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Unlock the capital markets for small cap and mid cap business using the JOBS Act, Regulation A+

By: Kim Wales, 11/1/2014  —

On a warm Fall, October evening in New York, some of the securities crowdfunding industry pioneers, advocates, policy influencers and solution providers gathered at the Law offices of Pepper Hamilton for Dara Albright’s Regulation A+ event.  David Weild, the founder of Issuworks and former ex-Vice Chairman of NASDAQ, closed the evening with an impassioned message about what steps are needed to spur capital formation that will  start moving money into the hands on entrepreneurs and main street investors.

Unlocking the capital markets for small cap and mid cap businesses using the JOBS Act, Title IV (Regulation A+) is top of mind after 7 years of stagnant economy. This has become the mission for everyone in room such as Brian Korn (Pepper Hamilton), Peter Einstein (Crowdfund4All), Sara Hanks (CrowdCheck), Douglass Ellenoff (Ellenoff Grossman and Schole, Kim Wales (Wales Capital and CrowdBureau), and Sam Guzik (Guzik & Associates), Chris Tyrrell (OfferBoard) and Manolis Sfinarolakis (Crowd RealityTV) to name a few.  However, Weild was very clear in his messaging, “NASAA is doing incredible harm to the economy and they need to stand down.”

The North American Securities Administrators Association (NASAA) is a special interest group that represents state securities regulators. Ironically they have taken an anti-business / anti-investor approach by attempting to block Title IV (Regulation A+) of the JOBS Act – otherwise known as Reg A+. Regulation A+ includes the biggest opportunity presented by the Securities and Exchange Commission’s (SEC) proposal for preemption of State Blue Sky in 40 years. In addition, qualified purchasers can invest up to 10 percent of their net worth. Finally, Title IV of the JOBS Act increases the offering limit from $5 million to $50 million in a 12 month period.

NASAA aggressively lobbies Congress and has hired high powered attorneys to stop state blue sky preemption for certain private placements. Small businesses creates 64% net new jobs for the economy which is the vast majority for U.S. and should be the engine for economic growth. However, at play is protecting revenue stream and power at NASSA; that is thwarting the opportunity for small and emerging business to thrive and survive.

In addressing NASAA’s concerns, Weild aptly points out that state regulators will continue to have anti-fraud laws which they can use but calls their present stance “laughable”. “If you want to stop all fraud lets just stop all business …We all know that is not the right answer,” says Weild.

While there are clearly members of NASAA that disagree with this anti-business policy for now the group has paradoxically taken a position that is to the detriment of the economy. Weild also tackles other issues that are in need of regulatory change, including tick size reform, that are bogging down small cap IPOs.

David Weild’s closing address is a must watch for Anyone who is pro-economy and pro-small business :

Congressman Patrick McHenry: Three Leg Stool Approach Needed for Regulation A+

By: Kim Wales, 11/1/2014 —

With the national election scheduled in two weeks, Congressman Patrick McHenry finds the time to continue advocating for small business and emerging growth companies in the changing markets under the JOBS Act for Title II, Title II and Title IV at Dara Albright’s New York Event held on October 21, 2014.  Ultimately, Congressman McHenry’s delivered a keynote address that focussed on capital formation issues and offering a way forward.

In the keynote address, McHenry discusses: 1). the state of play in Washington; 2) outlines the three Titles of the JOBS Act that he is passionate about; 3) provides three leg stool for Regulation A+; 4) offers an explanation about why are we working through the question of Capital Formation?; 5) provides key take away; 6) Q&A:

Summary:

State of Play: Gridlock in Washington, based on the work product witnessed or not witnessed by the American people. The JOBS Act is the most significant re-write of securities law in the last 80 years.  There is greatest hope for capital formation and economic sustainability is built into Title III – Regulation Crowdfunding so long as Investor Protection and Capital Formation remain at the forefront of a developing robust marketplace.

Congressman McHenry highlights three Titles of the JOBS Act that he is passionate about and has tirelessly lobbied and advocated for on behalf of the American people and he remains hopeful that “right and just” will win at the end of the day.

