Tag Archives: reprint


How the SEC Listened to the Crowd for Crowdfunding Rules


[Originally published on PBS MediaShift]

Last month, the Securities and Exchange Commission published its long-awaited proposed rules for the most radical part of the JOBS Act of 2012. These rules set the terms for what’s called Regulation Crowdfunding, under which the general public will be allowed to invest limited amounts in small, unregistered securities. Regulation Crowdfunding represents one of the most momentous changes in U.S. federal securities laws since the Securities Act of 1933, which first established our legal framework for selling investments.

What’s remarkable is the way that the SEC wrote these rules. How much they draw from the crowd and how they’re framed represent another big change in how the SEC is open to working and that has implications for the future of the crowdfunding movement.

Read more at PBS MediaShift


Online Platforms Give the First Public Look at Private Equity


[Originally published on PBS MediaShift]

A major change in federal securities regulations takes effect this week, and many people are wondering how it will turn out. It’s now legal — with the proper filings and for the first time in over 80 years — for businesses to publicly advertise for investors. Proponents hope that this change will spur entrepreneurship, job creation and innovation nationwide, particularly in areas outside of the typical startup hotspot cities. Detractors fear that the regs will provide a new mechanism for fraudsters to scam retirees and others out of their wealth. Either way, the system known as “private equity” won’t always be so private anymore — and as of Monday morning, several online platforms discussed below are giving the public its first look at the formerly secret world of startup investing.

Read more at PBS MediaShift


Your Guide to DIY Crowdfunding Tools (to Avoid Kickstarter Fees)


[Originally published on PBS MediaShift]

Kickstarter pioneered a set of rules and an uncluttered visual grammar that has become the familiar frame for online fundraising, and many other such crowdfunding portals have since copied or adapted their formula — even sites that started earlier. Now, an explosion of cheap and easy new tools and services makes crowdfunding more democratic than ever, by empowering fundraisers to bypass portals like Kickstarter and IndieGoGo entirely.

Some of these tools enable people to create standalone campaigns on their own websites, where they don’t have to give up the 5 percent-or-so commission that commercial portals typically charge, and they also retain full control over the user experience and their relationship with the funders. In other words, the crowdfunding page will have your branding and domain, not the portal’s, and a portal won’t track and bug your funders for their own promotional purposes.

Other new tools and services empower people to “be their own Kickstarter” and create a multi-user portal of their own, where they can host other people’s crowdfunding campaigns and collect the commissions themselves, or choose not to. They can launch these crowdfunding portals from their own dedicated domain, or else as funding pages integrated within an already-existing web presence.

Read more at PBS MediaShift

Ron Popeil © Image: Housewares.org

Crowdfunding and Direct Selling: A Conversation With Dan Williams

Ron Popeil © Image: Housewares.org

Ron Popeil © Image: Housewares.org

[Originally published on crowdsourcing.org, 20 May 2013]

What would the new K-Tel “22 Original Hits” collection be for Crowdfunding? Chances are, it would include must-have (and top-funded) presale products like a fly-killing salt gun, a 3D doodling pen, a networked video doorbell, a robotic insect toy, spring-cushion shoes, migraine-relieving eyeglasses, a gourmet cooker that clips onto any pot, stickers that prevent you from losing things, and little clips that mean you’ll never have to tie your shoelaces again.

As a lifelong admirer of such clever things, I love how crowdfunding has unleashed a wave of ingenuity in consumer products. The immediacy of their appeal reminds me of some products advertised on TV, like the Robo Stir or Rollie EggMaster. As with crowdfunding, these Direct Response (DR) products are sold directly to consumers from the entities that make them. That’s why I consider online “pretail” crowdfunding, in which backers fund production runs of products as a way of hopefully buying them in advance, as a new, indie, riskier form of DR. The crowdfunding portals have discovered that campaigns fare much better if they include a video, but the DR people have known this all along.

Dan Williams serves on the board of directors and chairs the Internet and Emerging Media Council of the Electronic Retailing Association (ERA), the main trade organization for the DR industry. ERA member companies spend about 3 billion dollars per year on advertising, mostly television, including both spots (“short-form”) and infomercials (“long-form”). I recently spoke with Dan about crowdfunding and DR. Here’s part one of a three-part conversation:

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© Image: Wen Chuan Tan

Crowdfunding: Revenge of the Outsider Ants

© Image: Wen Chuan Tan

© Image: Wen Chuan Tan

[Originally published on crowdsourcing.org, 22 Jan 2013]

Imagine that you’re an ant who’s looking for food. One strategy is to find other ants who are crowded around a large source, like a dropped candy bar, and then attach yourself to their supply line. A second strategy is to strike out on your own and look for undiscovered sources of food: crumbs that you can carry yourself, larger pieces that you may need some help with, or a massive new find that will attract and support its own crowd of dedicated ants.

