July 26, 2014 — New York, NY

How to get funding in England?  Funding for Lending (FLS), the Bank of England and Treasury scheme, initially to boost bank lending to households and companies, opened for business at the beginning of August 2012.

The aim of the scheme was to increase bank lending by up to £70bn.

The government changed the rules in January 2014, with this type of funding is no longer used to support mortgage lending.  The scheme aimed to bolster the economy, by halting a downward spiral of lending and borrowing that the UK had experienced since the onset of the credit crunch and international banking crisis.

Banks and building societies are able to access the funds until the end of January 2015.

How does it work?

In essence, the Bank of England is letting commercial banks borrow funds from it cheaply, so that the banks then pass this on in the form of cheap loans to firms.

What is the point?

The point is to encourage the UK’s commercial banks to borrow more money, and more cheaply than at present, so they can then in turn lend it to companies who wish to borrow.

Is it working?

The debate is fierce. Some report banks are still unwilling to lend to business. Others say businesses are unwilling to take on new debt and are paying back loans. Either way, repayments are rising faster than borrowing, leaving the latest “net” lending figure (for the first quarter of 2014) down.

So what are the mechanics of FLS?

Banks and other lenders approach the Bank of England, if they want. They swap assets they already have, such as loans, with the Bank. It in turn provides them with pieces of paper known as Treasury bills, for a four-year period.

The commercial banks are then able to use these bits of paper as top quality backing with which to borrow cash in the wholesale financial markets, from other lenders. With the Treasury’s backing, the idea is that they will be able to borrow funds at very cheap rates.

How will the taxpayer be protected in this arrangement?

The collateral pledged by commercial banks will have to be worth more than the high-grade paper being offered by the Bank of England. So, for every £1 of Treasury bills they borrow, the assets being pledged will have to be worth, say, £1.10 or £1.20. Thus if the value of that asset subsequently falls, the Bank of England will not suffer from the top slice of any loss.

What about savers?

They have suffered an unforeseen knock-on effect of FLS. The availability of cheap funds from the Bank means that lenders do not need to try so hard to attract funds from the general public, to then lend on to borrowers. That is why it is now almost impossible to find a savings account offering more than 3% interest.

5/24/2014

Kim Wales and Scott Purcell, industry leaders in securities based crowd funding and Board Members of the Crowdfund Intermediary Regulatory Advocates (CFIRA) recently posted a comment letter on the SEC web site regarding JOBS Act implementation. The comment letter was in direct response to the recommendations provided by the Investor Advisory Committee (IAC) who recently met – reviewing their requests for JOBS Act implementation. CFIRA is a group of industry advocates and participants that have consistently championed the benefits of investment crowdfunding. The IAC is a committee established under the Dodd-Frank Act to advise the SEC.

This specific letter, co-signed by CFIRA board members Scott Purcell and Kim Wales, challenged several of the requests by the IAC – an entity that has not been known for their support of crowd funding.

5/24/2014
The World Economic Forum, is a global outreach and is in collaboration with Stanford University, E&Y and Endeavor, surveyed over 1,000 entrepreneurs from around the globe with the goal of better understanding how successful entrepreneurial companies accelerate access to new markets and become scalable, high-growth businesses. Ushering entrepreneurs through an eco-friendly infrastructure should aid in the success of companies globally.

Read the full report here:

Entrepreneurial Ecosystems Around the Globe and Company Growth Dynamics

4/14/2014

NEW YORK (CNNMoney)  By Patrick M. Sheridan @CNNMoneyInvest

Plenty of people have donated a few dollars on Kickstarter to help fund everything from jeans to school field trips and the new “Veronica Mars” movie.
These “investors” rarely expected more in return for their money than T-shirts, a ticket to a movie screening or maybe an early version of a new product.

That’s about to change. Companies are starting to view crowdfunding as a legitimate option to raise serious cash.
Imagine the next Facebook (FB, Fortune 500) getting its start from average Joes and Janes deciding to give a few bucks each. Instead of just getting a nice thank you note, people who give money would get stock in the company.