  1. Title II (Regulation D, Rule 506(c) and Rule 144A: Lifting the Ban on General Solicitation, which was a straight forward piece of legislation that went live on September 23, 2013. Working well while in it’s infancy.
  2. Title III (Securities Based Crowdfuding): The ambition of Title III was to update outmoded securities law and merge technology with finance. Currently, the law remains deeply flawed and the rule has been pending for a substantially long time (over 700 days). What should have been structured at the Commissioner level has turned into a top priority at the SEC.  Now Congress needs to fix the problem, and the SEC must work with Congress because things like cost structure does not work as laid out in the final proposed rules.  To mention a few flaws that do not work: a). audited financial statements for offering $500K or greater; b). issuance capital raise limits up to $1 million; and c). prohibition on testing the water.
  3. Title IV (Regulation A+) – The biggest opportunity presented by the SEC’s proposal is the preemption of state blue sky law. Regulation A, lifts the capital raise limits from $5 million to $50 million; in addition, a qualified purchaser can invest up to 10 percent of the net worth in an Reg. A offering.  What is needed is a well written set of laws and rules for Regulation A. This is now become a top priority for McHenry!  “We must get the rules right so that is not a  dead letter upon arrival but rather it can be a lively opportunity.”

Further, by implementing Title IV, this will allow for us to fix the question of securities based crowdfunding, more specifically equity crowdfunding because of great opportunities afforded the main street entrepreneur, retail investor, and risk takers. “In order to get this right, there are 3 legs to the stool of this alliance”, says McHenry.

3 Legs to the stool of this alliance:

  1. Congress and SEC getting this question of regulation of law correct and done.
  2. Galvanize the democratization of finance: significant amount cultural shift in the marketplace must take place and we the people must be drivers of the shift; alongside helping to create useable public policy in Washington.
  3. Open structure data on the market: we must have the best information on the markets and best market structure that can follow as a result of open structure data. This most importantly can help to move Congress and SEC in the right direction.

Why are we working through the question of Capital Formation? Entrepreneurs may not be connected to the right side of the tracks to get financing for their companies. Delivering the entrepreneur to the marketplace and connecting them to the world of capital so that we can all live better tomorrow and have real vibrant economic growth!

Take Away: Communicate and Build Relationships. Make sure that we have connection with policymakers in Washington. The SEC has an open door policy — go to Washington and introduce yourself. Go to Capital Hill and get to know your U.S. Representative. If you don’t have relationships, go an introduce yourself, to your State Ccongressman and Senator. Inform them about sound public policy. Build these relationships!

Congressman Patrick McHenry takes the final question: Kim Wales, crowdfunding industry pioneer and founder of Wales Capital and CrowdBureau ask Congressman McHenry the last question: “You talk about lobbying our Senators and Congressman, but there is a lobbying group called NASSA that is an influential body as it relates to small securities offerings across all of the states. How do we balance the discussion with that organization and their influence on all of the states in terms of pushing this bill forward (Title IV – Regulation A+)?”

 

Crowdfunding Facts, Myths and Best Practices

New York, NY

The Inventors Association of Manhattan speaks with securities crowdfunding expert, Kim Wales founder and CEO of Wales Capital about crowdfunding facts, myths and best practices.

The State of Equity Based Crowdfunding

Washington, D.C.,

August 24, 2014, 700+ days after the JOBS Act was signed into legislation, the SEC still has not released the final rules for Title III: Regulation Crowdfunding.

Over one year ago, February 19, 2013, the nation’s principal leaders and experts on equity and debt‐based financing providing an in‐depth review of the extensive build out and preparation that has taken place to help entrepreneurs’ access capital through online platforms, while protecting the investors who will finance these enterprises. The group touched upon the global advancement of equity‐based crowdfunding, the significant challenges entrepreneurs still face in accessing capital and why it is vitally important that the SEC finalize JOBS Act rule makings.

