that education is key, and that until the general public understands (through education or experience) how crowdfunding works, that it is risky, demands suspicion, and includes open, transparent discussion and questioning, such pseudo-crowdfunding scams are unfortunately very possible.
A Kickin Crowd, Appbackr, Appleseedz, Appsplit, Arctic Island, ArtistShare, BeFounders, Biracy, Buzzbank, Cielex, Cofundos, ConfidentCrowd, Conzortia, Crowdcube, Crowdfunder, Crowdfunding Offerings, Crowdnetic, Crowdrise, Crowdtilt, Digital Garage, Earlyshares, EquityNet, FeedTheMuse, FirstGiving, Fundable, FundaGeek, FundedByMe, Fundly, FundMyWish, FundRazr, FundRise, GetItDone, GoFundMe, GOOD Maker, GreenUnite, GrowVC, InitialCrowdOffering, inlu, ioby, Kapipal, HelpersUnite, iCrowd, Indiegogo, Invested.in, Kickstarter, Kiva, Launcht, Localstake, MicroAngels, Microryza, Motaavi, MyMicroInvest, OnSetStart, Original Projects, Pearfunds, Peerbackers, PeoplesVC, Pitchstar, PleaseFund.Us, Pledgie, PledgeMusic, Popularise, Pozible, ProHatch, PropertyPeers, Rally, Razoo, Return On Change, Rockethub, RockThePost, Seedinvest, SellaBand, SoKap, SoMoLend, SonicAngel, START.ac, SymBid, Thrillcapital, Twask, Ulule, Wefunder, We The Trees, WhenYouWish, 33Needs, 40Billion, 8-Bit Funding
met with Mark Perlmutter of MicroAngels, who told them about the Australian Small Scale Offerings Board (ASSOB), which is AFAIK the first investment crowdfunding platform, and showed them prospectus examples from DPOs (direct public offerings) that he has worked on. The SEC also met with Andy Green, legislative counsel to Sen. Jeff Merkley, who put his comments on the legislation in a letter to President Obama. And the SEC talked with Jared Cohen, General Counsel and Vice President of Operations at Kickstarter.
[S]ome thought the Dems would introduce their own version of the bill, but Harry Reid in a nod of the cap to the venture capitalist and bio tech lobbyists (and their campaign contributions) decided that he would go with the House Republican’s bill. While an amendment would be offered making it look like investors protections requested by the state regulators, the SEC and many investor and consumer groups would be entertained, that is merely a facade – a token effort which was dead on arrival before it was even introduced.Perhaps the funniest thing, is that only people in Congress are calling this a jobs bill. It has become widely referred to in the media as “The Bucket Shop Reauthorization Act of 2012.” Most of the people that the Dems did call to testify have said it will not create new jobs, (except perhaps among law enforcement agencies and prison guards)!!!”
- I changed the name from “Change Crowdfunding Law” to “Crowdfunding Law” — because the law got changed, as intended. Now this mailing list / blog is about what’s happening as a result.
- I changed the tagline. Until now, it was “Campaign for an SEC regulatory exemption covering public securities offerings with individual investment capped at $100, and the people who love them.” That’s how the movement started back in 2010, but it’s ancient history now. New tagline: “Catalyzing and tracking the investment crowdfunding revolution, from idea (2009) to reality (2013).”
- Added to the “About This Blog” section: “Newcomers to this blog can read here, from the bottom up, the strange-but-true story of how I and a small group of others changed U.S. securities laws to democratize entrepreneurship, and how we plan to make it all work out nicely for everyone.”
- Added to the “About Me” section: “You may know me through MAKE magazine, Wired magazine, The VJ Book, The Re/Search Guide to Bodily Fluids, Boing Boing, Infobahn, ViewStar, Advanced Decision Systems, Joe Schmoe, The Mighty Vegetable Sled, Blue Larue, Columbia, Palo Alto HS, Paul Revere Jr. High, Brentwood Elementary, San Francisco, Oakland, Palo Alto, Pacific Palisades.”
July 30, NYC – NowStreet Media “The JOBS Act – Transforming the Capital Markets“
October 9-11, Lake Las Vegas, NV – CFPA and Crowdfunding Roadmap “Crowdfunding Bootcamp”
Public comment letters sent to the SEC by CFIRA leadership include:
May 15 – Jason Best, Candace Klein, and Vince Molinari propose types of communications permitted as “crowdfunding notices” to the general public.
Membership dues. During the first year, general (individual) membership in CFPA is free. Higher level (sponsor, founder, board) memberships are also available for $100 and up.
Recorded Conference Call Follow-up
My last post reported that NLCFA director David Marlett recorded the conference call that he conducted before his announcement, “Crowdfunding Industry Launches National Association,” during which no one voiced any objections to his plan. A couple of readers asked me whether people on the call knew that they were being recorded, and if so, whether Marlett would release the recording. I asked Marlett, and he replied, “I said it at the beginning of the call, but because others got on later and I forgot to ask them, I erased it.”
