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India’s SEBI considers Crowdfunding

By: Kim Wales (NY) — 01/19/2015

India’s SEBI considers crowdfunding as an alternative to helping young budding businesses find funding. There are thirty-eight countries leading the advancement of policy reform to tackle the economic challenges in their homelands through initiatives like crowdfunding. The Jumpstart Our Business Startups Act of 2012 motivated many nations to revisit their securities laws that involves entrepreneurs and small groups of people raising funds for their ventures through various online platforms involving individuals as well as organizations.

In countries like India, the regulatory commission SEBI is evolving guidelines in consultation with government for funding arrangements for start up and emerging growth companies.

At a seminar held by PHD Chamber of Commerce and Industry, SEBI whole-time member Rajeev Agarwal said on Wednesday, “while it is still in a nascent stage in India, compared to large markets like the US, China and the UK, crowd funding is catching up fast especially in the wake of emergence of social media as a key platform for such activities.”

The market regulator had, in July last year, come out with a draft framework on crowdfunding. Under the proposed framework, the issuer entities and their promoters and directors would need to meet ‘fit and proper’ criteria of SEBI, while they can not use multiple platforms to raise such funds within a year, among other provisions that may prove beneficial to economy.

According to SEBI, there is a need for funding for SME through alternative sources as 2008 global financial crisis made it difficult for banks to lend money to the ventures or start-ups, which may have high risk element.

However, SEBI said there is possibility of systemic risk associated with crowd-funding as well as chances that investors could be defrauded.

SEBI whole time member on Wednesday noted that the finance minister made allocation to the extend of Rs 10,000 crores to extend funding facilities for SMEs and other splinter groups in the budget for 2014-15 “which has yet to be utilised for the desired purpose”.

“The government and SEBI are making guidelines for the utilization of this fund, especially for start up entrepreneurs,” Agarwal said.

He also assured that SEBI would continue to protect the retail investors and promote trading in SMEs on the exchanges within the existing guidelines but expressed inabilities of the regulator to broad-base policy measures in this regard.

However, Agarwal said that while the crowdfunding issues has been discussed by the international board of SEBI in detail, India may have to wait longer to bring in guidelines on the same.

“The subject has not even been debated in great details in advance economy such as US and Europe and that India should wait for some time before contemplating regulations and directives on the matter,” Agarwal said.

SEBI

SEBI Consultation Paper

 

SEC Adopts General Solicitation and Advertising in Certain Private Offerings

July 10, 2013

The SEC adopts Title II 506(c) – general solicitation and advertising of the JOBS Act, which removes the uncertainty about the forward progress from Chairwoman Mary Jo White.  As for her priorities at the agency, White said during her March confirmation hearing that her top priority would be to finish rulemaking mandates under the Dodd-Frank and JOBS Act “in as timely and smart a way as possible.”

“Given the explicit language f the JOBS Act as week as the statutory deadline which passed last July, the Commission should act without further delay,” White said before  today’s vote on Title II for general solicitation and advertising.  “This does not mean, however, that the Commission should not take steps to pursue additional investor safeguards if and where such measures become needed.

Wales Capital Summary: JOBS Act TItle II – Adoption

SEC’s Final Rules: http://www.sec.gov/rules/proposed/2013/33-9416.pdf

 

 

 

CfPA Launches Global Education Network

By: Rob Stott

Still in its infancy, the Crowdfunding Professional Association relied on the expertise of its founders and the skills of its staff to get an online education network successfully off the ground. The goal: to meet the needs of a rapidly emerging industry.

In an industry that seems to be growing and changing by the hour—thanks, in part, to the 2012 JOBS (Jumpstart Our Business Startups) Act—a new associations is moving quickly to help crowdfunding professionals, industry partners, investors, and the general public make sense of it all.

The Crowdfunding Professional Association announced that it is rolling out a Global Crowdfunding Education Network that will provide online resources including breaking news alerts, legislative updates, and crowdfunding classes to professionals in the industry and others interested in learning more about it.

The network is “built to help prepare and educate investors and entrepreneurs for the implementation of Title II and Title III crowdfunding,” the group said in a statement, referring to two sections of the JOBS Act that provide for funding mechanisms for startup businesses.

“The CfPA was founded under the principles of education, advocacy, and awareness at the global industry level for crowdfunding,” said Kim Wales, chair of the CfPA and founder of Wales Capital. “Our real mission is to make sure the entrepreneurs have a place that they can tap into mentorship, build relationships, and build partnerships.”

