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Political Crowdfunding: Building a Community Instead of a Campaign

By Anum Yoon, Crowdfund Beat Media Guest Editor,

Throughout the past few years, crowdfunding has become a source of fundraising for charities, life-saving surgeries, new products, individual travel goals, research projects and more. With crowdfunding platforms and social media, it’s easier than ever to set up a page where friends and family can donate to whatever it is you’re passionate about or need money for. But does this new fundraising fad have a place in politics?

Election-Money

Politicians who are starting campaigns or building platforms need money, and it’s a fairly new possibility that this money could come from small individual donations from people on crowdfunding websites instead of the wealthy upper class. Here’s everything there is to know about crowdfunding in the political arena.

Traditional Political Fundraising

In the past and even currently, campaigns have been funded by the appropriate political party the candidate is running for. Additionally, wealthy donors throw large amounts of money into the politician’s bank account and, more often than not, cash in the donation for a favor later on down the road.

With this system, the upper class and politicians are completely running the show. Campaigns are based on who got money from the top dogs, and elections are based on those campaigns. So, it’s not hard to see how the average person isn’t exactly included in the political process.

Changes Being Made

In 2008, Barack Obama, who would be elected president that year, changed the game of fundraising in politics. He was the first candidate who collected funds for his campaign from the average working class family.

Obama successfully built a campaign that got American families interested and invested in him – literally. He asked for donations on his website in order to fund his campaign and raised millions of dollars from small donors who simply donated what they could afford, even if that was only a dollar.

Obama’s strategy worked, obviously. Since then, politicians at the local and federal level have used similar campaign strategies. Bernie Sanders, who ran for the Democratic nomination in the 2016 presidential race, prided himself on not accepting money from billionaires. Instead, he wanted to be funded only by the average American. It was easy for his supporters to support him because donating was just a few clicks away thanks to the ease of electronic payments.

He would often send out emails to his supporters asking for just $3 before midnight to send a message to Washington that Americans are tired of billionaires buying elections. The average campaign donation was $27.

On the surface, it seems like Sanders’ strategy did not pay off, since he did not win the nomination. However, Bernie Sanders made quite a name for himself in just a few short months and was a serious contender for the nomination, running on only small donations through crowdfunding efforts. His effort is a look into what could be the future of political fundraising.

Building a Community

The idea behind crowdfunding is to build a community. Crowdfunding started with individual stories. People who wanted to travel and do philanthropic work. Somebody who needed a surgery their family couldn’t afford. An entrepreneur with a great business idea. A young girl who wanted to go to Disney World.

The stories behind each crowdfunding page are what drives people to donate money. People tell their story in the hopes of touching others and convincing them to donate to their cause.

For this reason, crowdfunding in the political arena could be a great thing. Imagine politicians building their campaign not around the nitty gritty of politics, but around a story that touches the American people — a story of hope and resilience. Campaigns and politics in general could become so much more personalized, and Americans could really play a part in the government.

Of course, there are always some things that could go wrong. Politicians could somehow corrupt this system. There will always be billionaires to buy out politicians in their own best interest. There are holes in every system, but it’s also possible to patch up those holes. Since crowdfunding is such a new idea, there is much to be said and discovered about how the system would actually work when utilized by many politicians.

So, crowdfunding in politics could be great, it could be terrible or it could be somewhere in the middle. Only time will tell how politicians will use crowdfunding for their campaigns and how people will react to this new way of fundraising.

 

 

 

 

Crowdfunding- The Good, The Bad & The (really) Ugly

By Shane Liddell is the CEO and chief Crowdfundologist at Smart Crowdfunding LLC,. Crowdfund Beat Guest post,

Part 3 –The (really) Ugly

Introduction

In Part 1 I covered all of the good things that we have seen as crowdfunding continuously gathers momentum across the world. The future looks bright indeed!

In Part 2 I wrote of changes within the industry, especially within rewards based crowdfunding – the competition which makes it so much harder for the small guys and the Indiegogo platform now giving preferential treatment to corporates, allowing them “…to pay for special placement on Indiegogo’s site, making them more discoverable than other campaigns”. I also explained that although campaign creators are often labelled as scammers when they fail to deliver on their promises, in many cases this is not true at all.

Here in Part 3, we delve into the dark world of extortion, blackmail and a whole host of other not so nice behavior. I’ll cover some real scams where the campaign creator’s intention from the very beginning was to steal people’s money, in some cases, with the crowdfunding platforms help too!

Part 3-The (REALLY) UGLY

Extortion and Blackmail

Ethan Hunt – Micro Phone

During our very early days of offering crowdfunding campaign marketing services, we were engaged by a Mr. Ethan Hunt who had just launched his Micro Phone campaign on the Indiegogo platform. Ethan and I shared a few phone calls as his campaign began to gather momentum and I specifically remember being on a call with him one day, while the money was rolling in, and each refresh of his campaign page showed more and more backers claiming the rewards on offer. Times were good and there was an element of excitement in his voice (and mine too). Who wouldn’t be excited to see such fantastic traction?

Around 4 weeks later, with almost $50,000 raised, Ethan reached out to me to say he’d been contacted by a guy named Michael Gabrill who claimed that he had some negative information about Ethan and that if he did not pay him $10,000 he would release this information to the public through various media channels. Ethan forwarded me the email communications so I could see for myself.

Low and behold, there it was in black and white.

My advice to Ethan at the time was to just ignore this guy, as I was sure that Gabrill was just a typical opportunist money grabber and was probably seeking attention too. Ethan wrote back to him, refusing to pay a single cent but what happened next surprised us both – Garbrill began contacting various media including Pando and even went so far as to create a webpage slandering Ethan and his Micro Phone project.

The story continued and in Ethan’s own words at the time:

“Did Michael Gabrill attempt to extort money from us? Yes, he did, this is fact he has admitted to doing it here and on one of the many webpages he has set up in an attempt to cover his actions and his motives, claiming it was a test to see if we would incriminate ourselves. Incriminate us for what? Running a successful and legitimate campaign? Or refusing to pay him money not to do what he has done, something he threaten(ed) to do if we did not pay him.

What did Michael Gabrill do exactly? Well, he approached me the day after our campaign reached 100% funding which means in laymans terms when our campaign had received enough contributions for our campaign to be successful and for us to receive payment of the funds at the end of the campaign.

It took more than 30 days to reach our goal and our campaign to be fully funded. During this time, Michael Gabrill sat back and waited until there was enough motivation for us as campaign owners to if he could build enough fear of loss by the thought of him getting our campaign closed down to pay him money for his silence.

Why if Michael Gabrill if he really believed the campaign was fraudulent did he not immediately report it? Simple up until the campaign is 100% there would be no motivation for campaign owners to pay him a penny. This was never about him believing there was an issue with the campaign it was about his motivation to gain financially from a successful campaign. Something, we are sure he has done many times before.

