Tag Archives: Kickstarter

Parallels between ICO’s and the early days of Equity Crowdfunding

 Founder Raiseworth.

(Here is a post from 2015 when I started pushing for Crowdfunding to be moved to the Blockchain)

If I go back to 2008, in the very early days of Equity Crowdfunding, the ASSOB platform has already been operating for around four years. This meant there were plenty of learnings in place even before any other equity platforms had started.

There are parallels here with ICO’s as in the early days many people that approached us to raise capital on ASSOB had not much more than an idea or a sketch on paper. We learnt as the years went by that the existing regulatory structure was not detailed enough to protect investors so we put in place the ASSOB compliance framework. This stood the test of time as 300 odd raises later no evidence of fraud has emerged. This included an “offer document” not dissimilar to the “White Papers” that set out all aspects of the raise including:

  • OPPORTUNITY KEY DETAILS
  • KEY INVESTOR HIGHLIGHTS
  • EXECUTIVE SUMMARY
  • ABOUT THE COMPANY
  • CORPORATE OBJECTIVES
  • COMPETITION & RISK
  • ABOUT THIS OFFER
  • HOW TO APPLY FOR SHARES
  • OWNERSHIP STRUCTURE
  • STRATEGIC GROWTH PLAN
  • USE OF FUNDS
  • DIRECTORS DECLARATION
  • DISCLAIMER
  • GLOSSARY OF TERMS

This was not prescribed anywhere in regulations for documents that weren’t disclosure documents but over a period of time things like quarterly reporting, annual accounts and other things were added to the mix to strengthen the self-regulated compliance framework.

With ICO’s I see the same effort by early adopters in their documents. There is an eagerness to be transparent and provide valuable and essential information for prospective funding providers. However as these are early days there is a widely disparate level of transparency and disclosure by ICO promoters. This is to be expected but just as equity crowdfunding evolved around the world as players engaged with regulators, so will the ICO area.

The main difficulty at ASSOB from 2004 to 2010 was that entities often had no turnover, maybe not a product and no track record. The question was how do you assess these companies as potential investments. This same question is front and centre for ICO’s.

We solved this at ASSOB by using “Fundability Circles” to assess opportunities. Since 2015 a lot has changed, including the emergence of ICO’s so I thought it would be good to update this and do an ICO version.

Here it is!

Here is how you use it!

When you look at an ICO opportunity the three circles equal the main areas to assess a raise. I’ve listed some factors to assist you but basically each of the areas should have a total of 10 points with the total being 30. Obviously if you get 30 out of 30 for an ICO raise you are good to go. What happens though is usually one area is much lower than the other two. Often you can have a great idea with a very technical team but nobody in marketing or legitimisation. Or at other times the marketing team is great but the people are not around to build it.

Most ICO “White Papers” usually include Story, Team and Legitimisation but often they are weighted differently in each white paper. If you are involved in an ICO, or you are promoting one, you should yearn to get balance in the document so the three areas are equally reflected. (Note the intersecting areas between each circle)

  1. The Team must be capable of implementing the story
  2. The Team must appear credible to the potential partners and investors
  3. The Story must be relevant to potential partners and investors

Trust this assists you with your ICO. After seeing 300 odd raises go through this process it is indeed a great way to get an early grip on the possibility of success or as it says in the middle … the “Fundability Potential”.

Interact with FactRight’s Reg A+ Database

According to FactRight’s tracking, the SEC qualified 21 Reg A+ Tier 2 offerings in the second quarter of 2017, maintaining a brisk pace by the standards of Reg A+’s relatively short history. Approximately 45% of the 96 Tier 2 offerings qualified since late 2015 (not later withdrawn or used for merger purposes) have been qualified in just the first half of this year.

 

Three issuers made headlines in June 2017, when each listed common equity (that had been previously issued under Regulation A offerings) on a national securities exchange: Myomo, Inc. (NYSE: MYO), Adomani, Inc. (Nasdaq: ADOM), and ShiftPixy, Inc. (Nasdaq: PIXY). In the wake of successful public listings, it will be interesting to see whether a growing proportion of issuers will seek to use Regulation A as a stepping stone to becoming a fully public company.

Interact with FactRight’s database through the charts below to glean additional insights about the state of the Regulation A space through the second quarter of 2017. The charts below are dynamic; if you click on a single data point in any chart, it will filter the data displayed on the sidebar at left and in the remaining charts. (For instance, if you click on the bar for Tier 2 offerings qualified in the second quarter of 2017, all of the refreshed data in the sidebar and throughout the charts will only pertain to offerings qualified in the second quarter.) Hover your cursor over a chart for additional information.

 

Is the Party Over? SEC Concludes Cryptocurrency Offering Required Registration

By Trudy-Anne McLeary, Associate, Corporate and Finance | Benjamin T. Brickner, Associate, Corporate and Finance

In an investigative report and investor bulletin, the SEC concludes that offers and sales of cryptocurrency coins and tokens may be subject to federal securities laws.