Watch the Press Conference:

 

Moderator and Host: Karen Kerrigan, President & CEO, SBE Council; Panel of Experts: Sherwood Neiss & Jason Best, architects of the crowdfund investing framework that became law through the JOBS Act and Principals of Crowdfund Capital Advisors; Candace Klein, Founder, Bad Girl Ventures and SoMoLend; Ryan Feit, Co‐Founder, SeedInvest; Vince Molinari, President, GATE Technologies; Sara Hanks, CEO, CrowdCheck; Chris Tyrell, Nehemiah Investments; Kim Wales, Founder of Wales Capital and Chair of the Crowdfunding Professional Association [introduced at 25 minute mark]; Judy Robinett, Entrepreneur, Advisor to Early Stage Companies; Doug Ellenoff, Ellenoff, Grossman & Schole, LLP; Chance Barnett, Founder, Crowdfunder

Japan Advancing in Crowdfunding

July 27, 2014 — New York, NY

When microbrewery owner Saburo Setsuda needed to replace a bottling machine last year, his bank said no to loan but introduced him to a Tokyo firm that helped him raise funds online.

In January, the first time Mr. Setsuda tried crowdfunding, which lets Internet users put money toward projects or companies in return for a cut of profits, he raised nearly ¥4 million in just 18 hours. The funds went for a new bottling machine to pack beer flavors like blueberry and brews made from hot-spring water from this area in central Japan. The second time, in March, he raised ¥1.2 million for a refrigerator.

In May, lawmakers passed legislation in Japan—similar to the U.S. JOBS Act (Jumpstart Our Business Startups), which increases the number of investors a private firm may have—to make it easier for companies to provide these services online.

When crowdfunding emerged, after the 2008 financial crisis, many investors simply used crowdfunding sites to donate a couple of hundred dollars to projects they found worthy. Now, more are showing interest in platforms that give participants a return on their money.

In Japan, where Prime Minister Shinzo Abe is trying to jump-start economic activity, politicians have viewed crowdfunding as a way to nudge some of the trillions of yen in household savings out of low-yielding deposits and into the hands of entrepreneurs.

In May, lawmakers passed legislation—similar to the U.S. JOBS Act (Jumpstart Our Business Startups), which increases the number of investors a private firm may have—to make it easier for companies to provide these services online.

Just over half of the ¥1.6 quadrillion ($15.7 trillion) in Japanese household assets are in cash or at banks. Only 11% is in stocks or bonds, compared with 42% in the U.S. and 23% in Europe, according to the Bank of Japan.

Meanwhile, strict regulations keep banks from extending credit to some firms, which may have a good business idea but other issues, such as debt, that prevent lenders from funding them. Banks are lending out less than 70% of the deposits they hold.

Normally, that is where venture capital might step in, but economists say Japanese firms tapping crowdfunding often prefer to remain relatively small, and aren’t looking for Silicon Valley-style backing, which tends to be aimed at companies targeting large-scale growth.

Crowdfunding is still small in Japan, estimated at ¥8.2 billion, or $80 million. Meanwhile, the global market, which was less than $1 billion in 2010, was estimated to reach $5.1 billion in 2013, with the North American market accounting for $3.7 billion, according to a report the research firm Massolution published in April last year.

In Japan, the most well-known crowdfunding companies offer investors annual returns ranging from 2% to 10%, with the average at 5%. Investors are repaid over a few months, or as much as a few years. They run the risk of not being paid at all if the company they are backing fails.

Skepticism about promised returns is a hurdle to attracting more investors. After decades of near-zero interest rates on savings deposits, many investors are suspicious of pledges of returns of 4% or 5%.

“Because interest rates have been so low at financial institutions, Japanese people began to believe that interest rates were something supposed to be low,” said Kaz Ohmae, who started the crowdfunding platform Crowdbank.jp in December. “We have to change that perception.”

Crowdbank.jp provides funds to small firms in Japan and overseas and lists an average 5.2% return on its website. In just half a year, the company has received more than ¥650 million in investments for companies it serves and is shooting for ¥10 billion in the next few years, Mr. Ohmae said.

Yasuyuki Yabumoto, a 43-year-old telecom worker with two decades of investment experience, has put ¥1 million in crowdfunding via Mr. Ohmae’s company since April. He is planning to invest more but wants to go slowly.

“At this stage I’m carefully assessing crowdfunding’s risk and return, especially the default rates of companies that receive investments,” said Mr. Yabumoto, who also invests in stocks, currencies and bonds.

Many early-bird crowdfunding investors have prior investment experience. Nanae Obara, who works in the financial industry in Tokyo, said the ¥400,000 she has spent on crowdfunding over the last two years has been a way to diversify her portfolio of stock and investment-trust holdings.

