Rule changes could be the making of the UK alternative finance sector, says an industry group, which expects investment in start-ups to rise fourfold
Financial Times - Entrepreneurship
Rule changes could be the making of the UK alternative finance sector, says an industry group, which expects investment in start-ups to rise fourfold
Soon, common folk like you and me will be able to invest in the startup (or small business) next door.
The Securities and Exchange Commission (SEC) on Wednesday voted unanimously to propose regulations for equity crowdfunding, which will enable unaccredited U.S. investors to invest in startups and small businesses.
The long-overdue rules, which the JOBS Act called for by no later than Jan. 2013, will likely undergo a lengthy comment period before they go into effect. The SEC is seeking input on 295 questions, according to SEC commissioner Dan Gallagher. The full set of rules is a bureaucratic 585 pages.
Crowdfunding industry experts are still digesting the various regulations and their ramifications, but their initial reaction is largely positive.
The rules “seem like they’re sticking very closely to the intent of the [JOBS Act],” said Sherwood Neiss, a principal at consulting firm Crowdfund Capital Advisors, referring to the legislation that legalized equity crowdfunding when it was signed into law April 2012. “I feel optimistic that the rules won’t be burdensome for small businesses.”
While critics of the JOBS Act have largely focused on the potential for fraud, very few startups defraud their investors, but most do end up failing for legitimate reasons. Thankfully, the SEC rules protect new investors from losing more than $ 5,000 a year as a result of their own inexperience.
“It’s important to note that the SEC is taking a calculated approach to protect these new investors, in part by dramatically limiting how much they can invest by capping annual investment at around $ 2,000 to $ 5,000 per year,” said Chance Barnett, CEO of Crowdfunder, a crowdfunding platform that currently offers equity crowdfunding to accredited investors.
Indiegogo CEO Slava Rubin agrees that the proposed rules adequately protect investors — though like the aforementioned experts, Rubin and his company stand to benefit from the new regulations.
“I think the SEC did a good job balancing investor protection and allowing innovation to keep moving forward,” Rubin told VentureBeat. “I think there’s a lot of nuance and interpretation that still has to happen, though, which is why the comment and feedback period will be very important.”
Asked if Indiegogo will eventually offer crowdfunding for equity, Rubin offered a tacit yes.
“We’re definitely interested, definitely moving forward,” he said, noting that he’s wanted to allow Indiegogo users to profit from crowdfunding campaigns since its inception in 2008, but that regulation has held him back until now.
One revelation from the proposed rules is that startups will be able to solicit investment from accredited investors (through Title II of the JOBS Act) while simultaneously raising a round from the unaccredited crowd (through Title III).
Companies have been unable to sell shares to unaccredited investors without first registering with the SEC. That will remain true until these proposed rules are approved and enacted.
VentureBeat » Entrepreneur
Some of the world’s largest companies are investing in small start-ups as a way to engage with customers and tap into the next big idea
Financial Times - Entrepreneurship
CraftFund has worked with Wisconsin legislators in introducing an intrastate crowdfunding exemption that could boost local economy.
Editor's Note: Over the next month, we'll be running a series of Q&As with crowdfunding and crowdsourcing industry leaders on the topic of crowd-powered services for enterprises. We kick off the series with Alon Goren, co-founder and CEO of Invested.In, a white label crowdfunding solution. To find out more about crowd strategies for enterprises, check out the 013 conference taking place in New York City on September 18 and 19.
Crowdsourcing.org: How does crowdfunding empower consumers? How do the enterprises you work with view crowdfunding?
Alon Goren, Invested.In co-founder and CEO: Crowdfunding empowers consumers through its inherent ability to allow the crowd to make collective decisions and validate an idea, a product, a service, or even a whole new industry, utilizing modern technology. Similar to how crowds can gather and protest to make a difference and foster change, crowdfunding enables crowds to rally and support new, exciting ideas.