In fact, virtual reality headset maker Oculus recently angered some of its earlier backers on Kickstarter by selling out to Facebook. Some Oculus fans felt betrayed and left out.

Related: ‘Veronica Mars‘ scores on Kickstarter

But mom and pop investors may soon have a chance to invest in startup companies. The Securities and Exchange Commission is in the midst of the approval process for so-called “portals” to connect regular people and entrepreneurs.

“If mom and pop had put $1,000 into Facebook in the beginning, they would have ended up with $200,000 the day Facebook had its IPO,” says Kim Wales, CEO of Wales Capital and CrowdBureau. The formal name for this is equity crowdfunding, and the process has already begun for “accredited” investors. Right now, the SEC defines an “accredited” investor as someone who makes more than $200,000 a year (or $300,000 together with spouse) or has a net worth over $1 million (excluding the value of their primary home).

But the new rules the SEC is working on would let anyone invest in startups via crowdfunding sites.  Of course, there are clear flaws to throwing open the doors to anyone. The most obvious is that most startups fail and people lose money.  The SEC plans to limit losses by restricting average investors from putting down more than $2,000 or 5% of annual income or net worth in any 12-month period — if the investor makes less than $100,000.  But $2,000 is still a lot of money to someone who doesn’t earn a high income.

Kim Wales is aware of the criticism. But she points out that there are plenty of checks and balances to keep investors from getting burned, including a 21-day investor protection period in which you can get your money back if you decide not to invest after all. Wales hopes to make CrowdBureau, a third party information site that will cater to crowdfunders a “bridge between Main Street and Wall Street.” She also points to the success of the Australian Small Scale Offering Board, a crowdfunding platform launched Down Under 8 years ago.

“There has been zero instances of fraud. It’s not that people haven’t tried, but the crowd has been very diligent in rooting it out,” she says.

While that may be true, some security experts worry that crowdfunding could be a bastion for scammers.

Related: Kickstarter pulls plug on Kobe beef jerky scam

Dan Karson, chairman of risk consulting and mitigation firm Kroll Associates, poses this scenario: “Someone in Bucharest creates a fictional identity but has a real bank account and gets lower-income, unsophisticated investors to send him money.”  That said, Karson does think equity crowdfunding will be “exciting for small investors.” He is just concerned that it’s “a new market with limited regulation.”

But fraud may not be the biggest problem. Lynn Turner, a former SEC chief accountant, notes that investing in startups is inherently risky.
“There’s a very clear track record that isn’t going to change. A vast amount of companies will fold,” he says.

The Small Business Administration reports that roughly half of all new businesses survive five years or more with about a third making it to 10 years.  Turner calls the pending equity crowdfunding situation “a fiasco” that could land the SEC with complaints from thousands of small investors who lose $2,000 each. “My prediction, but not my wish, is that equity crowdfunding will die from bad publicity after people lose their money from businesses that go belly up,” he adds. Equity crowdfunding will not make sense for many investors.

Related: What’s the deal with crowdfunding investments?

Why Facebook bought Oculus

Daryl Bryant, founder and CEO of StartupValley, a registered intermediary “or portal” that hopes to connect entrepreneurs looking for investors, concedes as much.  “There is no promise or guarantee. What we offer is high risk, high reward,” he says, adding that average investors shouldn’t be thinking about investments in startups as retirement savings.
Investors are going to need to do their homework as well. Companies looking to raise $100,000 or less, will be allowed to certify their own financials. You heard that right. And while a venture capital firm can afford to swing for the fences and lose money in the hopes of finding a few big hits, the average investor can’t.

But equity crowdfunding advocates say we are forgetting something important: the wisdom of the masses.”With this platform, it’s the crowd that helps determine if this is a good idea or not. The crowd is passionate about due diligence. The crowd will sniff out whatever doesn’t smell right,” Bryant said.

VentureBeat

When Facebook purchased Oculus VR for $2 billion last month, many people got rich — just not the funders that helped get them to that purchase price.

