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NextGen Announces Finalists for Crowdfunding Video Awards

Crowdfund Beat News Wire,

NextGen Announces Finalists for Crowdfunding Video Awards Season Finale, Recognizing the Year’s Most Creative Campaign Videos

NextGen Crowdfunding® – the leading company that helps people explore new types of crowdfunding – announces the finalists for the season finale of the Crowdfunding Video Awards (CVAs). The CVAs is a new online series from NextGen showcasing videos from both rewards-based and investment crowdfunding campaigns featured on Indiegogo, Kickstarter and other leading rewards-based and investment crowdfunding platforms. This innovative show provides entrepreneurs with new ways to promote their companies to supporters and investors.

 

 

The first season of the CVAs included six preliminary awards shows and will culminate in a final seasonal awards showon Wednesday highlighting the first-place winners from all six rounds of voting. These six campaigns will go head to head to be recognized as one of the top three campaigns from this season and win:

  • First place: $10,000
  • Second place: $5,000
  • Third place: $2,500

 

The finalists include:

  • Limitless Phone Case by Mous (Round One): Will protect your phone from breaking
  • Noria by Noria Home (Round Two): First window air conditioner designed with you in mind
  • FireFlies Audio (Round Three): Truly wireless earbuds
  • Farm from a Box (Round Four): Complete off-grid toolkit for tech-powered agriculture
  • Purple Pillow (Round Five): World’s first no-pressure pillow
  • MuConnect (Round Six): World’s first fast charging magnetic adapter

 

Viewers can log on to NextGenCrowdfunding.com to watch the season finale on Wednesday, May 3 at 3 PM PT / 6 PM ET.

 

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. 


2017 Real Estate Crowdfunding Sites

Alphabetically

CrowdFundBeat Media, Copyright © All Rights Reserved

Report: Real Estate Crowdfunding Set to Be $5.5 Billion Industry in 2017

Also:  CrowdFunding Lists, Data, Analytics, Research, Statistics, Reports, Infographic

Crowdfund Beat Media, “2020 Prospect Report”the leading research and advisory and firm specializing in  crowdfunding solutions for private, public and social enterprises, has announced the release of its comprehensive 2017 CF-RE Crowdfunding for Real Estate report, which will provide the first ever detailed look at the intersection of real estate and crowdfunding. The 120-page report features data on the exponential growth of real estate crowdfunding, the emergence of specialized real estate crowdfunding platforms and how this revolutionary new method of real estate finance and investment is disrupting this asset class.

Interesting to note that some platforms are purely providing additive capital to sponsored deals, earning a fee for intermedition, while some are a bit more compensatory, with the inclusion of management fees and a carried interest. As of now, all are focused on accredited investors, though one has included DPOs in their mix. Here is the lists:

2017 Real Estate Crowdfunding Sites. Alphabetically

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not in the list? News@crowdfundbeat.com

CrowdFundBeat Media Copyright © All Rights Reserved

Crowdfunding expands innovation

Brett Israel, Media relations |berkeley.Edu

Cowdfunding platforms, such as Kickstarter, have opened a funding spigot to startups in regions that have suffered from a venture capital drought, a new UC Berkeley study shows.

Graphic of kickstarter vs venture capital funding in US

County-level distributions of Kickstarter campaigns and venture capital investments, and the ratio of the amount of Kickstarter to venture capital funding, 2009–2015. Increasing blue to red indicates a higher ratio of Kickstarter to venture capital funding. (Graphic by J. YOU/Science)

Historically, funding for innovation has come from venture capitalists, which tend to fund entrepreneurs that often mirror the investors in terms of their educational, social and professional characteristics. Venture capital funding also tends to be concentrated in a small number of regions, such as Silicon Valley. The study found that crowdfunding has spread startup financing beyond these entrepreneurial bubbles.

“Most venture capital gets invested in Silicon Valley and Boston, and thus shortchanges the rest of the country for entrepreneurial financing,” said study senior author Lee Fleming, faculty director of the Coleman Fung Institute for Engineering Leadership at UC Berkeley. “But crowdfunding has opened up funding to everyone else.”