Like ants, humans also arrange themselves in groups to exploit resources together, and I often think about human organizations in terms of this ant analogy. The first strategy described above is the “insider” approach: identify the most promising crowd of ants, join it if there’s room, and if you’re feeling ambitious, work your way up closer to the food source. The second strategy is the “outsider” route: look for some food that no one knows about, or else try to figure out a new way of finding it. If you hit it big, many more ants will join you, and you will be in front.

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SEC Comment: Addition to Proposed Investor Qualification Exam

[Reprinted from Public Comments on SEC Regulatory Initiatives Under the JOBS Act: Title III — Crowdfunding, 2 Jan 2013]

Subject: SEC Regulatory Initiatives Under the JOBS Act: Title III — Crowdfunding

January 2, 2013

In my comment letter incorrectly dated July 26, 2010 (it should have read “July 26, 2012” – sorry!) I rough-drafted a suggested investor education and qualification exam for crowdfunding that includes 16 multiple-choice questions, each addressing a different possible red flag (or “Risk Factor”) for registration-exempt online investing. Here is another, 17th question that I neglected to include:


Online identities can be stolen or hacked by criminals, who then use them to impersonate friends, family, and other people you know. If you receive or see an online investment solicitation that lists people you know as offerers, investors, recommenders, or otherwise involved, understand that it may be a scam that has nothing to do with them. Telephone them or discuss in person before investing, so you can hear their voice and verify that they are not being impersonated. Don’t rely solely on online communication, since it may already be compromised. Be especially suspicious of online comments or conversations that somehow “ring false” — are attributed to people you know, but don’t seem like the way they normally communicate.

Choose the statement below that makes the most sense.

  • Wow, here’s an investment that my entire first-degree network highly recommends. And in this discussion, many of them call it a “great opportunity.” I’m in!
  • I haven’t heard from Brad in a while, but he just contacted me to invest in his can’t-fail new business. Hmm, this doesn’t seem relevant to his interests, and the wording here doesn’t even really sound like him– but hey– good for him, and I’m glad to know about this! Sure, I’ll invest!
  • This solicitation lists my friend Carol as an investor, but she never said anything about it when we had lunch last week, and it’s something she would have mentioned. I’ll call her up to check that it’s true, and if it isn’t, I’ll forward the solicitation to the SEC’s Crowdfunding Fraud email address and call their 24-Hour Crowdfunding Fraud Hotline to alert them.

Respecfully submitted,
Paul Spinrad

Is Kickstarter a Social Minefield?


[Originally published on crowdsourcing.org, 7 Dec 2012]

Noreen Malone, a writer for The New Republic, doesn’t like what Kickstarter is doing. In her recent essay “The False Promise of Kickstarter,” she starts off by raising the case that donation crowdfunding is a “bright spot” in the current economic landscape and a more democratic way of supporting creative work. Then she attacks it by noting that crowdfunding favors projects that have strong online appeal, that some of the projects are silly, and that some projects fail to deliver. I don’t think Kickstarter fans disagree with any of these points. But should people be prevented from spending money on silly things, on Kickstarter or elsewhere?

Finally, Malone arrives at and develops what seems to be her deeper point: that the demand for donating to Kickstarter projects is not “real,” but is instead due to “peer pressure or idle boredom.” She problematizes the fact that Kickstarter “creates a relationship between consumer and merchant that is more like that of the one between donor and nonprofit.” And what’s worse, she concludes, other sites that resemble Kickstarter are sprouting up like weeds, not just for gadgets and films, but for things like funding local municipal improvements.

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Crowdfunding is Gamification Solving Real Problems

This post originally appeared on crowdsourcing.org.

In her popular TED talk and resulting book from 2010, game designer Jane McGonigal argues that gaming can make a better world. She posits that if we, as humans, approached real-world problems with the same sense of control and collaboration that we bring to multiplayer role-playing games, we could solve them. So, we should do it. We should make solving big real-life problems more like playing games.