Why do we think he has done this before? He waited until we were 100% funded, he claimed he could shut us down, he claimed that we had no intention of delivering anything to contributors and were going to steal their money and he wanted his cut or he was going to have us arrested for fraud.

Michael Gabrill’s only motivation was money, he sent me a link to his first webpage and told me if we paid him it would not go up. That webpage included photos of myself, details Michael Gabrill had obtained from my eBay account (which could only have been accessed by an eBay employee) and he claimed I was a creep or in Australian terms a sex offender. When I refused to pay him and reported him, he had the webpage active in less than 10 minutes. Only an extortionist would have a pre built webpage ready to go to force his victims into paying him to remove it.

Is our campaign is legitimate? Yes it is, we have registered businesses in Hong Kong and Australia, neither Mike or I have ever been investigated for fraud and we have both been successfully running business in Australia, Hong Kong and China for more than 25 years.”

To end the story, Ethan initiated legal action and managed to have all the slandering webpages created by Gabrill removed and received a public apology from the man himself too. In turn, Indiegogo went on to ban Gabrill completely from their platform.

This turned into a very time consuming and costly endeavor for Ethan but unfortunately, there are many Gabrills lurking in the shadows and waiting to pounce.

 

Bob Rohner – RG Energy

Bob signed up with us a few months after Ethan but his story is a different one in that his crowdfunding campaign didn’t really do too well at all. We tried our best but the ‘crowd’ seemed to think that what Bob was attempting to do was nigh impossible.

However, during the third week of his campaign. Bob received an email from someone claiming to be the owner of RG Energy, a company based in Ohio. Bob’s business was registered in Iowa. They emailed Bob stating that because they were using their RG Energy’s company name, he would have to pay $10,000 (yes, coincidently the same amount as Ethan was asked for) in license or royalty fees. What??

After a little research, it turned out that this goon had registered a company by the same name in Ohio AFTER Bob had launched his crowdfunding campaign thinking he could get money out of him by playing this little game. This led Bob to get his legal team involved and the problem swiftly went away.

 

The Scammers – Very few real ones but they are out there!
Intentional scams are very rare. During my time in the industry I have seen no more than 3 or 4 which were clearly scams from the very beginning.
Many labelled as scams today are situations whereby the people involved set out with good intentions, only to find out that what they are attempting to do is either impossible or far costlier than they expected. Crowdfunding campaign first, homework afterwards rarely works.
Julien (Courteville) Buschor – Launching Multiple campaigns helped him steal almost $400,000

During July 2015, a campaign on the Indiegogo platform called Smart Tracker 2 (ST2) caught my attention for the simple reason that it had raised over $20,000 within the first 24 hours. Normally, campaigns that gain this kind of traction so quickly have done their homework and are fully prepared with social media assets before launch. In most cases, they have a substantial number of social media followers. However, when I looked at the Smart Tracker accounts I saw that they barely had any followers at all. In fact, at the time, their Facebook page showed only 149 ‘likes’ and their Twitter account a measly 19 followers. Maybe they’d done a fantastic job of building a targeted email database before launch, was a thought at the time. My suspicions were aroused though which lead me to delve a little deeper.

I returned to the ST2 campaign page and began to scroll through their backer list. As I scrolled down to the very first backer, and began searching through the list of names, low and behold, I began to see some of the same names appear as backer’s multiple times and eventually realized that 7 or more user accounts had contributed to the campaign many times over – a clear sign of self-funding taking place. This raised alarm bells and prompted further investigation.

What I discovered was a first for me. A look at the user account profile that created this this ST2 campaign showed that this was the 4th campaign launched since the beginning of the year by the very same person – Julien Scherer (whose real name turned out to be Julien Buschor) and now it was only July? Ding..ding..ding. The alarm bells grew louder!

Upon further investigation I discovered that Mr Buschor first launched a campaign called Last Crime in January 2015 raising over $7,000 and claiming:

“Last Crime was made with cutting edge technology that can easily analyze data, provide facial recognition, perform phone and email scanning and much more”

A month later yet another campaign had launched by the name of Innovative Swiss Teeth Whitening Machine raising over $ 60,000 and with a tagline of “Swiss White Teeth, the most advanced swiss teeth whitening light with color screen and USB interface

A few short weeks later the Smart Tracker campaign launched and managed to raise just over $18,000. And finally, the ST2 campaign as initially mentioned above.

The answer to the question – How had the Smart Tracker 2 campaign managed to raise over $20,000 so quickly? –  was now fairly obvious as it was clear that Mr Buschor had rolled funds from his other campaigns into this new one.

Armed with this information, we reached out to Mr Buschor using a private email address and began a lengthy exchange of emails over the following few days. Initially he was panicked and changed user names on the campaigns listed above and sometimes became aggressive in his defense, but he did begin to accept that we knew his game. We threatened to report his campaign to Indiegogo and eventually, he did confirm that he had self-funded the ST2 campaign and his defense was made with a claim of “I’ve done nothing wrong as it’s legal so Indiegogo won’t cancel our campaign”

Mr Buschor self-funded his ST2 campaign to the tune of over $20,000, using money collected from previous campaigns to create a sense of popularity in the eyes of the public. No doubt in my mind that we were seeing a real con man in action!

As my marketing agency, Smart Crowdfunding is listed as a ‘Partner’ on Indiegogo itself, I reached out directly to their Trust and Safety division armed with all of the evidence needed to show that Mr Buschor had been scamming the public. I was certain they would listen, or at least reach out to me for more details. Nope. I received a canned email response saying very little except that they would investigate the matter. Did I hear back from them after this? Nope.

Of even more concern was that the ST2 campaign continued and on July 12th was promoted through the Indiegogo newsletter to a huge database of millions of people. Funding continued to ramp up and eventually the campaign raised more than $300,000.

Was it really a scam you may ask? Absolutely! The comments page on the ST2 campaign tells the whole shameful story!

As for Mr Buschor, he was resident in Switzerland and made local news for all of the wrong reasons as seen HERE

 

BioRing- The Amazing Ring That Made $460,000 Disappear

Now, this one had scam written all over it from the very beginning. However, even some notable Crowdfunding Marketing agencies were taken for a ride in the process too.

During mid-January 2016, we (Smart Crowdfunding) received an email inquiry from a Daniel Johnson asking about our services. After a few back and forth emails with our team, this lead to a Skype call booked for the 20th January. For some reason, they had to reschedule and we rebooked a time for 9am on 27th January, this time with a James Lee.

The call went ahead as planned, and James told me all about BioRing and that they were going to launch a crowdfunding campaign to raise the funds to manufacture the product and get it out there into the market. I explained our campaign development and marketing process, and the need to build an audience prior to launching. James asked if we would work on a percentage only basis to which I replied “No” and then went on to explain that without any validation testing we do not know if his product is a good fit for crowdfunding. Upon concluding the call I did say that I would email through our fee structure and the call ended.

