Scaling Up: When Equity Matters

Forbes Magazine quotes Kim Wales
September 9, 2016

Kimberly Crupi Dobbins recruited two knowledgeable but silent angel investors. Felena Hanson brought in an investor and partner who would play a key role in her operation. Lucy Postins sold minority stakes to established, expert investors who would protect her sustainability values.

Securing equity investment while female can seem daunting, but these three women and many more are doing it. And with careful thought, research and determination, they’re finding the equity investors and setting the terms that are right for them and their growing businesses.

Most entrepreneurs use personal savings and reinvest business profits to expand. But a truly ambitious plan to scale up usually requires tapping outside capital. For most, that means getting a loan, according to the U.S. Small Business Administration (SBA). However, about 2% of business financing comes from angel investors and venture capitalists. These investors provide what can be sizable sums of money to entrepreneurs looking to seize opportunity in competitive, fast-moving industries, and sometimes supply expert advice and connections too. In exchange, they get a share of ownership and future profits.

Women, though, are quite scarce in the elite equity world. Only one woman raises equity financing for every nine men, according to the National Women’s Business Council (NWBC), and women-owned businesses receive just 2% of all equity dollars, while men-owned businesses receive 18% (equally owned and public companies get the the rest). One reason: Few women are in leadership roles at investment firms — in 2014 only 6% of their top management was female.

It can be a challenge to be the only woman in the room in equity negotiations, said Kim Wales, the founder and CEO of New York management consulting firm Wales Capital, at a recent NWBC public meeting. And women often hold back. “We scale back the vision, we scale back the dollar amount that we’re asking for when we’re raising the capital,” she says. “We should have the biggest idea at the table… We should be very confident in our ability to succeed. We should be asking for the capital up front to really make our visions come live.”

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Opportunities and Challenges in Online Marketplace Lending U.S. Treasury Report

On Tuesday, May 10, 2016 the United States Treasury Department published a white paper entitled “Opportunities and Challenges in Online Marketplace Lending.”

“There is a clear need for greater transparency in the market for borrowers and investors,” Treasury Counselor Antonio Weiss said Tuesday in a call with reporters. He said Treasury recommends that regulators form a group to examine oversight needs for the industry and figure out “where further regulatory clarity could benefit the market.”

This report and call to action comes on the heels of the resignation of Renaud LaPlanche, the founder and now former Chief Executive Officer and Chairman of Lending Club, the largest global marketplace lender.  An internal review found a failure to disclose a personal interest in an investment fund the company was considering investing in. The review also found that he was among managers who had knowledge of abuses that were tied to the sale of some loans.

It has become clearer that marketplace lenders need to be more transparent about their business practices and some should be subject to additional oversight from U.S. regulators, according to a Treasury Department study released as the industry grapples with market turmoil and a scandal involving one of its leading firms.

The Treasury department said today in the released white paper/ report (attached) that companies in the burgeoning industry need to develop a public database for tracking data on their loans, and firms that lend to small businesses in particular should be subject to more federal consumer protection laws.

Treasury sought public comment on the marketplace lending industry to help government officials better understand the different business models and products being offered in July 2015.  Treasury outlined six recommendations, including calling for online lenders to improve how transparent their products are to borrowers as well as investors and the need for them to employ consistent standards and disclosures.

You can read the full report here.

Crowdfunding 2.0: Even You Can Invest in the Next High Growth Startup

A new legal framework changes the rules of the game for U.S. crowdfunding

By Andrea Hayley, Epoch Times | April 26, 2016Last Updated: April 27, 2016 10:21 am

Crowdfunding—an online method of soliciting money from the general public for a business, project, or cause—is about to go through a seismic shift. And it could mean insane profits for some investors—profits that were previously unattainable due to government regulations.

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House Bill Would Increase Cap on Equity Crowdfunding

By Gregory Roberts, Bloomberg News

March 24, 2016 — New online crowdfunding Web portals won’t go live until mid-May, but a key House Republican is already renewing efforts to ease existing restrictions on how much money companies can raise via the innovative technique.

Rep. Patrick McHenry (R-N.C.) introduced legislation (H.R. 4855) that would lift to $5 million the amount that an individual venture can raise under the crowdfunding exemption from securities law in the 2012 JOBS Act. That represents a fivefold increase on the $1 million cap now in the law.