The article was published in a recent edition of the journal Science.

For the study, researchers analyzed data from 2009 to 2015 on successful Kickstarter campaigns and venture capital investments. Because some Kickstarter campaigns are for projects that have no real possibility of being backed by venture capitalists, such as the creation of artwork, and because venture capitalists may invest in some kinds of companies, such as biotechnology, that fall outside the scope of the Kickstarter platform, the researchers compared investments that could have reasonably been funded by either crowdfunding or venture capital.

The researchers identified 55,005 Kickstarter projects in categories similar to the industries in which venture capitalists invested, and 17,493 venture capital investments in industries engaged in activities similar to those of Kickstarter campaigns. The researchers then used this dataset to map Kickstarter projects and venture capital investments by county and by year.

Although the typical Kickstarter campaign involved a smaller amount of money, these campaigns covered a broader swath of the nation, the analysis found. Several places with the largest number of successful Kickstarter campaigns have not been magnets for venture capitalists’ investments, such as Chicago, Los Angeles and Seattle.

Venture capitalists’ investments were highly concentrated, the analysis found. Just four counties, located in the Boston area and Silicon Valley, account for 50 percent of all matched venture capital investments, according to the data set.

To adjust for differences in population and other factors that might produce more investments in all types of innovative activity in some places, the researchers calculated the relative intensity of Kickstarter versus venture capital dollars in each region. They found that Kickstarter allocates a much larger share of its resources than venture capitalists to the interior of the country, away from coastal population centers and traditional technology hubs. Even in the Boston area and Silicon Valley, Kickstarter investments were concentrated in different areas than venture capitalists’ funding. Kickstarter funding in the Bay Area, for example, goes disproportionately to Marin and Napa counties, whereas San Francisco and the Peninsula counties received more venture capitalists’ funding.

The study found that crowdfunding in a region, and in particular successful technology campaigns, appeared to cause an increase in venture capital funding in the region. This occurs as venture capitalists look for promising new ideas and a successful campaign is a very good indicator of potential.

“This effect has gotten consistently stronger over the last six years,” Fleming said. “If this phenomenon continues, crowdfunding could begin to address regional inequality in entrepreneurial financing, through both direct crowdfunding investment and induced venture capital investment.”

Source:

http://news.berkeley.edu/2017/01/13/crowdfunding-expands-innovation-financing-to-underserved-regions/

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. 

 

 

Reg A Success Stories

At Dealflow’s Crowdfunding Conference in NYC last week one of the speakers (a good friend of mine) said that only 2 Reg A+ offerings thus far have closed (been successful), one in real estate (Fundrise) and one in automotive (Elio Motors, a FundAmerica/StartEngine/Hambrecht/Jumpstart customer).

That’s incorrect.

FundAmerica has, thus far, been a technology and compliance service provider to 11 Reg A+ offerings. Of those, 3 have “failed”, meaning they did not reach their minimums and investors were refunded from escrow. Of the other 8, 6 have met their minimums (and started receiving disbursements from escrow even as they continue to raise capital) and 2 are just launching this week which I am extremely confident that they too will hit their minimums and, thus, be successful.

So, 8 out of 11 are “successful” offerings. Of those, only 1 is now listed (Elio, on OTC). The others are not going the route of DTC qualification and trading. They are doing the job intended by the issuers: raising capital and creating an engaged base of customers-as-owners.

This brings up a discussion that I started awhile ago…
How should we, as an industry, define “success” in Reg A+, and what is the best use of the exemption?

I continue to believe, and the market has thus far proven, that dreams of generating enough momentum for an out-of-the-gate listing on OTC or NASDAQ are, for the most part, foolish and premature. There will be some exceptions to this, of course, as Elio has shown and as another soon-to-launch offering will likely show. Those offerings have either a ridiculously huge and passionate base of investors or solid institutional support that is coupled with decent retail (crowd) interest. But that isn’t most offerings; very few, in fact.

