Saturday, February 6, 2016

Time for the States to Step up on Crowdfunding or Become Irrelevant

Jim Verdonik has a new post on his blog discussing the implications of the recent new SEC rules on investment crowdfunding, and the importance of their proposed regulatory changes that will impact state based investment crowdfunding exemptions like the NC PACES Act. In the intro to the blog post, Jim says:

"On October 30, 2015, the Securities and Exchange Commission issued final rules for Federal Crowdfunding offerings under Section 4 (a) (6) of the 1933 Act, which will become effective in May 2016 ("Section 4(a)(6) Federal Crowdfunding Rules").
Jim Verdonik
Although the Section 4(a)(6) Federal Crowdfunding Rules were long awaited, the changes to SEC Rules 147 and 504 that the SEC proposed the same day to make it easier for more businesses to rely on Rules 147 or 504 to do State crowdfunding offerings may have a bigger positive impact on capital-raising than the Section 4(a)(6) Federal Crowdfunding Rules.
The proposed changes to Rule 147 and Rule 504 are important, because the Section 4(a)(6) Federal Crowdfunding Rules combine a low $1 million maximum offering amount with many expenses and restrictions on both issuers raising capital and platform operators.  The combination of restrictions with a low annual maximum offering amount make it likely that the Section 4(a)(6) Federal Crowdfunding Rules will not be a cost inefficient alternative for most businesses or platform operators. "
For the full post and analysis, visit Jim's blog at:

Jim Verdonik is an attorney with Ward and Smith, P.A. in Raleigh.  He can be reached at Jim's newest book is a very valuable handbook for entrepreneurs, attorneys, investors, and crowdfunding industry professionals called Crowdfunding Opportunities and Challenges.

Friday, January 29, 2016


By: Jim Verdonik

Local entrepreneurs often think it's so much easier to raise money in California.

But crowdfunding success rates raise questions about the theory that geography determines capital raising destiny. reported third quarter 2015 success rates for issuers in the five highest volume states as follows: Illinois 29.7%; Florida 27.9%; Texas 26.7%; California 26.4% and New York 22.6%.
Jim Verdonik

But success rates don't determine the volume of success.  Because California had 50% of offerings in the big five states and Illinois (with the highest success rate) had only 6% of offerings, many more California businesses obtained funding.  If the odds of success don't always predict the volume of economic activity, is willingness to try and fail a key ingredient to success?

Do you remember last month's $1.5 Billion lottery?  Looking at Crowdfunding statistics reminded me of the lottery, because they demonstrate that you can't win if you don't play the game.  Of course, choosing the game you play also has a big effect on winning and losing.

The odds of winning the lottery are about one in a trillion.  The lottery isn't a capital-raising plan, because the odds are so high and after you decide to play, you really can't affect the outcome.
Traditionally, businesses have banged on the doors of venture capital funds to raise capital.  But everyone knows that each venture fund only invests n few of the thousands of business plans it receives each year.  The venture industry as a whole publicizes how many businesses it funds, but the industry doesn't publish how many businesses tried to raise money and failed.  The venture capital success rate is better than the lottery, but not as high as entrepreneurs would like.

Crowdnetic's statistics demonstrate that the odds of raising capital through crowdfunding are a little better than 25%, which beats both the venture capital industry and the lottery.  The other thing about crowdfunding is that it's a transparent industry.  Everything is online.  It's relatively easy to find out information compared to funding from institutions.  Information is the tool you use to plan your capital-raising campaign.
Apparently, companies in the Western United States think the 25% odds are worth playing the game, because the West leads the other regions of the country in both the number of total offerings and the amount of capital raised.

That raises the question:  Why would so many western businesses play the crowdfunding game, if all they have to do to raise capital is to walk down to their local Starbucks and leave with millions from all the venture capital fund managers drinking their latte Macchiato Grandes.

Venture capitalists have long proclaimed that California has so much venture capital, because California has more entrepreneurs and California entrepreneurs know how to play the game better than in other places.  They certainly play the game more often.

That was the traditional venture capital game.  The question now is: Will the rest of the country sit idly watching California switch from venture capital leadership to crowdfunding leadership?
If they do, they'll get no sympathy from me when they complain about California entrepreneurs getting all the money.

