Sunday, May 8, 2011

Congressional committee hearing on crowdfunding exemption Tue May 10

A landmark U.S. congressional hearing relating to crowdfunding and small business capital formation, takes place on Tuesday May 10th, 2011!  Entrepreneur Sherwood "Woody" Neiss testifies in front of the House Committee on Oversight and Government Reform.  Woody is advocating SEC regulatory change which would enable small businesses to solicit funding from the general public.  And besides the ear of congress, Whoopie Goldberg has got behind him.

The implications of such needed change are monumental to the entrepreneur, to small businesses and to the economy -- all of which have been held back by lack of modern methods of capital formation.  Despite the commercialized Internet being over 15 years old, the general public has nearly no access to private companies as an asset class, outside of their immediate circle.  And yet, people of wealth (i.e. "accredited investors") can be readily solicited for funding, and thus have virtually unlimited access to potential private investments.

While this momentous event takes place at a U.S. congressional hearing, its significance is absolutely global.  The U.K. already has an exemption in place, and at least one equity-based crowdfunding platform (Crowdcube) is operational in the U.K.  Given the proliferation of other forms of crowdfunding throughout the entire world, it's a matter of time before other countries come on board.  And thus there is also a strong competitive element in allowing crowdfunding for investment.  In an Internet-based information economy, it will be virtually impossible to compete without bringing private investment into the Internet fray.

Please support Woody and the entire crowdfunding and entrepreneur community.  The hearing should be webcast live.  Also, C-SPAN decides on Monday, May 9, which programs it will broadcast for Tuesday.  Update: unfortunately, they don't take inputs from the public.

1 comment:

Jonathan said...

Hi, Kevin. First and foremost, I want to thank you for the important work you have done for crowdfunding. Last Friday, I discovered who you were after coming across your speech at Stanford University on the topic of crowdfunding. That speech caused me to purchase your book, The Crowdfunding Revolution, which I have already subsequently read. lol.

Your book lays out some very exciting propositions for the future of the crowdfunding platform, but what I am most concerned with is the current regulatory environment. Obviously, we are only legally able to do what the SEC allows us to do.

I watched the full YouTube video of Chairman Schapiro testifying before the Committee on Oversight and Government Reform. In minute 40:45, Rep. Trey Gowdy (R-SC) asks, “Is the general solicitation ban constitutional and can you cite me to specific published opinions that support your position?” To this, Schapiro states, “The general solicitation ban does limit speech to some extent and it’s one of the issues we are looking at and a first amendment analysis will be part of that”. Meredith Cross, the Director of the Division of Corporate Finance, indicated that if the ban is eliminated and private offerings are allowed through publicity and advertising, the groups to whom the securities are sold via such general solicitations are not in need of the protections provided by the federal securities laws – i.e. that they are, in fact, accredited investors. To me, it sounds like such a change would have little or no impact on how private companies seek and obtain private financing, especially through crowdfunding. Do you agree with this?

Through my research, the best company to navigate the burdensome SEC regulations and capitalize on Rule 504 is ProFounder,, where one can invite unaccredited/unsophisticated investors to their raise. However, they must abide by the state-by-state investor limits (In Texas, you can only have 35 investors, while in New York you can have 40), as well as completing any filing requirements and paying any applicable fees (In Texas, the fees are $0.00, while New York they are $410.00) Yikes!

However, curiously, on June 27, 2011, they wrote a blog post entitled “Changes to our Site”, which states, “We have decided to stop offering the transaction of securities on our site for new customers as of June 24, 2011. Going forward, this means entrepreneurs using ProFounder cannot invite investors to view, pledge to, or invest in raises on the site.” This may either be due to increased regulatory heat or simply the lack of demand, considering companies can only invite those with whom they share a “substantial, pre-existing relationship” (i.e. friends, family members, etc.).

I would like to know your thoughts on the upcoming regulatory landscape. Will the SEC’s review of the general solicitation ban have a positive effect on crowdfunding? Feel free to reply to me on here or at my personal e-mail, jonathan.l.hartman [at]