a short period of time. When I tell people that more than $5 billion was raised through crowdfunding last year, their eyes widen appreciably.
Q: Did you have a mentor or is there someone who inspires you as a leader? How did/do they impact on your career and life?
I am surrounded by brilliant people at FundHub, so I am inspired every day. It is an honor to work alongside people like Kevin Harrington, the original investor shark from Shark Tank and the man who literally invented the infomercial industry and who has sold billions of dollars in products. Helping Kevin as he ventures in the crowdfunding industry is a delight. Having Kevin Carreno, one of the 25 members of the FINRA Board of Governors, at FundHub is incredible. There is nobody who knows more about securities law and compliance than Kevin. Working as a team with those two at FundHub is an incredible privilege. I love knowing that the two Kevins and our team at FundHub gives us the ability to help people raise money and stay complaint with all of the technical laws and rules, and do it for a fraction of the cost of a law firm. It is my honor to work with a legend like Kevin Harrington, and an industry giant like Kevin Carreno, to be able to help bring the American Dream back to small businesses and entrepreneurs around the country.
Q: What is the biggest challenge facing crowdfunding as an industry today and what solutions would you suggest?
The biggest challenge facing the equity crowdfunding industry is the cost of compliance. Title III of the JOBS Act limits an entrepreneur to raising $1 million. The cost under a traditional private equity offering model of hiring lawyers, handling due diligence, retaining accountants, drafting documents, verifying investors’ income and net worth, doing Bad Actor checks and creating appropriate disclosures and offering documents, would be far too high to make the law usable. What entrepreneur is going to spend $50,000 to $100,000 in legal fees, compliance and expenses to take an all or nothing gamble at raising $1 million?
The answer is simple and logical. New, less expensive methods of doing compliance must be found. Lawyers are going to need to understand that an entrepreneur who crowdfunds $1M cannot pay $50,000 to a law firm to do a private placement memorandum, then hope the crowdfunding campaign goes well and they actually raise the entire amount sought, or they get nothing.
This is why my partners and I created FundHub. We will help issuers, broker-dealers, investors and entrepreneurs get through the 585 pages of SEC rules, for about 1/10 of the cost of a hiring traditional law firms. By automating nearly all of the compliance, we can cut the cost to a fraction, and make equity crowdfunding affordable. FundHub will generate all the documents you need, do the Bad Actor checks, accredit or otherwise qualify the investors, and let you focus on raising money. FundHub will even give you a list of lawyers who will check over the documents FundHub creates for a fraction of what big law firms change. These lawyers can offer this great pricing, because they know FundHub’s automated documents were drafted by excellent securities lawyers, and approved by the founders of the company.
Q: What advice would you give someone trying to get into crowdfunding right now?
For people who want to become part of the crowdfunding industry, it is important to get educated about the process. Learn the basics like what works when running a crowdfunding campaign. Learn how important preparation is before a campaign starts. Learn what makes a great crowdfunding video. Learn how to use social media effectively. Don’t try to figure this all out after you launch a campaign.
For those who plan to venture into the equity crowdfunding world, it is imperative that you learn the law. Read Title III of the JOBS Act. It is easy to understand, and only 9 pages long. Read the SEC proposed rules. Read articles by people in the know, like my columns in Entrepreneur. Most importantly, help educate others and be an ambassador for crowdfunding. Teach others what you know, and get them excited about the industry.
Q: What resources and events (blogs, books, conferences, podcasts, videos, etc) would you recommend to someone looking to become a crowdfunding expert and why?
This may sound like shameless self-promotion, but I host an Internet radio show called Crowdfunding Radio Live every Wednesday at 8:00 EST/5:00 PST. My co-host Ruth Hedges and I talk about every aspect of crowdfunding from how to run a rewards-based campaign, to the legal intricacies of the JOBS Act. Ruth has been around crowdfunding since the days before the JOBS Act, knows everybody in the crowdfunding realm, and runs the largest crowdfunding industry event every October in Las Vegas. Ruth is an incredible resource for anyone trying to learn about crowdfunding.
We really run the gamut on the show each week, and it is a great place to learn about all aspects of crowdfunding. We talk about crowdfunding news, we have on guests from the industry and we are both very opinionated, which makes the show fun to listen to. Also, we take live calls from listeners with questions, people running crowdfunding campaigns who want to pitch to our audience, and people who are running funding portals. It is a great resource for people to be educated about the industry, and we have had some great guests like Paul Spinrad, who pretty much came up with the idea that became the JOBS Act, Barry James who is one of the greatest aggregators of crowdfunding information and Woody Neiss who helped write the JOBS Act and who was at the White House when it was signed. The list of guests has been impressive, and continues to grow each week. It is a Who’s Who of the crowdfunding world. You can find it at CrowdfundingRadioLive.com and many other places online.
Q: What are you doing to make sure you continue to grow and develop as an industry leader?