You decide which game you want to play, but shouldn't using the Internet to be in contact with investors all over the country help entrepreneurs in states with less venture capital more than it does entrepreneurs in states with a lot of local venture capital?

This blog post was also published in Triangle Business Journal. Jim Verdonik is an attorney with Ward and Smith, P.A. in Raleigh.  He can be reached at Jim's newest book is a very valuable handbook for entrepreneurs, attorneys, investors, and crowdfunding industry professionals called Crowdfunding Opportunities and Challenges.

Friday, December 4, 2015

A New Investment Crowdfunding Post at by Joan Seifert Rose of CED

Joan Seifert Rose, the President and CEO of the Triangle based Council for Entrepreneurial Development (CED), has a very informative new post about investment crowdfunding on She provides an interesting update on the status of non-accredited retail startup investing at both the state and federal level, and gives some very good advice to entrepreneurs who are thinking about using investment crowdfunding as a way to raise funds for their startup or small business.

On the intrastate front, Joan writes:

"It’s not hype; a wave of entrepreneurship is building across the country. The 2015 Kauffman Index finds that startup activity has reversed a 5-year downward trend that began during the Great Recession, a sign that the economy and credit markets are finally stabilizing.
Where will these nascent businesses or raw ideas find capital? More and more entrepreneurs are considering online fundraising. The District of Columbia and a majority of the states now allow non-accredited investors to invest in startups located in their state, giving new businesses the opportunity to connect with thousands of potential first-time investors interested in getting an ownership stake in a promising company. Most of the remaining other states are considering similar legislation."

Joan's post provides more good reasons why North Carolina should pass its own intrastate crowdfunding exemption next session. You can read the full post here at

Monday, October 19, 2015

NC Secretary of State Elaine Marshall Calls for Passage of the NC PACES Act Crowdfunding Bill in Next Session

North Carolina Secretary of State Elaine Marshall was the keynote speaker at the investment crowdfunding symposium held at Campbell Law School in Raleigh last Friday. Among her many duties, she is responsible for implementation and enforcement of all investment securities laws in the state through the Securities Division of the Department of State. A large and enthusiastic crowd of securities attorneys, entrepreneurs, and law school students listened as the Secretary gave a very interesting review of the NC PACES/JOBS Act investment crowdfunding bill, explained its many benefits, and discussed why it would be a very good exemption which would allow a new safe and fair method of funding for small businesses and startup businesses in our state. She went into detail on how the legislation provides a good balance between ease and cost of implementation for small businesses, while providing the appropriate investor safeguards. She made a strong case as to why we should give it another try in the 2016 session. As she stated in her opening remarks:

Secretary Elaine F. Marshall

"Thank You! Before I begin, let me just add my own welcome to all of you for attending this important symposium at my beloved Alma Mater!
As a Campbell Law alumna from “a few years ago” I enjoy seeing what a wonderful addition to the North Carolina legal landscape this School has become!
Ok! Now I have to confess something! When I made my plea many, many weeks ago to speak here today, I assumed I would be talking to you about North Carolina’s exciting, brand-new crowdfunding law!
So, imagine my surprise when the recent very long General Assembly session ended without crowdfunding legislation being passed into law!
Oops! False start, it has been like a track event where the runners are on the blocks, they are all set, the starters gun goes off, but in a split second the gun goes off again – a false start. We feel like that runner who must start over.
This means we need it to happen next legislative session.
Why? Because we do not have an investment-based, or equity, crowdfunding law in North Carolina right now.
We have donation-based crowd sourcing—which is the Kickstarter type thing where friends and supporters can donate small amounts to get a limited project funded.
Plus, because of federal law, certain North Carolina “accredited investors” can invest through crowdfunding.
Where does that leave everyone else?
Well, we could just do a “wait and see” to find out if there will be new laws coming out at the federal level that cover more people.
But that is not really a plan so much as it is a hope.
No, I think we need to look at trying for a state bill again next legislative session.
I believe it is doable. A lot of people have been working for several years now, including many North Carolina General Assembly members, to bring crowdfunding into law here.
We just need one more try in 2016 I think."

