MAKE and O’Reilly

From 2006 to 2012 I worked as Projects Editor and then Executive Editor of MAKE, where I mainly worked on the print magazine, but also helped with online, Maker Faire, etc. During this time, I started my Change Crowfunding Law campaign as a personal project on the side, but later wound up writing about it for MAKE and its then-owner, O’Reilly Media.

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MAKE: California Needs Investment Crowdfunding: An Open Letter to Gov. Jerry Brown

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Goli at MAKE asked me to write a column on crowdfunding for their vol. 38 print magazine, which comes out in March. I wanted to focus on the state exemption movement with an “Open Letter to Gov. Jerry Brown” petitioning for an intrastate exemption in California.

Goli and I realized that it would be better to publish something like that sooner on the MAKE blog, and then revise it to be more generalized, and not framed as a letter to Jerry Brown, for the magazine. So that’s the plan– and here’s the blog post, which just went up yesterday.

To make the editorial more “actionable,” I created a Change.org petition using the same text, and linked to it at the end. I generally think online petitions are a waste of time, but am hoping this will be an exception.

My co-conspirator on the effort is Mark Perlmutter. A few years ago he tried to interest some California state reps and other elected officials in a California crowdfunding exemption. He didn’t get any bites at the time, but the climate’s different now, so I think it’s going to happen.

Seeing the Crowdfunding Exemption Become Legal

[Reprinted from the MAKE: blog, 10 April 2012]

Last Thursday’s signing of the JOBS Act at the White House was fun. After going through three layers of ID checking and an airport-style walk-through detector, I walked into a garden area where a military band was playing some surprisingly jazzy tuneage. The mood was festive– the ice water in paper cups was flowing generously, and the weather was fine. In the sea of DC people, the only folks I recognized (or had met only via email) were my crowdfunding revolution comrades– Jenny Kassan; Kevin Lawton; Woodie, Jason, and Zak from Startup Exemption; Michael Shuman; Danae and Slava from IndieGoGo; Karen Kerrigan; Dana Mauriello; Amy Cortese; Howard Leonhardt; and of course our man in the White House, Doug Rand from the Office of Science and Technology Policy, who had worked with all of us, and many others there whom I haven’t met. Presumably Doug had gotten the whole gang invited, which was really nice.

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Flashback: Masonic Conspiracy Revealed!

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[Reprinted from the MAKE: blog, 8 May 2012]

Back in MAKE vol. 09, aka the Fringe Issue (2008), I wrote an essay arguing that makers should take back Freemasonry. With things like Hackerspace Roaming Membership, a similar system is evolving anyway. Here’s the essay, inspired by Jean Gimpel’s great book The Cathedral Builders, and with a wonderful illustration by Hal Robins. Several readers asked if I am a Mason. I’m not, but it’s on my list.

Masonic Conspiracy Revealed!

When engineering culture detaches from reality.

Generations of conspiracy-minded observers have nurtured theories about powerful secret societies such as the Masons. Here is my theory: Occult institutions evolve out of professional
guilds after they stop caring about how to actually build things.

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JOBS Bill/Crowdfunding Exemption Signed into Law Today

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[Reprinted from the MAKE: blog, 5 April 2012]

Today, President Obama will sign the JOBS Act, which establishes a new securities registration exemption for crowdfunding. This means that, early next year (or so), Kickstarter-like “funding portals” will allow people raising money for projects to offer “perks” based on possible future revenue from those projects. In other words, investments. This is an experiment that I’m excited about, and expect will lead to lots of great innovation and meaningful jobs (and will also attract hucksters). TechShop CEO Mark Hatch calls the JOBS Act one of the “most important pieces of legislation in decades” and expects it to help software companies and hardware startups most of all.

As one of the crowd that championed the crowdfunding exemption component of the JOBS Act, I’ll be attending the signing ceremony in the Rose Garden this afternoon. I feel honored to be a guest there, am looking forward to it, and will take photos if I can and post them here!

Lobbying for Crowdfunding So Makers Can “Go Pro”

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[Originally published in the MAKE: blog, 15 Mar 2012]

Here is an article from the techie politics site TechPresident about my and others’ grassroots lobbying efforts in favor of a regulatory exemption for crowdfunded investments.

Makers rule crowdfunding, and if this legislation passes, it will enable many of us to “go Pro,” fostering innovation and achieving other good things. But this campaign still needs your support!

Bipartisan Bill for Crowdfunded Investments In Senate

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[Originally published in the MAKE: blog, 14 Mar 2012]

First, the news; then some background. A bill legalizing crowdfunded investments was introduced into the Senate yesterday, sponsored by both Democratic and Republican senators. A similar bill already passed the House overwhelmingly (twice, actually), and the White House supports the idea and says that the President is ready to sign. So the Senate was effectively the last stop. Now it looks likely that this will become law, after the House and Senate versions are reconciled. Then it will presumably be kicked over to the SEC for details and implementation.