My thoughts at the time were that what they were trying to do was nearly impossible, so a few days later I emailed again stating that after careful consideration I could not help them as I felt their product was impossible to develop.

We did not hear from either Daniel or James again.

The BioRing campaign eventually launched in June 2016 and did rack up over $700,000 in funding.

Fortunately, at least some of the backers were refunded, as Indiegogo did not release any of the InDemand money to the campaign owners. The total amount ‘stolen’ is now showing at $424,664 as of today’s date.

Now, that’s a lot of money and has, in effect, added to a community of backers claiming to never back another Indiegogo campaign again as can be clearly seen on the comments section of the BioRing campaign page. There are many other campaigns with such negative comments.

These disgruntled backers have a right to be pissed and there are hundreds of thousands of them who have supported other campaigns that are disgusted with the treatment they receive from Indiegogo themselves.

You can read more about this scam in this excellent investigative article from Sara Morrison here

The ironic thing with BioRing is that the marketing agencies involved – Funded Today (FT), Herscu and Goldsilver (H&G) and Command Partners (CP) – were up in arms when they didn’t get paid after the campaign concluded, having raised over $700,000. It surprises me that none of them thought that this campaign was nothing but a scam from the very beginning, considering FT were taking a 25% cut of funds raised, H&G a 10% cut and I assume CP a minimum 10%….so, a minimum of 45% off the top! Add to this the 5% Indiegogo platform fee and payment processing fees of around 3.5% meaning that BioRing were giving away more than 50% of the backer’s money!

A screenshot of the BioRing campaign team captured prior to the campaign been flagged as fraudulent. Since then all associated team members removed themselves from the campaign, most likely out of embarrassment. 


THE FINTECH REVOLUTION COMES TO REGIONAL AND COMMUNITY BANKS

Crowdfund Beat Fintech Center. 

download-20

 

Manatt Survey Reveals Collaboration, Not Competition, Between Banks and Fintech Is the Way Forward

LOS ANGELES – Oct. 24, 2016 – Thousands of regional and community banks are turning to fintech in order to meet the needs of customers who demand services on their computers, tablets and phones, according to a new report by Manatt, Phelps & Phillips, LLP. Conducted in conjunction with Mergermarket, the report, “Growing Together: Collaboration Between Regional and Community Banks and Fintech,”  is based on survey responses of senior executives from regional and community banks (50%), fintech companies (25%), and private equity firms, venture capital firms and investment banks (25%).

The survey reveals that executives are optimistic about future collaboration between the two industries, with 54% of bank respondents calling fintechs a potential partner and 89% believing that partnerships between the two will reign in the next decade. The benefits are clear to both sides. As banks seek to gain a competitive advantage, they see fintech as a way to offer online services to customers while decreasing technology costs and offering lower lending rates. Fintech firms also see the potential in working together (58%) as an advantage to gain access to the clients of midsized and smaller banks.

“Rather than compete or acquire one another, we’re seeing these institutions begin to form partnerships, and we predict that collaboration will be the primary way that they continue to interact,” said Brian Korn, chair of Manatt’s digital finance and marketplace lending practice. “In September, Radius Bank announced it would team up with online lender Prosper in an innovative deal to help make small business loans, a model that continues the collaboration theme demonstrated by other banks and lending platforms, such as JPMorgan Chase and OnDeck and Regions Bank and Avant. This is the beginning of a new trend that points specifically to an increasingly symbiotic environment.”

While the benefits of working together are unmistakable, adapting to the fintech revolution is not always smooth. Banks need to be prepared for the challenges of implementation, as well as possible security risks. As an executive of one Southeastern community bank put it, “We would have to restructure all our processes and push management and employees through training in order to get accustomed to the new technology. But we foresee a slowdown in our business if we do not find new solutions to implement. So currently I would say we are unprepared, but on the way to getting prepared, for the necessary changes.”

Banks are hyperaware of regulatory risks and therefore demand high standards from fintech companies when it comes to compliance—bank respondents who are not partnering with fintech (19%) cited cybersecurity among their biggest worries. The threat of data breaches is part of digital services, and both banks and fintech firms know how dangerous security risks can be to their businesses. As a result, the two sides must pay careful attention to the issue when preparing to collaborate.

“Despite the demand for mobile services, cybersecurity will be the chief concern as these institutions come together. Fintech opens numerous doors for traditional banks, but at the same time, it leaves the possibility of a cyber breach wide open,” said Craig Miller, co-chair of Manatt’s financial services practice. “Manatt is well equipped to help these institutions navigate compliance challenges that will arise during this exciting time in financial services, from counseling on cybersecurity preparedness and response plans to exploring the different types of partnership agreements that exist and ensuring those agreements are legally compliant. Building on Manatt’s traditional strength of working with depositary institutions and our leading digital finance and marketplace lending practice, we look forward to helping banks, fintech companies and investors develop strategies to overcome these challenges.”

Here are four key takeaways that are useful to everyone in the banking and fintech sectors when approaching the challenges that come with collaboration:

 

  • Banks are on board with fintech. At 81%, the overwhelming majority of regional and community banks are currently collaborating with fintechs. In addition, 86% of regional and community bank respondents said that working with fintechs is “absolutely essential” or “very important” for their institution’s success.

 

  • Lower costs + a better brand = a win-win. For regional and community banks, enhanced mobile capabilities and lower capital and operating costs were highlighted as the benefits of collaborating with fintechs. Fintechs named market credibility and access to customers in regional markets as the main benefits to partnering with banks.

 

  • Data security remains a challenge. Both banks and fintech companies are highly sensitive to the ways in which data is shared and secured. This means extra attention must be paid to cybersecurity when the two sides collaborate—especially given the cultural mismatch that can exist between them. Despite the optimism among banks for collaboration, preparedness is a large concern. Almost half of regional and community bank respondents said they are just “somewhat prepared” or even “somewhat unprepared” for this kind of partnership.

 

  • Regulatory concerns remain paramount. For banks and fintech firms, structuring relationships that are regulatory compliant, including, if required, prior regulatory approval, is critical to ensuring success and the opportunity to change the way financial services are ultimately delivered.

The full report is available for download on Manatt’s  website. 

 

 

Busted!  SEC Targets Reg A+ Marijuana Company, Med-X, in Administrative Proceeding.

By Samuel S. Guzik, CrowdFundBeat special guest editor,  Guzik & Associate

The Regulation A+ industry was buzzing this week – not with excitement, but with a healthy dose of trepidation.  One of the first, high (no pun intended) profile Regulation A+ offerings, launched in November 2015, after a seemingly successful “Testing the Waters” campaign, was for a company called Med-X, a startup formed to participate in the newly burgeoning marijuana industry – the so called “Green Rush.”

