Friday, April 26, 2013

Crowdfunding is In the Future of Small Business Financing


New legislation has been introduced in North Carolina which enables a new way to finance small business called investment crowdfunding. The bill is known as the North Carolina Jump-Start Our Business Start-ups (NC JOBS) Act.

Recently North Carolina’s Council for Entrepreneurial Development (CED) sponsored a seminar called “Tips and Tricks for a Successful Crowdfunding Campaign” at American Underground in Durham. The event was packed with entrepreneurs, marketers, and investors who wanted to know more about the subject, and from the enthusiasm in the room it was pretty obvious that this is an idea whose time has come. A recent report on Yahoo Finance showed that just last year, over $2.7B was raised through crowdfunding.

The speaker was Candace Klein, the CEO and Founder of SoMoLend, a crowdfunding lending platform, and Bad Girl Ventures which helps women owned startups through education and micro lending. Candace is also an attorney and noted national expert on crowdfunding.

Candace has managed dozens of successful crowdfunding campaigns and has learned lots of best practices along the way, which she was kind enough to share. Candace breaks down crowdfunding into four types: donation, rewards, debt, and equity. The first two types are very familiar because of the success of platforms like Kickstarter and Indiegogo. The debt type is represented by sites like SoMoLend. The equity investment crowdfunding type is not yet legal at the national level, because everyone is waiting on the regulations from the SEC regarding the federal JOBS Act. There are a number of platforms that are ready and able to implement equity crowdfunding, and many resources can be found on the industry site crowdsourcing.org. Unfortunately, the federal version has become very complex, has been delayed, and may be almost impossible to implement as intended. So Kansas and Georgia have already created their own investment crowdfunding exemptions for in-state business and small investors, and that process is also underway in North Carolina and other states.

Candace emphasized that any crowdfunding campaign is just that: a time limited campaign that requires planning, schedules, promotion, creativity, and most importantly, full time execution while the campaign is live on your crowdfunding platform of choice. She reviewed best practices for successful campaigns, such as targeting a specific passionate and narrow audience, raising 25% of your goal from your best supporters before the campaign launches to build momentum, and making the story about you and your team as much or more than the product or program. And have a good video! She also outlined the biggest mistakes made by unsuccessful campaigns, such as setting unrealistic expectations for fundraising and schedules, and not doing the daily marketing needed to support the crowdfunding campaign.

We see crowdfunding as the future of funding for all kinds of business startups, not just technology business, but small business of many types, including for-profit and non-profit businesses. Most small business startups need loans from friends and family, and in the old days, banks. But the banks have cut way back on lending, especially to new businesses. Angels and VCs tend to only invest in the big ideas that can be quickly scaled into large companies. Crowdfunding allows entrepreneurs of all types to easily and safely expand the number of supporters they can line up to fund their business by donation, rewards, debt, or equity, while at the same time giving them early validation on the demand for their business product or service idea. This kind of validation (what we in the startup community refer to as traction) is key to growing the business and getting more financing further down the road when and if it is needed.

It has been fascinating to watch the creative ways that people have come up with to use crowdfunding so far, and the enthusiasm with which all kinds of small investors make good faith donations and investments in people and organizations they believe in. This new funding method will also help create many new jobs in new and existing businesses as we move forward. It also allows small investors the opportunity to participate in the economic growth of their own communities, something they had not been enabled to do before.

If you need financing for a new North Carolina business, a new product, a new service, a creative project, or a non-profit, take a look at crowdfunding, and support the NC JOBS Act of 2013.

Support the North Carolina JOBS Act:
If you have any questions or comments, please email the JOBS NC Crowdfunding Team at jobsnc@nc.rr.com or contact Representative Murry’s office at murryla@ncleg.net.

Triangle Startup Factory Spreads the Word to the StartUp Community

Durham start-up accelerator Triangle StartUp Factory is helping to spread the word about the NC JOBS Act of 2013 to the start-up community around the state. See the post on their popular TriangleTechTalk blog.



Support the North Carolina JOBS Act:



Friday, April 19, 2013

A Closer Look at the North Carolina JOBS Act

The North Carolina approach to investment crowdfunding has been called “Brilliant!” by prominent national crowdfunding and legal expert William Carleton. His post about the bill is called “5 Ways a North Carolina Bill puts the Crowd back in Crowdfunding” and it is worth reading.