On July 25, 2017, the Securities and Exchange Commission (the Commission) released an investigative report with important implications for issuers and sponsors of initial coin offerings (ICOs) that raise funds for cryptocurrency ventures. The report, prompted by the recent proliferation of such activity, concluded that coins offered to purchasers in ICOs constitute securities regulated by the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act). As a result, absent an exemption, such offerings must be registered with the Commission, similar to other public offerings.

The press release accompanying the report notably quotes the new Commission chairman and the new heads of the Corporation Finance and Enforcement divisions. This combined statement gives the report unusual weight and makes clear to Commission Staff that its contents describe senior officials’ current thinking on cryptocurrency regulation.

Background

In early 2015, The DAO, an unincorporated association, organized an IPO-style offering in which investors were offered DAO Tokens in exchange for Ether, a cryptocurrency similar to Bitcoin. The proceeds of the offering were intended to finance projects approved by a vote of DAO Token holders. Projects were to consist of investments in “smart contracts,” multiparty agreements encoded on a blockchain (a transaction ledger stored on a diffuse computing network). This arrangement enables transactions contemplated by such contracts to be self-executing by facilitating their verification and enforcement.

The offering presented investors with the opportunity to share in the earnings from these projects and, importantly, was marketed as such. In June 2016, however, hackers gained control over one-third of the Ether raised through the offering, then valued at about $50 million. Only by fundamentally altering the computing platform on which Ether is based was The DAO able to regain control of most of the stolen assets. Following this attack, the Commission launched an investigation into the applicability of the federal securities laws to DAO Tokens and similar offerings.

Securities Regulation of DAO Tokens and Implications for ICOs

In its investigation, the Commission sought to determine whether DAO Tokens and similar instruments constitute securities for purposes of the Securities Act and the Exchange Act. A security is broadly defined to include investment contracts.1 The Commission found that DAO Tokens met all three prongs of the 70-year-old Howey test for identifying investment contracts and, therefore, constituted a security. Specifically, the Commission’s analysis concluded that The DAO’s investors (1) invested money (2) with a reasonable expectation of gaining profits (3) that were derived from the efforts of The DAO.

The investment-of-money prong was met by investors’ exchange of the digital currency Ether. The expectation-of-profits prong was satisfied by how the offer was marketed. Statements made by promoters and on The DAO website marketed the offering as an investment. The Commission discussed at greater length whether the offering depended on the efforts of others. Here the Commission framed the “central issue” as whether the efforts made by those other than the investors were “undeniably significant” and “essential managerial efforts which affect the failure or success of the enterprise.” The Commission noted that the creators of The DAO “held themselves out to investors as experts in Ethereum,” the blockchain protocol on which The DAO operates. Moreover, they informed investors that they had selected key personnel to manage the enterprise “based on their expertise and credentials.”

The Commission provided extensive additional analysis of this prong of the Howey test, examining marketing factors specific to The DAO, suggesting that other platforms could be structured to avoid the inference that the profits were derived from the efforts of others, thereby avoiding the conclusion that securities were involved. For example, the Commission noted that DAO Token holders’ voting rights “did not provide them with meaningful control over the enterprise.” The Commission observed that the ability to vote for contracts was “largely perfunctory” and that token holders were “widely dispersed and limited in their ability to communicate with each other.”

The Commission proceeded to describe and examine these features at length. This emphasis is notable and suggests that technological innovation could provide token holders with voting rights and communication abilities sufficient to reach a different conclusion under the Howey test’s third prong. Implementing such a platform could be very difficult, especially where holders are numerous, because effective voting control may not be practical. However, the Commission’s detailed discussion on these points, and the issues it identified in The DAO’s offering, raise intriguing questions about how a different approach might ultimately be successful.

The report also noted that The DAO offering would not fall under the JOBS Act’s crowdfunding exemption because The DAO did not meet certain threshold criteria, such as being registered with the Commission and the Financial Industry Regulatory Authority as a broker-dealer or a funding portal. The DAO also raised more than the $1 million annual cap applicable to exempt issuers under Regulation CF.

The Commission’s report does not assert that all coins and tokens necessarily constitute securities, nor that all ICOs are “offerings,” but does emphasize the broad application of securities laws “regardless [of] whether the issuing entity is a traditional company or a decentralized autonomous organization” and “regardless [of] whether those securities are purchased using U.S. dollars or virtual currencies.” The Commission’s simultaneous issuance of an investor bulletin on ICOs explains that “depending on the facts and circumstances of each individual ICO, the virtual coins or tokens that are offered or sold may be securities,” such that their offer and sale would be subject to securities regulation.

Until now ICOs have been organized on the theory that the coins and tokens being issued are currency and therefore exempt from securities regulation. The Commission rejected this argument, likely because purchasers of coins and tokens do so with intent to invest and for value appreciation, not to hold legal tender currency. Likely due to the novelty of the transactions involved and apparent good faith intentions of the participants, the Commission decided not to pursue an enforcement action against The DAO. Future ICO sponsors are unlikely to receive a similar free pass.