The enterprises we work with are embracing the fact that consumers can now vote with their dollars and effectively change and improve their communities. They know that helping facilitate that change not only brings them recognition and goodwill, it positively affects the communities they serve.
Why are enterprises interested in crowdfunding? What are the key advantages of crowdfunding in terms of brand perception, market testing, and cost savings?
For one, it's just good business. Happy customers are good customers. Include your customers in your decision-making and they're excited to be involved and feel invested in your success. Crowdfunding also falls into our current culture of transparency and conscious business practices. There are many types of crowdfunding models out there, and enterprises are looking at them all to engage their customers and community members.
You can utilize different models to help solidify your position in the community. Charitable and community projects work well for those engaging in CSR [corporate social responsibility] initiatives. Other enterprises even crowdfund new product lines, validating markets and pre-selling products before spending significant time and resources on manufacturing those new products.
What pitfalls should enterprises avoid when they think about engaging the crowd?
I think the most major pitfall to avoid is seeming disingenuous. Enterprises need to be aware of the consumer's perception of them and be as transparent and open [as they can] in this space. I've seen many campaigns and initiatives fail because whatever the intention, the consumers felt like they were being sold something or were being lied to. You can easily avoid this by making members of your team accessible, having basic information on your initiatives available, and by just being generally transparent.
What can attendees expect to learn from your presentation on crowdfunding for enterprises?
We will discuss how we've helped some of the largest brands in the world and banks utilize and embrace crowdfunding. We'll learn from their experiences, and from the teams that conceptualized, built, launched, and ran these enterprise crowdfunding initiatives.
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To learn more about the event and purchase tickets, click here.
Additional speakers include senior executives from leading crowdsourcing and crowdfunding service providers Alegion, Amazon Mechanical Turk, Arise Virtual Solutions, Chaordix, Community Leader, DST Systems, Ellenoff Grossman and Schole, Invested.In, Mobile Works, oDesk, PASS-Technologies, Seeds, Top Image Systems, Rebirth Financial, WeGoLook, and Zipments.
013. To submit an executive speaker for consideration, please contact Ali Cox: ali [at] crowdsourcing.org
For press passes, please contact Jennifer Moebius: jennifer [at] crowdsourcing.org
013’, please contact: events [at] crowdsourcing.org
In the last of our three part series we discussed how Google Analytics can help companies increase inbound traffic to their site.
The House Crowd is a U.K.-based crowdfunding platform for property investments that launched in March 2012. We wanted to find out how the platform was doing roughly a year and half in, so we got in touch with founder Frazer Fearnhead to get the latest on the House Crowd. You can follow the company on Twitter @TheHouseCrowd.
Anton Root, Crowdsourcing.org: Can you start off by briefly telling our readers how the idea for the House Crowd came about and what motivated you to found the platform?
Frazer Fearnhead, The House Crowd founder: I have been involved in property investment for many years. It was becoming increasingly hard to get mortgages and I began to think of possible alternatives. I came across Crowdcube and I thought it was a fantastic idea. I immediately realized that I could use a similar model and apply it to property investment. I crunched the numbers and decided we could afford to pay a generous share of the profits to investors giving them a much better return on their savings, while enabling them to crowd together to invest in property.
Why do you think real estate is a good fit for crowdfunding?
In the U.K., property is in our blood. People see it as one of the best ways to provide security for their future. Unfortunately, there are many pitfalls when you invest in property [as] an amateur investor. The House Crowd gives people the opportunity to invest small amounts with property experts and earn a great return (better than most investors achieve themselves) without getting their hands dirty. By using crowdfunding to buy an income producing asset it also lowers investors' risk, as, should something go wrong, the house can always be sold and investors recover their capital.
How does the platform work? Can you walk us through the investment process on your platform?