Reg A is, to me, a stepping stone in a company’s capital-markets life cycle. It’s best suited for businesses that have previously raised some capital, who have a real product and are generating revenue, and who want to either raise some pre-IPO capital and/or start engaging a retail/crowd base of investors in their company. “Success” won’t be defined by if or how it’s trading on OTC or NASDAQ but, instead, by the fact that it successfully raised some amount of capital and/or created terrific marketing traction. Some will be common equity, some will be pref’d (such as real estate Reg A offerings where they declare minimum investor returns), and some will be debt. They will remain, as intended by rule, “unrestricted private securities” and not IPO securities as most crowd-investors don’t really care if you plan on publicly trading your stock or not, as that’s not why they are buying it. At some point we will see traditional institutional investors become interested in Reg A offerings, but until then it’s a tough road to build enough of a base and market enthusiasm for a listing.

Then, as the company grows, it can ultimately decide if it wants to take the next step in the capital markets by filing an S-1, doing an IPO and listing on OTC or NASDAQ. This, in my opinion, is the most responsible path for the majority of potential Reg A issuers...use Reg A to raise capital and engage your base, and work towards maturing to the point where you can attract the interest of institutional investors and responsibly afford to be a “fully reporting” company.

So, has Reg A been successful thus far? Yes, absolutely! Numerous businesses in automotive, medicine, aeronautics, brewing, gaming, and real estate have raised money and engaged their customers, suppliers, employees and business partners using Reg A. Are any of them trading on an exchange? Other than Elio, none of them are, and that’s a good thing as they aren’t ready for it.

Industry professionals need to set expectations on this. The lesson has already been learned that without a strong (VERY STRONG) marketing commitment from and by the issuer directly, regardless of which brokers or platforms are involved, the offering will (“will“, not “might“) fail. Even with that, the realities of how much will actually be raised or how long it will take to raise it have categorically shown that the answers to those will be “less than overly-enthusiastic people had hoped” and “longer than anyone expected“. But, in the end, if structured correctly for the intended audience and if marketed correctly to that audience, then the company will get some capital and the crowd will become part of the ownership. The offering will have been a success

Oh, and I would **LOVE** to name all the successful issuers using FundAmerica’s services, but my General Counsel is locking me down on that for fear that some regulator will misconstrue that as “soliciting” or “recommending” them as investments. {sigh} So we at FundAmerica and FASTransfer will just keep doing what we do: quietly & efficiently helping hundreds of issuers, broker-dealers, platforms, portals, and investment advisers frictionlessly, and in compliance, raise and manage billions of dollars in capital from tens of thousands of investors via our technology and back-office services.

 

 Scott Purcell
CEO
FundAmerica, LLC

 

About the Author: Scott Purcell is the CEO of FundAmerica, a fintech services provider to the emerging equity and debt crowdfunding industry. His firm provides escrow, payment processing, and compliance technology for numerous broker-dealers, investment advisers, portals and others who make a business of online capital formation pursuant to rules now in effect thanks to the  JOBS Act. FASTransfer is the only tech-driven SEC registered transfer agent focused on the crowd-industry. He is an active Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”.

Legal Disclaimer:
These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice. I am not advocating, advising or recommending anyone purchase any specific or general investment of any type, ever. The issues discussed include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.

Will Equity Crowdfunding Overtake Angel and VC?

BY Alex Topchishvili, Director of Marketing at Wemultiply, a 9.8 Group Company, CrowdFund Beat Guest post,

In 2010, AngelList began to use the internet to disrupt the traditional early stage funding model, allowing individual angel investors to engage directly with early stage companies, access their ideas and plans, perform diligence, and individually fund, or pool capital in support of early stage deals – democratizing the investment process for accredited investor participants.  In line with this and other developments, angel networks, empowered by the Internet and an ability to share information, began to expand their reach, at the same time as VC’s began to look for less-risky upstream investments where their capital strength and pricing power relative to risk was more advantageous.

VC, Angel, CrowdfundingThe onset of the financial crisis in 2008, which caused institutional investors to pull back from financing early stage businesses, left the capital markets with a significant funding gap for early stage ventures. Other disruptive models appeared and achieved success, such as donation, debt and reward-based crowdfunding campaigns.  This emergence, the advancement of these models globally, along with the continued lack of access to early capital particularly in the US, led to pressure in the world’s largest private capital market to change the rules of the game and ultimately the passage of the JOBS Act In 2012.