Important Takeaways

  • Although the Commission’s report is directly applicable only to DAO Tokens, it effectively puts other ICO issuers on notice that all cryptocurrency coin and token offerings are potentially subject to securities regulation. In particular, coins or tokens that meet the Howey test as applied in the Commission’s analysis are particularly likely to be regulated, as the offering of such tokens likely constitutes an investment contract and therefore will be subject to securities regulation. In addition, ICO platforms should be aware of the circumstances under which they might constitute an exchange, requiring registration as a broker-dealer, national securities exchange or alternative trading system in the absence of an exemption.
  • The Commission’s report raises the question of whether alternative approaches, with robust managerial control in the hands of holders, could be developed to avoid the third prong of the Howey test. Although significant caution is in order, the Commission’s analysis may offer hope to market participants who innovate in ways that carefully address the concerns articulated in the report. As the Commission itself noted, “[w]hether or not a particular transaction involves the offer and sale of a security—regardless of the terminology used—will depend on the facts and circumstances, including the economic realities of the transaction.” Nonetheless, we believe the Commission and Staff will be highly skeptical of conclusions that the federal securities laws do not apply to coin and token offerings.
  • The Commission’s report does not consider whether The DAO’s activities render it an “investment company” for purposes of the Investment Company Act of 1940, which generally requires investment companies to register with the Commission. Given the broad definition of “securities” under this act, and the Commission’s conclusion that cryptocurrency coins and tokens may constitute securities, ICO issuers should carefully consider the applicability of this act to their offerings, and the obligations this would entail.
  • The Commission’s message is clear: ICO issuers and brokers must tread carefully and fully consider the regulatory implications of offerings prior to launch. If the coins or tokens being offered are securities, registration with the Commission will be required, unless an exemption is available, such as in private placements and foreign offerings to accredited and overseas investors, respectively.

Final Thoughts

The Commission’s detailed legal and factual analysis of the DAO Token offering suggests the Commission is closely monitoring cryptocurrency and ICO activities. The Commission observes that “virtual organizations and associated individuals and entities increasingly are using distributed ledger technology to offer and sell instruments such as DAO Tokens to raise capital.”

We expect the Commission will continue to examine the applicability of securities law to each iteration of ICO as this form of fund-raising evolves. Issuers considering an ICO should consult securities law and digital finance experts, including competent legal counsel, before undertaking such activities.

Related Links

Securities and Exchange Commission, “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO” (July 25, 2017), available at https://www.sec.gov/litigation/investreport/34-81207.pdf

Securities and Exchange Commission, Press Release, SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities (July 25, 2017), available at https://www.sec.gov/news/press-release/2017-131

Securities and Exchange Commission, “Investor Bulletin: Initial Coin Offerings” (July 25, 2017), available athttps://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-initial-coin-offerings

Happy Birthday Regulation CF (shame about the compliance failures)

So, one year ago today, Regulation CF went into effect. Small companies can make offerings up to $1 million (recently increased to $1.07 million) and roughly 325 companies have made Reg CF offerings so far. Roughly 80 companies have filed Form C-U to notify the SEC of the conclusion of their offering (they can also use Form C-U to report progress of the deal, so the raw numbers need refining). Another 50 or so companies have taken advantage of the fact that the SEC tells us that multiple closings are permitted once a company reaches its target offering amount, and so have received funds but have ongoing offerings.

We’re talking about modest success so far. Companies are finding it takes a while to raise the funds they are seeking and many offerings are still in progress, so overall success rates are going to go up in time. And several companies have had million-dollar raises.

The less-encouraging story in in the area of compliance. By our calculation, by May 1 perhaps 100 companies should have filed annual reports under Form C-AR (all the companies which had filed C-Us by that date and all companies which had sold some securities but not finished their raise). Again by our calculations, only two-thirds of the companies that should have filed did so. Not too impressive.

And that’s just measuring whether those companies filed, not looking at the content of their filings. We’ve been reviewing all the filings made on Form C, and evaluating their compliance with the disclosure requirement of Rule 201. Later this summer we’ll publish more detailed findings. But in the meantime, we are sad to report that compliance is not particularly good. It seems to be improving, which is the good news. But there are a number of areas where the disclosure requested by the SEC is not being made:

  •          Only one in four companies is providing a discussion of the company’s financial performance since the end of the financial statements included in the Form C, which can be as old as sixteen months.
  •           Four out of five companies include no discussion at all about how the proceeds of the offering will affect their liquidity and how long the proceeds will last.
  •           One quarter of the companies filing don’t include a description of all the securities they have issued.

The list goes on. I don’t think disclosure failure is an insurmountable problem; as discussed above there does seem to be some improvement. However, at a time when we are looking for more flexibility from the SEC, “please change the rules because we aren’t complying with the ones currently in effect” is not generally a winning argument. The answer to the issue of disclosure deficiency is clearly one is clearly education; the biggest areas of deficiency are where the SEC’s requirements may not be totally clear to issuers, and it’s an area where the intermediaries (funding platforms and brokers) can help. Filing deficiency may be a harder issue to address; often filing requirement only kick in when the intermediary is not longer involved.

But if we don’t solve both problems, as an industry it will be harder to get the regulatory flexibility we still need.