The SEC met with representatives of the NLCFA on May 14.
A public comment letter sent to the SEC by NLCFA leadership was sent on April 30 by Sara Hanks. In it, she argues that crowdfunding service companies such as CrowdCheck (discussed here previously) are neither advertisers for CF-exempt offerings, nor funding portals themselves.
Events, Programs, Partnerships
As of last week, the NLCFA has no major events planned in the coming weeks, but Marlett reports that, “a lot of activity going on, and work with specific groups, etc.” Announcements about their veterans program and education partnership, described here previously, should be coming soon.
Membership dues. The NLCFA had restructured its membership pricing. Now it’s $200 for individuals, and $750 for portals, brokers, and technology providers. There is also a free, non-voting membership available to faculty and students with proof of employment or enrollment.
I have no news on this organization since May 24, when they announced that “Over Compliance Has Arrived.” No website has yet been built at their domain icfausa.com.
Bylaws and Elections
In talking with others who have experience starting industry associations (thanks Berkeley and St. Clair!), I’ve become convinced that any such org needs two things to continue having credibility: published bylaws and an elected leadership. Industry associations typically adopt their bylaws and conduct elections at their first annual convention. To my knowledge, none of the crowdfunding industry associations has scheduled either of these actions.
ASBC, Massachusetts Securities
The American Sustainable Business Council, the first lobbying organization to advocate a crowdfunding exemption, met with the SEC to discuss crowdfunding on June 13. They visited the White House around the same time and met with senior staff there, as reported by Doug Rand, the White House’s crowdfunding guy. Doug’s great write-up recalls the socially positive effectiveness of donation-based crowdfunding, and ties it to the promise of equity-based crowdfunding for revitalizing underserved communities and offering opportunities for investors who consider social and environmental impact in addition to economic return (i.e. the “triple bottom line“).
“JOBS Act Tangled in Red Tape, Coming 2014 at the Earliest” by Trevor Gilbert (PandoDaily, June 29) cites unnamed sources to argue that SEC rulemaking on the JOBS Act will be delayed significantly, SEC Chair Mary Schapiro’s previous day testimony notwithstanding. I wonder about this article, which also cites one source claiming that “SEC and FINRA have held exactly zero official meetings to discuss the JOBS act,” which is easily proven incorrect. The article also says, “there are reports that FINRA is delaying the implementation of the bill for direct financial gain” — any such rumors are irresponsible if false, but certainly demand investigation if true.
“The JOBS Act: How To Ensure It Pays Off For Entrepreneurs” by Google VP for Corporate Development David Lawee, (Forbes, June 25) argues that if equity crowdfunding is going to work, the SEC must listen to the needs of entrepreneurs and write rules that encourage internet-based systems of trust and cooperation. (I’m the “one entrepreneur” who first blogged the idea in 2009.)
“Hail Crowdfunding! The Wicked VC is Dead” by Eric T. Wagner (Forbes, June 25) is a nice “fasten your seat belts” editorial: “So, wow — this crowdfunding thing really looks like a potential game-changer.”
UPDATE (Aug 2012)
Here’s the Forbes
piece by David Lawee mentioned above:
My last post described my feeling that NLCFA executive director David Marlett entered the field in a “scheming, detached, and adversarial” way, based on his organization’s first press release, but it turns out that I didn’t have the full story, and I apologize for not talking with him and including his perspective about those early days.I phoned Marlett this past weekend as he drove back home (to Texas) from the Clinton Global Initiative America conference (in Chicago). He told me that in the weeks before his April 2nd announcement, he reached out to key people in the crowdfunding reform movement, and that on Friday, March 30th, three days before the Monday announcement, he held a conference call with about 30 of them to discuss his plan to start the NLCFA. He started the call by honoring key people who had worked to get the legislation passed, and acknowledging that he had not been involved. Toward the end of the call, he asked whether anyone had any objections to his starting up a crowdfunding industry organization and to him being its interim Executive Director. In response, there was only silence. Marlett recorded the entire call. Afterwards, Marlett says he received numerous supportive emails. Regarding the characterization that the NLCFA is largely a sole effort, Marlett invited me to contact any of the dozens of people listed on the association’s website as holding Board of Director or Nationwide Leadership positions, to confirm that he often tells them “this is not the Marlett show!” — to remind them of how important their opinions are. More importantly, Marlett said that people at the CGI America conference were very interested in crowdfunding and in the NLCFA — including Bill Clinton himself, who answered Marlett that he had written about crowdfunding in his book. (I just did an Amazon.com “Look Inside” with Clinton’s Back to Work, and indeed on page 177 he advocates crowdfunding “to help small businesses raise needed capital.” He also cites the 2010 petition from the Sustainable Economies Law Center to the SEC, which longtime readers of this blog have known about from the very beginning.) Marlett also told me about some great-sounding efforts and ideas that the NLCFA and his consulting firm have cooking:
- Veterans program. A program for veterans, designed to educate and empower the veteran population regarding crowdfunding opportunities. This will be announced soon via press release.
