SEC to throw open the doors to everyman investing

On the heels of our launch last week of SCcrowdfund.com, which will allow businesses and non-profits to post their business ideas and projects on a public online portal to encourage people to donate (donation crowdfunding) or invest (private placement investment for those with high incomes), more good news is expected tomorrow.

At 10 am, the U.S. Securities and Exchange Commission (SEC) will hold a public meeting at which time it is anticipated that it will release proposed rules that will govern the sale of securities in businesses via crowdfunding. In 2012 Congress passed the JOBS Act that had as one of its provision legalizing businesses to solicit and receive investments of as little as $100 from all citizens through online portals popularized by donation crowdfunding firms like Kickstarter and Indiegogo. 

The South Carolina Small Business Chamber of Commerce (SCSBCC) and the American Sustainable Business Council’s (ASBC) support for security (or equity) crowdfunding dates back to 2010 when the concept was originally proposed in a petition to the SEC.  The SEC has come under pressure to promulgate regulations that will govern how security crowdfunding is carried out.  Just yesterday a group of U.S. Senators including those who were  critical to the passage of the law, including Senators Jeff Merkley and Mary Landrieu, sent a letter to the SEC calling on the agency to complete its security crowdfunding regulations.

If the SEC does release its proposed regulations tomorrow it will begin a public comment period enabling those with an interest to critique the rules and possibly influence the final regulations.  But more importantly it will give business organizations like the SCSBCC and ASBC a clearer timeline for incorporating security crowdfunding in our portal platforms.  It will truly be a revolutionary opportunity for everyday citizens to invest small amounts of money into growing their local economies by providing capital to locally-owned businesses. 

When the time comes, hopefully in 4 or 5 months, we will add security crowdfunding to our statewide portals (SCcrowdfund.com) for donation crowdfunding and private placement investment. This is exciting!

Looking for capital for your private or non-profit business? Look to SCcrowdfund.com

Our announcement last week that SCcrowdfund.com is now open for applications from entrepreneurs and businesses looking for capital to start or grow their business received good media coverage.  The portal enables small businesses and non-profits to put their business projects on either a donation crowdfunding or private placement investment platform and seek funding from South Carolinians.

Tyler Ryan had me on WACH-TV’s morning news, WCIV-TV in Charleston ran a story on their website and PJ Ranhawa did a very nice segment on WIS-TV Friday evening. 

This is your opportunity to put your business project in front of the public and ask for donations or investments.  Go to SCcrowdfund.com and spread the word that we can grow our own local economies.

WIS-TV
October 18, 2013

Crowdfunding becomes newest way to secure business capital

Oct 18, 2013

By PJ Randhawa
  

Watch the video.

The Internet, boredom, and a credit card can be a bad and costly combination for some, but what if there was a way you could walk away from your computer with more than just a blanket with sleeves?

How about an equity share of a legitimate business in your community?

The biggest barrier to starting a small business often comes down to having capital, either in the form of investors or just cold hard cash. That's why now, small business advocates are using technology to help connect investors with opportunity.

Wade Sellers had a dream, but he just needed $4,200 to get it out of his head and onto film.

"We must've done something right because we met our goal and about 10 percent and we were able to make the film," said Sellers.

Sellers did it with help of dozens of online donors who had a little faith in his project.

"They're people who are looking to have a serious stake in something new," said Sellers.

Frank Knapp from South Carolina's Small Business Chamber of Commerce boils it all down to risk vs. reward.

"Everything has risk, of course," said Knapp. "With risk, you get high returns."

That same crowdfunding model is now moving away from the arts and being geared to small businesses with the upcoming launch of the small business investment portal.

"Anyone will be go onto a portal that will have a list of businesses that are seeking investors and anyone can go on literally and say, 'I want to invest in that business," said Knapp.

Investors can purchase an equity share of any sized business from coffee shops to high tech ventures or they can choose to simply donate towards a business project.

"Investors like this who might know your reputation or your product might be more apt to invest for a percentage of the share," said Scott Linaberry from Curtis Hanger Partners.

For Linaberry, who's aiming to raise $4 million to renovate an historic hanger, finding funding from like-minded partners is not just a way to increase his own bottom line.

"When it's narrowed down by projects in your region, and you want to see Richland County or the Midlands grow, here's your opportunity to put your money where your mouth is," said Linaberry.

The small business investment portal will officially open for business before the end of the year. But they are accepting applications from entrepreneurs who are trying to grow or start a business through crowdfunding.

Small businesses interested in using the crowdfunding model through the SC Small Business Investment Portal can visit SCCrowdFund.com

WCIV-TV
October 16, 2013

New website is like Kickstarter for SC businesses

COLUMBIA, S.C. (WCIV) – A new website is helping small businesses in South Carolina raise capital through crowdfunding and investments.

The South Carolina Small Business Chamber of Commerce on Wednesday began taking applications for its two new web portals.

"There is a growing demand for small business loans that our financial institutions cannot meet for one reason or another," said Frank Knapp Jr., the president and CEO of the South Carolina SBCC. "Our new portal will provide the marketplace for these small businesses to seek donations and investments for their business projects."