The 2012 JOBS Act set the stage for 2013’s implementation of Title II, which lifted the ban on general solicitations & advertising of securities, where the purchaser is an accredited investor, as well as the 2015 implementation of Title IV, popularly known as Regulation A+ which allows both accredited and non-accredited investors to participate in what are often termed ‘mini-IPOs’ – the first expansion of private investment opportunities to the non-accredited investor base in the US since 1933. With Title III of the JOBS Act set to provide a further significant expansion of equity crowdfunding for non-accrediteds, what is occurring is the very beginning of “collaborative” capitalism. Crowdfunding has activated communities of interest and emerged as a new channel for fundraising, product validation, market testing, and customer engagement.

Now, jumping back to the VC’s:

The 2015 Massolutions Crowdfunding Industry Report estimates that the total annual value of all crowdfunding deals could reach $90 billion by 2020. To put that into perspective, venture capital funding approximates $30 billion per year, whereas angel capital funding approximates $20 billion annually. Equity crowdfunding, specifically, is projected to reach $36 billion annually by 2020 and to surpass venture capital as the leading source of startup financing.

Crowdfunding, however, is not likely to develop in isolation – it will be inclusive of both individual and institutional investors, with the likes of traditional angel investors, VC’s, and other institutional players participating in online platforms. But equity crowdfunding platforms maintain a unique advantage over traditional model.

Equity crowdfunding platforms can scale in a way that VC’s can’t, by appealing to a much broader audience with a smaller ‘bite size’. They are more able to rapidly test and evaluate a larger volume of deals, in a larger laboratory – and thus intelligently deploy the larger volumes of capital that the market seeks to put in play. In the words of Fred Wilson of Union Square Ventures, “My concern is that the venture capital industry, as it’s organized today, can only put to work $15 billion intelligently. That doesn’t mean that more money can’t be put to work intelligently. It just means that we can’t figure out a way to do it.” So what happens when an entirely new class of investors is empowered to invest for the first time? Staggering growth and impact.

Daft or Deft – Trump the National Debt

By Steve Cinelli , CrowdFundBeat Sr. Editor, @stevecinelli

Can the political narrative get any stranger, and in many ways, even incredulous?   First off, the country is undergoing an election season wherein the two front runners are disdained by the majority of Americans.  One (the Dem) purports to have experience, but seriously, she merely has had “exposure”:  yes, a nice (planned) resume, but has she actually accomplished anything as a statesperson or legislator?  Ask about “her” treaties or “her” laws or initiatives that have translated into real progress or meaning, domestically or abroad. Seems to be a goose-egg. But give her credit for marketing…  Then the other (the Rep) is waxing on about areas of foundational principles that are more daft not deft.  So we have an electorate with the propensity to vote to negate the opposing side, or simply support the lesser of two whatevers.   How would our founding fathers, such as Jefferson or Madison or Adams or Washington or Franklin, view the current roster? Graves are turning.

National Debt

And then look at recent comments, the most amazing (not to be construed as a positive perception) is the “Trumpette” about defaulting on the national debt.  Rather than even spending a moment of time on the incomparable ramifications of such on both the US and global markets, the inane unlettered intimation should cast a big question mark on the quasi-politician’s understanding of how certain things work.   I can certainly appreciate Mr. Trump’s effort to utilize his experience as financier and investor, even how he desires to show his acumen with overleveraged situations which need restructuring.   Some can certainly posit that the US balance sheet is overleveraged, and the national debt should be reduced.   But those that understand banker’s parlance, including cash flows, debt serviceability, cost of capital along with primary, secondary and tertiary sources of repayment, may view the national financial statements as not really that bad.  The economy is servicing its debt, and true, the government continues to spend more than it takes in, thus expanding the debt level, which could prove deleterious in a higher rate environment.  But with its cost of capital and ability to adjust its revenues, the debt is currently manageable, and fundamentally, the government does pay it bills.