Some politicians have expressed concern about risks, and the law passed earlier this year requires that crowdfunding companies provide adequate information about investments online. Still, there is also optimism that crowdfunding could help individual investors earn more on their savings.

More money flowing to firms in rural Japan could cut their dependence on government subsidies, said former Economy Minister Motohisa Furukawa. Mr. Furukawa helped launch a government debate on crowdfunding after seeing how online fundraising helped companies in areas of northern Japan affected by the 2011 earthquake and tsunami disasters.

Rather than feeling threatened by the potential competition from crowdfunding companies, many of Japan’s small lenders are excited.

“There is a lot of need from companies who have good ideas, but not good finances. It seems contradictory, but it’s hard for us to give them money,” said Keishi Furusato, who works in the loan and company-support division at Hida Credit Cooperative, the lender that introduced Mr. Setsuda, the brewer, to crowdfunding.

Though Hida Credit Cooperative doesn’t put up any money in crowdfunding arrangements, the hope is that companies that benefit and thrive will come to them in the future for loans. Mr. Furusato said that three to four other firms in Takayama, a town of 92,000, look likely to start crowdfunding soon.

WKXL’s Financial Spectrum: Guest Kim Wales

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.

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.

National Minority Angel Network – Capital Formation

On, Thursday, September 26, 2013, the National Minority Angel Network (NMAN), in conjunction with Microsoft will host an event on the JOBS Act and Capital Formation with an expert Panel of Speakers, http://www.nmanetwork.com/nyc-meet-our-panelist/, David Wield, former Vice Chair NASDAQ/Co-Author JOBS ACT/ Chair & CEO Weild & Company, Kim Wales, Entrepreneur/Visionary/Crowdfunding Expert/ CEO. Wales Capital, Doug Ellenoff, Esq. – Strategy/Transactions/Corp. Financing/Member, Ellenoff Grossman & Schole, LLP, Daryl Bryant – Successful Serial Entrepreneur/CEO, StartupValley and Hudson Horizons, Ryan Feit – Entrepreneur/Investor/CEO & Co-Founder, SeedInvest, and Mike Norman, CEO & President, WeFunder.

Small business capital is vital to our economy. With the passage of the JOBS Act for Crowdfunding, a whole new era of capital is available to small business owners of every industry and sector. Under the revisions of the Securities Act of 1933, Crowdfunding allows business owners and entrepreneurs to access the public market to fund their business from several thousand dollars up to one million dollars. But not all forms of Crowdfunding are currently legal, most businesses use pledge or donation based models to raise capital which is legal. However, if you choose to sell securities (stock or units) or raise debt then you need to know the law for Title III funding. Title III funding will increase the amount of funding and number of investors from the current amount. Title III funding  can become one of the most important sources of financing in the 21st Century for minority and woman entrepreneurs who together only represent above 1% and 4% respectively of all Angel based investments in the US. This session will provide you with an understanding of all three forms of funding, how to prepare for raising capital, meet some of the leading authorities in Crowdfunding, and businesses who successfully raised capital from Crowdfunding portals.

Click to purchase your ticket(s).

Feliciano Center for Entrepreneurship – Crowdfunding

On Friday, September 20, 2013,  the Feliciano Center for Entrepreneurship will host an event with expert panelist on Crowdfunding – Latest Insight on Implementation of the JOBS Act – which will include crowdfunding laws and discussions will cover the series of regulatory changes happening this fall intended to make it easier for early-stage companies to raise capital.

The Feliciano Center for Entrepreneurship was created to enhance entrepreneurship education at Montclair State University by creating an environment where students unleash their talent for creativity, innovation and entrepreneurial drive.  This environment will provide students the opportunity to create and develop ideas that turn into real products or services and ultimately pitch those products and services to successful entrepreneurs.  Students will become entrepreneurs.

Speakers scheduled are: Zak Cassady-Dorion, partner, Crowdfund Capital Advisors; Kim Wales, founder of www.Wales Capital.com, in Manhattan, and board member of Crowdfunding Intermediary Regulatory Advocates; Jonathan Sandlund, founder of www.thecrowdcafe.com; Douglas Ellenoff, member Ellenoff Grossman & Schole, a law firm with offices in Manhattan; and Daryl Bryant, founder of Startup Valley.

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