Source:

https://crowdcheck.com/blog/happy-birthday-regulation-cf-shame-about-compliance-failures?utm_campaign=buffer&utm_content=buffer3ae14&utm_medium=social&utm_source=linkedin.com

 

CF Laws, Rules, Regulations & Compliance

Watch: Jonathan Frutkin, Sara Hanks, Mark Roderick, Brian Korn @ Crowdfunding USA  More Videos:

Crowdfunding to Meet Energy Demands

By Anum Yoon Crowdfund Beat Guest Editor, 

The idea of crowdfunding has gained popularity in the past few years. Individuals contributed approximately $880 million in 2010, when the concept was still new and innovative. Today, the practice of crowdfunding generates tens of billions for startup enterprises, budding entrepreneurs and motivated professionals on an annual basis.

But the concept behind this relatively new phenomenon isn’t limited to financial investments. Some of the more tech-savvy and energy-conscious leaders of today are now exploring the value of crowdfunding to meet our nation’s growing energy needs. The results are showing tremendous potential to revolutionize the way we look at our utility bills from this point forward.

Embracing the Shared Economy

Crowdfunding is paving the way for what many experts refer to as a “sharing economy.” Expected to be worth over $300 billion by 2025, the sharing economy provides new opportunities around the world. When applied to energy production and consumption, this amounts to newly built, sustainable energy sources and the establishment of new facilities in remote regions of the world.

The Africa Regional Climate Change Programme, a part of the United Nations Environment Programme, or UNEP, points out that more than 60% of Africans do not have access to a standardized power grid. Crowdfunding and the sharing economy are poised to help these communities by developing energy sources that are clean, renewable and sustainable.

Mosaic, which recently launched in the U.S., serves as a go-between on behalf of clean energy investors and solar projects that need funding. Investments start at the low price of $25 for annual returns of 4.5%. Like with all investments, those who put in more money will have a greater chance of receiving significant profits in the long run.  

Crowdfunding Energy Around the World

According to recent studies, the United States currently leads the world in active energy crowdfunding projects with eight different initiatives. Germany boasts six, the United Kingdom has five and Netherlands has four of their own.

There has been a strong push toward eco-friendly and sustainable energy around the globe. In 2014, nearly 10% of all the energy consumed in the U.S. was drawn from renewable sources. This number has remained consistent and will likely increase even further as more crowdfunding campaigns pop up.

Europe is making huge strides in the effort to curb fossil fuels. Approximately 90% of new energy generators installed in 2016 utilized renewable sources. The majority of this new power is coming from large-scale windfarms in countries like Germany, France, Finland, Ireland and Lithuania.

Some of the most popular energy crowdfunding platforms are based in the United Kingdom. GenCommunity and Abundance Generation, two of the most popular options to date, are both based in the U.K.

Overcoming the Obstacles

As bright as the future of crowdfunded energy seems, there are some roadblocks to overcome. Given the large scale of many projects in the energy sector as well as the high costs and extended timeframes needed to complete such jobs, the industry doesn’t lend itself to the idea of crowdfunding.

In an economy where investors want to see instant results, there simply aren’t many projects in renewable energy that match the format.

Proof of these challenges can be seen in current projects. Although Europe is on the forefront of energy crowdfunding, most of the campaigns to date were focused on small or medium-sized jobs. This is great for hobbyists and those who want to participate in a community-oriented effort, but it does little to address the growing issue of worldwide energy consumption — at least for now.

One of the primary points of crowdfunding energy is to make it possible for smaller investors to raise the capital needed for bigger and better projects. This opens up the industry to a far greater number of investors and even more minds trying to solve such challenges.

Larger Investments Will Lead to Greater Advancements

Although the number of renewable energy projects to benefit from crowdfunding has been limited thus far, proponents of the platform are optimistic about the future. With more investors starting to consider crowdfunding as a viable means of financing projects, and as more investment groups begin to target the renewable energy sector, we’re bound to see even larger investments and greater advancements across the board.

We proudly invite you to 4th Annual Crowdfunding USA on May 4-5, 2017 National Press Club Washington, DC.

Crowdfund Beat Media Presents: 
 
The Important gathering will discuss what’s new on State of Investing and Risk Mitigation through evolving Internet finance space under the label “2017 the Year of 2.0 Equity & SME Finance-Online Lending or Investing- Crowdfunding “Jobs Act” under new congress & President Trump administration”

 See Conference website & Full Agenda Speakers 

 
For Promotional Opportunities, Group Discount, Sponsorship, and how to become a panelist call 1-888-580-6610 or email to info@crowdfundingusa.com

CF USA AGENDA’s  SNAPSHOT

SEC – JOBS ACT – Early Investing
Family Offices – IRA Trust
Rules and Regulations Consideration
Rule 506(c) – Title II Tittle III REG D REG CF
Definition of accredited investor?
Liquidity for the private securities space
Redefining Securities Distribution through Crowdfunding

Real Estate Crowdfunding

Why Hot Real Estate CrowdFunding Is The Next  New Frontier?
Impact of crowdfunding on real estate finance and deal-making
Is Real Estate Crowdfunding Offers An Attractive Alternative For Secure Investments?
The Impact of Technology and Internet on Real Estate Crowdfunding

Trump to Lift Community Bank Regulations (and what that means for house flippers)

Shadow Banking
Dodd-Frank: A Republican Congress
will likely be looking for ways to scale back time and money on business regulation.
Real Estate Crowdfunding and Community Development

Pros & Cons of Internet finance and lending 

2017 State of CrowdFunding

Business of Crowdfunding & Reaching the Goal – How to Make It Happen

Multiple Faces of Crowdfunding on Equity

Future of EB-5 Business Finance & Crowdfunding
Disruption of Equity Crowdfunding on VC’s – Angel Investors
Is Online Lending & Fintech industry here to stay?

