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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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Crowdfunding Industry Leaders Take on IAC

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.

Company Growth Dynamics for Entrepreneurs

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

Invest in next Facebook…for a few bucks

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.

Why More Entrepreneurs than ever before Will Open Small Businesses in 2014

January 16, 2014 by 

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.

 

Kim Wales speaks with Money Radio on Crowdfund Investments

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.

Thirty – Second Annual SEC Government – Business Forum: Kim Wales

The Securities and Exchange Commission held the Thirty Second SEC Government – Business Forum on Small Business Capital Formation on November 21, 2013.  Kim Wales, a sought after thought leader on the JOBS Act and Crowdfund Investing. Kim was invited as a panelist and provided a presentation that can be downloaded.

The Securities and Exchange Commission has conducted this forum annually since 1982. The event provides small business, their advisors, and their investors with an opportunity to share perspectives and views on a variety of topics important to them.  This is an effective way for the agency and its staff to learn more about the important capital formation issues that the small business sector is facing.

Click here for the Panel Discussion: Crystal Ball: Now that you raised money, what’s next for the company and the markets?