and I quote:
“Washington D.C., Oct. 23, 2013 —
The Securities and Exchange Commission today voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.”
While this is still being walked through a standard regulatory process, it’s tangible progress. In the press release launched today, the SEC describes the process by which the public can review the proposed rules and provide comment. “The SEC is seeking public comment on the proposed rules for a 90-day period following their publication in the Federal Register.” Read the Press Release HERE.
The relationship of this new ruling to ChangeXchange NW is incredibly exciting. Our platform for CrowdGIVING can soon add CrowdINVESTING to the toolset. This place-based finance strategy provides a NW-focused set of options for filling a wide range of funding gaps for locally owned and social enterprises, building a more resilient and sustainable region along with strengthening local economies everywhere. Read on…
“Title III of the JOBS Act established the foundation for a regulatory structure that would permit these entities to use crowdfunding, and directed the SEC to write rules implementing the exemption. It also created a new entity – a funding portal – to allow Internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers. Together these measures were intended to facilitate capital raising by small businesses while providing significant investor protections.”
It also increases the already huge knowledge gap that exists across the country. Entrepreneurs used to seeking debt but interested in crowdinvesting will need to bone up on the law. Those who provide finance consulting for entrepreneurs have new tools to leverage, but will also need to understand the various exemptions and opportunities for funding. And, local citizens who will want to play a role will needto understand due diligence, make informed choices about where to put their capital, and understand what to look for as they read these new documents. They will also get to decide what they might want in terms of “returns”, perhaps even seeking blended returns (social, environmental, or community value along with financial returns). These are exciting times!
Notice, however, the resemblance to our other favorite tool in community investing, the Direct Public Offering. “A maximum aggregate of up to $1 million within a 12-month period.” They will still ask for financial statements, names of owners, a business plan, copies of tax returns, use of proceeds, etc. If you want to see what the document will likely look like, check out the SCOR form U-7 on NASAA’s Web site. My guess is the process is going to look a lot like the DPO.
The rest of the announcement describes the requirements of the intermediating portals, like the Northwest’s very own ChangeXchange NW. Our existing back office, design, and plans for ChangeXchange NW meet these requirements. See below:
The proposed rules would require these intermediaries to:
- Provide investors with educational materials. (check!)
- Take measures to reduce the risk of fraud. (double check)
- Make available information about the issuer and the offering. (check!)
- Provide communication channels to permit discussions about offerings on the platform. (check!)
- Facilitate the offer and sale of crowdfunded securities. (check!)
We’re pleased to be well-positioned to play a key role in place-based finance here in the NW. If you want more information on how this works with our educational materials and programs, feel free to email us at info at springboardinnovation dot org.
This follows on the heels of the other recent law change which lifted the ban on general solicitation. This also has enormous potential to free up dormant capital in our region. Read more at an earlier blog post here.
For the next 90 days, the Commission (SEC) will be looking for public comments. If you have questions, comments, or want to weigh in, it’s time to dig in and help create a new ecosystem for community investing. Let your voice be heard.
Curious about how the online space for crowdfunding will be regulated based on the passing of the JOBS Act? Jenny Kassan posted a set of answers here on her Cutting Edge Capital blog. Bottom line, get used to filling out SEC forms and getting serious about your knowledge of investing regulations. Also, until the SEC has completed its rulemaking process, you cannot act as a crowdfunding intermediary, (even if you are already a registered broker). So, while I am sure we will see a host of new faces in this space eventually, the best process right now, legally, to gather small investments from your unaccredited neighbors (and the accredited ones too, of course!) is the Direct Public Offering.
Really. Join us on June 15 and 16 to learn more. A rare opportunity to hear from the national experts on the use of this tool to leverage community capital.
It’s about filling a gap, one that we have been harping on for years, namely, startup. As an April Slate article described the likely beneficiaries of the Jumpstarting Our Business Startups (JOBS) Act: “They’ll be startups and young businesses that have growth potential, but not on a large enough scale to attract venture capital.” It will take effect in 2013, and the SEC will have an additional 200+ days to work out the regulatory piece. “Crowdfunding,” the opportunity to have many small contributors or investors buy into an entity, has largely been hamstrung by the securities laws, put there to protect us (us being the little guys who don’t have a lot of experience investing and can’t afford to lose a lot of money. The law will still have a say, but the rewards (as well as the potential losses) could be widespread.