Exploring Title II
Why it dominates and will continue to dominate crowdfunding
What initiatives are being pursued to create secondary markets or other means
Effect of IPO window

Regulation A+ Mini IPO
Many of the Reg A deals got pulled this last year.
Is this offering type holding up to investor interest.
Need research on Reg CF, Reg A+ and other offerings.
How much was raised, and how have they performed.
Aftermarket performance of Reg A+ deals

After hours Networking 

Round table discussion

 

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.

 

 

 

 

2017 Real Estate Crowdfunding: Surveying the Landscape

125

 

 

 

 

“Copyright” By Jonathan B. Wilson CrowdFund Beat Sr. Guest Editor, Partner, Taylor English Duma LLP

The impact of crowdfunding on real estate finance and deal-making has been one of the hottest topics of the past year.[1]  With the advent of crowdfunding, real estate developers and investors have multiple pathways to finance their projects and even to plot their exits.  But in many ways the impact of crowdfunding has not yet arrived.  Crowdfunding for real estate is still in the early stages and may take several detours along the way to its final destination.

What is Crowdfunding?

The idea of “crowdfunding” has been in the news a great deal but investors have only just begun to realize its potential for the industry.  Crowdfunding is the idea that a large number of people, with no particular expertise, can accurately predict the likely success or failure of a venture by combining their own observations and communicating with each other.  James Surowiecki‎, in his book, The Wisdom of Crowds[2], recounts dozens of examples where a large group of people who were able to collect and share information were able to make more accurate guesses about the success of a project than the best guess of any individual expert in the topic.  The Internet, with its ability to collect a large number of people quickly and easily, makes it possible to collect a “crowd” to evaluate an idea better than was ever possible before.

Crowdfunding applies this idea to the process of evaluating investment opportunities, allowing members of the crowd to put money behind their predictions and preferences.  Proponents believe that by allowing a crowd of potential investors to share their opinions about the investment and the information they collect that crowd will be better able to predict the success of the investment than individual investment experts.  Sydney Armani, the publisher of CrowdFundBeat, says, “People get excited when they engage with a new product that arouses their passions.  Those passions take on even greater intensity when they can invest in that new product.” [3]

Crowdfunding can take several forms.  Popular crowdfunding sites like Kickstarter and Indiegogo let project sponsors describe their projects to the public and ask for donations.  In an “affinity” campaign, supports of a project pledge funds for a project because they like it and support it.  Their affinity for the project is their only reward.  In a “rewards-based” campaign, project sponsors offer rewards for cash contributions.  Rewards may range from recognition on a website or on a wall, to t-shirts, products samples and more.

Securities-Based Crowdfunding

Securities-based crowdfunding is possible through several recent changes in U.S. securities laws, most of which are derived from the 2012 Jumpstart Our Business Startups Act (or “JOBS Act”).  In particular, the JOBS Act created three types of crowdfunding: (a) crowdfunding to “accredited investors” under Rule 506(c), (b) crowdfunding for up to $50 million each year under new Regulation A+ and (c) crowdfunding to both accredited and non-accredited investors in small offerings under Title III.

Investing Under Rule 506(c)

First, a sponsor could offer debt or equity securities to “accredited investors” under Rule 506(c).  The JOBS Act changed some of the rules affecting private offerings under Rule 506 so that sponsors could publicly-advertise their offerings.  Before this change in the law, public solicitations of private offerings were strictly prohibited.  Under new Rule 506(c) however a promoter that wants to advertise publicly must take various steps to ensure that every investor who participates in the offering is “accredited”, which is defined as having a net worth of over $1 million (excluding the investor’s principal residence) or having an income of more than $200,000 for two consecutive years ($300,000 is the investor is married and files tax returns jointly with a spouse).

Crowdfunding under Rule 506(c) has been feasible for more than a year and several websites, have had some success hosting real estate crowdfunding campaigns that have included securities under Rule 506(c).  Most of the popular real estate crowdfunding sites included in our survey, however, require accredited investors to create a membership on the site before they can view any live offerings.  As a result, the offerings made available to members are intended as a private offering, and not a general solicitation.  Because there is no general solicitation, those websites take the position that their offerings are private offerings under Rule 506(b) rather than publicized general solicitations under Rule 506(c).