Why is this legislation best-in-breed? The answer lies in the approach that was taken in drafting this bill. In a nutshell, a small but focused team of local entrepreneurs and investors carefully examined the crowdfunding legislation that has been passed in Kansas and Georgia, as well as draft legislation in other states. They then created the NC JOBS Act by selecting the best features of each exemption, while avoiding the problems contained in the stalled and complex federal JOBS Act.
  
The bill is sponsored by Representatives Tom Murry, Tim D. Moffit, Phil Shepard, and Kelley E. Hastings and has been filed with the North Carolina legislature.

The NC JOBS Act has a number of provisions designed to help small businesses in North Carolina raise money while protecting investors:
  • The issuer must be a North Carolina business.
  • The investor must be a North Carolina resident.
This bill is about helping local companies grow and create jobs. Keeping things local helps create a community of investors and small businesses building the future together. (It is also a requirement of the federal securities law that this North Carolina exemption will fall under.)
  • Fundraising Cap: Within a 12-month period issuers may raise up to $1,000,000 without audited financials, or $2,000,000 with audited financials.
These days a startup can do wonders with well under $1 million, and many small businesses can be launched and achieve profitability with a fundraise of this size. Companies in this stage are unlikely to have any substantial financial history, so requiring them to obtain an external audit (which can easily cost $25,000) is an unreasonable burden for the amount of investor protection it provides. Keep in mind that companies would have to spend this money up front with no guarantee that they will complete their raise. Companies that are somewhat later stage, who need more than $1 million to step on the gas and accelerate growth are likely to have a more substantial financial history, and requiring verification of the accuracy of their financial statements is an appropriate check and balance.
  • Investor Cap: Investors may invest no more than $2000 per issuer, unless they are accredited.
Simple, and allows for the “80/20 rule” whereby a few large investments along with many smaller ones complete a crowdfunding round.

Two points to consider:

First, one of the flaws of the Federal crowdfunding exemption is that the allowed investment amount is dependent on a complex set of rules regarding investor income. In practice this means that startups or portals must ask for and collect very sensitive personal data of all potential investors. What can possibly go wrong, right? The North Carolina cap is much easier to understand and implement for both small investors and small businesses.
Secondly, it is imperative that there is a clean mechanism to allow established accredited investors to participate along with the crowd… many crowdfunded raises will be accomplished with a combination of many small investments and a few large checks.
  • Intermediaries: Issuers may use a professional crowdfunding platform, but it is not required.
While we don’t see a reason to be heavy-handed, complying with securities laws is serious business… there are consequences to making a mistake which renders an exemption null and void; and thus there are good reasons that many small businesses might opt to let someone else shoulder the burden of making sure all the t’s are crossed in any investment crowdfunding offering.
  • Reporting: Quarterly reports must be provided to all investors discussing management compensation, operating results, and financial condition.
  • Solicitation: Issuers and sellers are permitted to promote the offering publicly, after filing notice with the state securities regulatory agency.
  • Communicating Risk: Investors are required to certify in writing by the time of sale that they understand the risks of unregistered securities and may lose their entire investment.
  • Liability: Officers and directors are protected from liability except in the case of fraud or breach of fiduciary duty.
These four items all flow from the same principle: open and complete exchange of information; and then allow small investors to make their own decisions and accept the results.

Clearly companies must provide investors with a full and complete picture of the state of the business and the opportunity they are pursuing. And in exchange, as long as the company raising money provides investors with all of the relevant information, then it is in the best interest of the public for the government to allow these proposed investment transactions… and similarly it is in the interest of business creation and employment growth to protect company founders from personal liability due to honest failure of a venture.

We cannot build tomorrow without pushing the boundaries of today… but if we embark on this journey together – North Carolina investors and entrepreneurs – then we truly can take our great state to a whole new level.

If you have any questions or comments, please email the JOBS NC Crowdfunding Team at jobsnc@nc.rr.com or contact Representative Murry’s office at murryla@ncleg.net.

Support the North Carolina JOBS Act:

Wednesday, April 17, 2013

North Carolina JOBS Act Called "Brilliant" and "worthy of support"


The North Carolina approach to investment crowdfunding has been called “Brilliant!” and “worthy of support” by prominent national crowdfunding and legal expert William Carleton. His post about the bill is called “5 Ways a North Carolina Bill puts the Crowd back in Crowdfunding

Thursday, April 11, 2013

North Carolina JOBS Act Enables Investment Crowdfunding


Contact: Andrew Johnstone

NEWS RELEASE
For Immediate Release- 4/10/13

North Carolina JOBS Act of 2013 Enables Investment Crowdfunding

Morrisville, NC - Representative Tom Murry, working with local business owners and investors, has filed legislation to help local small businesses raise capital through crowdfunding.