The site, SCcrowdfund.com, is designed to help local businesses take off and build capital without waiting on an economic upswing. Instead, business owners can solicit people for donations or investments through the website.

Anyone will be able to make a donation to the businesses that join the site. However, only people with high incomes will be able to invest in companies. Those investments will be handled through a private portal.

Details on what qualifies as a high income can be found on the website.

SCcrowdfund.com will allow people to fund local businesses through three methods: donation crowdfunding, which is essentially gathering donations from the public for a project; private placement investments, in which accredited high income people can contribute for a share of equity in the business; and security crowdfunding, which when approved by the Security and Exchange Commission will allow people to invest in exchange for small shares.

To find out more about SCcrowdfund.com and apply, click here.

Read more

New online portal opens for SC small businesses to access capital

SCcrowdfund.com

South Carolina entrepreneurs and small business owners looking for capital to start or grow a business have a new opportunity.  The South Carolina Small Business Chamber of Commerce begins taking business applications today for its new donation crowdfunding and private placement investment portal found at SCcrowdfund.com.

“There is a growing demand for small business loans that our financial institutions cannot meet for one reason or another,” said Frank Knapp Jr., president & CEO of the South Carolina Small Business Chamber of Commerce (SCSBCC).  “Our new portal will provide the marketplace for these small businesses to seek donations and investments for their business projects.” 

The portal, SCcrowdfund.com, is based on the theme that South Carolinians should,  “Invest in a New Economy”.  This effort is a partnership with the American Sustainable Business Council, New York-based Mission Markets and Bendigo Securities, LLC.

“We don’t have to wait for the national economy to take off.  We can grow our own local economies by donating to and investing in our local businesses.  This portal, SCcrowdfund.com, will make this easier,” said Knapp.

While anyone will be able to donate to a compelling small business project when the portal is open to the public in approximately 30 days, only those with high incomes will be able to invest through the private placement portal.  The qualifying criteria for “accredited” investors can be found at SCcrowdfund.com.

Businesses wanting to place their projects on the portal for either donations or investments should go to SCcrowdund.com. 

65 Percent Isn't Enough And Job Creation Is Suffocating

The South Carolina Small Business Chamber is making steady progress on setting up a donation and investment crowdfunding portal to give small businesses and entrepreneurs another means to access capital.  To find out more click here.

Below is an excerpt from an opinion editorial in Forbes by Ty Kiisel that addresses the issue of capital access.

Unfortunately, partially because of the way the SBA defines small businesses, traditional small business lending has moved upstream since 2008 and is catering to the bigger businesses on the small business continuum. The average 7(a) loan amount in 2012 was far more than what those Main Street business owners are looking for to grow their businesses and create jobs.

We recently pulled a sampling of about 44,000 borrowers who visited our platform during the first six months of 2013 and 59 percent of those business owners were looking for small business loan amounts of $50,000 or less—39 percent were seeking loan amounts of less than $25,000.

As credit tightened following the financial meltdown and the community banks and other traditional lenders small business owners would have turned to 10 years ago collectively turned them away, access to the inexpensive capital small businesses rely on to grow and hire employees dried up—leaving the nation’s biggest employer [small business] out in the cold.

Read more

S.C. businesses have new financing option

For more information about this story, contact Frank Knapp at sbchamber@scsbc.org or 803-252-5733.

 

GSA Business
July 31, 2013

The S.C. Small Business Chamber of Commerce has joined a Mission Markets online crowd-funding portal that gives businesses access to financing and donation-based investment resources.

Chamber President Frank Knapp said the portal gives businesses and non-profits conducting a business enterprise another avenue to gain access to capital.

The portal, called “Invest in a New Economy,” is a partnership between the Small Business Chamber, American Sustainable Business Council and Mission Markets Inc., a New York-based securities firm. Applications are being accepted and the portal is expected to go live by the end of August.

“Any business in this state or nonprofit conducting a business enterprise will be able to use this portal,” Knapp said Wednesday.

He said there will be an application fee of about $100 and applicants will automatically become members of the chamber.

The portal allows S.C. businesses to seek capital through donation crowd-funding, which involves asking the public to make donations toward a project or business activity. Financing options also are available through private placements that involve high-income individuals investing in a business for an equity position; and — if approved by the Securities and Exchange Commission — through individuals who make relatively small investments in a business for an equity position.

Knapp’s posting on the chamber website said the Mission Markets crowd-funding portal is another option to seek capital “for the entrepreneurs and small business owners who just don’t have the equity or capital assets a financial institution needs for a loan or a line of credit.”

He said the Columbia-based chamber, with more than 5,000 members, is working with Mission Markets “because of its mission to do good, its technology to enable these proprietary blended portal networks and its goal of reaching across organizations.”