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But this month’s headline for Med-X was a bit more sanguine, enough to counteract even the most potent dosage of THC:  “REGULATION A EXEMPTION OF MED-X, INC. TEMPORARILY SUSPENDED.”  The story that followed was not the kind of publicity any company is looking for – especially when it is in the throes of raising money under Reg A+. Actually, it was not a story. Rather, it was an Administrative Order issued by the SEC on September 16, 2016, temporarily suspending the exemption of Med-X under Regulation A+.

Why? Well, it seems that this company failed to notice, or at least heed, the requirement that Reg A+ issuers file periodic informational reports as a condition of maintaining their status as Reg A+ issues. The basic requirement calls for a company, at the least, to file a semi-annual and annual report with the SEC following the “qualification” of the offering.  Seems that Med-X failed to file its annual report, which would include audited financial statements, when due back in the Spring of 2016.

Some have speculated that the SEC was targeting a disfavored industry – marijuana. I doubt it. The SEC  has approved the registered sale of other companies in this industry long before Regulation A+ was adopted.

Others have speculated that this action reflects an uneven hand towards Regulation A+ issuers. After all, this type of swift action is rare for fully reporting companies which are delinquent in their filings. One more time: I think not.

The Staff at the SEC has been remarkably supportive of the rollout of Regulation A+, as measured anecdotally in terms of the efficiency in which it has been processing the review of Regulation A+ offerings.

Rather, I think back to one of the more notable sound bytes I coined in a Webinar back in April 2015: “Regulation A+ is not your daughter’s Kickstarter campaign.”  Raising capital from outside investors is serious, heavily regulated business.  And as indicated by some of the early Regulation A+ participants, the level of sophistication of the management of some of these issuers has hardly met the bar required to file and prosecute a Regulation A+ offering.

Yes, Regulation A+ is a little more complex than the pipedream: filling out a form, waiting for SEC approval, and then crowdfunding your way to $50 million.  Apart from detailed disclosure rules, including audited financial statements, and the always difficult task of raising capital – especially for early stage companies – there is an ongoing SEC reporting requirement. Yes, the requirement is lighter than a fully reporting public company, to be sure, but enough to quickly overload an early stage company, with limited financial and human resources.

So if nothing else, this is one SEC enforcement action can be expected to inject a dose of reality into the Regulation A+ capital raising process.  As our President might say, “A Teachable Moment.”

samuel guzik

Samuel S. Guzik has more than 35 years of experience as a corporate and securities attorney and business advisor in private practice in New York and Los Angeles, including as an associate at Willkie Farr and Gallagher, a major New York based international law firm, a partner at the law firm of Ervin, Cohen and Jessup, in Los Angeles, and in the firm he founded in 1993, Guzik & Associates.

Mr. Guzik has represented public and privately held companies and entrepreneurs on a broad range of business and financing transactions, both public and private. Mr. Guzik has also successfully represented clients in federal securities litigation and SEC enforcement proceedings. Guzik has represented businesses in a diverse range of industries, including digital media, apparel, health care and numerous high technology based businesses.
Guzik is a recognized authority and thought leader on matters relating to the JOBS Act of 2012 and the ongoing SEC rulemaking, including Regulation D Rule 506 private placements, Regulation A+, and investment crowdfunding. He has been consulted by Congressional members, state legislators and the U.S. Small Business Administration Office of Advocacy on matters relating to the JOBS Act and state securities matters.

Guzik & Associates

1875 Century Park East, Suite 700

Los Angeles, CA 90067

Telephone: 310-914-8600

www.guziklaw.com

www.corporatesecuritieslawyerblog.com

@SamuelGuzik1

 

Understanding Reg CF: Discussing financial results

By Sara Hanks , CrowdFundBeat  Sr.contributing Guest Editor  CEO/Founder, CrowdCheck, Inc.

As we have previously discussed, the Regulation CF disclosure requirement for thefinancial condition of the issuer has the potential to get inexperienced companies in trouble. It is in this section of the disclosure that optimistic entrepreneurs may provide misleading information by not providing the full details of performance measurements, or by not including information on the assumptions underlying any financial projections. Such statements may be misleading in their own right, or may omit information necessary to make the provided information not misleading – also known as securities fraud(link is external) (see paragraph (c)).

As we have also previously discussed, financial information presented to investors must be prepared in accordance with generally accepted accounting principles (“GAAP”). This applies even to financial statements that are merely certified by the management of the company.

The SEC recently articulated in a series of Compliance and Disclosure Interpretations(link is external) just why financial information should be presented according to GAAP. While the SEC’s interpretations are specifically applicable to public companies, the analysis applies equally to companies raising funds under Regulation CF. The short and sweet of it is that financial performance measures that are non-GAAP can be misleading unless steps are taken to ensure the information presented is done consistently and with a full explanation of the measurement.

For instance, the SEC cites the example of presenting a performance measure that excludes normal, recurring, cash operating expenses. Such a measure could be misleading to investors and result in liability to the company (and the intermediary).

Other examples of commonly used non-GAAP practices that could be misleading are when charges or gains are adjusted in one accounting period when that adjustment was not made in other accounting periods, as well as adjustments for non-recurring charges when there were no adjustments for non-recurring gains. These practices, identified by the SEC, are commonplace among early stage companies looking to publicize month-over-month growth figures, or other eye catching figures that are not fully supported by GAAP measurements.

For any company, when it comes time to discuss financial results in your Regulation CF disclosure, is the gain of disclosing non-GAAP measurements without complete disclosure worth the risk of securities fraud liability? Similarly, for any platform, is the risk of allowing these measurements worth it?

sarahanks

Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with over 30 years of experience in the corporate and securities field. Crowd Check provides due diligence and compliance services for online alternative securities offerings. Its services help entrepreneurs and project sponsors through the disclosure and due diligence process, give investors the information they need to make an informed investment decision and avoid fraud and help intermediaries avoid liability. Sara’s prior position was General Counsel of the bipartisan Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP). Prior to that, Sara spent many years as a partner of Clifford Chance, one of the world’s largest law firms. While at Clifford Chance, she advised on capital markets transactions and corporate matters for companies throughout the world.Sara began her career with the London law firm Norton Rose. She later joined the Securities and Exchange Commission and as Chief of the Office of International Corporate Finance led the team drafting regulations that put into place a new generation of rules governing the capital-raising process. Sara received her law degree from Oxford University and is a member of the New York and DC bars and a Solicitor of the Supreme Court of England and Wales. She serves on the SEC’s Advisory Council on Small and Emerging Companies. She holds a Series 65 securities license as a registered investment advisor. Sara is an aunt, Army wife, skier, cyclist, gardener and animal lover.