 

Mr. Trump, as a “restructuring expert” should look at other pathways to address the debt overload, like many private equity firms or companies with problematic portfolio company balance sheets.   Why not think asset sales to monetize less needed assets with proceeds to pay down the debt, if that truly is part of the agenda?        The nation’s balance sheet holds tens of millions of acres of land and thousands of buildings, that are used for both private and public sector purposes.   Would private sector participants be interested in outright purchases of such, and for properties used by the public sector, what about “huge” sale-leaseback programs?  What about a trillion-dollar REIT, sponsored by the Federal Government, with the faith and credit of the government, as a lowcredit risk tenant?

What about operating segments of the government which could be sold off, like an underperforming or non-strategic corporate subsidiary?   One target may be the US Postal Service.    Federal Express, UPS and Amazon have proven that investors have an appetite for the logistics business.   Pull in a Blackstone or a KKR or TPG or probably all of them to take USPS “private”.   How much would it monetize?   Certainly hundreds of billions.

Of course, we have listened to exhaustive conversations about returning the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, to private ownership outside the current conservatorship of the government.    While lip service has been paid to such, the government has little motivation IMHO as these two entities are absolute cash cows now.  Having invested $187 billion during the financial crisis to stave off further collapse of the housing finance system, the government made a right choice to intercede.  But we have evolved from the crisis, and over the last five years or so, the GSEs have paid the government back over $400 billion in dividends, not even retiring any portion of the original preferred stock.   Put a multiple on say $100 billion a year in cash flow, and what would the market cap be for these entities?  And with the 90% market share of the mortgage market, maybe even a “premium” could be achieved.  In fact, given the prospective deal size, the country could even provide “seller financing” to ease the transition to private ownership.

And besides the GSEs, even though Rand Paul has stated that our central bank is broke, vehemently opining that our monetary system will shortly collapse, he obviously hasn’t taken a look at the financial performance of the Federal Reserve.    Yes, there are financials and audits to review.    It may surprise folks that the Fed is probably the best performing bank in the country, based on (ROA) return on assets and (ROE) return on equity metrics.  The problem is that virtually every dollar of profit goes back to the Treasury department for government spending, generally outside the appropriations process.   Member banks of the Fed receive a small dividend, say around 7% annually, but the Treasury Department pulls 90% of the annual profit, leaving limited retention of earnings for the Bank, resulting in an excessively leveraged institution.  This is not underperformance of the Central Bank, rather a land grab of its positive cash flows.  Though there are policy and pragmatic reasons to have control of the Fed, imagine the monetization opportunity for a segment of the private sector to participate as investors.   Compared to other financial institutions, its market cap would not match Wells Fargo, but still there would be hundreds of billions of value to be availed.

Yes, if you want to reduce the debt levels, think about other tools of restructuring, like shedding some assets. Upon review, there may be multiple trillions of dollars to put a major dent in, maybe even eliminate, the national debt.  As long as the sales proceeds are directed to the purpose of deleveraging, rather than redirected to new spending. A one-time proposition, but a restructuring path forward. But the notion to threaten haircutting our sovereign creditors?  Please.

 

 

 

Why VCs Do Not Like Equity Crowdfunding

By  Executive Chairman and co-founder at StartEngine Crowdfunding CrowdFund Beat Guest Post,

In April 2012, President Obama signed the JOBS Act and announced that Americans will now have access to the capital they need from ordinary investors. Yet the media received the declaration quietly — meaning most U.S. citizens remained blissfully unaware of this revolutionary new regulation.

The venture capital industry is probably one of the most vital sources of risk capital for our economy. It has produced the industry giants that command worldwide success: Google, Apple, Microsoft, etc. Without VC, most of those businesses would have never existed. Moreover, VCs have significantly contributed to our country’s technological success. Most people are not aware that the No. 1 export in the U.S. is the sale of intellectual property (think software, hardware, and movies).

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In 2015, VCs invested nearly $60 billion in capital. At face value, that number is impressive, but when you realize that about 600,000 new businesses are started each year in the U.S., you see that, distributed evenly, each company would only receive about $100.

