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 presentations from our forum speakers are now up on the October Forum Page. Our event last Tues, Oct. 25, was held at the PNCA Collaborative Design Studio on growing community capital–both kinds–literally. Raising money is a clear need for social enterprise, especially when targeted at a deep systemic level. We believe, as Muhammad Yunus always says, “There is plenty of money” we just need to figure out how to free it up for making a difference.
LOCAL INVESTING: A Grassroots Stimulus Program
Join us for an evening of experts, information, and investment strategy combined with edibles, beverages, and connecting with peers as we explore how to take charge of growing our local economy in ways that strengthen our pocketbook and our neighborhoods. Springboard’s October Social Innovation Forum builds on recent presentations at SoCap2011 and ReVV2011 about how to transform our communities through innovative enterprise and finance.
Jenny Kassan of Cutting Edge Capital is a national leader in helping community organizations raise money in non-traditional ways. It’s not charity, and it’s not Venture Capital (in the traditional sense). Direct Public Offerings are legal tools to work at the state level and raise money from neighbors and the public–the non-accredited investors–like you and me. (Certainly me!)
John Katovich is a long-time (“recovering”, he says) veteran of Wall Street. He will help explain why the stock market and our mental model of investing is flawed in important ways. He expresses financial information in a way we can understand, and act on.
Leslie Christian, CFA. Chief Investment Officer, Chief Executive Officer of Portfolio 21 is a leader in finance innovation. Her ideas on portfolio theory and strategic investing are exactly what we need to hear and understand. She will set the stage for us on why new ways of raising capital and making money are timely, and possible.
SHARING OWNERSHIP—The DIRECT PUBLIC OFFERING
The Direct Public Offering is a rarely used legal strategy for empowering community investors—people like you and me—to invest in local enterprises that are both local and beneficial. You’ll learn whether your enterprise should consider doing a DPO, or how you might invest in one. We’ll explain how it works, its legal structure, how much money it can raise, and from whom, and how long it might take.
This is a session designed for two groups of people. If you are someone who wants to raise capital for an organization, join us. If you are someone who wants to put some of your investment dollars into growing the local community, come learn how.
You will leave with ideas for how money can be used to grow community benefit. This includes creating employment, enterprise, and innovation.
Where: PNCA Collaborative Design Studio, 1330 NW Kearney
When: Oct 25th 5:30 to 9:00pm
How much: Register with Lin at lin[at]hatchthefuture[dot]org for $10 at the door, or drop in for $15.
For more information and the agenda, see Springboard’s Forum Page.
So far so good. Weather is fabulous (for San Francisco) and we’ve stopped by to meet with Jenny Kassan and John Katovich, the greats behind Kassan and Katovich Law and Cutting Edge Capital. John and Jenny will be here in Portland on October 25th to share insights on the related subjects of market madness and market mindfulness, and how to grow community capital. They will help us launch our own Direct Public Offering! Stay tuned.
Community finance certainly takes teamwork! Our planned DPO is proceeding well, but each step merits a conversation. Such worthy thinking! We talked for almost two hours, from the seemingly small details of whether to add in the ‘free mugs’ we plan to include in the DPO to the SCOR form, to how to ask a community worried about it’s shrinking finances to invest in a community innovation lab!
We talked about language, and how to understand the audiences in an offering designed to reach people who don’t usually invest (or think of themselves as “Investors”). While we can reference the general insanity of the “real” market (where professionals manage things) and point out the clearly more sensible approach to putting one’s money into one’s community, it is still new to most.
When you have to explain words like “accredited” and nonaccredited” you know you’re in new territory. Jenny says we’re ready for an explosion of community financed projects and tools that support them. We’re ready!
And people ask if I like my job…