Five Ways that Brexit Will Complicate Cross-Border M&A

By Jonathan B. Wilson CrowdFundBeat Sr. Guest Editor, Partner, Taylor English Duma LLP 

Last week’s referendum in the UK and the decision for Great Britain to exit the European Union has caused turmoil in financial markets.  For M&A practitioners, however, the impact is only just beginning.  Here are five key ways in which Brexit will complicate cross-border M&A:

1. Deal Terms Will Need to Contemplate the Potential for Additional Exits

If you thought the UK exit was tumultuous, just imagine the complications that might result if the Netherlands, France or another EU stalwart held a referendum that allowed its voters to possibly leave the EU.  M&A deals with European targets should contain provisions that contemplate these complexities and either allow the acquiror an “out” if the situation in Europe changes or that provide a mechanism to make changes if another EU member state serious contemplates an exit.

2. Taxes Will Get Complicated

The terms of UK’s exit from the EU have not even begun to take shape.  At a minimum, though, the harmonized system of taxation that was developing under the EU will no longer apply to UK companies or companies with subsidiaries in the UK.  Counsel in M&A transactions will need to grapple with the complexities of multiple, competing tax regimes when target companies have significant assets in both the UK and the EU.

3. Data Protection Rules Will Get Complicated

In our ever-digital world, data is everything (or nearly so).  For the past decade, U.S. firms have become familiar with the EU Data Privacy Directive and its member-state implementing legislation.  U.S. firms with data flows out of the EU have had to deal with the EU/U.S. safe harbor rules, to ensure that such data flows do not offend the EU requirements.

Counsel in M&A transactions will need to account for the possibility of different treatments for data flows into the U.S. from the EU and the UK and the possibility of different (or multiple) safe harbor regimes in the future.  The EU safe harbor provisions will (in all likelihood) cease to apply to UK data outflows once the UK’s exit is completed, but we cannot predict what safe harbor regime (if any) will govern UK data in the future.

4. Multiple Sets of Regulatory Approvals

U.S. acquirors looking at targets with both UK and EU assets previously could look to a single set of EU regulators for deal approvals.  Post-exit, there will be at least two sets of regulators whose approval may be required for the acquisition of mixed UK/EU companies.

5. Multiple Sets of Local Counsel

U.S. acquirors doing deals in the UK before Brexit could often hire out European firm to provide pan-European local counsel services for the deal.  Most UK law firms had developed continental offices to facilitate deals across borders.

Post-Brexit it is more likely that U.S. acquirors will need to retain both UK and European counsel (or at least involve the continental partners of UK law firms).  While law firms with offices in both the UK and Europe will have an advantage in providing cross-border advice, the coming divergence in legal systems between the UK and the EU will require an increased level of effort from lawyers in both regimes in M&A deals that span the UK and the EU.

Crowdfunding: REG A+ Due Diligence!


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Crowdfunding with Self Directed IRA?

“The Fix Crowdfunding Act”

BY Lauren LeibowitzPrincipal at 1st BridgeHouse Securities, LLC, Crowdfund Beat Sr. contributing editor,

The Evolving Crowdfunding Regulations: Now Presenting “The Fix Crowdfunding Act”

On April 5, 2012 the JOBS Act was passed. On October 30, 2015 Title III: Equity Crowdfunding final rules were passed which marked all 7 Titles of the JOBS Act were approved. Recently, the ‘‘Fix Crowdfunding  Act’’ was  introduced to Congress to improve Regulation Crowdfunding.  FINRA and SEC has taken an approach of letting the crowdfunding industry cultivate the business model and the regulators will oversee and implement regulations on an as needed basis. The integration of technology within the private capital markets is monumental since in the 21st century the internet is incorporated in every aspect of your daily life and business.

 9 Funding Portals have been FINRA approved as of May 16. A handful of previously interested business and FINRA member Broker Dealers announced they would not join the crowdfunding marketplace because the current crowdfunding regulations are not conducive to operate in but hope that the ‘Fix Crowdfundung Act’ will be passed in order for them to reconsider joining the crowdfunding marketplace.  Jeff Lynn, CEO and co-founder of Seedrs-a leading UK based investment crowdfunding platform, intended to expand its operations across the pond but believes the current crowdfunding regulations to be “not workable in its current form”, especially burdensome compared to FCA’s crowdfunding regulations that has made the United Kingdom a workable model of successful crowdfunding.  His full statement is below:

“Title III of the JOBS Act, which comes into force today, should have been one of the most important pieces of legislation to impact US fintech in recent years. But although Title III nominally makes it possible for non-accredited (regular) investors to invest in startup businesses and private firms in the US, the legislation’s considerable limitations and poor drafting means we believe it is simply not workable in its current form. Among other things, Title III:

  • Makes it likely that only lower-quality investment opportunities will use equity crowdfunding in the U.S. Title III places such significant burdens on companies seeking to raise capital—making crowdfunding far more expensive, time-consuming and difficult than raising money through other channels (such as institutional or private angel investors)—that businesses will only to turn to crowdfunding as a last resort after more efficient capital-raising methods have failed. The result will be that ordinary retail investors will have access only to those businesses that cannot raise capital elsewhere, which is an adverse selection phenomenon that has not occurred in Europe.
    • Gives insufficient protection given to investors. While Title III and the related regulations place significant focus on limiting the losses that may be experienced by investors, loss of capital is not the only risk in this asset class. Also important is that investors be protected in the case of a business’s success: a successful business can see its valuation increase 100-fold or more, but if the investment has not been properly structured or monitored, investors may receive nothing. Where restrictions interfere with crowdfunding platforms’ ability to provide those protections—which is precisely what Title III does—investors will be significantly worse off in the long run.
    • Reduces the likelihood of businesses succeeding raising capital. One of the key lessons from the growth of equity crowdfunding in Europe is that raising capital in this way is a dynamic process that requires the business to build momentum behind its campaign. Successful crowdfunding campaigns tend to require active outreach, ongoing and multi-modal engagement with prospective investors, and the participation of one or more “anchor” angel or institutional investors, all before the crowd investors start to commit capital in a meaningful way. Title III’s significant marketing restrictions mean that companies will be very limited in their ability to create momentum, which in turn will make it exceptionally difficult for their campaigns to succeed.

“What is particularly unfortunate in all this is that Europe, and the UK in particular, has shown how a regulatory system can facilitate a thriving equity crowdfunding environment, allowing the best companies to raise funds successfully and giving investors the protections they need. US lawmakers would have been well advised to look much more closely at the UK system when developing Title III.

“However, I am hopeful about the future of Title III, and under revised legislation (a version of which is already being considered by Congress), I would love for Seedrs to use it to facilitate investments in the US.

“In the interim, Seedrs will launch stateside under Title II of the JOBS Act, which is limited to accredited investors, and which will offer a specific demographic of investor access to many of the European businesses seeking capital on our platform. Whilst it means that entrepreneurs will only have access to a portion of the American crowd, the opportunity for those investors who are accredited is really exciting. We believe Europe has the fastest-growing ecosystem of early-stage businesses in the world, and the combination of reasonable valuations and fast growth that many companies see on this side of the pond should make them highly appealing investment opportunities for accredited American investors.”