We have to follow a fairly strict procedure in order not to fall foul of the Financial Markets and Services Act. The website acts as a platform to market the concept. People must join our investor group in order to receive specific information about an investment. We set up a separate company to purchase each property and can only send the information to 150 people who have expressed an interest in investing. Investors are investing in preference shares in the company that buys the property. We are typically buying them for around £60,000 including refurbishment costs and it usually takes about 7 – 10 days to raise the money each time. It then usually takes 2 – 3 months to buy, refurbish and let a property. Dividends are paid annually from rental profits with a minimum of 6 percent.
What’s the exit strategy for the investors?
Property is a medium- to long-term investment and we expect most investors to stay with us until the house is sold. The main drawback with property investment is illiquidity, but by investing with the House Crowd, investors can sell their shares at any time (subject to being able to find a buyer) and we offer to buy them back [or] find them a buyer if they wish to sell.
How do you select the properties listed on your platform?
The main criteria is evidence of proven demand in the area for a type of property and that the yield the property produces will be in excess of 10 percent.
How many investors do you usually have per deal? What is the average return they can expect on their investment?
Typically, 20 investors per deal; average investment is £3,250. They receive 6 percent a year plus a 50 percent pro rated profit share upon sale. Or, option two is a straight 7.5 percent per year, no share in capital growth
What’s the average time between a person investing and seeing a return on the investment?
Dividends are paid out annually, so 12 months.
What are the biggest risks for investors considering using your platform?
Minimizing risks for investors was paramount when we set the company up. And we do everything we can to protect investors' money at every stage. They never pay money directly to us — it goes via lawyers and is paid directly by the lawyers to the sellers of the property. Even if the House Crowd itself goes bust, every investment is ring fenced so the collapse of the platform would not affect the investors. We have no debt on any property, so the worst that could happen is that we will be unable to either rent the property or sell it for more than we paid for it. It's possible, but not likely
How much due diligence do you do, and how much do you encourage your investors to do, before investing in a property?
We know the markets we operate in extremely well. We know exactly what price we should be paying for property and surveys are always undertaken to identify any potential structural issues. The investors place their trust in us to select suitable properties. Given we have about 20 investors for each project and we have to move quickly to secure the best deals, it is simply not feasible for them to be involved in any way in the selection process.
Are there any limits for investors in terms of the amounts they invest and how many deals they can make in a year?
No limits. We have some people who invest small amounts in every project we do and have now invested over £100,000 with us.
Are you registered with the FCA? What is the regulatory environment for a crowdfunding platform for real estate in the U.K.?
The regulatory framework puts a huge and expensive burden on companies. We would simply not be able to provide the returns we do for investors had we needed to become regulated. So we chose not to and constructed a legal framework that allowed us to operate unregulated within the existing legal parameters.
Shortly after launching, we had protracted talks with the FSA who were concerned that we were operating a Collective Investment Scheme. When they examined what we do in more detail they agreed that we were not in fact doing so and they were happy to let us continue trading.
How many investors do you have registered on your platform? What’s the total amount of money you’ve raised and paid out thus far?
We have 1900 investors registered with us and we should reach the £2,000,000 mark by October. Dividends have been paid out on the first few projects, amounting to just over £18,000 to date.
What are your plans for the rest of 2013? Where do you see the House Crowd two years from now?
We are steadily increasing the rental income the properties produce each month, but we do not invest massively in marketing. I see us growing steadily over the next year, acquiring two to three new properties every month, while we put aside cash to concentrate on larger scale marketing activities next year. We may also look for a second round of funding at some point in the next two years to help expansion.
Any other thoughts about your platform or the crowdfunding space in general?
I love the way crowdfunding companies are proliferating and people are creating their own solutions, rather than relying on bankers in grey suits to determine what their business can or can't do. I am not a fan of heavy regulation. As far as I am concerned, as long as dealings between parties are honest and transparent, the government should not interfere. As far as investing goes, its purpose should be solely to protect people from fraud and not to try and dictate what they choose to do with their money.