This is huge news for makers. Phil Torrone argued here last October that Open Source Hardware is Kickstarting Kickstarter, and it’s hard not to notice that the most successful crowdfunding raises, in terms of raw dollar amounts, are almost always geek-oriented — from last week’s 3.3 million dollar raise for the game Double Fine Adventure on down. Sure, filmmakers, artists, activists, and others benefit from crowdfunding, but it’s the (frequently open-source) hardware and software projects that really take off.

To keep it legal, contributors can’t be investors — they can receive perks like credits or gifts based on how much they contribute, and fundraisers frequently offer advance sale of items not yet produced. But advance sales may be illegal, particularly when any “donors” reside in states like California, which have a broader definition of “securities” than federal law. California law has one case (Silver Hills Country Club v. Sobieski, 1961) where someone tried to fund the building of a country club by selling memberships in advance. The state securities board shut them down, and it stuck, because this was considered a security. This case looks like a clear precedent (and Profounder shut down recently for violation of securities laws), but as far as I know, Kickstarter, IndieGoGo, and RocketHub haven’t been challenged on this yet.

This new legislation will change all of that by allowing makers to offer a genuine piece of the action to people invest in them. Want to take off a few months to pursue some idea you have? Do others believe that you’re onto something? Then they can become invested in the project– not just financially but intellectually and emotionally, to help you all succeed.

Opponents rightly warn about opportunities for fraud, but crowdfunding would make a tough con, because it all takes place out in the open, and would-be investors can communicate with each other and verify any claims collaboratively via their own research. In an interesting recent discussion on the Kaufmann Foundation’s Growthology blog, Robert Litan notes that in the early days of Ebay, skeptics thought it would soon be overrun with scammers, but clearly it was well designed to prevent this. In response, Tim Rowe notes that crowdfunded securities are already legal in some other countries, and so far, no fraud has ever taken place on these foreign crowdfunding sites.

To this, I would just add a citation to the only case of attempted CF fraud in the U.S. that I know of– the Tech-Sync Power System on Kickstarter. Here is the full story, from Andy Geime’s Geekscape blog, but to sum it up, someone made some semi-plausible technical claims and raised advance-sale money, but as people looked into it and discussed, they realized something wasn’t right. They started asking questions, the offeror went AWOL, and no one lost a dime.

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Crowdfunding gets traction in D.C.

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New crowdfunding moves from the White House and Congress are positive signals.

[Originally posted on O’Reilly Radar, 9 Sept 2011]

In May, I wrote here about efforts I’ve been involved with advocating a “crowdfunding exemption.” As part of the American Jobs Act introduced by President Obama last night, the White House announced that it will work with the SEC on implementing something along these lines. Here’s how the White House Office of Science and Technology explains it on their website:

As part of the President’s Startup America initiative, the Administration will work to unlock this capital through smart regulatory changes that are consistent with investor protection. This means reducing the disproportionately high costs that smaller companies face when going public, as well as raising the cap on “mini” public offerings (Regulation A) from $5 million to $50 million. It also means responsibly allowing startups to raise money through “crowdfunding” – gathering many small-dollar investments that add up to as much as $1 million. Right now, entrepreneurs like these bakers and these gadget-makers are already using crowdfunding platforms to raise hundreds of thousands of dollars in pure donations – imagine the possibilities if these small-dollar donors became investors with a stake in the venture.

Hear, hear! In a conference call with the press immediately after Obama’s address, U.S. Chief Technology Officer Aneesh Chopra and Office of Science and Technology Policy Deputy Director Tom Kalil explained that they advocate an exemption, or at least a streamlined and less-expensive registration process, for public securities offerings of $1 million or less, with individual investment capped at $10K. They also said that they believe the SEC has the authority to make this regulatory change, no legislation required.

Elsewhere in DC, the House Committee on Oversight and Government Reform has just scheduled a hearing entitled “Crowdfunding: Connecting Investors and Job Creators” for next Thursday, Sept. 15. It isn’t on their public calendar yet, but letters were sent on Wednesday to the people testifying. Among them (and my source on this) is Sherwood “Woodie” Neiss, whose Startup Exemption campaign has led the way on this issue.

Careful readers might note that Obama is a Democrat, while the chair of Oversight, Darrell Issa, is a Republican who is known to have no love for Obama. But hey, uniting diverse interests to a common cause is what crowdfunding is all about!

Of course, I’m thrilled about all of this. I would now bet that crowdfunded investing will become legal here in some form, hopefully fairly soon — and that when it does, we’ll see a surge of grassroots entrepreneurship, innovation, local investing, and economic vitality.