Investing Under Regulation A

Another legal change that came from the JOBS Act was a change to Regulation A, an SEC rule that allows a private company to qualify its securities (which may be equity or debt) through filing a formal prospectus with the SEC.  The SEC reviews the prospectus to ensure that it adequately describes all of the risks of the business and the risks to investors.  Once the issuer’s prospectus is approved by the SEC (at which point it is said to be “effective”) the sponsor may sell the securities to both accredited and non-accredited investors.

Before the JOBS Act, offerings under Regulation A were limited to not more than $5 million.  Under the new provisions of Regulation A (sometimes called “Regulation A+”) an issuer of securities may raise up to $50 million in any 12-month period.

One of the advantages of a Regulation A offering is that the company will be able to solicit investments from both accredited and non-accredited investors, thereby widening the scope of interest in the project.  The SEC’s rules, implementing these changes to Regulation A, however, have only been effective since October 2015.  As a result, there have been relatively few offerings that have completed the new process and it is harder to tell how these new offerings will be accepted by investors.

Regulation CF

The third possible route for crowdfunding is often called “Title III” because it arises under Title III of the JOBS Act.  Although the JOBS Act became law in 2012, the SEC only released its rules implementing this new law in October 2015 and those rules didn’t take effect until May 2016.  Under those roles, a promoter may issue securities, in an amount up to $1 million in any 12-month period, to both accredited and non-accredited investors.  But, soliciting for investors may only take place through licensed crowdfunding portals that have received a license from the Financial Institutions Regulation Authority (“FINRA”).

Under Regulation CF (the name used for the SEC’s Title III regulations), issuers do not file a prospectus with the SEC but do need to include certain disclosures about the company in their offering memorandum.  The funding portal will also be liable for making sure that all of the prospective investors receive certain notices about the process and for ensuring that each investor does not invest more than a certain maximum that is derived from the investor’s taxable income.  While a Regulation CF offering can “go national” by accepting investments from people across the country (whether they are accredited or not) the $1 million limit and the requirement that all solicitations take place online through the licensed portal make this approach a challenge for many new ventures.

Because of the $1 million annual cap on fundraising under Regulation CF, however, this approach is usually not a good fit for real estate projects that often require more than this maximum amount.

Surveying the Landscape

The following websites have used one or more of these regulatory pathways to create a marketplace for crowdfunding real estate projects.  By surveying some of the more popular websites I have tried to provide an overview for how industry players are using these now crowdfunding regulations to make deal flow and investment opportunities possible.  This list is not an endorsement of any of these sites and a site’s omission from this list is not intended as a criticism or a suggestion that the site is not worthwhile or valuable.

Peer Street

PeerStreet specializes mostly in residential debt investments (with a smattering of multifamily and commercial). PeerStreet utilizes Rule 506(b) to solicit accredited investors to participate in loans that are secured by real estate.[4]  They have one of the lowest minimums in the top 10 ($1K versus $10K average), and a healthy volume of new transactions.

Virtually every site in the industry claims that they have superior due diligence. PeerStreet, however, supports its claim with concrete proof.  PeerStreet allows investors to review the performance of every past investment. PeerStreet’s site claims that, since 2014, the site has offered more than 200  notes but without any foreclosures or unremedied defaults.

Unlike many other real estate crowdfunding sites, however, PeerStreet does not originate its loans.  Rather, project sponsors introduce opportunities to the site and then earn a fee based on successfully closing the investments.  As a consequence, investors that participate in deals on PeerStreet pay slightly higher total fees than some other sites.  Because of the relatively high performance that PeerStreet’s deals have produced,[5] however, these fees so far have not kept investors away.

Real Crowd

Real Crowd acts as a syndication platform for real estate development companies and real estate funds.  The development companies and funds pay a fee to Real Crowd to have their offerings listed on the site.  Viewing the offerings is possible only for accredited investors who have created a free membership account on the site.  Most of the opportunities on Real Crowd involve commercial real properties or multi-family properties.  Some of the investments are funds in which the fund manager will be investing in the proceeds in a targeted type of property while others are syndicating take-out financing for existing properties.

From the investor’s point of view, Real Crowd has successfully recruited a large number of property developers and fund managers, so there are many investment opportunities to consider.  Most investments, however, require a minimum investment of at least $25 to $50,000, so the platform is not friendly to small retail investors who want to dip their toes in the water.   In addition, most of the investment opportunities are equity securities, so there is a higher risk of principal loss than is generally the case with debt-oriented platforms.

Realty Mogul

Realty Mogul is one of the largest real estate crowdfunding sites and it uses several different approaches based upon the needs of the project sponsor and the class of investor involved.  Accredited investors may invest in either debt or equity securities.  Accredited equity investors invest in syndicated private placements of special purpose limited liability companies that exist to finance equity investments in particular properties.  The equity investment has the higher potential return associated with equity as well as the potential downside risk of loss.

Accredited investors may also invest in debt securities called “Platform Notes”.  Each Platform Note is a debt security issued by a Realty Mogul special purpose vehicle which uses the proceeds of the Platform Notes to make a loan to particular sponsored investment.  By issuing the note from its special purpose vehicle, Realty Mogul is able to take on the management function of managing the underlying loan (reviewing financials, monitoring loan covenants, working out any defaults, and so on) without involving the passive investors who have purchased the Platform Notes.