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The University of Cambridge and University of Chicago 2015 Americas Alternative Finance Benchmarking Survey

The study is supported by the Inter-American Development Bank (IDB), Business Development Bank of Canada (BDC), KPMG and a number of leading industry research partners

The Cambridge Centre for Alternative Finance at Cambridge Judge Business School and the Polsky Center for Entrepreneurship and Innovation at Chicago Booth School of Business are jointly launching the 2015 Americas Alternative Finance Benchmarking Survey. This survey will be a comprehensive and empirical assessment of crowdfunding, peer-to-peer lending (marketplace lending) and other forms of alternative finance across North, Central and South America and scheduled to be available in April 2016.

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U.K. Treasury publishes draft Financial Services and Markets Act 2000

February 6, 2015

The U.K. Treasury Department has published the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016 for approval by both Houses of Parliament. Various changes to the regulatory framework is underway for the the alternative financing industry such as Peer-to-Peer Lending.

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FINRA Guidelines: How to Apply as a New Funding Portal?

January 29, 2016, republished [original content]

FINA has published guidelines for firms to register as funding portals for Title III, Regulation Crowdfunding.

For your firm to become a registered funding portal with FINRA, your firm must complete the following steps.

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FINRA Funding Portal Rules and Related Forms Approved by SEC

January, 29, 2016, republished [original]

Executive Summary

The SEC approved FINRA’s proposed Funding Portal Rules and related forms for SEC-registered funding portals that become FINRA members pursuant to the crowdfunding provisions of Title III of the JOBS Act and the SEC’s Regulation Crowdfunding. FINRA’s Funding Portal Rules will become effective on January 29, 2016, which aligns with the effective date of the SEC’s registration rules under Regulation Crowdfunding. This Notice provides a brief overview of the new Funding Portal Rules and provides information for prospective funding portals that plan to apply for FINRA membership.

The text of the Funding Portal Rules is available on FINRA’s website. The related forms are available for reference in the Appendices. (As discussed further in this Notice, prospective funding portals must file all forms electronically through FINRA’s Firm Gateway. The forms will be accessible on Firm Gateway effective January 29, 2016.)

Questions regarding this Notice should be directed to:

Alissa Robinson, Director, Membership Application Program, at (212) 858-4764; or
Adam Arkel, Associate General Counsel, Office of General Counsel, at (202) 728-6961.
Click here to see more.

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SEC Comment Letters on Proposed Rules for Rule 501

Founder of Wales Capital, a business strategy and regulatory compliance consulting firm and CFIRA Executive Board Member Kim Wales’ submitted comment letters to the Securities and Exchange Commission on the proposed rules for Rule 501, “Accredited Investor Definition”, Rule 147, a new exemption in addition to modernization of the existing rule and Rule 504 which increases the offering limitation to $10 million. Ms. Wales commended the Commission “for responding to changes in state regulation and capital formation practices in a pro-active and forward thinking manner.” What is critical to stimulating the economy and getting early stage and emerging growth companies the money needed to grow and sustain themselves through capital raising options which can and will be significantly broadened, with no loss of investor protection, if the proposed revisions [incorporating CFIRA’s comments of course] are adopted.

The balance of the letters, outlines CFIRA’s support of multiple specific proposed changes to Rule 147 and Rule 504 and the the letters provided further alternative recommendations to expand the current proposals. As related to the Accredited Investor Definition, Kim Wales, DJ Paul and Chris Tyrrell, some of CFIRA’s leadership co-authored the letter to Commission in August 2014, in which many of their recommendations we incorporated into the proposal released in December 2015. Ms. Wales wrote a cover letter to Chair, Mary Jo White and resubmitted the original letter for further consideration.

Indeed, the proposed changes to Rule 147 and Rule 504 will be a game changer for entrepreneurs and small business looking for capital. They take a lot of the complexity out of, and add significant clarity to, the existing rules making them a much more viable and useful option for capital raisers.

Read the Accredited Investor Definition Letter
Read Rules 147 and 504 Letter



Host Sinclair Noe interviewed Kim Wales, the founder and CEO of Wales Capital and CrowdBureau, on his daily radio show during December 2015. Ms. Wales and Mr. Noe discussed the Securities and Exchange Commission releasing the final rules for Title III, Regulation Crowdfunding of the JOBS Act on October 30, 2015. Their interview spans current views on what is happening in the marketplace, opportunities for investors to make their money work for them and how small businesses can find investors for their company.

The market will not open until May 16, 2016. Ms. Wales reported that the SEC’s vote resulted in allowing people of all income sizes the ability to participate in equity and debt crowdfunding using a registered funding platform or a broker dealer; both will be registered with FINRA.

Companies can now raise up to $1 million in a 12-month period and individuals can invest more flexibly in businesses using Title III by adhering to investor protection rules for investment limits. The playing field is now more leveled across the capital markets.

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