WHAT IS PROPOSED IN THE “FIX CROWDFUNDING ACT”?

 

QUALIFICATION FOR CROWDFUNDING EXEMPTION
  1. Increase the Issuer offering limit to $5,000,000 from $1,000,000.
  2. Take the “Greater of Approach” rather than the “Lesser of Approach” regarding the Crowd’s annual investing limitations.

An investor will be limited to investing: (1) the greater of: $2,000 or 5 percent of the lesser GREATER of the investor’s annual income or net worth if either annual income or net worth is less than $100,000; or (2) 10 percent of the lesser GREATER of the investor’s annual income or net worth, not to exceed an amount sold of $100,000, if both annual income and net worth are $100,000 or more.

CLARIFICATION OF CERTAIN FUNDING PORTAL REQUIREMENTS AND EXCLUSIONS FOR REGULATION CROWDFUNDING.

EXCLUSION OF ISSUERS FROM FUNDING PORTALS

  1. CLARIFICATION OF CERTAIN EXCLUSION REQUIREMENTS FOR FUNDING PORTALS—Section 302 of the Jumpstart Our Business Startups Act

ADD (e) to “Under the rules issued pursuant to subsection (d), a funding portal shall have a reasonable basis for disqualifying an issuer from offering securities through such funding portal pursuant to section 4(a)(6) of the Securities Act of 1933 if the funding portal, through a background check of the issuer or other means, has found that such issuer, in connection with the offer, purchase, or sale of securities, has knowingly—

‘‘(1) made any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

‘‘(2) engaged in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.’’.

  1. CLARIFICATION OF OTHER OBLIGATIONS TO REDUCE THE RISK OF FRAUD.

Securities Act Section 4A(a)(5) requires an intermediary to “take such measures to reduce the risk of fraud with respect to [transactions made in reliance on Section 4(a)(6)], 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.”

Amend language to read as follows:

“(5) as a minimum to reduce the risk of fraud with respect to such transactions obtain 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;’’.

  1. CLARIFICATION OF LIABILITY OF FUNDING PORTALS FOR MATERIAL MISSTATEMENTS AND OMISSIONS

Securities Act Section 4A(c) provides that an issuer will be liable to a purchaser of its securities in a transaction exempted by Section 4(a)(6) if the issuer, in the offer or sale of the securities, makes an untrue statement of a material fact or omits to state a material fact required to be stated or necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, provided that the purchaser did not know of the untruth or omission, and the issuer does not sustain the burden of proof that such issuer did not know, and in the exercise of reasonable care could not have known, of the untruth or omission. Section 4A(c)(3) defines, for purposes of the liability provisions of Section 4A, an issuer as including “any person who offers or sells the security in such offering.”

In describing the statutory liability provision in the Proposing Release, the Commission noted that it appears likely that intermediarieswould be considered issuers for purposes of the provision. Several commenters agreed that Section 4A(c) liability should apply to intermediaries noting that it “may serve as a meaningful backstop against fraud” and would create a “true financial incentive” for intermediaries to conduct checks on issuers and their key personnel.

However, a large number of other commenters disagreed that Section 4A(c) liability should apply to intermediaries. Some of these commenters stated their views that applying statutory liability to intermediaries would have a chilling effect on intermediaries’ willingness to facilitate crowdfunding offerings. Others cited the cost of being subject to this liability as overly burdensome on funding portals, to the extent that they may not be able to conduct business. Several commenters also explained that the nature of funding portals, as intended by Congress, is distinct from that of registered broker-dealers. According to these commenters, a funding portal’s role is not to offer and sell securities, but rather to provide a platform through which issuers may offer and sell securities. As such, these commenters asserted that it would not be appropriate to hold them liable for statements made by issuers.

Section 4A(c) of such Act (15 U.S.C. 77d–1(c)) is amended by adding the end the following:

‘‘(4) LIABILITY OF FUNDING PORTALS.—For purposes of this subsection, an intermediary shall not be considered an issuer unless, in connection  with the offer or sale of a security, it knowingly—  ‘‘(A) made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or ‘‘(B) engaged in any act, practice, or  course of business which operates or would operate as a fraud or deceit upon any person.’’.

EXEMPTION FROM REGISTRATION

  1. Amend Section 12(g)(6) of the Securities Exchange Act

Reader note- (The words in bold are new text)

(6 )Exclusion for persons holding certain securities.— The Commission shall, by rule, exempt, conditionally or unconditionally, securitiesSecurities acquired pursuant to an offering made under section 4(6)  of the Securities Act of 1933 [15 U.S.C. 77d(a)(6)] shall be exempt from the provisions of this subsection.

ALLOWING SINGLE-PURPOSE FUNDS.

  1. Amendment to Section 4A(f) of the Securities Act of 1933:

(f) APPLICABILITY.—Section 4(6) [8] shall not apply to transactions involving the offer or sale of securities by any issuer that—

(1) is not organized under and subject to the laws of a State or territory of the United States or the District of Columbia;

(2) is subject to the requirement to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934;

(3 2 ) is an investment company, as defined in section 3 of the Investment Company Act of 1940, or is excluded from the definition of investment company by section 3(b) or  paragraphs (1) to (14) of section 3(c) of that Act; or

(4) the Commission, by rule or regulation, determines appropriate.

  1. AMENDMENT TO THE INVESTMENT COMPANY ACT OF 1940 :

Add to Definition of Investment Company (Investment Company Act of 1940 Section 3(c))

(c) Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this title:

ADD ‘‘(15) any issuer that holds, for the purpose of  making an offering pursuant to section 4(a)(6) of  the Securities Act of 1933 and the rules issued pursuant to such section, the securities of not more than one issuer eligible to offer securities pursuant to such section and such rules.’’.

  1. APPLICATION OF RULES.—Single-purpose funds that are excluded from the definition of investment company under paragraph (15) of section 3(c) of the Investment Company Act (15 U.S.C. 80a– 3(c))— (A) shall be allowed to sell and offer for sale securities under section 4(a)(6) of the Securities Act of 1933 (15 U.S.C. 77d(a)(6)) under the rules adopted on October 30, 2015, pursuant to title III of the JOBS Act (Public Law 112–106); and (B) shall be considered venture capital  funds for purposes of section 275.203(l)–1 of  title 17, Code of Federal Regulations.

SOLICITATION OF INTEREST

Section 4A of the Securities Act of 1933

  1. Add “(f) SOLICITATION OF INTEREST.—

(1) IN GENERAL.—At any time prior to the  filing of information with the Commission and the commencement of an offering made in reliance on section 4(a)(6), an issuer may solicit non-binding indications of interest from potential investors in a prospective offering using the same means and pursuant to the same regulations (other than the filing of information with the Commission) as if conducting an offering pursuant to such section if—

(A) no investor funds are accepted by such issuer; and

(B) any material change in the information provided to potential investors during the  actual offering pursuant to such section from  the information provided to potential investors  during such solicitation of interest are highlighted to potential investors in the information  filed with the Commission.