For non-accredited investors, Realty Mogul has sponsored its own non-traded real estate investment trust.  Although the REIT (called Mogul REIT I) is not traded on any stock exchanges, its shares were qualified with the SEC through a Regulation A prospectus.[6]  According to the prospectus (which went effective in August, 2016) the REIT plans to hold:

“(1) at least 55% of the total value of our assets in commercial mortgage-related instruments that are closely tied to one or more underlying commercial real estate projects, such as mortgage loans, subordinated mortgage loans, mezzanine debt and participations (also referred to as B-Notes) that meet certain criteria set by the staff of the SEC; and (2) at least 80% of the total value of our assets in the types of assets described above plus in “real estate-related assets” that are related to one or more underlying commercial real estate projects, these “real estate-related assets” may include assets such as equity or preferred equity interests in companies whose primary business is to own and operate one or more specified commercial real estate projects, debt securities whose payments are tied to a pool of commercial real estate projects (such as commercial mortgage-backed securities, or CMBS, and collateralized debt obligations, or CDOs), or interests in publicly traded REITs.  We intend to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2016.”

Because Realty Mogul facilitates both equity and debt investments for accredited investors as well as equity investments for non-accredited investors through MogulREIT I, Realty Mogul is ideally-situated to generate substantial deal flow and relatively rapid underwriting for projects that apply for funding.  As a platform for providing funding for sponsored-projects as well as a platform for creating investment opportunities, Realty Mogul has one of the best head starts of all the available real estate websites.

Those advantages, however, come at a cost.  Realty Mogul has a large staff operation (which is required for its extensive underwriting duties) and that cost is borne by investors through the 1-2% fees they pay to participate in investments on the site.  While the site has tremendous deal flow, however, a student of the industry might ask, “is this really crowdfunding?”  Because Realty Mogul takes such an active role in performing due diligence on its projects and in structuring the investment opportunities on its site, the overall experience is more structured than most crowdfunding sites and there is less opportunity for the collectively give-and-take than crowdfunding was originally thought to represent.

Realty Shares

Realty Shares facilitates both debt and equity investments into both commercial and residential real estate.  The site claims that it has funded over $300 million to 550 projects that have returned more than $59 million to the site’s more than 92,000 registered accredited investors.[7]   Project sponsors must submit to underwriting through Realty Shares and only projects that have exceeded the site’s standards can be offered to the site’s members.  Fees range from 1 to 2% of the investment amount, but investment minimums are as low as $5,000.

As with most of the other real estate crowdfunding sites, investments are made through private placements under rule 506(b).

Residential Real Property Sites

There are several websites that focus primarily on residential real estate.  Because of the similarity of their focus and approach, they can be surveyed as a group:

LendingHome

Lending Home describes itself as the “largest hard money lender” [providing] “fix and flip loans up to 90% LTC and 80% LTV.”[8]  Unlike many of the other sites that aim their value proposition at investors, Lending Home addresses itself primarily to homeowners how are looking for loans and are willing to pay “hard money” rates of interest to get cash.  Accredited investors can participate in Lending Home in increments as low as $5,000.[9]

Roofstock

Roofstock’s tagline is “Property Investing Like the Pros.”[10]  Like Lending Home, Roofstock focuses only on single family residential properties.  Differently, however, Roofstock allows accredited investors to invest directly through loan participations as well as through small funds that focus on particular regions or particular rates of return.  Roofstock also emphasizes, through its underwriting and its messaging, the underlying quality of the properties and their surrounding communities, school systems and the like.  Browsing through loan opportunities on Roofstock feels more like browsing through listings on Zillow than looking for investments.

Patch of Land

Patch of Land is one of the largest and most heavily-trafficked real estate crowdfunding sites.  The site claims to have originated more than 400 loans for over $245 million in loans, returning over $61 million to investors.[11]  Although Patch of Land has made investments in multi-family and commercial real estate, more than 70% by value of its investments have been made in single family real estate.

Fund That Flip

Fund that Flip is a site that proudly advertises its role in financing single family residential rehab and resale projects.[12]  The site claims that the sponsors underwrite individual deals, requiring borrowers to put at least ten percent in the property’s value in equity.[13]  The site also tries to entice investors, claiming average returns between 10 and 14%.

The Future of Real Estate Crowdfunding

Real estate crowdfunding has definitely arrived.  Through the dozens of existing sites claiming to offer some kind of real estate crowdfunding, investors have invested more than a billion dollars through thousands of investments in just a few short years.  While this method of investing is still very small (in contrast to retail investments in mutual funds and the stock market) it fills a market need that shows no sign of disappearing.

For real estate crowdfunding to achieve a wider degree of acceptance, platform owners will need to continue to facilitate high quality investment opportunities while improving transparency.  Wider acceptance will require a level of information sharing that does not yet exist in the industry.  Even the most popular sites today have varying levels of information available to potential investors.  These inconsistent levels of disclosure can undermine the trust that is necessary to grow crowdfunding as a method of investing.  Real estate crowdfunding sites that facilitate exempt transactions under Rule 506(b) are not regulated, and that is probably a good thing.  But the lack of regulation also permits a wide diversity in style and approach that can make comparing the platforms difficult.