Granted, VCs invest in less than 1 percent of the companies formed in the United States — with the bulk of that money going to a few hundred companies that are likely located in Silicon Valley, Los Angeles, and New York. It is not surprising: These communities are rich in educated, experienced, and talented entrepreneurs. However, focusing on these communities fails to represent half of the American demographic, which lives between the coasts and is racially diversified.

For example, less than 3 percent of VC-funded businesses have a woman CEO, and 85 percent of all VC-funded companies do not have any women on their executive teams. What’s more, scarcely 1 percent of VC-funded businesses have black founders. In comparison, nearly 90 percent of VC-supported founders are white, and 83 percent of all founding teams are comprised entirely of Caucasian people. Finally, most entrepreneurs who receive capital graduate from a select pool of universities. 

Are you starting to get the idea?

startup
Startup

Let’s go back to the JOBS Act. It promises to offer entrepreneurs the ability to receive capital from ordinary people. The VCs have privately dissed this new regulation, believing that ordinary people are not investment savvy and will lose their money if offered the opportunity to invest directly into companies.

True, most everyday consumers are not experienced financial wizards. They like to purchase goods and services. So far, they have not invested in startups because, well, they could not. They did read the success stories of early investors who were insightful enough to invest into Facebook and Uber, but they all knew that they were not members of that club — nor would they be invited to join anytime soon.

But sometimes, technology has the ability to disrupt markets on its own. Think of Uber offering a more convenient, cost-effective, and clean ride. Think of Airbnb offering the ability to monetize someone’s unused bedroom or apartment. These companies enter markets, offer new services, and disrupt the incumbents for the better. 

These technologies were fueled by the money from the VCs. And while they laughed all the way to the bank, they still think they’re the only ones who should be allowed to participate in where most of the value is created.

This time it is different. The JOBS Act is allowing ordinary people to challenge the status quo. How awful to think the VC’s position as the exclusive source of capital is being disrupted. Is it ironic that technology will eat its own creator? The JOBS Act has created the new monster: equity crowdfunding.

For those generous people who donated money on Kickstarter or Indiegogo, they understand that the crowd has a voice and a certain wisdom — that je ne sais quoi. Can these crowds of ordinary people be sometimes right on a company idea? The answer is yet to be determined, but the capital revolution started on June 19, 2015, when several new equity crowdfunding platforms were launched and started to pour capital into startups. 

Can you blame VCs for feeling a little disrupted? Are they able to see the wrath of disruption that has blinded so many industries that realized too late that someone ate their cheese? 

You be the judge, but we are seeing a new opportunity to offer a larger group of entrepreneurs the ability to get the capital they need without bias. The real skill entrepreneurs need is to convince a few thousand people out of 250 million that their startups are worthy of existence. Marketing is the new equalizer. After all, if thousands want to invest, maybe tens of thousands want what this new startup is offering. 

VCs still have their critical role to play and will help to build our new economy; however, there is a new kid in town, and his name is the crowd. Let the crowd decide who gets to be the next Zuckerberg and anoint new billionaires. This crowd will now participate in the story and use its gains to hopefully fuel many thousands more and create even more jobs for our economy.

Yes, the middle class can decide how it will enrich itself and offer a more equitable distribution of wealth and protect the values we so much love.

Equity Crowdfunding: Is It For You?

By Rick Pendykoski, Crowdfund Beat Guest Post,

Equity crowdfunding is a huge trend in the startup market, helping a number of companies launch their goods and services without heavy investment of their own. While it’s widely considered one of the coolest ways to see ideas come to fruition, equity crowdfunding may not be the best option for every investor.

What is Equity Crowdfunding?

Crowdfunding is the practice of raising funds for a venture or project through the collective efforts of a large number of individual investors, largely through online crowdfunding platforms. Equity crowdfunding, also known as invest crowdfunding or crowdinvesting, is an online process where investors can buy shares in a new, unlisted private company.

Image credit: Jim Frazier
Image credit: Jim Frazier

Why is Equity Crowdfunding So Popular?