“By offering small businesses access to equity from accredited investors, and donation-based crowd financing, we are helping local communities to thrive in a socially responsible manner,” Knapp said.

https://www.gsabusiness.com/news/48446-s-c-businesses-have-new-financing-option

                                                                     

‘Crowdfunding’ Rules Are Unlikely to Meet Deadline

The New York Times
December 26, 2012

By ROBB MANDELBAUM

When the Jobs Act became law in April, supporters proclaimed a new era for small businesses seeking to raise money.

The “game changer,” as President Obama put it in the Rose Garden as he signed the bill, was a provision to let small companies “crowdfund” — that is, sell stock and other securities over the Internet directly to the public. “For the first time,” the president said, “ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”

But it now seems that dawn will break late on this new age of democratic investing. The Securities and Exchange Commission appears certain to miss its end-of-year deadline for issuing regulations to put the provision into effect. And with the departure of the S.E.C. chairwoman, Mary L. Schapiro, and three of her top deputies — including two who manage the offices writing the regulations — some in the nascent equity crowdfunding industry worry that it could be 2014 before their line of business becomes legal.

The delay has frustrated many crowdfunding backers. The 270 days that Congress gave the S.E.C. to write the rules “is not a suggested timeline; it is a Congressional mandate,” said Kim Wales, an organizer at Crowdfund Intermediary Regulatory Advocates, a lobbying group formed in April to represent the new industry, in an e-mailed statement. “The S.E.C. answers to Congress, not the other way around.”

The crowdfunding provision, Title III of the Jumpstart Our Business Startups Act, creates an exception to the general rule that before a company can sell its stock to the public, it must register with the S.E.C., a process of disclosure requiring elaborate and expensive assistance from lawyers, accountants and investment bankers that most small companies cannot afford. Instead, businesses seeking less than $1 million will be able to raise capital online from small investors in a streamlined process.

But the law insists on strong investor protections, and as a result, the S.E.C. must iron out numerous issues concerning how crowdfunding companies, the intermediaries handling the transactions and even investors themselves can operate.

Small businesses, especially start-ups, are notoriously risky; in essence, the S.E.C. is writing rules that will govern a very dangerous game. “It’s actually a significant job to do the regulations in this area, so it was an unrealistic expectation that the S.E.C. would have it completed by now,” said Barbara Roper, director of investor protection for the Consumer Federation of America, which is lobbying the agency on other aspects of the Jobs Act. “I think they have 21 or 22 separate regulations to write.”

S.E.C. employees began accepting comments from and arranging meetings with interested members of the public about crowdfunding shortly after the Jobs Act became law. In those meetings, agency officials “have come in with our white papers fully highlighted, line by line, to discuss it,” said Alon Hillel-Tuch, co-founder and chief financial officer at RocketHub, a crowdfunding site that lets people and businesses raise money through donations or by offering rewards. (Current law allows sites to accept donations or deposits on a product.)

A spokeswoman for Senator Jeff Merkley, an Oregon Democrat who largely wrote the crowdfunding measure, said that the S.E.C. was grappling with the more stringent requirements courts had imposed for conducting cost-benefit analyses when writing regulations. This “has slowed down everything from Dodd-Frank to the Jobs Act,” the spokeswoman, Courtney Warner Crowell, said in an e-mail.

With data for analyzing equity crowdfunding in short supply, the S.E.C. asked RocketHub and Indiegogo, another donation-based crowdfunding service, to provide information about their operating practices and campaigns they had conducted. RocketHub complied, Mr. Hillel-Tuch said.
But Indiegogo did not, said Slava Rubin, the company’s chief executive, because it did not want to share trade secrets.

Mr. Hillel-Tuch said S.E.C. officials also requested help from Kickstarter, another leading crowdfunding site. Officials spoke with a Kickstarter executive in July, but neither the agency nor Kickstarter would comment on the meeting.

Under Title III, companies wishing to sell stock to the public will have to provide information to investors and the S.E.C., including financial disclosures that grow more extensive as the size of the offerings increases. They will be allowed to sell stock only through an intermediary: either a broker-dealer or a specialized crowdfunding Web site, or portal. The intermediaries will have to take steps to ensure that small investors are protected, even from themselves. The law limits how much a person can invest in crowdfunding in a year, depending on income and net worth.

Advocates for both investors and members of the crowdfunding industry have dissected nearly every element of the legislation. “I think there are probably 25 or 30 legitimately important issues,” said Douglas S. Ellenoff, a New York securities lawyer who is advising some in the industry. “But I think they’ve all been hashed out. They have heard issues from a variety of angles, and I think that the draft proposals are fairly advanced.”

High on the list of priorities for the portals is to make sure they face less scrutiny from regulators than broker-dealers do. “What we’re asking for is the funding portals are viewed as sort of a broker-dealer-lite sort of model, where the mandates for broker-dealers are not imposed on a funding portal,” said Ms. Wales, the crowdfunding lobbyist.

The crowdfunding interests are also warning regulators that some of the stringent investor protection measures could, if fully adopted, make crowdfunding prohibitively expensive. The law, for example, requires intermediaries to “make such efforts as the commission determines appropriate” to verify that investors have not exceeded their investment limits, across all intermediaries and stock issuers. But would-be intermediaries fear the prospect of having to confirm this independently, which could entail checking tax forms or creating a database of all investors.