- Education partnership. An alliance with major corporations to run a program for educating the public about crowdfunding. This will also be announced soon.
- Continuing Professional Education. The NLCFA is educating attorneys, CPAs, and other professionals about how crowdfunding will change their practices, and hopes to develop a curriculum that qualifies for fulfilling Continuing Professional Education credits.
- Franchise contracts. In franchise-based businesses, the parent company typically wants one person to own and operate each franchise. David’s consulting firm is looking at how a potential franchisee might use crowdfunding via a holding company to fund the purchase of a franchise, thereby turning what would otherwise be a franchisor’s nightmare (500 shareholders for a single location) into a mechanism for greater expansion.
Marlett also clarified something that had confused me regarding the May 23rd press release from the International Crowd Funding Association (ICFA), which I linked to in my previous post. The announcement bore the title “The International Crowd Funding Association (ICFA) has announced a merger with the National Crowd Funding Board” but there is no “National Crowd Funding Board.” Marlett told me that the announcement came out after ICFA founder Mark Jones tried unsuccessfully to convince Marlett to join the board of the ICFA and to bring the NLCFA into the ICFA. The release seems to be referring to that non-event, calling the NLCFA by the wrong name. Marlett had the press released pulled by PRWeb, and the ICFA replaced it on May 24 with another announcement sporting a baffling title, “The International Crowd Funding Association (‘ICFA’) has Announced that Over Compliance has Arrived.”
Donation-based crowdfunding has already shown the ability to amass millions in short amounts of time for small groups of people. Soon its more materialistic counterpart, equity crowdfunding, will become legal, and as Locavesting author Amy Cortese has noted (as reported by Tim Rowe and based on the Flow of Funds Matrix totals for Households and Nonprofits), if Americans diverted just one percent of their long-term savings to this kind of investment, it would total 10 times the amount that VCs invest in U.S. companies.
The new law defines the commercial entities (“funding portals”) through which crowdfunded securities must be sold. These companies will be overseen and regulated by the SEC and FINRA, and it seems natural that they should also have an industry association, as do other billion-dollar industries, to help the industry grow and stay out of trouble, to lobby lawmakers (hopefully in a good way), and to run conferences and road shows, publish reports, and do other things to foster education and interaction around crowdfunding. Whoever leads such an association will be in a powerful position, guiding an industry that has a new, federally-mandated foothold to challenge Wall Street for the first time in generations. If all goes as planned, crowdfunding will enable innovative small businesses and communities to bootstrap themselves up in a way that keeps all the funds local or within a connected community of interest, bypassing the established investments-industrial complex entirely. If, come January 2013, the SEC has implemented the crowdfunding exemption in a way that’s usable and attractive to small-scale entrepreneurs, I would expect Wall Street to counter the threat by spreading FUD (fear, uncertainty, and doubt) around crowdfunding. This should fail, because most people will believe what they see in their own communities with their own eyes before they believe any horror stories placed in the media. (Note: the leading crowdfunding sites Rockethub, Crowdcube, Prosper.com, Funding Circle, and AngelList all report zero fraud throughout their entire histories, and no CF sites that I know of have reported any cases of successful fraud, although I’m sure it will happen.) But an established equity crowdfunding industry will be constantly susceptible to corruption and influence from the Wall Street-based retail investments industry that it competes with. That’s why I believe that if the crowdfunding industry is going to succeed, it needs a leadership that’s ethically untouchable. Otherwise, powerful forces will be able to buy it out and render the industry ineffective.
Unfortunately (but not surprisingly), I have also noticed what I perceive as some opportunistic and unsavory elements drawn to crowdfunding.
This is interesting stuff– everyone loves a battle-for-leadership story– and it needs to get out there and be processed by (yes) the crowd. My current take on the situation and the main players is below, but it’s been changing with each new person I talk to. I would love it if journalists, bloggers, or anyone else out there wanted to dig deeper, and help us all explore who’s credible, what each group’s plans are, and even whether it matters that there are multiple competing organizations claiming to represent the CF industry (I believe it’s bad, as blogged here before). In my experience, the people in this field are pretty accessible– you can just call them up or email them, and they’ll probably be happy to communicate. Crowdfunding Professional Association (CFPA)
This is the group that I have the most allegiance to, and (full disclosure) I’ve been talking with them and may soon hold an official position there. It started as a sister organization to the “leadership group” (now CFIRA) that was cited by the White House when the JOBS Act (which legalized equity crowdfunding) was signed. The group, many of whom had advised the White House on crowdfunding previously, wrote a letter to President Obama outlining how it wanted to help the SEC with its CF exemption rulemaking. The CFPA’s strong history with crowdfunding and position in DC make it automatically credible, but it’s also been a largely volunteer effort, with limited time and resources thus far to do things like build up membership, forge alliances, build a credible website for itself, put out press releases, and do other things that would help it help the industry. I see it as a chicken-and-egg problem, but I also know that the CFPA has some interesting plans afoot that will help.