Equity crowdfunding has become a popular trend in the startup industry. Particularly in developing countries, small business owners and budding entrepreneurs can use this method to raise the necessary capital and launch new ventures. By selling shares through an online platform, it is possible to acquire funds from a large pool of non-accredited investors.

With this method of investment, there are also significant benefits for small-scale investors, who have the opportunity to invest in endeavors that seem to offer the most promise.

Should You Invest in Equity Crowdfunding?

Despite its many benefits, equity crowdfunding is not without its share of drawbacks. There are risks associated with such a venture, not least of which is the high chance of failure. As an investor, be prepared for a negative outcome from the get-go. Also, think about how a failed business venture may affect your retirement savings and income.

Weigh the pros and cons very carefully if you decide to invest in an equity crowdfunding venture. Even smart and experienced entrepreneurs can end up losing money in startups, but they have ample means at their disposal and can usually afford a loss. Can you say the same for yourself?

The JOBS Act and Its Governing Rules

The 2012 Jumpstart Our Business Startups (JOBS) Act is designed to assist startups in raising funds from small investors. By easing certain securities regulations, the JOBS Act has opened up new pathways for startups to raise investment capital. This way, private individuals can capitalize on investment opportunities once reserved for those with ample means alone.

Starting May 2015, anyone is able to invest in startups registered for equity investment with the Securities and Exchange Commission (SEC). The agency has certain rules and regulations that potential investors are required to comply with, and these include:

  • The upper limit that startups operating under the banner of SEC can raise is $1 million over a 12-month period.
  • Individuals whose net worth and annual income is $100,000 or more can make a maximum investment of 10% of net worth or annual income over a 12-month period.
  • Investors who earn $100,000 or less annually can contribute a maximum amount of $2,000 or 5% of their net worth or annual income over a 12-month period.
  • The maximum limit an individual can contribute in one or more ventures through crowdfunding, whatever their annual income or net worth, is $100,000.

Key Considerations for Potential Investors

Equity crowdfunding is open to private individuals, but does that mean you should invest in such an endeavor?

Keep these important considerations in mind before you make your decision:

  • Startups have a very high rate of failure. A large majority of startup projects simply fail to take off, in which case your investment can backfire. Before you go ahead, keep in mind there is a very big chance you may end up losing every dollar of your initial investment.
  • Startups that operate through crowdfunding channels can bypass standard investment banking procedures. Such processes include auditing, which is intended to uncover major risks or complications associated with the venture. As a result, many startups are able to hide potential problems, and investors may not realize what they are getting into until it is too late.
  • Enterprises involved in crowdfunding are also able to sidestep standard investment valuations. Rather, the value of the investment is based on fair estimation. In the absence of an authentic investment price, the values are often left to be determined by random investors or company sponsors. Such a valuation based on guesswork and speculation may not reflect the actual worth of the venture.

When you invest in crowdfunding, ask yourself these key questions:

  • Are you financially and emotionally prepared to lose your initial investment?
  • If the venture fails, how long will it take you to recoup your losses?

Don’t invest in crowdfunding unless you have a proper plan of action. If you step in blind, you may end up losing all your money and incur unrecoverable losses. This may have an adverse impact on your nest egg, even with employer-sponsored retirement savings as a backup.

About the author: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com or visit www.sdretirementplans.com.

How Reg A+ enables raising up to $50 mil from the general public

Given that only a few marketplace lenders accept money from retail investors, Regulation A+ may be a viable option to help these platforms diversify their funding sources away from institutional capital.

One of the overarching themes at LendIt 2016 last week was the current liquidity and funding challenges in the capital markets and platforms’ difficulty in raising new venture capital. It was apparent to many industry participants that there is a need to diversify sources of funding. I had the pleasure at LendIt to sit down and discuss Regulation A+, a new capital raising option for startups and emerging growth companies, with Jason Gilbert, a Partner in the San Ramon office of Armanino LLP. Armanino is the largest independent accounting and consulting firm based in California and one of the largest firms in the U.S. Jason has extensive knowledge in crowdfunding and helps emerging companies navigate this brand new capital channel. He advises clients on everything from annual assurance services, day-to-day accounting, offering document structuring, back office operations, and management software.