McGonigal’s daring proposition comes from research that she did years ago, after having observed the different way that people react to challenges in games and in real life. When we confront obstacles in real life, we often feel overwhelmed, frustrated, or cynical, but when we play games, she found, we never have those feelings. She wanted to identify what it was about multiplayer games that inspired such a positive attitude, and concluded through her research that it came down to four things that the gamers experience:

1) an urgent and reasonable hope of success;
2) a fabric of trust created through interacting with other players;
3) a feeling of flow; and
4) the feeling of making a difference in an important quest.

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Obama to Appoint Pro-Crowdfunding SEC Chair (Prediction)

I heard from someone who’s close to the SEC that there’s “no doubt” that SEC chair Mary Schapiro will be leaving, as has previously been rumored — it may happen soon, but will certainly be after tomorrow’s Small Business Forum, which will have a breakout session devoted to crowdfunding. New SEC commissioners and chairs are appointed by the President, with the advice and consent of the Senate, and no more than 3 SEC commissioners can be from the same party. Without Schapiro, that leaves two each Democratic and Republican– so a new appointee could be from either party.

I’m sure that Obama will appoint a new commissioner and designate a chair who is friendly to investment crowdfunding, because the White House been behind the cause from the very beginning. Many people credit Rep. Patrick McHenry (R-NC) for introducing the $10K/$1M crowdfunding exemption idea to DC via H.R. 2930.  But that formula came out of the White House’s Startup America initiative much earlier; it was originally proposed by Woodie Neiss and his Startup Exemption pals, and it earned far more online votes than any other proposals (the second and third place Startup America ideas were also crowdfunding exemptions).

Informed by their Startup America outreach, and one week before McHenry introduced H.R.2930, the White House Office of Science and Technology Policy (OSTP) proposed a $10K/$1M exemption in on an on-the-record call with Aneesh Chopra and Tom Kalil immediately after Obama’s major address on Sept 8, 2011. This wasn’t reported on at the time, possibly because the idea was unfamiliar to most reporters on the call. Several weeks later, the day before the House voted on McHenry’s bill (and passed it overwhelmingly), the White House issued a statement declaring it consistent with their own proposal.

This is review is all just to say that, if the White House indeed needs to appoint a new SEC commissioner and chair soon, it will surely be someone who wants to make the crowdfunding exemption as workable as possible. Combine this with the fact that the new crowdfunding legislation gives the SEC broad authority over how it should be interpreted and implemented, and I think there’s reason to be optimistic.

UPDATE: One reader notes that crowdfunding is far from the SEC’s top priority right now. Several initiatives are currently more pressing for both the SEC and the White House, with money market reform probably at the top of the list.

Mobile App for Launch Event Investing
At next year’s LAUNCH festival, a startup unveiling event taking place next March 4-5 in San Francisco, the organizers will distribute a mobile app that will allow attendees to invest on the spot, as compliant with current law at that point in time. I predict great success for an app like this, not just at LAUNCH, but at countless other launch/funding events in the future.

Crowdfunding Casualties
The turn-based horror game Haunts: The Manse Macabre was funded back in July and had hoped for a Halloween release, but the presumed programmers needed to leave the project. Now the project is on hold (or dead), but hopefully it will be taken up by the small studio Blue Mammoth Games.

The alt band Animal Collective raised money back in 2009 to enable band member Deakin to play at a benefit music festival in Mali. As perks, they offered CDs and other documentation of the trip. But Deakin later decided that all of the money raised should go to the concert’s benefit charity (TEMEDT) rather than towards his own travel expenses, and that he feels that he doesn’t yet have any new music that’s good enough to send to his backers, which must be frustrating to both him and them.

Italy has passed its own crowdfunding exemption. It’s similar to what’s in the JOBS Act, but it targets high-tech ventures, and it is likewise now waiting for Italy’s SEC-analog (CONSOB) to write the specific rules.

DIY Platform Options
GrowVC recently announced Crowd Valley, “The Crowdfunding Infrastructure,” which lets you build your own crowdfunding platform. Add it to Selfstarter, the IgnitionDeck plugin for WordPress, Launcht, and Invested.in as ways you can create your own crowdfunding site. Note that Selfstarter is free and open-source, unlike the others, and that it’s designed to support a single project rather than serve as a shared platform.

Wefunder – Cheap Offerings Open to CA, MA, NY
Like other platforms, Wefunder is waiting for the SEC rulemaking. Meantime, they’ve templated an inexpensive way for small businesses to legally offer private equity investments now (under Reg D, Rule 506) to residents of California, Massachusetts, and New York, with a maximum of 35 unaccredited investors.