If the leading crowdfunding platforms could collaborate on a standardized “scorecard” that pulled together standard metrics on transactions, investment amounts and rates of return, the result would make it possible for both investors and project sponsors to compare platforms on a level playing field.  The investor confidence that might come from such a development would encourage new investors to come into the market.  Platforms that did not adopt the scorecard at first would experience market pressure to begin reporting results in the scorecard format.  Adopting a standardized scorecard for recording would, in a sense, demonstrate the power that crowdfunding was supposed to represent, by making it possible for the market to adjust itself to the information needs of the investing community.

[1]           http://www.jdsupra.com/legalnews/the-evolution-of-real-estate-15259/

 

[2]           Surowiecki, James, The Wisdom of Crowds, Anchor Books (2005).

 

[3]           Wilson, Jonathan B., Follow the Crowd: What the Future of Crowdfunding Holds for Startup Restaurant Owners, Restaurant Owner Startup & Growth Magazine, 18 (Feb. 2016).

 

[4]           www.peerstreet.com.

 

[5]           PeerStreet claims that its loans have generally yielded between 6 and 12%.  See PeerStreet FAQs, available at https://info.peerstreet.com/faqs/how-do-peerstreet-returns-compare-to-other-debt-investments/ (last visited January 29, 2017).

 

[6]           MogulREIT I, LLC SEC File, available at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001669664&owner=exclude&count=40&hidefilings=0 (last visited January 29, 2017).

 

[7]           Realty Shares website available at https://www.realtyshares.com/  (last visited January 29, 2017)

 

[8]           Lending Home website available at www.lendinghome.com (last visited January 29, 2017).

 

[9]           https://www.lendinghome.com/how-it-works/#individual-investors.

 

[10]          Roofstock website available at www.roofstock.com (last visited January 29, 2017).

 

[11]          Path of Land website available at https://patchofland.com/statistics/ (last visited January 29, 2017).

 

[12]          Fund that Flip website available at www.fundthatflip.com (last visited January 29, 2017).

 

[13]          Fund that Flip website available at https://www.fundthatflip.com/lender (last visited January 29, 2017).

 

Setting Up an Efficient Crowdfunding Platform

BY Rachael Everly ,CrowdFund Beat Guest Post,

Crowdfunding platforms are a product of technological advancement. However at the end of the day they are a financial solution and their success is dependent on the economic situation at a given time. Many businesses prosper when the economy is booming and all is good. Crowdfunding on the other hand has always prospered when the economy is not doing well, and even during the worst recessions.

During the last recession of 2008, there was a great lack of confidence among banks. This led to a drying up of sources of finance for the small business owner and for individuals who were just starting out. Either their loan applications were outright rejected or they were given such high interest rate offers that they were forced to decline. But with the advent of digitalization came the much flexible option of crowdfunding that led smaller business achieving the necessary finances much cheaply and much easily.

crowdfunding concept. Chart with keywords and icons
crowdfunding concept. Chart with keywords and icons

 

Setting up a crowdfunding platform is an excellent business idea for it is something that the entrepreneurs need. However to be successful it has to meet the finance needs of people successfully.

 

 

  1. Initial set-up

Crowdfunding platforms are a place where investors and people looking for finance gather. So you need to be sure about how you are going to attract investors in your starting days. Your whole business is dependent on them.

You also have to ensure that you offer a “deal” that is both acceptable to investors and the people looking to borrow. The system has to be set up in a transparent way in order to induce trust from all the involved parties. In order to achieve this you will have to focus on a marketing strategy that delivers the maximum information. Information about how you operate, the charges for the borrowers and how are you going to handle the funds at your disposal. You will especially have to convince people that your platform is a secure place to invest. You will need to figure out your marketing channels. The most basic will be your own company blog and possibly even your own in-house developed app (which could be done via crowdfunding).

  1. Developing a brand

Once the crowdfunding concept was new and there were hardly any platforms on the scene. Now competition is arriving and the first mover advantage is long gone. You will have to differentiate yourself from your competition. In the simplest way, it could be by the way of focusing on the aesthetics on your website that is the logo and theme and the usability.

Secondly you should match the features being offered by the competition and where possible streamline your processes even more. You will have to communicate your “differences” via email marketing and company blog. The best way to do this is to provide content that is actually useful for the reader and yet brings your platform to attention.

  1. The technical expertise

At the end of the day customers prefer businesses that provide them with a superb quality service or product. Crowdfunding is essentially a fintech product and thus technology is its backbone. Your crowdfunding platform must not only be user friendly, but it also must be secure and have features that help you make better decisions. For example, Zopa has its own algorithm for deciding which borrowers are more likely to stick to repayment schedules.

In order to succeed it is very important that you analyze your existing competition and see what features you have to match in order to attract customers and what you can do better than them.

 

 

 

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.