To launch the website after being formed just last year, CfPA relied on the expertise of its founders, many of whom played a role in creating the framework for the JOBS Act, Wales said. “We’ve taken their approach to create standards, best practices, and guidelines. That’s really what is going to make up the foundation in terms of being able to scale something long term,” she said.

CfPA is getting help from outside sources as well.

“We’re involving the third-party providers, the vendors, the professional service providers, people that are going to be really instrumental in making this process run smoothly, diligently, and transparently,” said Scott McIntyre, cochair of the founding executive committee for education and training, and managing director of Phabriq. “We have to make sure that we’re covering angles that everybody gets.”

Ensuring that the education network was properly designed and marketed meant putting key players throughout the organization in roles that worked to their strengths.

“It has to be organic,” said Wales. “You can’t really force the pieces. The organization is not created on a single person, and it is not created under the view of an individual company. It is a collective view, and that’s for the industry.”

Using the staff’s existing networks and properly promoting the program have been important tactics as well, something McIntyre said other groups can learn from.

“Find the workforce, the people that are going to spread the word voraciously,” he said. “You can have the best idea, the best pitch, or the best website, but if you don’t have a network of people that are following you, that are connected to you, then you are a tree in the forest and no one’s going to hear you fall. Networking is absolutely paramount to any business and is a very valuable asset, one that we cannot undersell.”

Association Now Website: associationsnow.com/2013/02/higher-ed-crowdfunding…network

Study Shows Crowdfunding $$ Can Grow on Trees

By: AnnMarie McIlwain

EquityNet.com, a crowdfunding platform that enables entrepreneurs to raise money from accredited investors, just released findings from a six-year study of their transactions (1,000 completed deals) and the findings are very interesting. If you have considered raising money and wonder if your company is fundable and under what terms, read on.

*Consumer and business product/service companies are popular, accounting for over 40% of equity crowdfunding activity. These are industries previously underserved by traditional venture capital.

*More than half of the completed deals are businesses in the middle of the U.S., not the coasts. Net, you don’t have to be in the Alley (NY) or the Valley (CA) to get funded.

*The fundraising amounts aren’t that big. Around 50% of businesses that use equity crowdfunding seek less than $500,000 in investment capital.

*Valuations are low and vary widely in equity crowdfunding with approximately 40% of pre-money valuations under $1,000,000.

*Investors own 20-30% of the company in the majority of deals. The lowest raises (less than $100,000) led to the highest investor ownership, as one would expect, with a median of 33%. For investment amounts between $100,000 and $500,000, the median investor ownership was 20%.

*The deals were closed pretty fast. Two months was the median length of a fundraising round according to Judd Hollas, CEO of EquityNet.

*Most businesses (70%) do not have revenue, but 75% of those zero revenue businesses expect to generate revenue in their current fiscal year. This suggests that the majority of the businesses are early stage companies and at the revenue-inflection point.

*Few (15%) businesses are currently profitable, and 90% of the remainder predict that they will be profitable in three years or less.

*Only 1 in 10 businesses have patents or patent applications for proprietary technology indicating that businesses do not have to have intellectual property to be considered fundable.

*More than half of the businesses seeking funds are legally structured as LLCsreflecting the growing use of this cost-effective corporate structure.

This means that investors are funding early-stage companies of many kinds and they are not taking a ridiculous bite out of the founder’s equity. That is good news for those businesses seeking capital while the regulations are being written for the JOBS Act legislation, signed into law last year. Once done, entrepreneurs will be able to ask unaccredited investors (friends, neighbors, relatives) to help fund their business too, further increasing the likelihood of fundraising success. The maximum raise will be $1 million.

For raises higher than $1 million, entrepreneurs will have to continue to do a private placement (otherwise known as a Reg D offering) through platforms like EquityNet or others. Additional platforms will be launching in anticipation of the JOBS Act regulations.  Once complete, these platforms will, for the first time, be able to advertise investment opportunities to accredited investors, thus expanding the market of investors and fundraising potential.

For a primer on securities-based crowdfunding, this video features Tom Szaky, a 30-year-old successful entrepreneur with a high growth, $15 million business. He describes how this new avenue for fundraising could have helped him when he started out 10 years ago and how crowdfunding for equity may democratize the investment upside of early-stage companies.

Read the full story: http://careerfuel.net/?p=7899