(2) STATUS.—Such solicitation of interest shall not be considered an offer or sale of securities under this Act or the Securities Exchange Act of  1934, regardless of whether or not the issuer actually conducts an offering pursuant to such section 4(a)(6).

GRACE PERIOD

Consistent with the effective date of the final rules on regulation crowdfunding adopted by the Securities and Exchange Commission on October 30, 2015, pursuant to title III of the JOBS Act (Public  Law 112–106), funding portals established under such Act shall make a good faith effort to comply with all such  rules. Notwithstanding such effective date, no enforcement action may be brought against a funding portal before May 16, 2021.

CONCLUSION

Regulation Crowdfunding is in its infancy stages. The crowdfunding industry, the SEC and FINRA will hopefully be able to work together to cultivate the crowdfunding marketplace to empower entrepreneurs while protecting the crowd. Crowdfunding today will continue to evolve as different funding models and Issuers use regulation Crowdfunding.

A CEO’s Perspective Crowdfunding with “REG CF Title III”

By Terry White is the Founder/CEO of athletic apparel company WOLACO. Crowdfund Beat Gust Post

Since Title III of the Jobs Act just recently went into effect we decide to get a closer look at how CEOs actually view the new legislation in respect to their future financing needs. We had an opportunity for a Q&A with Terry White the Founder/CEO of athletic apparel companyWOLACO.  He was able to share with us the company’s history as well as their first crowdfunding experience with Kickstarter and his perspective on Title III.

REG CF

CT: What does WOLACO mean?

TW: WOLACO is an acronym for Way of Life Athletic Co. I thought about the company name long and hard, I asked close friends for input, and conducted lots of surveys. However, it was during a commute home from my day job at the time that WOLACO popped into my head. I asked myself what I really wanted this company to stand for, and concluded that at the core, it was about an athletic and deliberate Way of Life.

Since the start, we’ve been uniquely focused on meeting the lifestyle needs of the modern male athlete—guys who need active apparel that’s bold, functional, comfortable, and built to last…not for brunch. Gear for guys who live life with deliberation, passion and daring.

 

CT: When and where did the idea come from?

TW: There are two pieces of the puzzle that came together soon after my college graduation. I was a collegiate athlete and despite much forewarning, I was caught off guard by the abrupt transition from that hyper-athletic lifestyle to a largely sedentary professional routine. As a young professional, I was spending 80 percent of my waking hours either sitting at a desk or commuting to-and-from work. When I wasn’t working or commuting, there were other hindrances that prevented me from living an active, healthy life. Living in New York City, you have the challenges of time, money and an outdated corporate culture that revolves around happy hours and client entertainment—indulgences. This challenging transition really moved me to want to find the right work-life balance.

 

Then, I had an idea for a product. At the end of 2013, I left my NYC apartment to go for a run. With my phone in my hand and my key tucked into my sock, I thought to myself, there must be a better way. So, I came up with the North Moore Short—a men’s athletic compression short with two sweat-proof pockets, one pocket for your phone or music device and the other for your keys, cash, credit cards, or any other valuables. This was the catalyst for WOLACO. The foundation of the brand was already being built, but it was this game-changing product that afforded me the window to enter the market.

 

CT: How is your compression gear different from others?

TW: We’re the first company to introduce sweat-proof compressive pockets to compression gear—and we’re the best at it. What makes us different is that we’re the only apparel company that’s uniquely focused on the needs of the modern male athlete.

 

  • To ensure built-to-last durability that can withstand our customer’s lifecycle (multiple washes, high intensity workouts) we use a heavier, performance-based compression fabric, held together by a flatlock construction with reinforced stress points. It’s intended to be Worn Hard, Washed Gently, as our care and content label advises.

 

  • To enhance and streamline your workout, our compression gear features two compressive, sweat-proof pockets, reminding you that sweating while working out isn’t just okay, it’s encouraged. The placement of these pockets is also strategic, making access to your valuables while working out seamless.

 

CT: Tell us how WOLACO got off the ground?

TW: It’s been a very organic process and largely grassroots the whole way through. It started with a small family loan that funded our initial product development. My brother Alex and I then liquidated a small investment fund to build our website. From there, we launched a series of pre-sales, selling 500 units of our North Moore 1.0 and then we graduated to Kickstarter to reach a more diverse customer base very quickly.

CT: What made you choose to fund via alternative investment options?

TW: It was a decision that I made early on. I had a concrete vision for WOLACO and I didn’t want to sacrifice that vision for large investments, especially during the foundational stages. Kickstarter, in particular, allowed me to remain vision-focused, while also engaging the community in a meaningful way, selling product to athletes around the world, and getting a lot of tremendous feedback and direction from our customers.

CT: Kickstarter is both a costly and time-consuming venture, what assured you of a lower risk to reward ratio? And what attributed to the success of your campaign, which exceeded goals by 400%.

TW: During campaign preparation, a mentor of mine, who had previously run a successful Kickstarter himself, told me that it was just like a game of dominoes. If you could line up all the pieces beforehand, once your campaign launches, all you’d need to do is nudge the first one and the rest falls into place. I took the concept to heart, and in many ways, his philosophy proved true. Preparation is everything; you cannot rely solely on organic traffic on the platform to fund the whole campaign. It requires a “kitchen sink” networking approach, which means exhausting every networking angle you can imagine, and preparing them for what is to come.

 

That said, in any business, the quality of the product is of pivotal importance. It’s also important to keep in mind that crowdfunding campaigns are unique in that the consumer takes an unusually large risk with you. Even if a campaign is well-funded, there are an incredible number of things that can still go wrong, whether that means a delayed delivery, or, worse case scenario, a complete failure of delivery altogether.

 

Lastly, creativity—the product or concept needs to turn heads and have a strong, consistent message. If you’re not doing something different, improving upon something or challenging norms, then you should think twice before launching a crowdfunding campaign. Some companies are well-suited for this type of funding method, but others, not so much. WOLACOwas addressing popular demand for a product that met people’s needs. We had an overwhelming amount of organic support for this simple, well-engineered, yet unprecedented product.

CT: Tell us about the brand’s growth since its inception.

TW: We’ve grown from a community of 350 customers throughout the Northeast to over 6,500 customers from 50 countries around the world.

 

CT: How do you currently market your product line, and where are the products available?

TW: WOLACO’s gear is primarily available through our online e-commerce store, wola-co.com. We’re engaging in a number of additional means of distribution, though, including local retailers, on- and offline affiliates, and through a network of brand ambassadors.

 

To this point, the majority of our marketing to this point has been done through organic efforts, including social media and email marketing. We’ve leveraged influencers to raise awareness and gain exposure. And we’re looking to establish partnerships with those brands that align with our mission.

CT: What plans do you have for the future?