For more, read my blog at crowdfundinglaw.com.

Improving the landscape for organic startups

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A congressional committee will hear a “crowdfunding exemption” proposal next week.

[Reprinted from O’Reilly Radar, 6 May 2011]

Next Tuesday, May 10, entrepreneur Sherwood Neiss will be testifying before U.S. Congressman Darrell Issa and the House Committee on Oversight and Government Reform to advocate a regulatory change that I have been working to support: a small offering exemption, aka “crowdfunding exemption.” It’s a simple change that the SEC has the authority to make, and which I believe would spur grassroots innovation and empowerment the way the NSF’s revision of the internet backbone’s Acceptable Use Policy did back in the early 1990s. (Remember that one?)

The background (which I didn’t know until fairly recently), is that any investment where the return does not depend on the investor’s active, day-to-day involvement is considered a security. And securities, no matter how small, are either regulated by the SEC or state securities departments. There are no de minimis exceptions; shares in a lemonade stand would require registration, which I’m told costs $50,000-$100,000 or more (federal) or $20,000-$50,000 (state), mostly legal fees. For VC-free startups based on people doing things that they care about, these costs are prohibitive.

There are exemptions from registration, but never for investments that are described on the open web, like the donation pitches that have made sites like Kickstarter and IndieGoGo such fonts of creativity — this is prohibited as “general solicitation.” Investments offered privately to friends and family can be exempt, but with strict limits on the numbers of “unaccredited” investors (non-millionaires) allowed in, like a maximum of 35.

These laws were enacted to protect unsophisticated investors from fraud, but they also prevent people from investing in small businesses in their own neighborhoods, or garage ventures launched out of communities of interest that they belong to — despite the likelihood that their personal ties to such investments gives them a better basis for evaluating risk (and contributing to success) than some mass of SEC filings cooked up in an office somewhere. And so, in the name of investor protection, the investments industry currently has a monopoly on all the invested assets of the non-millionaire public. People can’t invest in the people they know from their own communities; they can only entrust their money to the choices contained in a managed menu of exclusively non-local, large-scale investment products.

As an alternative, the Sustainable Economies Law Center (SELC) in Oakland (for whom I volunteer) petitioned the SEC last year for a new exemption to cover investment offerings where individual investments are capped at $100 and the total amount is less than $100,000. The SEC posted it to their website last July 1 as File No. 4-605 (PDF). Check it out! It’s a great document, written to be understandable by laypeople, and I think everyone involved is proud of how it turned out. The funding for the legal work behind the petition was itself raised through crowdfunding.

As hoped, the proposal has been bouncing around and gaining support from Republicans and Democrats alike. The SEC’s comments page for the petition (which you can add to by emailing rule-comments@sec.gov and putting “4-605″ in the Subject line) contains more comments than any other petition listed, all of them positive (as of this writing). Last November, when I and some other supporters of the petition attended the SEC’s Small Business Forum to promote the idea, the SEC seemed interested.

Since then, Rep. Darrell Issa wrote a letter to SEC chair Mary Schapiro asking about easing regulations for crowdfunded investments, and Schapiro wrote back (PDF) to say they were evaluating the issue, citing 4-605 and our visit (see footnotes 77 and 78 in the document). Meanwhile, Florida entrepreneur Sherwood Neiss also met with the SEC to promote the idea, and published a less restrictive proposal for a small offering exemption (which also cites 4-605) at his website StartupExemption.

Neiss has also done a wonderful job of spearheading and publicizing this issue. Understanding the power of celebrity, he encouraged Whoopi Goldberg to tweet her support for his exemption proposal. The Wall Street Journal blog covered Goldberg’s tweet on March 23. This reified the issue among financial journalists, who have since reported on it in Bloomberg, The Fiscal Times, The Washington Times, and POLITICO Pro. (Before Goldberg’s endorsement, only the Boise Weekly had covered the idea.)

Now Neiss is scheduled to testify before Issa’s committee next Tuesday, May 10th, and everyone I’ve been working with on this who knows is thrilled. I’ve read an early draft of his planned testimony, and it’s terrific — a great argument with great supporting facts for a revolutionary new idea. I was excited just reading it, and in an idle moment afterwards I caught myself humming “Marching to Pretoria.”

This past Monday, I called C-SPAN’s main number (202-737-3220) to suggest that they cover Issa’s hearing and Neiss’ testimony. The receptionist told me to call back on Monday, May 9th because they don’t decide what to cover until the day before. When I asked her if there was any other way to suggest coverage, she asked me what hearing I was interested in, and told me that she would pass my suggestion on to the editors. Fingers crossed!