“Along with individual companies, small-time startup scenes outside of Silicon Valley are likely to reap rewards as well. Austin, Boston, and New York have had some success in building startup cultures, but they’ve been held back by the Bay Area’s grip on venture-capital money. Crowdfunding will allow companies without access to Sand Hill cash to find the capital they need online, perhaps spurring a wave of innovation among mom-and-pop startups whose ambitions are local rather than global. If that happens, the JOBS Act might end up creating some jobs after all.” (quotes from the April 6 Slate article)
If you need the JOBS Act basics, the MSNBC post is helpful. Or, better still, read Jenny Kassan’s article on HuffingtonPost.
“The vast majority of the American public, the 99 percent of us who are “unaccredited” investors, will soon have the opportunity to keep their money local. The half of our economy made up of small, independent businesses will now have access to capital that previously could only go to giant public companies. Americans have $30 trillion dollars invested in securities — imagine if even 10 percent of that went from Wall Street to Main Street. What could $3 trillion dollars do in our communities?”
She is admittedly, still “cautiously optimistic.” If you want the flip side of the act by those who are seriously upset about what the law ALSO allows, look here: Rolling Stone and Bloomberg.
I’m most interested in the ecosystem growth this Act will offer up to us. This Act is really an invitation. It invites those of us advocating for local and sustainable businesses to make this work broadly, sharing knowledge and taking advantage of the opportunities wisely. Michael Shuman sums it up nicely,” I believe that local economy advocates now must start educating the public about the importance of favoring local investment. Our argument should be that knowing the business in which one invests – knowing the products, the entrepreneur, the workforce, etc. – is the best way to prevent fraud.”
Hatch: A Community Innovation Lab, and other ecosystem cultivators, should look closely at their new role in getting the word out, and acting as sources of information and direction.
The topics at the Sustainable Business Oregon Panel May 8th event were impact investing and alternative finance. This post should help those who want to dig deeper into the measurement of impact, a critical piece for impact investors (or should be). A recent CSRWire article helps decode the alphabet soup of tools, namely the GIIN, PULSE, and IRIS. Check it out here. Beth Busenhart, the author, is the PULSE product manager, and her experience mirrors mine. People are truly interested, but are simply baffled by the acronyms and new practices.
Here is a quote from the article, “Before exploring their differences, it’s helpful to recognize that PULSE, GIIRS and IRIS have a shared goal: To increase the flow of capital to investments that solve social and environmental problems while generating a financial return. Each solution, however, plays a unique role.”
One question I often raise is what do you mean by impact? This states it pretty well–”…investments (to enterprises of all kinds) that solve social and environmental problems…” It is about mission-driven entities. Opportunities to promote their efforts and therefore their impact, through investing in them via loans or equity, is what impact investing is all about. (For more about social finance listen to RSF’s new podcast.)
Impact investing seems simple, and an obvious win-win. Why is it so difficult?
One issue that continues to surface, especially through nonprofit consultants in marketing, is the “sell” to likely donors. (And, as we merge the worlds of donating and investing into this new impact investing world, this will matter.)There are two reasons, they tell you, that people contribute: They either gain personally or they are moved–the more tears the better. You must tug (yank) on their heartstrings. You need a good story!
I know I know. It’s true. People need stories to make situations real. But, as long as we want our hearts tugged and the feeling of a tear or two trickling out, we will never ask the meaningful questions that would transform the field of nonprofits and social enterprise alike. (And I don’t mean overhead. That debate should be over, thanks to Dan Pallotta and his book Uncharitable.) I mean “What are your impact metrics and how well do you reach them?
First, we could use some common language. Standardization is the promary objective of the Impact Reporting and Investment Standards (IRIS). This is a critical first step towards comparing impact results and entities, as well as their strategies, which in turn inform and improve practice. Next, you want to track these data across your portfolio. PULSE is a data management tool for fund managers and organizations to do just that. Read through these sites, and the article cited above, and get familiar with these resources. This is the small stone in a pool pushing out ripples far and wide.
The problem is, (if I can call it a problem), is that these tools are primarily for “the impact investing industry” not really for joe and josephine local investor or donor. I’m glad big institutional investors have these new tools to improve their impact, but they’re big guns with big targets. As we move into the realm of becoming local investors, with some of the same questions and needs, we are going to be searching for ways to validate our due diligence assumptions, get advice and feedback, and better grow the local impact investing industry.
This is where it gets exciting. This arena is wide open. There are no local investment advisors for nonaccredited investors. The JOBS act will transform and grow these opportunities and tools.
There is more to come on this topic. Join me at the SBO Forum tonight, and let’s talk.