The industry is likewise taking aim at a requirement that issuers raising more than $500,000 provide investors with audited financial statements. “If you’re a new business and you have to submit audited financials that you don’t have yet, it doesn’t make sense,” said Mr. Hillel-Tuch of RocketHub. The law gives the S.E.C. discretion to change this threshold, and Mr. Hillel-Tuch argued that no business seeking to crowdfund should be subject to it.

Calling the requirement unrealistic, Indiegogo’s Mr. Rubin said, “There’s no question that this is a massive deal breaker.” He urged regulators to tread lightly. “There’s a lot to do here, but why not let the industry figure it out?” he said. “Along the way there will be some ups and downs, but in the long run, like the Internet, we’ll have created an amazing industry.”

Investor protection advocates remain concerned about those downs. “The thing about crowdfunding is that it brings together unsophisticated issuers with unsophisticated investors,” said Ms. Roper of the Consumer Federation of America. “What could possibly go wrong?”

An S.E.C. spokeswoman declined to comment on the status of the rules. This month, Mr. Merkley and several other legislators wrote to Ms. Schapiro, who stepped down on Dec. 14, to urge the agency to propose rules putting the crowdfunding legislation into effect “in the most expeditious manner possible.”

Outside observers can only guess at what the commissioners — now two Democrats and two Republicans — will do next. But crowdfunding proponents say they remain optimistic, in part because they feel they have developed a good working relationship with their regulators at the S.E.C. “I believe that with the dialogue we have had with the staff, we will see proposed rules that facilitate a responsible emerging industry with a viable economic model,” said Mr. Ellenoff, the securities lawyer. “I’ve been involved in other programs where I don’t feel the same way.”

http://www.nytimes.com/2012/12/27/business/smallbusiness/why-the-sec-is-likely-to-miss-its-deadline-to-write-crowdfunding-rules.html?pagewanted=1&_r=1&partner=rss&emc=rss&adxnnlx=1356552015-turgiOx4dxz6a9T3MwDntA&

 

Crowdfunding can provide new financing option for women and minority firms

WEBINAR June 21, 2012

25% Discount for Small Business Chamber members

In April, President Obama signed the Jumpstart Our Business Startups Act. A provision in the law establishing crowdfunding as a mechanism to spur start-ups has the potential to significantly help minority firms.

A study conducted by the Commerce Department concluded that women- and minority-owned firms “experience higher loan denial probabilities and pay higher interest rates than white-owned businesses even after controlling for differences in credit-worthiness, and other factors.” The failure rate of minority businesses is higher than that of nonminority firms, according to the Commerce Department’s Minority Business Development Agency, partly because of lack of capital.

But crowdfunding can potentially level the playing field, opening new sources of business capital and revenue for women- and minority-owned firms.

What is crowdfunding and how can it work to help your business in the future will be the subject of a webinar on June 21^st conducted by William Michael Cunningham of Creative Investment Research.  Mr. Cunningham is a social investment advisor, owner of MinorityFinance.com and the author of the forthcoming book “The JOBS Act: Crowdfunding for Small Businesses and Startups.”

When:  Thursday June 21, 2012
3:30 to 4:30 PM (ET)

Cost:  $75 for SCSBCC members / $100 for non-members

REGISTER HERE

More from the Summit for a Sustainable Economy

The American Sustainable Business Council had a very good Summit for a Sustainable Economy at the White House yesterday.  In addition to the morning's panel on sustainable economic growth that I moderated, I also facilitated a breakout group on small business taxes and revenue in the afternoon with a representative from the White House National Economic Council and the Small Business Administration. These two ladies might have wished that they had not been at the meeting because of the grilling they received.

Today I am leading a meeting at the Security Exchange Commission to discuss crowdfunding that the SEC is responsible for writing the regulations.  Later in the afternoon, I and some other ASBC folks will be meeting with the Congressional offices of Senators Jeff Merkley, Thad Cochran and Lindsey Graham.

I will be back in Columbia late tonight. 

Worldwide crisis in small business lending

At last week’s annual Small Business Administration’s conference for National Small Business Week, SBA Chief Karen Mills took some questions.  One small business owner said that she received “invaluable support” from one of the SBA’s Small Business Development Centers, which operate in every state.

The lack of credit from banks was a complaint of two small business owners.  The Federal Deposit Insurance Group reports that loan balances to small businesses fell in the first quarter of this year (while loans to big businesses increased).  But it’s even worse for small businesses in other countries.  Headlines say that small business lending from Spain’s crumbling banks is drying up and in England 50 small businesses are failing daily due to lack of lending.

Bank resistance to small business loans and credit has forced countries to look at alternative avenues for access to capital.  China will start allowing small businesses to sell bonds.  Here in the U.S., Congress passed legislation to allow small businesses to seek small private sector investments through crowdfunding.

We don’t know how successful these new alternatives to traditional financial institution lending will be for small businesses.  Crowdfunding is a novel and not understood concept for most small businesses.  So the results of a recent national poll finding that 45% of small business owners not knowing if crowdfunding would be helpful and 53% not thinking it would is no surprise.