Lessons of Insurance Regulation
Writing on Bill Carleton’s blog, finance and securities lawyer Robert Weiss proposes insurance regulation as model for crowdfunding regulation, rather than corporate law, because insurance regulations are designed to protect relatively unsophisticated consumers while permitting competition.

Early Christianity’s Crowdfunding Spirit
The Christ and Pop Culture blog discusses how crowdfunding today recalls the community spirit demonstrated by the 3000 new Christian believers touched by the first Pentecost. ???And all who believed were together and had all things in common. And they were selling their possessions and belongings and distributing the proceeds to all, as any had need??? (Acts 2:44-45, ESV).

Trendwatching proposes the term “Presumers” to refer to the growing numbers of consumers, such as crowdfunders, who engage with products and services pre-launch. I always get a kick out stuff like this, marketing consultants trying to create new buzzwords.

Brokerage Head-Start, National Character, Election, etc.

Brokers to Sell CF-Exempt Securities Before Funding Portals?
FINRA is the securities dealer trade organization that will presumably oversee funding portals under crowdfunding law. At a meeting on October 12, FINRA told CFIRA members that they haven’t started figuring out how they will register and oversee funding portals, but instead are waiting for the SEC to issue their final regulations regarding crowdfunding. This raises the possibility that registered broker-dealers might be able to sell CF-exempt securities right away, as soon as the SEC reg’s are out, but that the funding portals, the lightweight entities defined in the new law, will have to wait X number of months for FINRA to figure out its procedures for them.

I’m angered by this prospect, as are other crowdfunding advocates. FINRA’s passivity may just ensure that its existing members, the established brokerage houses, get a headstart in the new territory of crowdfunding before any of the upstart funding portals can enter and compete with them.  And since becoming a registered securities broker is expensive and time-consuming (comparable to becoming a lawyer), traditional brokerages will cost more than the funding portals.

National Character – US, UK, and Netherlands in Extraordinary Popular Delusions (1841)
On my friend Charles’s recommendation, I skim-read the 1841 classic Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay.  Unfortunately, I unwittingly bought a cheap used 1995 version that only includes the first 100 pages of the original, but CreateSpace has a better, complete edition. What my abridged version included was fascinating, and I couldn’t help but notice that the three countries involved in the scandals described (the Mississippi Company bubble, the South Sea Company bubble, and Tulip Mania) are all countries that are today leading the way in legalizing crowdfunded securities: the U.S., the U.K., and the Netherlands. I don’t want to provide rhetorical ammunition to skeptics, but it’s an interesting reflection of national character.

Presidential Election Crowdfunding Invisibility
Amid all the talk of “helping small business” and “new ideas” in the presidential campaign, it kills me that neither side has brought up the crowdfunding exemption, which experts consider the most significant change in securities laws since the 1930’s. Certainly it’s something that could be pointed to and either trumpeted or attacked. I’m not surprised at the silence, however– the public doesn’t know much about the issue, hasn’t digested it yet– so the public opinion workers have no idea what people think of it. And by extension, they don’t know what to say about it.

Rumored SEC Chair Resignation, Rulemaking Effects
There’s a rumor that SEC Chair Mary Schapiro will resign soon after the election. If so, this may affect the viability of the crowdfunding exemption– especially if Schapiro is succeeded by someone who doesn’t like it.  I’ve heard that Meredith Cross, who currently heads the SEC’s Division of Corporation Finance, is one such skeptic.

SEC Forum November 15th – Attend or Call In
This year’s SEC Government-Business Forum on Small Business Capital Formation should be super interesting and a great scene, in the wake of the JOBS Act. I’m very glad I went in 2010 to discuss crowdfunding, and this year all the cool kids will be there. One of the two afternoon breakout sessions will focus on JOBS Act provisions (including crowdfunding) and secondary trading platforms. I’m going to call in, but of course it’s better to be in the room. Register here to either attend in person or phone in. It’s free.

I’m The Guy
Crowdsourcing.org invited me to write an article about “Crowdfunding True Believers” that drew from my own experiences pursuing a crowdfunding exemption. I went to town with the assignment, turning it into a 2-1/2 part series that I’m really glad I wrote and had gotten a great response. Read it here: How Crowdfunding and the JOBS Act Got Started, Told by the Guy Behind the Big Idea.