Three Wisconsin legislators yesterday announced a bill that would legalize crowdfund investing in the state.
At a Madison press conference, state Representatives David Craig and Chad Weininger and state Senator Leah Vukmir unveiled the legislation, which would allow Wisconsin residents to invest in state businesses through online crowdfunding portals. All three are Republicans, but they expect the bill to receive bipartisan support.
“I am confident that it will pass,” Rep. Craig, chairman of the Committee on Financial Institutions, told Crowdsourcing.org during a phone conversation earlier today. “We’ve already had conversations with Democrats [about the legislation], and they think it’s great.”
The bill would allow Wisconsin businesses to raise up to $ 1 million annually without an audit, or up to $ 2 million with an audit. Companies offering equity would need to provide a viable business plan and disclose major shareholders, among other basic information.
“We want to make sure they provide enough information that if a buyer feels that they have been bilked or defrauded by the company, the Department of Financial Institutions has enough information to go after that bad actor,” said Rep. Craig. “We want to be as minimally restrictive as possible while ensuring responsible activity.”
Unlike the JOBS Act, which determines crowdfund investment limits based on annual income and net worth, this state legislation proposes a flat cap for unaccredited investors: $ 5,000 a year.
The governor’s office is reviewing the bill now, but Rep. Craig couldn’t confirm when it will be put before his peers for a vote.
Georgia and Kansas have already implemented intrastate crowdfunding laws, while North Carolina and Washington are currently considering similar legislation. Meanwhile, the SEC is busy implementing the JOBS Act, which legalizes equity-based crowdfunding at the federal level.
Editor's Note: The following comes to us from Shay Stewart, a business owner and entrepreneur who is currently raising money for a gelato shop called Leilani & Kalani on the crowdfunding platform ProHatch. Stewart is writing a series of pieces for Crowdsourcing.org detailing his crowdfunding journey and giving advice on how to create a solid business plan, an engaging campaign, and an appealing video to help draw the crowd to the campaign page. In this third part of the series, Stewart discusses how to create a compelling crowdfunding campaign without breaking the budget.
Feeling a little blue because America’s JOBS Act has stalled? Don’t fret and dry your eyes — all will be okay. As a prospective crowdfunder, this gives you more time to plan, well before the SEC formally makes an official announcement of much needed good news. As the famous Latin saying goes: victory loves preparation. And, so does a crowdfunding campaign.
This is where you bring out the big guns, but not necessarily the big bucks. You don’t need to have a killer project and expert media chops to effectively compete in this space, but drumming up interest in your project takes creativity. An engaging blog, a healthy social media strategy, and an interesting video, when mixed right, can energize the crowd.
Let’s be real here: creating a crowdfunding campaign for under $ 100, well, sucks. But if you’re still reading this, it means that you're mindful of expenditures and looking for a low-cost way to crowdfund your project idea. It‘s time to give your campaign a boost of energy — on a mom and pop budget. As the head honcho, you need to move beyond the fear of failure to make this happen, and your new motto is: Can. Do. This.
When engaging the crowd, you might need to go against the grain, and creating a campaign for under $ 100 is just the way to do it. Don’t be a hooligan and make your crowdfunding campaign into a micro-celebrity. Instead of offering the usual rewards, what you want to do is upgrade. Give backers something of meaning and value by creating an upper level reward that puts them in direct contact with you, on a continuous basis, such as offering backers an advisory member on your company’s board of directors for 12 months. By doing this, backers can be part of the process of building and marketing your brand, brainstorming, discussing, and help decide major organizational decisions. That alone is impressive to any serious financial backer.