However, a few other results of this poll show why crowdfunding and other access to credit avenues for small businesses are important.  Small business owners are still getting most of their lending from a combination of family and friends (71%), personal credit cards (62%) and business credit cards (59%). 

With small businesses creating at least half of the net new jobs in this country, we shouldn’t be letting the vital growth of these real job creators up to the whims of family, friends, and credit card companies.  We need crowdfunding and other alternatives sources of capital if banks won’t or can’t do the job.

Crowdfunding to the rescue for small investors

The Great Recession has apparently changed the way individual Americans view investing.  Buying stocks is no longer seen as safe for long or short-term investment and trading is way down.  Credit Suisse Trading Strategy reports that daily trading in American stocks continues to fall and is down almost 50% from the peak in 2008.

The lesson learned from the Great Recession is that Wall Street cannot be trusted.  While the market might be reaching new highs, it is doing it without individual investors who, unlike high-speed traders, can feel that something is wrong.

You would think that with this stock market crisis the financial institutions would welcome regulations to inspire investor confidence.  But instead of looking at Dodd-Frank—the financial reform passed to protect our economy from the practices that collapsed the market—as their vehicle to return to pre-Great Recession trading volume, Wall Street is doing everything it can to undercut and roll back the new rules.

And while the experienced Wall Street investors are walking away from trading, mom and pop small investors are looking for something else entirely.  Fortunately, Congress has recently opened the door to a dramatically different type of equity investment. Investments that Americans know the country needs—investments in their own communities.

Soon all of us will be able to invest, not in some faceless symbol on our computer screen, but in a tangible business we can see, touch and even taste in some cases. 

The new crowdfunding Security and Exchange Commission (SEC) rules will allow small, long-term investments in businesses not only in your community but in every community.   It is this sense of community that will give regular Americans more investment confidence.

Last Friday the American Sustainable Business Council held a webinar on crowdfunding, “Crowdfunding is the law, now what?” 

The webinar featured Andy Green, Legislative Counsel to Senator Jeff Merkley (OR) who was the prime sponsor of the crowdfunding provisions signed into law.  Also participating was Jenny Kassan, who launched the equity crowdfunding effort in 2010 with a petition to the SEC, and Mary Rick, a crowdfunding consultant and former director of the crowdfunding portal The Hoop Fund.

Get up to speed on this exciting new small investment opportunity and vehicle for small businesses to have more access to capital.  You can listen to the audio of the webinar here.  Be patient in opening the link since it is a large file.

Investing in Main Street Instead of Just Wall Street

BloombergBusinessweek
Small Business
April 25, 2012

By John Tozzi

For a certain breed of conscious consumer, shopping locally is paramount. It signals support for independent stores over big chains, urban downtowns over sprawling shopping centers, small farmers and craftsmen over multinationals. The theory is that a bigger piece of each dollar spent locally stays in the community, as those business owners buy from local suppliers and reinvest profits close to home.

Even the most dedicated local shoppers, however, have trouble extending that philosophy to their savings. While some people have shifted deposits out of Wall Street banks and into local lenders and credit unions, most investors have no way to steer portions of their long-term savings, such as retirement accounts, to Main Street companies. “There are 7,500 mutual funds. Not one invests in local businesses,” says Michael Shuman, an economist and author of Local Dollars, Local Sense (Chelsea Green, 2012).

Shuman and other supporters of local investing hope the new law enabling crowdfunding will make it simpler to include local businesses in investment portfolios alongside the S&P 500. Right now it’s difficult to do, but Shuman expects companies and nonprofits interested in local investing to begin building the tools to make it easier. Small businesses seeking capital will need software to help them meet heightened financial reporting requirements under the new law, he says, and investors will want arm’s-length evaluators to vet offerings. Mechanisms such as self-directed IRAs could be used to direct some retirement money into local businesses.

One of the inspirations for the new crowdfunding exemption was a petition to the Securities and Exchange Commission two years ago to allow businesses to raise up to $100,000 with no more than $100 coming from each investor. The author of that plan, Jenny Kassan, is chief executive of Cutting Edge Capital, a financial consulting firm in Oakland, Calif., that helps small businesses raise money through lesser-used exemptions in securities laws. (Shuman is a researcher there.)

What eventually passed into law is much broader than Kassan’s original idea: People will be able to invest $2,000 or 5 percent to 10 percent of their wealth, depending on their earnings and net worth. “Under this law, you can raise more, you can have more per investor, but it’s also much more highly regulated,” Kassan says.

The SEC still has to write the rules for how crowdfunding will work. Kassan says it might be two years before anyone starts raising money through crowdfunding, and other exemptions may still be better choices for businesses looking to raise money.

While concerns about fraud or just plain lousy investments abound, investing in local businesses is one way to give people some measure of confidence about where their money is going. Shuman sees it as a potential fit for “any business with a fairly consistent and loyal clientele, where the purchase of the security is another piece of that loyalty,” he says. “These are businesses that have been around for a long time. You say, ‘That’s a part of my community. Sure, I’ll invest in that.’”