We would like to thank Secretary Marshall and her team for their continued support. You can read the complete text of her keynote address on the Secretary of State website at

Thursday, October 8, 2015

North Carolina General Assembly Adjourns Without Considering the Crowdfunding Bill

Unfortunately, the NC JOBS/PACES Act investment crowdfunding exemption bill (S481) has once again failed to make it through the NC General Assembly. They adjourned without taking up the bill for discussion, and it languished in the Senate Finance Committee all year. This despite the fact the bill had the support of the Governor, the Lieutenant Governor, the NC Commerce Secretary, the NC Secretary of State and the Securities Division, and the startup and small business communities all over the state that would have benefited from this new form of financing.

As of May this year, 19 other states have already passed a similar exemption, and an additional 20 other states have one in process. States like Texas, Indiana, and others shown on the map are already successfully helping small businesses get started and grow using both debt and equity crowdfunding based on these exemptions. So this represents a huge missed opportunity for North Carolina to join the 21st century and wake up to what is happening in the financial industry. There was no opposition to the bill, and it didn't cost taxpayers a penny. The exemption was a grass roots effort to help solve the lack of financing that has tortured the small business community ever since the 2008 banking collapse. While investment crowdfunding will be working well in many other states, the small business and startup communities here will continue to suffer.

As one supporter said on hearing the news, "I think we need a new motto: first in flight, but last in crowdfunding!" Sad but true.

Monday, July 20, 2015

NC Crowdfunding Bill on Track for Passage this Session

A story in the Charlotte Observer confirms that the intrastate crowdfunding bill is on track for passage this session. NC House Speaker Tim Moore told the Observer he expects the state legislature to pass an investment crowdfunding bill by the end of September.

“We believe crowdfunding is a viable way to raise capital for businesses in North Carolina, and I think by the end of this session you will see some legislation that does it,” Moore said.

State Commerce Secretary John Skvarla said the need for such law is urgent.

“Let’s all get on our knees and pray that it happens,” he told the Observer. “We need crowdfunding ... the longer we wait, the more opportunities we are going to potentially miss.”

The primary sponsor of the NC PACES Act (Senate Bill S481), Senator Tamara Berringer, is also confident the bill is on track. The bill was filed in March and has been in the Committee on Finance since April. That should be its last stop before being voted on the Senate floor and heading out to the House, where it will go through another cycle of vetting and voting, said Senator Tamara Barringer, R-Wake, one of the bill’s primary sponsors.

“I don’t have any anxiety ... It’s going through the usual legislative process,” Barringer said.

Reporting by Athena Cao of the Charlotte Observer. Read the full article here.

Friday, June 12, 2015

Crowdfunding to Surpass VC Funding by 2016

According to this article in Forbes, the amount of money raised by crowdfunding is expected to surpass the amounts invested by the VC industry by 2016. Crowdfunding is expected to raise $34B this year while the VCs are expected to invest $30B.

The NC PACES Act investment crowdfunding exemption takes advantage of this trend by enabling any North Carolina resident to invest in a North Carolina business via equity or debt instruments, provided that the reporting, disclosure, registration, and limits described in the exemption are followed. This will provide a significant new source of small business and startup funding all across the state, at no cost to the tax payers. Across the nation, 21 states have already followed our original strategy and implemented an intrastate crowdfunding exemption. Another 18 including North Carolina are in the process of passing the exemption.

It is time for the North Carolina General Assembly to act on S481, the NC PACES Act.

Monday, May 11, 2015

Intrastate Crowdfunding Exemptions on the Rise Across the Nation

Anthony Zeoli, who is leading the effort to get an intrastate investment crowdfunding exemption passed in Illinois, provides us with the latest information on intrastate crowdfunding exemptions.

The first post shows the current status of the intrastate exemption process across the nation. As of May 8th, 19 states have an exemption in place, and 21 states (including North Carolina) are in progress on enacting one. Of note is that Florida has recently enacted an exemption after their Governor initially rejected one last year. So most of the states in the southeast region now have an exemption in place.

Another post by Anthony shows comparisons of the various state exemptions.

And this one has links to all the various state exemptions.

Graphic courtesy of Anthony Zeoli

Another  excellent post is a very good infographic showing where intrastate crowdfunding fits on the financing ladder used by startups as they grow. Intrastate crowdfunding is a very good and cost effective match for seed stage and early stage companies.

Graphic Courtesy of Anthony Zeoli

The NC PACES Act will also be a big help with debt financing for small businesses all across the state. We are on the right track with S481, and as the Governor and Steve Case both reminded us last week during the Rise of the Rest Tour, it is time to get this enacted.