National Crowdfunding Association (NLCFA)
s the group founded by former securities attorney, filmmaker, and immigration law enforcement activist David Marlett. As I explained in my last blog post, this entity put out a press release three days before the JOBS Act was signed, announcing the organization, announcing Marlett as its executive director, and describing it as “the professional organization of all companies and individuals with an interest in crowdfunding.” This was a discussion topic among several people who were at the White House with me for the JOBS Act signing, since they had never heard of Marlett or the NLCFA before, and they saw that the NLCFA site linked to pages that sported their logos without their knowledge or consent, in a way that they felt implied their membership. In response comments to my post, Marlett clarified that it was his consulting firm’s website that included these logos, as a service for people wanting to know what portals were out there, and the pages were removed because he is no longer pursuing his consulting firm. I did some cyber-stalking and came across a blog on film finance that Marlett had written for MovieMaker through 2009. In his final post, he describes his vision for a film production cooperative that would both produce and distribute its films. It’s a great idea, and it demonstrated to me that Marlett genuinely has been thinking about crowdfunding for a while, and is not just trying to jump in now because he heard about the JOBS Act and the Pebble and sees a new way to become an alpha male. Reading his MovieMaker columns, I really like his attitude and candor, and I can’t help but think, sadly, why did he have to come to our attention in such a scheming, detached, and adversarial way?
The NLCFA has been putting out press releases, attracting partners, and establishing Marlett as the crowdfunding industry authority in the press. Marlett says that the NLCFA also expects to offer health insurance by the end of this year, which would be a great service. As he also states in his comments here, he wants his organization to be judged by its actual work, rather than what it says about itself, which is a great point.
I also mentioned this group in my last post, and noted their 8pm kickoff meeting at a hotel near Las Vegas on May 24th. The organization is backed by Sprowtt, a company that formed in 2008 to enable small companies to go public and was listed in the Crunchbase deadpool in 2010 as no longer active, and CEOSpace, a “CEO on line Collaboration” website run by Berny Dohrmann, whose unconventional career has included being convicted for securities fraud in 1995. Former SEC Commissioner Roel Campos is also helping the ICFA, and ICFA founder Mark R. Jones emailed me that the organization has 4 attorneys on its board who used to work at the SEC. Jones, who is also the founder of eCinema Networks and has nearly 5,000 Facebook friends, told me that 500 people attended the ICFA launch, and I heard second-hand that David Marlett was seen storming out of the event (but according to Marlett, he wasn’t there). That’s what I know at this point, but I would love to find out more. My feeling is that the CFPA is the most credible organization, with the right people, the right values, and an established history with crowdfunding. But if in a couple of months they seem to be behind in the battle for credibility and substance, then I wouldn’t blame anyone for joining the NLCFA or any other organization that inspires more confidence. I will leave with a quote from a recent interview with Clay Shirky on crowdsourcing.org:
[T]he thing I’m most bullish about regarding the JOBS Act [...] is that this method of aggregating demand isn’t a new way to do the old stuff; it is a new model of the business ecosystem, full stop.
1. Is poorly drafted, with “ambiguities, internal inconsistences, and outright drafting errors” that “introduce unnecessary complexity” and “will increase the cost to small business issuers.”
2. Is too complicated and expensive with its disclosure and reporting requirements. Other small business exemptions don’t require annual reporting, and “issuers will be liable even if their failure to disclose properly was merely negligent, not intentional,” which results in “a liability trap for unwary, unsophisticated entrepreneurs.”
3. Has individual investment caps that are too high. The lowest cap is $2000 per year, and “It is doubtful that most people, especially those in the lower income categories, have sufficient free cash flow or savings to afford to lose five or ten percent of their net income.” [I agree.]
4. Needs a “Substantial Compliance” rule, as is included in the Reg A and Reg D exemptions, so that (for example) an entire exemption isn’t lost retroactively when it turns out that out that a single investor didn’t click his own way through an online investor education exam.
5. Has problematic requirements for funding portals. One example is how it “omits a crucial element of crowdfunding—- an open, public communications channel allowing potential investors to communicate with the issuer and each other.” [This is something I've also harped on, and I just don't get why it wasn't included.]
UPDATE (June 2012)
Here is an account I wrote for the MAKE blog about attending the JOBS Act signing, with photos aplenty: Seeing the Crowdfunding Exemption Become Legal.