TW: Functional compression is how we started and will always be rooted in who we are. Over the next year, we’ll continue to listen to what our customers are saying. We’ll continue to elevate our compression offering, while strategically expanding our brand and thoughtfully introducing new products that fit the needs of our customer.

Our greater brand mission is to inspire an epic life through active living. As we look ahead, our ultimate goal is becoming the lifestyle brand for the modern athlete.

CT: The SEC’s JOBS Act, Title III went into effect on May 16th. Can you explain what that is, and how it’ll impact businesses looking to raise early capital?

The amendment to Title III of the Jobs Act is an easing of regulation. Which allows non-accredited investors to invest in companies raising raise less than $1mm on an annual basis.

 

Generally, the crowdfunding aspect of Title III of the JOBS Act makes capital potentially more accessible for young startups. It reduces invest risk by allowing for investors with less experience to invest less substantial dollar amounts in to early stage companies. For early-stage companies with a great story, vision and team, but limited traction and proof of concept in the market, Title III will help to raise capital in lieu of a lack of time in the marketplace. In turn, expediting investment and allowing them to focus on building their business.

 

Additionally, companies built around a community will benefit even further from Title III, as it is an opportunity to disperse ownership to some of the company’s most loyal customers. For early-stage companies, this community empowerment could be exactly what is needed to build much needed momentum.

Terry thanks for your time and we will keep our eye out for WOLACO and any new developments from your team.

http://crowdtrader.net/a-ceos-perspective-crowdfunding-with-title-iii-qa-wolaco/

CrowdEngine First to Offer Regulation CF Crowdfunding Software

Crowdfund Beat News Wire, 

Washington, D.C. – May 16, 2016 – CrowdEngine to demo it’s Compliance Engine™ features for the new Regulation Crowdfunding rules today at the Capital Washington D.C. for Members of the House, Senators, and 300 other well respected guests.  CrowdEngine’s compliance automation solution and white-label crowdfunding software allows entrepreneurs to launch funding portals in a fraction of the time than building from scratch to achieve lower costs, and better investor experiences.

CrowdEngine+Lockup2“We are proud to be the first to offer a solution for funding portals to offer securities under the new Regulation Crowdfunding rules.   Our secure, cloud-based compliance automation platform is trusted by companies around the world,” says Jim Borzilleri, President, “We’re making equity investing 100% digital, seamless, and compliant.”

 

 

By leveraging our equity crowdfunding software, our customers can:

  • Online Income and Net Worth Verification – Complete and sign your income and net worth verification online with automatic calculation of investment limits based on your answers.
  • Automated Tracking and Tagging of Associate Persons and Promoters – Require Disclosure upon registration and limit or tag what associated parties and promoters post on the Funding Portal.
  • Automatic Tracking of Prior Regulation CF Investments – Prior investments on the Funding Portal are tracked automatically.
  • Educational Materials – Edit our templated help content and offer robust educational content and link to it throughout the investment process and requiring affirmative consent.
  • New Q & A Message Board – Prospective investors can ask questions for Issuers to answer directly and the answers will be posted publicly, with associated parties unable to ask a question at all.

In addition to the specific Regulation Crowdfunding features above, CrowdEngine also offers online escrow, online payment, online document signing and offers a smooth online investing experience in addition to investor dashboards with document management and earnings reports for post-sale management.

Organizations interested in learning how CrowdEngine and DocuSign work together may find more information at http://www.crowdengine.com/

###

Contact:

Jim Borzilleri

CrowdEngine

+1 (888) 645-7018 X 111

press@crowdengine.com

About CrowdEngine – CrowdEngine is a compliance automation solution that enables entrepreneurs to launch their own funding portals and support all offering types in the United States including Regulation Crowdfunding, Reg. D (b) and (c), Reg. A+, and Intrastate rules. CrowdEngine turnkey, fully brandable solutions increase speed to market, reduce costs, increase security and compliance, and delight customers across nearly every industry – from financial services, technology, real estate, non-profit and others.

Trouble In Paradise: Lending Club And Prosper

By Mark Roderick CrowdFunding Beat  Sr. contributing editor and crowdfunding attorney with Flaster/Greenberg PC.

Lending Club and Prosper are going through a rough patch. Renaud Laplanche, the CEO and founder of Lending Club, just resigned amid allegations of financial irregularities, while Prosper recently laid off more than a quarter of its employees.

But those are only the ripples on the pond’s surface. What’s going on underneath is that Wall Street is losing faith in the business model – that is, losing faith in the quality of the loans made on the Lending Club and Prosper platforms.

Not long ago, Wall Street financial institutions couldn’t get enough of Lending Club and Prosper loans. Now the same institutions are cutting back and the effect is severe.

images

To me, there are two lessons.

This is a Brand New Business Model, and It’s Going to be a Bumpy Ride

Marketplace lending started with the observation that banks pay much less interest to depositors than they charged to borrowers, and that technology should allow someone to decrease that spread, making a profit in the bargain. Lending Club and Prosper grew by substituting proprietary algorithms for traditional bank due diligence. The algorithms seem to work,and institutional investors rushed in.

But marketplace lending has been around for less than 10 years and nobody knows how the algorithms will perform during a down cycle. It’s not a big surprise that Wall Street money managers, aware that the economy might be due for a downturn, are hedging their bets.

The fickleness of Wall Street money managers doesn’t mean the business model of Lending Club and Prosper is broken. To me, there is little doubt that algorithms and big data willreplace traditional bank due diligence – not only in consumer lending, but in other parts of the Crowdfunding ecosystem as well. But the algorithms and business models might well have to be adjusted, and nobody should expect a straight line from A to Z.

The fickleness of Wall Street money managers leads to the second lesson.

Wall Street is Fickle

Soon after launching a Crowdfunding platform, you realize there’s a choice where you look for investment capital. You might have begun with the idea of raising money from the public – that is, from retail investors – but you realize quickly that you can also raise money from institutions.

Raising money from institutions is often much easier because, well, institutions have more money. But there are a couple downsides:

  • You started off hoping to become a household brand, but if most of your money comes from institutions you risk becoming merely a deal originator for institutions, with far less clout and long-term brand value.
  • You started off idealistically hoping to bring high-quality investments to the public, but if most of your money comes from institutions, you aren’t.

The experience of Lending Club and Prosper reveals another downside: Wall Street is fickle. If you build your Crowdfunding business based on large investments from a handful of institutional investors it’s a lot of fun on the way up, but when the institutions pull the plug it’s a hard fall.

Ideally, a Crowdfunding platform can have it both ways, using institutional money to build the business while building its brand with the retail public, to the point where the business can survive and prosper even if institutional tastes change. I don’t know whether that’s possible, but I hope so.

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Markley S. Roderick concentrates his practice on the representation of entrepreneurs and their businesses. He represents companies across a wide range of industries, including technology, real estate, and healthcare.