Still, investors should go in with eyes wide open. Investing locally may involve higher risks, lower returns, and almost certainly less liquidity than more conventional investments. Frank Knapp, president of the South Carolina Small Business Chamber of Commerce and a supporter of local investing, says investors will be motivated as much by opportunity to aid a treasured local restaurant or indie bookseller as they are by the potential financial return.

“If they make it, wonderful. If they don’t, you know, I helped, we tried to help,” he says. “You’re investing in your local community. You believe in it, you want it to grow. You’re not risking a lot. You’re going to live there, your kids are going to grow up there. If you can maybe make something back on your investment, great.”

http://www.businessweek.com/articles/2012-04-25/investing-in-main-street-instead-of-just-wall-street

Hope and danger in JOBS Act

Today President Obama is scheduled to sign the JOBS Act, legislation that has received both enthusiastic support from the business community and scorn from regulators and consumer organizations.  So what is the reality?

Well, the JOBS Act is deserving of both praise and scorn. 

First the praise.  Contained in the Act is a provision for enabling small businesses to have access to large numbers of investors through crowdfunding.  The concept is simple.  Allow many people to invest relatively small amounts of money into a small business trying to raise limited amounts of money and thus justifying reducing the regulatory oversight on of the Security and Exchange Commission.  These are not gifts as in today’s social crowdfunding, these are the purchasing of shares of a company.

We were successful in amending the crowdfunding part of the JOBS Act in the Senate so as to provide sufficient individual investor protection on this new source of capital for Main Street small businesses.  Not only is it critical that small businesses have better access to capital, especially since banks are not meeting the needs of small businesses according to new analysis, but also because we need investors to feel secure in using crowdfunding.  If the public thinks they will be defrauded of their money, they won’t’ use crowdfunding investing.

Which brings us to the JOBS Act scorn.  The rest of the Act deserves concern because it reduces accounting and disclosure rules for much larger businesses, those capitalized up to $1 billion and having gone public as “big league” securities for less than five years .  The real fear is that this deregulation might eventually result in financial scandals that will shake public confidence even for investing in our small businesses.

So while we hope that the SEC writes the regulations for implementation of the JOBS Act so as to minimize potential fraud on Wall Street, those of us who support crowdfunding to help most small businesses not looking for the “on ramp” to the DOW need to get to work.  We need to create the vehicles that the public will use to make small investments in their local community businesses as safe as possible to protect consumers.  If we don’t, this new hope for accessing capital will fade once again for small business.

Happy B-Day ACA and Success in U.S. Senate

The Affordable Care Act turns 2 today (read my op.ed here) while we all wait for the Supreme Court hearing on the constitutionality of the individual mandate to start next week.  More on that on Monday.

Yesterday was a big and surprising victory in the U.S. Senate.  The CROWDFUND Act that we, the American Sustainable Business Council and other organizations were supporting was successfully amended onto the JOBS Act.  Thanks to all who contacted your Senators in this important effort to help small and mid-size businesses have more access to capital without throwing the doors open to fraud and abuse.

ACTION ALERT!!!

Access to Capital vote on Tuesday
Tell Graham and DeMint to do it the right way

The U.S. Senate will vote tomorrow (March 20^th) on legislation to create another path for small businesses to access capital.  The Small Business Chamber has supported the idea of allowing limited investments in small businesses with relatively low caps on total investments sought.  This is called “crowdfunding”.  In exchange for limited investment caps, the Security and Exchange Commission’s (SEC) normal requirements would be reduced to eliminate much of the cost and time for compliance that prohibits most small businesses from accessing investment capital.

However, “crowdfunding” legislation done properly is a careful balance between reducing investor risk through low investment caps and thus lowering SEC oversight.  We have worked with a bi-partisan group of Senators to achieve this balance.   Unfortunately, the U.S. House has passed and sent to the Senate legislation (JOBS Act) that includes a “crowdfunding” provision that throws this careful balance out the window and will bring the greed and fraud on Wall Street that gave us the Great Recession to Main Street investments.  

Senator Mary Landrieu of Louisiana has characterizes the vote tomorrow this way.  ““There's a right way to get capital in the hands of small businesses and a wrong way.  If we take the wrong path and fall off of a cliff, we are going to ruin our chances to get this done.” 

Please contact S.C. Senators Graham and DeMint quickly.  Below are two easy ways to do this.  Your message should be twofold:

Vote YES for cloture on Reed-Landrieu-Levin’s Substitute Amendment to the JOBS Act.

If Reed-Landrieu-Levin fails, Vote NO for cloture on the House Bill (H.R. 3606)

The first vote would substitute the Senate INVEST Act that includes our crowdfunding provision for the JOBS Act.  The latter vote will insure more debate and amendments to the JOBS Act so that we “don’t fall off of a cliff”.

Send your message to our Senators in an email letter provided by the American Sustainable Business Council.  Click here to send email.

Or call both our Senators and give the above message.