The company, a mere 18 months old, got its market validation from a Kickstarter campaign. 9,500 contributors ponied up $2.4 million to preorder its virtual reality gizmo — another shining example of the power of the crowd to back initiatives they believe in. Yet none of these backers received a penny from the acquisition, because their support was in the form of donations and not investment.

Even though President Obama signed equity crowdfunding into law two years ago, which would have allowed these backers to own equity in Oculus and potentially profit handsomely, the law has yet to “go live” and permit average Americans from participating. If equity crowdfunding were available today, those backers might have seen a 400x return on their investment in 18 months. Hence, it is easy to understand why those backers would be upset.

But they shouldn’t be upset at Oculus or Kickstarter, which were following the current rules. Rather, Oculus backers should be upset at those delaying the regulations that will allow Americans to make their own investment decisions with respect to private companies like Oculus.

A March 29 piece called “How To Harm Investors” by the New York Times’ Editorial Board incorrectly used Oculus as a reason why debt and equity crowdfunding for unaccredited investors should be scrapped. The article calls the SEC’s proposed crowdfunding rules “a joke.” It says that “special interests” were behind the push “to end or loosen investor protections.” And it claims that companies do not have to “meet disclosure and accounting standards.”

Other than being hugely misinformed, the Times’ op-ed is a case study for why further delay in implementing Title III of the JOBS Act is bad for Americans, entrepreneurship, investors, and the economy.

Crowdfunding is no “joke”
First, this legislation was not hastily pushed through. It had its inception a full two years prior to being signed into law and went through multiple hearing in the House and Senate, revisions in sub-Committees, and to the floor for a vote. It was one of the only bipartisan pieces of legislation supported by both Congress chambers and the President in recent history. Rather than being backed by “special interests,” the crowdfunding language in the JOBS Act originated with the grassroots efforts of entrepreneurs, securities professionals, and legal experts to modernize outdated securities regulations that were crafted 80 years ago. These laws were written before most Americans had a landline telephone in their own homes. Today, we live in the age of Facebook and Twitter. Our securities laws and markets could benefit from the same real-time transparency those networks brought to the Internet.

Second, there is no “joke” in the SEC’s 585 pages of proposed rules. The SEC staff and commissioners have approached the regulatory process thoughtfully and we have great respect for the process and intent of the regulators. In addition to the White House, Congress, the SEC, and FINRA, industry and investor advocacy groups have been working tirelessly for the better part of two years to give the regulators the information they need to strike a proper balance between increasing the ease of capital formation for entrepreneurs and the equally compelling need for appropriate investor protections. This very thoughtful legislation “re-regulates” rather than “deregulates” how businesses can go about raising money. It sets forth a system and process whereby issuers that pass a background check can raise a limited amount of capital, and investors can take investment opportunities with a statutory cap on their risk. It embodies the two pillars the SEC was founded on: investor protection and access to capital. People seem to forget the latter.

Third, for the registered funding portals facilitating the transaction, the requirements placed upon them by the SEC and Congress are more stringent than the Times suggests. They may even be (as I wrote in a prior piece) a deterrent. As required by statute, portals will have to provide potential investors with meaningful education about crowdfunding and investing generally, about the illiquid nature of these securities, the risks associated with these kinds of deals, and the numerous risks (like dilution) associated with private market investing. Try to find that information when you click “buy” the next time you purchase a public stock. People will tell you it is there for you to find. But there’s a key difference: Investors must acknowledge an understanding of these risks when crowdfunding.

Fourth, for a specific venture, the crowdfunding portal has to perform mandatory background checks on the entrepreneur. They also require the entrepreneur to provide statutorily required disclosures (like a business plan, use of proceeds, and valuation) so that a potential investor can make an informed investment decision. This is more than what is typically required in the private capital markets.

This won’t be easy for issuers. It isn’t supposed to be. Raising money is serious and the proposed rules bring that home. Entrepreneurs will have a ton of work to do, and if they don’t complete it, portals can decline to list them. Even if they make it through, investors will make hay over questionable deals on the public comment boards — which is why there has been so little fraud in non-equity crowdfunding to date.