REG D

$50 million in a 12-month period with no restriction on the number of investors
As part of the JOBS Act of 2012, Regulation A+ (“Reg A+”) became effective on June 19, 2015. The original Regulation A limited startup fundraising to $5 million in a 12 month period, and to only 35 non-accredited investors. The new and improved Reg A+ now allows startups to raise up to $50 million in a 12-month period with no restriction on the number of investors. This vastly increases the pool of eligible investors; over 90% of the investing public previously couldn’t invest in startups even if they understood the risk and had the liquid capital to deploy, because accredited investors make up less than 10% of the US population, according to the SEC. For the first time, private emerging growth companies can raise money from nearly all Americans.

Sharestates filed for $50 million Reg A+
Some in the securities industry have referred to Reg A+ offerings as “mini IPOs” because a logical use is to raise equity capital in early funding rounds for startups. In fact, most of the Reg A+ deals announced to date have been common equity offerings, with a few preferred equity offerings. However, as Jason explains, Reg A+ offerings can be for any type of securities: debt, equity, convertibles, etc. In December 2015, Sharestates, a marketplace lender catering to small business borrowers, filed a Reg A+ offer to raise up to $50 million in debt securities.

What are the steps ?
Companies looking to raise capital via Reg A+ still need to file and be approved by the SEC before launching an offering. But Jason pointed out that one of the big benefits for a company considering a Reg A+ offering is that can “test the waters,” or get indications of interest, before proceeding with a public securities offering. In other words, an issuer can contact investors with potential terms of the offering in order to make an educated decision on whether or not to proceed with an offering, and before spending time and money on the process.

Tier 1 vs Tier 2 offering
Jason also detailed for me some of the main differences between Tier 1 and Tier 2 offerings:

While Tier 2 offerings allow for raising up to $50 million in a rolling 12-month period, Tier 2 filers are subject to ongoing SEC reporting following the raise. Tier 2 issuers must file audited financials annually and must abide by more stringent reporting requirements. However, they are exempted from state registration requirements.

Tier 1 offerings are limited to $20 million during a 12-month period, but are not required to file audited financials, and ongoing filing requirements are much less stringent. However, Tier 1 issuers are required to register their securities under the Blue Sky laws of the states in which they are sold (or qualify for an exemption). But because most states would have their own requirements for audited financials as Jason noted, the odds are that most Reg A+ issuers will likely end up filing for a Tier 2 offering.

Difficulty of Reg A+
Like any offering, Regulations A+ has its own unique benefits and things to consider with regards to regulatory compliance. It is important to have strong partners that can help the issuer to prepare for the reporting requirements that go along with such an offering, and to guide the issuer through the registration process. California-based Armanino LLP is in the unique position of being well versed in Regulation A+ and has a deep expertise of emerging companies who have outgrown their small shop solution. These companies need advisors who can grow with them, help them with their strategic position, manage their day-to-day operations, and remain in regulatory compliance.

mark-d-smith-150x150 (1)
mark-d-smith-150x150 (1)

About Jason Gilbert and Armanino LLP

Jason has more than 10 years of public accounting experience, with specialized expertise in the real estate lending sector, including private equity funds, real estate crowdfunding and peer-to-peer portals. In addition to annual assurance services, he helps these clients with day-to-day accounting, the structuring of offering documents, financial close, back office operations and fund management software. He is also a key member of the private education practice. He has extensive experience helping private schools with value-added initiatives, including key performance indicators and peer-to-peer benchmarking. Jason is a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants, the California Mortgage Association and the American Association of Private Lenders. He earned his BS in business administration and his MBA from California State University, East Bay.

Armanino LLP is the largest independent accounting and consulting firm based in California and one of the largest firms in the United States. Armanino provides an integrated set of audit, tax, consulting, business management, and technology solutions to companies in the U.S. and globally. Armanino extends its global services to more than 100 countries through its membership in Moore Stephens International Limited—one of the world’s major accounting and consulting membership organizations.

source
http://lending-times.com/how-reg-a-enables-raising-up-to-50-mil-from-the-general-public/