Senator Jim DeMint 
202-224-6121

Senator  Lindsey Graham 
202-224-5972

Thanks for your help.

Crowdfunding Proposal Hits Snag

By Eliza Newlin Carney
Roll Call Staff
March 15, 2012, Midnight

As the Senate prepares to take up the House-passed Jumpstart Our Business Startups Act, a popular proposal to free up capital through “crowdfunding” has pitted consumer advocates against entrepreneurs.

The idea behind crowdfunding is simple: Instead of going to a bank for loan, a startup or small company seeking capital makes an “open call” to a community of potential small donors who pool their resources, typically on the Internet.

President Barack Obama touted the power of crowdfunding in his American Jobs Act last year and in his legislative agenda last month. Support for the concept has come from such strange bedfellows as Silicon Valley executives, artistic nonprofits, the U.S. Chamber of Commerce and associations representing self-employed, female, minority and small-business owners.

The recession “has been terribly difficult for small businesses,” said Frank Knapp Jr., president and CEO of the South Carolina Small Business Chamber of Commerce. “The loans have dried up dramatically, both for outright loans or for lines of credit. The financial institutions are gun shy now of making ‘risky’ loans.”

Knapp’s group belongs to the American Sustainable Business Council, an association that promotes corporate and social responsibility and that is pushing for crowdfunding proposals on Capitol Hill.

The broad appeal of crowdfunding helps explain why the House passed the JOBS Act by a generous 390-23 margin last week. In addition to clearing the way for crowdfunding over the Internet, that bill includes several other measures aimed at boosting small businesses and entrepreneurs.

These include measures that would relax Securities and Exchange Commission regulations on a new class of “emerging-growth companies” and for companies seeking to go public and to solicit capital through ads. Obama has signaled support for the legislation, and Senate Majority Leader Harry Reid (D-Nev.) was expected to take up the House version of the JOBS Act today and open it to amendments.

But consumer advocates, watchdog groups and some economists are raising alarms. Taken together, the JOBS Act’s various provisions represent a dramatic rollback of financial regulations that date back to the Great Depression, they argue. It would reverse protections enacted with the Dodd-Frank financial reforms, some warn.

“We’re all for channeling capital to small businesses,” said Marcus Stanley, policy director of Americans for Financial Reform. “At the same time, we have banks for a reason, as opposed to people standing on the street corner taking shares in companies. So you’ve got to strike a balance.”

Columbia University law professor John Coffee Jr. testified on Capitol Hill in December that rolling back SEC registration and disclosure requirements for companies seeking crowdfunding invites what’s known as “boiler room” fraud, in which scam artists create phantom companies and solicit investors by phone, email and other means.

Even some advocates of crowdfunding warn that the JOBS Act should not become a vehicle for throwing out too many SEC regulations. “We’re concerned about deregulating the process too much,” Knapp said. “For those who want to raise a great deal of money, there have to be safeguards for the consumer.”

The American Sustainable Business Council wrote to Senate leaders Wednesday to endorse an alternative crowdfunding bill introduced by Sen. Jeff Merkley (D-Ore.). Co-sponsored by Sens. Michael Bennet (D-Colo.), Scott Brown (R-Mass.) and Mary Landrieu (D-La.), the bill includes tougher rules than those in the House JOBS Act, such as stronger disclosure rules and a registration requirement for Internet crowdfunding sites.

The Merkley bill is said to have the blessing of such heavyweights as Google and YouTube. AOL co-founder Steve Case also praised crowdfunding this week in an interview with CEO Wire. Merkley is expected to push his approach as a JOBS Act amendment when the Senate takes up the bill.

Crowdfunding will let “small investors to pool their resources to fund promising new ventures,” he said in a statement. “At the same time, this bill protects those investors and sets fair rules of the road.”
The question for eager entrepreneurs is whether other more sweeping deregulations in the JOBS Act prove too controversial for the Senate — and the president — to swallow.

Original Article

Access to capital through crowdfunding

This week I’m off to DC to join David Levine, co-founder and director of the American Sustainable Business Council, in a media tour for the ASBC (I serve as vice-chair of the organization).  We will be doing a few other things including have discussions with the Americans for Financial Reform and hopefully some Congressional staff on the issue of crowdfunding.

I first mentioned crowdfunding as a potential tool for small businesses and entrepreneurs to have access to capital way back on November 17, 2010.  At that time only a few organizations, including the ASBC and the SC Small Business Chamber of Commerce (SCSBCC), were aggressively supporting changing SEC regulations to allow crowdfunding and we thought it was a long shot.  My have things changed.

First President Obama announced his support and instructed the SEC to seriously consider it.  Then the House overwhelmingly passed a version of crowdfunding.   Then bills were introduced in the Senate.  The House just recently passed more legislation including crowdfunding again and this week there may be action in the Senate.

But with all this relatively rapid action there is the distinct possibility that the original crowdfunding concept to really help small business will be lost as Congress and special interest groups expand the concept well beyond the initial idea.  The ASBC and SCSBCC will be working in DC this week to protect our small business interests.