First Biotech Crowdfunding ROI
French startup ANTABIO raised investment from 200 small investors on WiSEED, and got subsequent funding from an angel investor and big pharma company. The original investors exited with a profit.

AFR JOBS Act opposition
Americans for Financial Reform (AFR) is a large coalition lobby that helped create the Dodd-Frank Wall Street Reform Act, which passed in July 2010. Although AFR purports to favor financial reform and oppose “rules of Wall Street… written by the bankers themselves,” they have been leading the fight against the JOBS Act. The SEC’s rulemaking for the JOBS Act (which passed this year) is leapfrogging the SEC’s late remaining rulemaking for Dodd-Frank. Dodd-Frank is definitely AFR’s baby, so maybe AFR is just jealous and resentful of the new kid.

NASAA opposition and SEC lawsuit threat
The association of state securities regulators (NASAA) has also continued to oppose the JOBS Act, along with AFR, in an axis that also includes the CFA, AFL-CIO, and AARP. NASAA president Heath Abshure threatened a lawsuit against the SEC, explaining, “It would be a very, very unique circumstance for NASAA to file a lawsuit against the SEC to somehow stop, slow down, throw a wrench into this rulemaking, [H]owever […] if I felt it was the necessary thing to do, I’d propose it to my board.”

Since the JOBS Act’s crowdfunding provision pre-empts state securities laws, maybe NASAA just resents having their power removed and usefulness denied regarding the regulation of very small securities. (But the legislation does give state regulators authority in the examination and enforcement of the federal crowdfunding reg’s.)

Real-World Data: Zero Fraud So Far
NASAA put “Crowdfunding and Internet Offers” at the top of their 2012 list of threats, but Jonny Sandlund compiled real-world data showing that in countries where crowdfunded securities are already available to the public in limited forms, specifically the UK, Netherlands, and Australia, fraud has not yet occurred.

Pseudo-Crowdfunding a Real Threat
At a recent NASAA meeting, however, one source reported that NASAA is sensibly more concerned with scams that will run under the name of crowdfunding, using it as a buzzword, but not complying with the law. It’s true
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.

CF Campaign Launch Events and “The Crowdfunding Channel”
There’s no higher-bandwidth communication medium than physical presence, and likewise no better way to take measure of someone’s character (at least until we’re all wearing body sensors that constantly publish to the cloud). That’s why I predict that the most successful crowdfunding campaign launches in the future will be event-based, where potential investors (and donors) can see the offeror and ask questions in person. This is also nice because it encourages local community investing.

Live remote coverage of these launches will be fun to watch, and of course you’ll be able to invest or donate from home. This will not be highbrow entertainment, however — think QVC meets Shark Tank (a reality show around business pitches) meets tastytrade. Events like Crowdstart-Vegas, which sounds like it was a blast, are runs for this new category.

This global crowdfund investments company exhibited at Crowdconf on Monday. Check them out, and I hesitate to say more.

Not A Store
It’s come out that some people come to crowdfunding pages, see things that they like, and assume that they’re operating within the familiar “online store” frame, where you can click on prices and buy things without having to read any “how it works.” It surprised me to learn this, but it makes sense. To prevent this, Kickstarter changed their policy and declared that they are not a store. Some people have criticized their ban on photorealistic / videorealistic renderings, but I think it’s a great idea.

Real Estate Crowdfunding = Scary
Contrary to my usual enthusiasm for CF investing limited by strict caps, looking at this website (for PropertyPeers) made me wonder if it’s a mistake, at least for this sector. Maybe it’s because real estate speculation doesn’t require making or doing anything new, or because there’s a longtime tradition of real-estate scams. Maybe I’m just being elitist. But some right-brained amalgamation of my impressions regarding real estate investing and the people who are attracted to it leads me to expect that things like PropertyPeers will not end well, unless they receive some special regulatory attention. I I welcome discussion with anyone who knows more.

IP Theft from Kickstarter Campaign
The Pen Type A is an elegant metal housing for the ultra-smooth Pilot Hi-Tec-C gel-ink pen refill. After the project was successfully funded on Kickstarter, the pen’s designers worked with someone named Allen Arseneau to have the pen housings manufactured in China. Arseneau reportedly stole the design and used it as the basis for launching his own pen company, Torr Pens. Last week, Arseneau published a press release announcing that the Torr Pens “present a solution to the gift-giving season.”