I was incredibly proud to have VentureBeat put me on their list in January and I take my role very seriously. I speak at industry events as often as I can because it is important to remember we are all together in this fledgling industry and we need to work together to help it reach its potential. But I take my role in educating the public even more seriously. That is why I write for a great mainstream publication like Entrepreneur where I can teach hundreds of thousands about crowdfunding. I love speaking at non-industry events, because then I can spread the word to people who may never have heard of crowdfunding. For example, I am a featured speaker at INPEX, the nation’s largest invention showcase with thousands of entrepreneurs exhibiting their inventions. What better place to educate people about crowdfunding? I also take every opportunity that comes to speak to the mainstream media about crowdfunding. I have been in nearly every major mainstream newspaper from USA Today to the Washington Post. I have done more radio and television appearances than I can count.
Most importantly, I am launching FundHub which will be a great resource for people to learn about crowdfunding. We will have a lot of written material, videos and links to help people learn not just about how crowdfunding works, but also to help them learn how to fund their businesses in other ways. There really is no other place on the internet that walks you through the funding process, gives you so many alternatives, and explains them all in terms everyone can understand.
Q: Can you tell us a little bit about how social networking and Web 2.0 have affected your organization or you personally?
Without Web 2.0, there would be no online crowdfunding. Without video, e-commerce and interactivity, sites like Kickstarter never would have occurred.
But the role of social media is even more important to crowdfunding. Crowdfunding campaigns get funded, in some cases, purely because of social media. The ability to post something on your Facebook page, and have someone you know share it with 1000 people, who then may share it with another thousand people, is phenomenal. The fact that something posted online could be seen by hundreds of thousands of people within hours, is game changing. Imagine trying to crowdfund without social media? What are you going to do, go to a mall and hand out flyers, and give everyone you talk to 100 flyers to hand out to everyone they know? Send out letters to people and ask them to send letters to their friends? Make telephone call after telephone call, and hope that chain continues? It would never work on a large scale.
Personally, I love social media. I use Facebook in a very non-traditional manner. I post once a day, and it is generally something funny or offbeat, and rarely pushing along something about my business or a crowdfunding campaign. But I use Facebook for what it was designed for: to interact with friends and people I like. It is social for me, not business. Twitter, on the other hand, is very different. I love Twitter for business. I love interacting with my followers, Tweeting back and forth, entering into discussions and helping people with their crowdfunding campaigns by ReTweeting to my 20,000+ followers. I also love Twitter as a tool to talk to journalists. Nearly every journalist Tweets, and many who would never pick up your phone call or respond to an e-mail, will gladly engage you on Twitter.
Q: What do you think the crowdfunding space will look like five years from now?
If the SEC rules kick in for Title III without much change, equity crowdfunding will initially roll out with a whimper, rather than a roar. It will be too expensive to be a viable tool for many. Then two things will fix that problem: (1) sites like FundHub that take the expensive parts of equity crowdfunding compliance and make it affordable and (2) certain lawyers and accountants starting to provide reasonably priced services for startups involved with equity crowdfunding. The big law firms charging $50,000 to draft a private placement memorandum and high-end CPAs asking for $25,000 to do an audit will price themselves out of the equity crowdfunding market. Automated compliance site like FundHub will do most of the compliance for a fraction of that cost, and will team with affordable but talented lawyers and accountants who are wiling to handle the legal and accounting for a very reasonable fee.
In the meantime, Congress will see what happened to the law they passed, and they will step in and eventually pass JOBS Act 2.0, which will fix most of the problems. The SEC will be more comfortable with the crowdfunding concept, and will pass rules that are much more entrepreneur friendly.
This all leads us to 2019, when my crystal ball shows crowdfunding to be a trillion dollar part of the financial market. The normal means of funding a business will be to do a rewards-based crowdfunding campaign first to raise some seed money and to vet the market for the business concept. Then, the same business will do a round of equity crowdfunding and raise their next expansion round. I truly think crowdfunding will become so commonplace, that nearly every business will use it in some fashion to raise capital.
Q: What ultimate goal are you working towards?
My first goal is to help people continue to use crowdfunding in new and creative ways. In order to do this, I will do my part to continue to educate people with my writing, my public speaking, my media appearances and my social media.
In that same vein, I think it is incredibly important for all of us to find innovative ways to make the Title III equity crowdfunding process affordable and accessible under the SEC rules when they are released, and to make all offerings under the JOBS Act more approachable. With FundHub, we are already doing that by cutting the cost of a Title II offering to accredited investors significantly. We will do the same thing with Title III. In addition, we are working on a compliance package specifically for all forms of real estate crowdfunding to automate that process and reduce the costs involved.
My second goal is to have FundHub.Biz become the go-to place where people learn how to raise money through our free educational materials, then to use the automated tools we provide to use equity crowdfunding and other means of raising private equity online in an affordable and efficient way.
My final goal is to teach those who have made the business funding process unnecessarily cumbersome and expensive by charging purposefully complicating it and by charging ridiculous fees, particularly bankers and big law firms, that they need to learn to deal with this new democratization of the investment process. They need to find ways to provide affordable services also. If not, they are going to find themselves irrelevant in the funding arena as Main Street takes over from Wall Street.