You can help by clicking on the links below and sending an email to your state representative and state senator asking them to support S481, the NC PACES Act Investment Crowdfunding Exemption.

Thanks for your support.

Thursday, May 7, 2015

2015 - The Year of Investment Crowdfunding

Joan Siefert Rose, President of the Council for Entrepreneurial Development (CED) in Durham, reports from the Angel Capital Association Summit meeting in San Diego on the growing importance of investment crowdfunding as a funding source for startups and small businesses nationwide.
Joan Siefert Rose

"I’m just back from the Angel Capital Association (ACA) Summit in San Diego, where much of the talk among the 600-plus attendees was about how crowdfunding is changing the relationship between entrepreneurs and traditional equity investors. The general consensus is that crowdfunding options will continue to expand at a rapid rate, especially as changing federal regulations open up the playing field to new investors.

Whether this is a good thing depends on whom you ask—many see crowdfunding as an essential way to democratize participation of funding early-stage companies and accelerate the pace of startups; others worry that new investors are unsophisticated and not prepared to lose money in high-risk ventures. But everyone agrees that equity crowdfunding is here to stay, and it’s up to entrepreneurs and angels to educate themselves. 
That’s where CED comes in, as we are committed to engaging with and helping to educate the growing pool of investors who are able to support the entrepreneurial economy."
Joan's post includes some interesting updates on the growth of the crowdfunding industry.
"In fact, of all the types of online platforms that allow individuals to direct dollars to private companies, equity crowdfunding is—for now—a relatively small, but growing player. Numbers are hard to come by, but the ACA estimates that roughly $7 billion in transactions took place on North American crowdfunding platforms in 2014. Equity crowdfunding, in which investors get an ownership stake in the company, accounted for about $300 million of that total. By contrast, platforms that allow individuals to lend directly to each other, like LendingClub and Prosper, are currently the heavyweight champions, with $5 billion worth of activity. Donation- and rewards-based sites like Kickstarter and Indiegogo, also brought in more dollars for startups than equity platforms."

You can read Joan's full report here on ExitEvent.

Wednesday, April 15, 2015

Governor McCrory on Crowdfunding: "We've got to get this done!"

Governor Pat McCrory again expressed his strong support of the pending investment crowdfunding bill at the Innovation Forum in Durham yesterday. “I’ve got good news for you today,” he told investors at the roundtable event. “I understand that today there’s a discussion about a crowdfunding bill that will also help bring capital for the new entrepreneur or an old entrepreneur – I don’t care what age they are – a new person who needs startup money.”
Governor Pat McCrory

“We’ve got to get this done!”

The Governor says that this will help us create the financing needed to attract more entrepreneurs to start businesses here, rather than the North East or West Coast.

The Governor was referring to Senate Bill S481, the NC PACES Act, which was passed unanimously by the Senate Judiciary Committee yesterday. It now moves on to the Finance Committee. This bill is supported by Commerce Secretary Skvarla and the startup community. It enables a new way to finance startups and small businesses using debt or equity known as investment crowdfunding.

Read more about the Governor's comments at Triangle Business Journal here:

The North Carolina model allows startups and small business to raise capital as debt or equity, but with a couple of new ideas allowed by the exemption. Some key features of the exemption:

  • The exemption allows accredited or non-accredited North Carolina resident investors to invest in equity or debt offerings from a North Carolina company provided the disclosure, reporting, registration, and limits described in the exemption are followed.
  • A North Carolina company is allowed to promote the offering to North Carolina residents via the web or any other method provided the disclosure, reporting, registration, and limits described in the exemption are followed.
  • A North Carolina company may raise up to $1M with non-reviewed financials, or up the $2M with reviewed or audited financials.
  • Accredited North Carolina investors may invest any amount up to the offering limit, and non-accredited North Carolina investors may invest up to $5,000 annually per issuing company.

This is a financial investment model that is well understood by the start-up investment and small business services community. The NC PACES Act is also compatible with crowdfunding initiatives at the Federal level and with those being implemented in other states. Please see the FAQs for additional information about the bill. You can also see the text of the bill and follow the progress of S481.

Please contact your State Senator and express your support for S481, the NC PACES Act investment crowdfunding exemption.