The ASBC has posted on their website (also below) a good overview of how crowdfunding can help small business.  I’ll keep you informed of actions on the Hill.

Crowdfunding: Accessing Capital for Small Business

Given the challenges small businesses and entrepreneurs face in raising capital to help them grow and compete, the crowdfunding concept is a viable solution. Crowdfunding, especially in the context of community-based financing of local projects, has the potential when done correctly to be a very useful tool in opening up access to capital for business. Crowdfunding simply put is raising investment funding in small increments from a large number of people often through Internet marketing.

Current Securities and Exchange Commission (SEC) rules make this type of small dollar investments cost prohibitive due to registration and reporting requirements at both the state and federal level. Since 2010, ASBC has been one of the earliest supporters of crowdfunding as a vehicle for small business to gain access to capital. ASBC has worked on Capitol Hill to insure that the interests of locally-owned small businesses and entrepreneurs are properly served in the development of crowdfunding legislation.

Legislation is moving through Congress that would create a Crowdfunding exemption to the SEC regulations. The House passed the McHenry bill, the Entrepreneur Access to Capital Act (HR. 2930), with an overwhelming bipartisan majority. In the Senate, two bills are pending: Democratizing Access to Capital Act (S.1791) by Sen. Scott Brown (MA) and the CROWDFUND Act (S.1970) by Sen. Jeff Merkley (OR). We applaud the work of both senators.

It is vitally important for any crowdfunding legislation to allow small businesses to pursue maximum investments of $100 or slightly higher from individuals with an aggregate cap on total capital raised in the range of $100,000. Low individual investor limits combined with aggregate caps promote community-based economic support for local businesses while keeping potential investor losses and fraud risks relatively low; these limits allow relatively light SEC oversight.

We understand the argument for making intermediaries optional, since many small business owners and investors are not tech-savvy and may not be comfortable investing via an unfamiliar third-party platform. However, further work is needed to ensure sufficient investor protections without requiring an intermediary. We support strong and enforceable investor protections that won’t unnecessarily restrict the flow of capital within local communities and to local projects.

Because individual state laws on investments pose an obstacle to crowdfunding, the federal law should override state regulations.

For more information, or to get involved in the working group that manages this campaign, please contact us.

Update on crowdfunding legislation

Last Friday I told you that the U.S. House overwhelmingly passed a bill that would allow small businesses to solicit investment capital of up to $1 million with a $10,000 maximum per individual contribution without having to do all the expensive and time consuming paperwork registering with the Securities and Exchange Commission.  The concept is call “crowdfunding” and it offers another avenue for small businesses to access capital, something desperately needed.

The SC Small Business Chamber has previously advocated for the SEC to waive registration requirements for small businesses that wanted to raise $100,000 from contributions of up to $100.  The theory being that if the maximum someone could lose in the investment was only $100, then there was not a lot of need for the SEC to protect the consumer.

So while I applauded the bipartisan support for the House crowdfunding bill, I and other supporters of the concept were uneasy about raising the maximum individual contribution to $10,000.  That’s a heck of a lot of money to lose and would probably attract a lot of scam artists soliciting for fraudulent investments. 

Fortunately, Senator Scott Brown of Massachusetts has introduced his crowdfunding bill (S.1791) that reduces the maximum individual contribution to $1000 while keeping the $1 million total on capitalization.  That’s a much more acceptable potential investment loss to justify the elimination of much of the SEC registration requirements.

Hope for bipartisanship and small business?

If your feet felt cold this morning, it’s because Hell has frozen over.

Last evening the U.S. House passed overwhelmingly (407-17) a piece of President Obama’s American Jobs Act.  While the Senate Republicans yesterday blocked the transportation part of the jobs bill, House Republicans and Democrats solidly supported changing Security and Exchange Commission (SEC) regulations to allow small businesses easier access to private investment. 

Last year supporters, including the South Carolina Small Business Chamber, of a concept called “crowdfunding” proposed by the Sustainable Economies Law Center lobbied the SEC for reducing strict registration requirements for small businesses to seek investors for security offerings up to $100,000 with $100 maximum per investor.    We felt that the onerous registration process was there to protect investors.  So if the maximum an investor could lose was only $100, then such requirements should also be minimal.

The SEC listened as did the Administration.   The President’s jobs bill included the general concept of responsibly reducing SEC regulatory burdens if investor risk was low.   And the SEC established an Advisory Committee on Small and Emerging Companies that had its first meeting Monday of this week.  On its agenda was the concept of “crowdfunding” as a vehicle for small businesses to better access capital.

Not waiting for the SEC, last evening the House passed H.R. 2930 with some amendments.  The bill takes our original “crowdfunding” proposal and dramatically raises the cap to $1 million on the amount of funds allowed to be generated through this process that would include internet and other forms of advertising. The cap on how much each individual investor can give was raised to $10,000. 

Small businesses following the “crowdfunding” guidelines would not have to register with the SEC.

Now this bill goes to the Senate and we’ll have to see if that body can also get over its partisan divide.  If it can, then a whole new opportunity for small businesses to meet their capital needs will become a reality.