By ROBB MANDELBAUM

When the Jobs Act became law in April, supporters proclaimed a new era for small businesses seeking to raise money.

The “game changer,” as President Obama put it in the Rose Garden as he signed the bill, was a provision to let small companies “crowdfund” — that is, sell stock and other securities over the Internet directly to the public. “For the first time,” the president said, “ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”

But it now seems that dawn will break late on this new age of democratic investing. The Securities and Exchange Commission appears certain to miss its end-of-year deadline for issuing regulations to put the provision into effect. And with the departure of the S.E.C. chairwoman, Mary L. Schapiro, and three of her top deputies — including two who manage the offices writing the regulations — some in the nascent equity crowdfunding industry worry that it could be 2014 before their line of business becomes legal.

The delay has frustrated many crowdfunding backers. The 270 days that Congress gave the S.E.C. to write the rules “is not a suggested timeline; it is a Congressional mandate,” said Kim Wales, an organizer at Crowdfund Intermediary Regulatory Advocates, a lobbying group formed in April to represent the new industry, in an e-mailed statement. “The S.E.C. answers to Congress, not the other way around.”

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Originally published in the New York Times on December 27, 2012
http://www.nytimes.com/2012/12/27/business/smallbusiness/why-the-sec-is-likely-to-miss-its-deadline-to-write-crowdfunding-rules.html

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

Tom Szaky is a 30-year-old successful entrepreneur with a high growth, $15 million business. He, like many, believes that crowdfunding for equity—a new vehicle for raising capital, expected to be available in 2013—will make it substantially easier for small businesses to get off the ground and/or take their business to the next level. Hear Tom describe 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. For anyone who doesn’t understand what crowdfunding for equity is and why they should care, Tom will put you “in the know”!

Help us tell the Securities and Exchange Commission to make it happen- click here to sign a petition  telling the SEC that we need them to finish the regulations on time (by the end of this year!) so that we can start raising money for our businesses and create jobs.

AnnMarie McIlwain, Founder and CEO of CareerFuel, is a Board member of CFIRA, a leading advocacy group working with the Securities and Exchange Commission, the Financial Industry Regulatory Industry Regulatory Authority (FINRA) and other affected governmental entities to help establish industry standards and best practices for equity based crowdfunding.

Video Production by Mayer Dubinsky Videography

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

If you are a small business owner or an aspiring entrepreneur you might be wondering what you need to know about the new crowdfunding law. If so, keep reading!

*The JOBS Act was signed into law on April 5, 2012. One of the Act’s provisions will allow startups to raise capital using crowdfunding. The basic idea is that entrepreneurs will be able to offer equity in exchange for investments in their startup. At present, startups can raise an unlimited amount of money using crowdfunding, but they cannot offer equity. Today’s incentives range from free product, to tee-shirts and karma.

*The Securities and Exchange Commission (SEC) has until December 31, 2012 to create regulations for how crowdfunding will be executed. Fall 2012 is the earliest time this might be completed, but realistically it is expected to take until year’s end.

*Money can only be raised through brokers or on Internet “funding portals” (such asKickstarter and HelpersUnite) registered with the government. Entrepreneurs cannot go directly to consumers to crowdfund for equity.

*Monies raised are dispersed  if they achieve their stated goal.  So, if a company’s fundraising goal is $500,000 in 30 days and they only raise $490,000 at the end of 30 days, then the company does not receive any funds and the crowdfunded investments are returned to the individual investors.

*Entrepreneurs can raise $1M every 12 months until they reach $10M in total assets.

*The entrepreneur can decide how much equity is being offered in exchange for the total investment being raised.

*The SEC will need to rule on whether any or all crowdfunding investors will count toward the 2,000-investor limit that triggers the requirement for a company to register its common stock and become a publicly reporting company. The JOBS Act, as written, does not limit the number of crowdfunding investors. If the SEC decides to include crowdfunded investors in the 2,000 investor limit, entrepreneurs will then need to limit the number of small investors (as in only 20 people can invest $200, 30 at $400, etc.). If this were the case, crowdfunding would be more like group funding.

*Any person who owns 20% or more of the company stock will be required to go through a background check, the details of which will be made public on the crowdfunding site (e.g., credit history, tax liens, etc.).

*Any money raised through family and friends prior to the first crowdfunding round will need to be disclosed.

*Investors will be limited to a total annual investment based on their net worth. For those with annual income of less than $100,000 or equivalent net worth, investments are limited to the greater of $2,000 or 5% of their income/net worth. For those whose annual income/net worth exceeds $100,000, they can invest 10% or up to $100,000.

*Regulations will require platforms to use a pop-up box, where investors will read disclaimers and take a quiz ensuring that they understand the high risk associated with such an investment.

*All social media forums will be connected to the crowdfunding platforms and openly shared. Questions raised by potential investors will be publicly available to read, as will the answers to these questions. This includes inquiries pertaining to the business model, financial projections, use of investment monies, etc.

*Entrepreneurs will be limited to solicitation via existing social media contacts. Email/Facebook/Twitter etc. contacts will be uploaded to the government-approved crowdfunding site that the entrepreneur has selected. Entrepreneurs will then solicit from those people via that specific site. Outbound marketing via email or public relations to previously unknown parties will not be allowed.

*Investments will be tracked by affinity circles (i.e., 1^st degree is someone from the entrepreneur’s LinkedIn, Facebook, Twitter, etc. connections; a 2^nd degree affinity is someone from a 1^st degree connection and 3^rd degree affinity is someone completely unknown to the entrepreneur but who came to the crowdfunding site).

*It is expected that the vast majority of investors will come from 1^st and 2^nd degree affinity circles.

Upon reviewing the current JOBS Act provision for crowdfunding, the key conclusion I draw is that it is not going to be as useful to small business America as I had hoped. Unless you have a large social network, savvy communication skills, and a well-conceived business plan, I am not sure that you would feel comfortable navigating these regulatory waters.  And would it be worth the time for a small dollar amount (say below $100,000)?

My guess is that existing businesses with a following are probably the most likely to succeed under the new crowdfunding law.

Maybe this is the way it should be?  I’m not sure, but time will certainly tell. And nothing will really get going until 2013.

A final note: Sherwood Neiss of StartUpExemption.com provided more insight on this subject than any other person I heard speak or whose articles I have read. He was one of the few laypeople “at the table” with Congress and The White House advocating for this law and advising on the details. I am very grateful to Sherwood for his time and input.

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