Compiled by Thomas H. Greco, Jr.
There are two fundamentally different but related aspects of the “money problem” that urgently need to be addressed. One is exchange problem, the other is the finance problem. Recent history has made it clear that in both realms, existing structures and institutions are serious flawed.
The exchange problem stems from the monopolization and misallocation of credit by the banking cartel and the perverse and improper issuance of political currencies (dollars, euros, pounds, yen, etc.). Solutions to the exchange problem are intended to provide liquidity, i.e., a means of payment, wherever it is needed so that markets can continue to function, so that producers can continue to sell and consumers can continue to buy despite the shortage or abusive issuance of conventional money.
The finance problem is the shortage of investment capital to small and medium sized and locally-owned business. That shortage stems from bank investment policies and preferences and government regulations that favor the channeling of everyone’s savings into corporate and government securities. Solutions to the finance problem seek to enable savers to directly allocate their savings to enterprises and projects that enhance the resilience and sustainability of their communities, provide real security, and contribute to the common good.
Decentralization, relocalization, and disintermediation are the emerging trends leading to a new economic paradigm. “Crowdfunding” is raising investment capital from large numbers of small investors. This may be in the form of donations, loans, or equity shares.
This is needed today because,
1. People (justifiably) do not trust banks and Wall Street,
2. People are looking for better returns than can be had from banks and the stock market,
3. People are looking for ways to protect their savings from inflation,
4. People are looking for ways to assure their access to basic necessities through direct ownership of enterprises that produce them.
5. People are seeking security by making their local community economies more resilient and sustainable.
Unfortunately, there are legal obstacles that currently limit those possibilities. The Jobs Act that was passed into law in April of 2012 is intended to remove some of those obstacles, but the Securities and Exchange Commission (SEC) has yet to act on its mandate to come up with new regulations that relax those restrictions.
Among the leading organizations in the field, and one of the best sources of information about funding options, is Cutting Edge Capital. Their mission is “to develop tools that will make it easier and more affordable for businesses and nonprofits to do legally-compliant community capital raising.” Their website is http://www.cuttingedgecapital.com. /
A very useful article from their website, authored by Nathan Hyun, is titled, The Direct Public Offering – The Original Securities-Based Crowdfunding Model. Here is the concluding paragraph.
Ultimately, the new crowdfunding exemption (when it becomes legal) will provide companies with another option for accessing securities-based capital from the crowd and it could prove even more exciting for those wishing to build platforms and tools to offer issuers. In the meantime, the original crowdfunding model, the DPO, continues to provide companies with an effective way to conduct a self-underwritten and self-administered public securities offering. If you are a small or medium sized business, startup or nonprofit and are looking to immediately raise capital from the crowd through a public securities offering, a DPO is presently your only option and may be the best option even when the new crowdfunding law goes into effect.
Several informational resources related to crowdfunding are listed below.
What is Crowdfunding and JOB’s Act?
This site provides a thorough overview of the present regulatory situation. It specifically states that, “Crowdfunding, or to be more specific, ‘equity-based crowdfunding’ is not yet legal.”
Crowdfunding Predictions for 2013
2012 was quite a year for the crowdfunding industry. In April, President Obama signed the JOBS Act into law, which will open up equity-based crowdfunding for unaccredited investors. In May, the Pebble E-Paper Watch set a crowdfunding record and gained national media headlines, raising over $10 million on donation-based crowdfunding site Kickstarter. Research firm Massolution estimates the crowdfunding industry (equity + donation + lending +reward crowdfunding) will grow from $1.5 billion in 2011 to $2.8 billion in 2012.
Complete article at:
4 Signs A Company Is NOT A Good Candidate For Equity Crowdfunding
1. The company is a tech company.
2. The company will need multiple rounds of financing.
3. The company is built on Intellectual Property, not brand.
4. The company is difficult to understand.
Read the entire article here: http://www.forbes.com/sites/ryancaldbeck/2012/10/16/4-signs-a-company-is-not-a-good-candidate-for-equity-crowdfunding/
Why 84% of Kickstarter’s top projects shipped late
More About Legal Issues
U.S. Securities and Exchange Commission (SEC)
The SEC updated its home page (http://www.sec.gov/), with info re: JOBS act (http://www.sec.gov/spotlight/jobs-act.shtml)
with a specific reminder
“On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.”
Propel Arizona is on the front page of the Arizona Republic business section on February 14, 2013. They did a good job of explaining what crowdfunding is, too.
Online version: http://www.azcentral.com/business/arizonaeconomy/articles/20130213arizona-crowdfunding-propel-arizona.html
Other related articles
SEC uses JOBS Act to set up new roadblocks to crowdfunding
Read more at http://venturebeat.com/2012/08/31/sec-uses-jobs-act-to-set-up-new-roadblocks-to-crowdfunding/#xOwOvdrWaKqW3Ysi.99
‘Rich Man’s Crowd Funding’
Royalty-based investment involves getting an investment and paying it back through future sales. You don’t have to give away significant control of your company and you can raise funds from anyone who agrees to participate because royalty agreements are seen as loans and aren’t subject to state and federal securities laws as some equity financing deals are.
An example is raising $100,000 for your startup business in exchange for a 10% royalty from each sale your company makes until the investment is paid back 2.5 times. Royalty payments are usually paid monthly or quarterly so it enables investors to begin seeing returns immediately instead of waiting for a company to go public or be acquired. However, these type of deals are only good for businesses that have traceable sales.
Combining crowdfunding with royalty-based investment is a good alternative to equity-based crowdfunding because you can bypass SEC regulation because royalty purchase agreements are not securities.
I’m sure readers will want you to explain “royalty-based investment.”