Being on a budget also means buying the best that you can afford, but you also have to embrace imperfection. Perfection comes at a steep cost, but you can raise the bar without raising the price of your campaign... then poof! You can become the Giorgio Armani of crowdfunding: less is more, and one of the simplest, and most stylish ways to create a crowdfunding campaign is to make everything inclusive. Attract everyone from just about every demographic: from grandmothers to teenagers, from hipsters to parents, and even guys buying things for their girlfriends. Know your market and audience, but also keep in mind that an overwhelming majority of new businesses (87%) get funded from family members, work colleagues or friends and neighbors (Armani founded his label with close friend Sergio Galeotti in 1975). Crowdfunding is all about small contributions, from everyone.
When creating rich media content online, the best (and free) options are blogging sites Tumblr and WordPress. Both allow users to post multimedia and other content to a short-form blog. Most content that users post resembles an actual website (ta-dah!), as hundreds of themes are available for both sites, from professional to recreational. With over 122 million and 60 million blogs respectively, how could anyone go wrong with either of these cool options?
And if you’re looking for something basic, why not try to create a business or product page on Facebook? This allows you to publicize your project and builds upon your own social media connections at the same time, for free. If you’re really a couch potato, and just can’t be bothered, sign up to Twitter, and send out sporadic tweets in front of your TV (as 140 characters will take less time to compose than a commercial break during your favorite TV show). It doesn’t get any easier than this, period.
Since the Internet today is no longer a niche technology, mass media is now an integral part of modern life. Almost no aspect of life remains untouched by online media. I strongly suggest creating a pitch video, which can be done for next to nothing, literally. No video camera? No problem. Most mobile phones (Android and iPhone) bring 720p video recording quality to your fingertips, which is ideal for HD content. Fabulous. What about video editing software, you say? Problem solved: there are over two dozen free online applications and tools that get the job done, pretty darn well (YouTube Video Editor, Movie Masher and Photobucket). Beautiful. Want to become a pro just like Spielberg? Easy-peasy, lemon-squeezy. There are free online video tutorials such as the Vimeo Video School and Video School Online, which provide the technical knowledge of film and production. Perfect.
Today’s entrepreneurs have everything at their fingertips, and all they need is a laptop computer, along with some business savvy, goes a long way. So when creating your video, keep it tight and punchy and under three minutes, as the crowd is easily preoccupied with other online content that’s vying for their attention. There are billions of websites out there, to put it all into perspective, as everyone is fighting for the crowd’s full attention.
The speed of technology is staggering today, so when you choose to go public and crowdfund, you are putting your ideas directly in the public spotlight. This is indeed risky, as your competition may profit on your idea before you can. This is an inherent risk of crowdfunding, but there’s an added upside: you can finally broadcast your idea to the world without any obstacles — no red tape, no closed doors, and no language barriers (thank you, Google Translate). How cool is that? Now we’re talkin’ ‘bout a true crowdfunding revolution where you can finally reach the masses, on a global scale.
In my crowdfunding video, I focused on the near-zero environmental impact of my product (gelato), instead of highlighting the delicious flavors and feelings accompanied with gelato, its close association with Italy, or that the general population is now shifting their focus to consuming more health-conscious products. To compel the audience to act, I created a video presentation with dynamic film scenes of landfills, tropical rainforests, raging fires, and breathtaking scenery, all while focusing on the company’s core value of sustainability. I decided to make our operational footprint, front and center, and focus on our policy of sending zero waste to landfills.
When you decide to “roll with it,” you’re now speaking crowdfunding language, and crowdfunding plus creativity (plus $ 100) equals WOW.
Prior to starting Leilani & Kalani, Shay Stewart worked on the the foreign exchange market, which is by far the world’s most liquid financial market that trades $ 4 trillion a day and represents the largest asset class globally. Before working in the foreign exchange markets, Shay specialized in writing business plans for small-to-medium sized enterprises needing $ 1-10 million in financing; once completed, he would raise the capital needed for the enterprise to become a thriving success.
A few weeks ago, the first-ever crowdfunding site for craft beer entrepreneurs made its debut with CrowdBrewed, and another site called CraftFund is slated to launch this fall.