The Times piece claims “investors could end up with next to nothing even if they invested in the next big thing.” Thanks to the public markets and the global financial crisis, that’s what the American public has gotten for the past 80 years. Isn’t it about time that we try something new, something that leverages capital using the tools we use everyday to communicate? Isn’t it time we brought securities laws into the Internet age?

This op-ed was written in collaboration with several crowdfunding industry leaders, including Sherwood Neiss, Douglas Ellenoff, Jason Best, DJ Paul, Chris Tyrrell, and Kim Wales.

January 16, 2014 by Lisa Fugere

Business owner Kim Wales, CEO of Wales Capital headquartered in New York is one of 67 entrepreneurs providing insight for 2014 Trends on Radius.  Common misconception says that small businesses–which account for the majority of businesses in the U.S.–make bad customers. Their small budgets don’t warrant the energy required for sales, keeping track of them takes too much work, and their inability to compete with big competitors often forces them to close. However, in the face of obliteration by an economic downturn and inaccessible capital, small businesses in America have thrived into the 21st century. What’s changed, and how can we foster our ever growing small business economy?

See the slideshow.

On January 7, 2014, host Bill Kearney explored the world of finance with Kim Wales, the founder and CEO of Wales Capital and CrowdBureau. They discussed the current status on the JOBS Act, the future and impact of equity and debt crowdfunding and new market opportunities.  Click the link to listen to the show.

January 6, 2014

What a great way to start the New Year with Industry Pioneer, Kim Wales, headquartered in New York, NY speaking with Sinclair Noe on the Financial Review Show for “Money Radio.” Kim discusses the JOBS Act, Title II and Title III timelines, Innovation, Trends and Opportunities in the burgeoning new marketplace.

Crowdfunding expert Kim Wales discusses the 2013 Global Wrap-Up for Crowdfunding and also talks about the Innovation Generation on December 18, 2013 with Michael Dresser.

Listen to Live Interview

Today, October 23, 2013 marks an exciting day for the alternative class of issues for Crowdfund Investments.

The Securities and Exchange Commission (SEC), unanimously voted during an impromptu scheduled Sunshine Meeting to release the Proposed Final Rules for Title III of the Jumpstart Our Business Startup Act (JOBS Act). It was noted that FINRA would also released Proposed Rules for Funding Portals and Form FP-NMA for public comment.  This move is in the right direction to begin putting in place mechanisms that create jobs and spur on capital formation for small emerging business as the JOBS Act was intended, given that unemployment nationally remains high at 7.2%. The proposal as outlined in the meeting included very similar rules to that which is currently in Draft Proposal.

In addition to ensuring the investor protections are in place for the crowd; the rules provide for methods in which the issuers and intermediaries will be able to conduct business.

It was noted that investors should be protected and have confidence that the market being created knows how to price the securities while being diligent in helping to prevent against fraudulent activities. Capital formation is a global process and when approached objectively, capital formation enhances confidence, promotes integrity and fosters market transparency. The criticality of each business owner, investor and intermediary to read and comment on the proposed rules will set the foundation for the development of this burgeoning Crowdfund Investing industry.

Along with investor protections being at the forefront in all comments, Commissioner Stein called for specific comments in three areas:

1. How much should an investor be able to invest? Which method should be used to determine such an answer, Income versus NET worth test?

2. Should non-US based Funding Portals be permitted to conduct business in the USA by registering with the SEC and FINRA?

3. What should Issuers responsibility be for tracking securities holder’s records? Specifically, what role could third party service providers offer to manage record holder information.

What should the public expect in the coming days?

1. The SEC will issue proposed rules for public comment along with 295 questions that have to be addressed by the public through the letter writing process.

2. FINRA will issue proposed rules for public comment as related to Intermediaries.

Note that the public comment period in each instance for FINRA and the SEC should be 90 days from the day the Final Proposed Rules are listed in the Federal Register in the case of the SEC.

For more information on the JOBS Act, Title I through VII, please contact Wales Capital, 212-736-6884, info@walescapital.com.