Start-up companies and small businesses play a critical role in creating new jobs and growing the economy. Crowdfunding, or raising money through small contributions from a large number of investors, allows smaller enterprises in North Carolina to have access to the capital they need to initiate new business ventures as well as to expand operations and hire additional staff.

Crowdfunding legislation is one part of Rep. Murry’s commitment to North Carolina small businesses and entrepreneurs. “I think this idea is long overdue. Crowdfunding received bipartisan support in Congress, and I expect it will get the same here in North Carolina. I’d like to thank my co-sponsors and look forward to seeing the Governor sign this into law this session,” said Rep. Murry.

“As an angel investor, I see this as the future of funding for all kinds of business startups and new products and services, not just technology business, but small business of many types” said local Morrisville investor Mark Easley.

By facilitating investment with appropriate disclosures to protect the interests of North Carolina investors, the General Assembly can promote the formation and growth of smaller businesses, allowing North Carolina residents to invest in North Carolina companies unencumbered by excessive government regulation.

"We have the opportunity to bring this powerful method of capital formation to North Carolina now, and to do so in a way which will put North Carolina ahead of the pack" said local entrepreneur Steve Reaser.


Kansas and Georgia have already passed similar investment crowdfunding exemptions.

Representative Tom Murry is serving his second term representing parts of Cary, Apex, Morrisville, and New Hill. Rep. Murry is Chair of the House Commerce and Job Development Committee. Rep. Murry was ranked as the “most effective freshman” in 2011 by the nonpartisan North Carolina Center for Public Policy Research. Tom and his wife Tamara live in Morrisville’s Breckenridge neighborhood and have two daughters. The Murrys attend College Park Baptist Church in Cary.
###

About the NC JOBS Crowdfunding Team

The North Carolina Jump-Start Our Business Start-Ups Act is supported by legislators and citizens to enable a new way to help finance small business in North Carolina using investment crowdfunding.

Primary Sponsors of the North Carolina General Assembly House Bill:

Representative Tom Murry
Representative Tim D. Moffitt
Representative Phil Shepard
Representative Kelly E. Hastings



Representative Tom Murry

Representative Tom Murry is serving his second term representing parts of Cary, Apex, Morrisville, and New Hill.  Rep. Murry is Chair of the House Commerce and Job Development Committee.  Rep. Murry was ranked as the “most effective freshman” in 2011 by the nonpartisan North Carolina Center for Public Policy Research.  Tom and his wife Tamara live in Morrisville’s Breckenridge neighborhood and have two daughters.  The Murrys attend College Park Baptist Church in Cary.

Citizen Supporters of the NC JOBS Act:

Steve Reaser

Entrepreneur and investor, Steve has been active in crowdfunding since November 2011. Co-founder of Funding Launchpad -- an equity and rewards crowdfunding platform -- and founding member of the Crowdfunding Professionals Association (CfPA) and active member of the CrowdFunding Intermediary Regulatory Advocates (CFIRA). Prior to Funding Launchpad Steve co-founded an educational technology company, helping grow it to over one million paid users. Mechanical Engineer, Cornell.

Mark Easley

Mark Easley has been advising startups in the Research Triangle Park area of North Carolina since 2000 after a 25 year technology career in engineering, marketing, and sales in Silicon Valley. Mark has experience in the semiconductor business and related software and development tool products. In addition to his startup advisor activities, he has been on the executive board of a Raleigh/Durham area angel investor group and is a member of the Council for Entrepreneurial Development.

Nick Bhargava

Nick Bhargava is a Triangle entrepreneur and consultant. He specializes in financial innovation. His first startup, Motaavi, was heavily involved in the federal JOBS Act legislation and was an NC IDEA grant winner. Prior to that, he worked for the Financial Services Roundtable, the Securities Exchange Commission, and FINRA. He has also worked for TD Waterhouse and RBC Financial Group. His new startup is a financial services disruptor called Groundfloor.us.

Contact the JOBS NC Crowdfunding Team


Support the North Carolina JOBS Act: